KPMG New Zealand on shaping foreign investments and markets

Agri Investor asks KPMG New Zealand’s global head of agribusiness Ian Proudfoot where New Zealand’s agribusiness future is headed, highlighting what the opportunities and issues will be for international investors. The company has been publishing its annual agendas for the future of New Zealand’s agribusiness for the last six years. This year a second volume of the agenda has been published looking at how New Zealand’s emerging agribusiness leaders see their future.

Your agribusiness agendas have usually looked to New Zealand’s future in ten years’ time. Now you are looking at how agribusiness there will develop by 2035, and have brought New Zealand’s emerging agribusiness leaders into the conversation. Why?

This was a bit disruptive to what we’ve normally done. We did our normal agenda in June and we spoke to a lot of CEOs and industry leaders, but one of the things we keep being told is that the industry is not attracting enough young people.

We wanted to talk to some of those young people in the industry to get their perspective on where it is going and the strong view is that there is not a strong vision for New Zealand’s agriculture and where it needs to be in 20 years’ time.

If you look at Ireland, or even the UK, they have a strategy around their sector’s primary assets, Australia has just introduced one. We strongly believe that NZ needs a vision so we thought who better to ask to start a conversation around the vision than the people than the people who are or will be the chief executives leading companies in 20 years’ time.

How did your emerging leaders feel about foreign investment in New Zealand’s agriculture?

As in many places round the world, this is a really political issue. We felt from the young leaders that they realised how important is was but that equally, they were asking: How can we have it in a way that New Zealand doesn’t lose control of an asset entirely?

The foreign investor brings the wider benefits of their relationships and their capital to agribusinesses. I think that what they were looking for is to have foreign investments where we own a smaller percentage of a much larger business as oppose to not owning the business at all.

The business models they were looking at – like when dairy firm Synlait Milk was acquired by Bright Food [in 2010 for $NZ82m], and the deal being worked through with Silver Fern Farms and China’s Bright Foods – were about collaborative investments. General wisdom around the deal is that Silver Fern farms were struggling to meet the requirements of their bank, so there was a chance the business would not continue. Having 49 percent of something large as oppose to 100 percent of something that potentially is failing is perceived to be a better long-term investment strategy for New Zealand.

Clearly China can’t be ignored when it comes to foreign investment and consumer markets. Where do you think the younger generation of agriculture leaders stand on this?

I think the companies that invest in China and Chinese consumers now have looked beyond China as a single market and have recognised that actually China is a very complex web of individual markets. The scale of those markets is so significant that from New Zealand’s perspective, we can’t supply everything they need, so we need to be incredibly focused on the markets that have the best opportunity to realise value. It is interesting to look now at how companies are doing that – they are getting far more aware that it is a city-by-city strategy, as oppose to a China strategy. That way they are slowly but surely building out.

At the moment we are seeing Zespri, the kiwi fruit exporter, doing this. They have the gold kiwi called SunGold which is slowly but surely recovering from the biosecurity issues that we had about 5 years ago. They are rebuilding the market and when they are looking at China they are being very structured about how to take that product to market.

The investment is going into building the demand before the product becomes more widely available while ensuring that they are not commoditising it by and retaining it as a high-value premium product.
There is also a lot of work being done into how we can build a sheep milk industry here that is a high value industry, as oppose to the bulk of the sheep milk industry in Europe where the milk gets put into cheese and becomes a reasonable commodity-type product.

Could this work for Asia given a higher prevalence of intolerance to cow’s milk?

Exactly. We need to work out what that product looks like and build the market for it before we bring it [out].

What about competing with Australia to secure the Asian market and its demand for protein?

Australia, during their mining boom, moved on from agriculture and didn’t really look at the value of their cultural assets, but we can see that in the last 12 months that the Australian government is back focused on agriculture as a key area of its economy. It’s dropping the investment threshold from A$250 million to A$15 million for land. This tells us that in New Zealand we have to make sure that we are not just selling our assets randomly but strategically.

The demand for food is going to grow between 70 and 90 percent over the next forty years yet the ability to produce food in New Zealand or Australia isn’t going to grow nearly that significantly. I think there is a real opportunity for organisations to partner across the Tasman and develop markets together. We could even potentially bringing an Australasia or Oceania brand, which has mysticism and excitement.