Risky business
OPINION: In the same way that even a stopped clock is right twice a day, economists sometimes get it right.
He believes the best and strongest brand in the primary sector is Zespri.
Proudfoot says some people hold up Fonterra brands such as Anchor and Anlene as ‘blockbuster’ brands, but he says they are only known in a handful of markets at best.
“New Zealand is not recognised globally as the home of dairy products in same way as France and the Netherlands.”
In fact, Proudfoot claims NZ has few, high-profile, internationally recognised brands.
“The All Blacks are a strong brand internationally, so is Air New Zealand, but I doubt we have many primary sector brands, apart from Zespri, that are globally recognised. Villa Maria may be heading in that direction.”
Proudfoot says a big issue for NZ is the removal of quota regimes on EU dairy farmers, which came off at the beginning of April. He believes this to be a highly disruptive event for the global premium food markets New Zealand supplies.
Proudfoot reckons NZ has had a laissez faire approach to this issue and has had its ‘head in the sand’ over the potential of the European dairy industry.
“I have heard many comments about limited expectations of production growth and the majority of any increase being consumed within the European domestic market,” he told Rural News.
“While these views may prove correct over time, they will only describe the average outcomes for the European industry. We miss opportunities and overlook risks by allowing our focus to be on the average outcome. We need to recognise that our production in New Zealand is not average: we produce a tiny percentage of the total food produced globally and our product is sold mostly to premium, high value markets.”
Proudfoot says the Europeans have spent a lot of money on market capability and increasing production capacity. The term ‘average’ is naïve, he says. NZ doesn’t play in an average market; instead it works in specific parts of the market.
“We are only a relatively small player in the total global picture. Therefore the niches we play in are the same niches the increases in production out of Europe are going to be sent to. We could end up finding ourselves challenged in our key markets far faster than we believed would happen.”
Proudfoot also believes a huge market will be unlocked in Asia, with India likely to be a big mover. He also notes the Europeans are ahead of NZ in gaining new, lucrative markets in places such as Africa. He says more niches will open up, but there will be strong competition from Europe.
“There are probably four countries most likely to realise potential quickly – Ireland, Denmark, Netherlands and France. Ireland has an unusually small farm structure and an unusually long tenure of farms and the one thing they won’t do is sell out to their neighbours because that is seen as admission of defeat. So consolidation of farms will take time and to get up to New Zealand’s level of productivity, but it is inconceivable that this could be done.
“The Dutch and Danish have much more intensive farming systems, so for them to increase production is just a [matter] of how much feed they put into the animals. Therefore it’s quite easy for them to scale up quite quickly.”
