Enhancing Value for New Zealand Farmers by Improving the Value Chain

This report was commissioned by Lincoln University, Christchurch as Research Report No. 324

This report explores the opportunities for New Zealand farmers to increase their returns through higher value added for their products. The paper explores the international context in which New Zealand trades its agricultural products.

Historically, market access has been a major issue for New Zealand agricultural exports. This is still an issue, but there has been a relaxing to trade restrictions allowing greater access to some markets as well as growing opportunities in the emerging markets.The change in agricultural policy which has led to the reduction in market distortion, especially in the EU, but also in Australia and the US, has given opportunities for New Zealand exports. However, there has been a switch of emphasis of this support towards support for social and environmental outcomes. These changes, alongside the growth in market assurance schemes from retailers and other market gatekeepers, have increased the requirement for products to meet various social, environmental, and welfare criteria.

There is a range of market assurance schemes with different retailers vying for market share by stressing different attributes. The growth in these schemes can be illustrated by the growth in GLOBAL G.A.P. which has voluntary international standards for certification for agricultural products. It was established by European retailers as a basis certification scheme around social, animal welfare, environmental and labour issues. This now covers 100 countries with over 100,000 producers certified. The growth in these schemes reflect the growing demand for consumers in high value premium market segments for environmental, social, welfare and labour attributes of food.

There are three potential options to improve the value added of agricultural products:

• better positioning of existing exports in overseas markets,
• value added processing, and
• niche production and marketing.

The paper discusses these options and also the challenges New Zealand agricultural producers may face implementing them.

The first of these, better positioning of existing products, builds on the changing market requirements and increasing demand for credence attributes, and investigates how these changes can be levered to enhance value add. Some agricultural sectors in New Zealand have been more successful than others at levering value from existing products, creating premium products, and translating these benefits into increased payments for farmers. Zespri, the monopoly seller of New Zealand kiwifruit, and Icebreaker, a woollen clothing producer, provide potential models for other industries looking to achieve enhanced returns for their products.

The second way by which New Zealand can obtain greater value added from its agricultural produce is through value added processing. There are many exemplars of this. There are, however, challenges that New Zealand companies face in taking this route. The fact that the domestic market is small means companies have to export earlier in their lifecycle than is typical overseas. The distance from market can make market positioning more difficult, as well as other more generic issues such as access to capital. Solutions vary, but good collaboration can help, as well as joint ventures.

Finally, niche marketing is also a way of leveraging value added. This tends to suit small scale operations but can be an important way that a few armers can lever value added by targeting niches within the domestic market such as restaurants and/or farmers markets. This does have greater opportunity though with web based selling and the growing potential for export niches.

The changing international environment for New Zealand farmers does bring challenges but also opportunities. New Zealand famers have the potential to enhance the value of their production by ensuring its attributes are recognised in the market place, and the maximum value obtained for these. This requires attention to the attributes that markets are willing to pay for and ensuring that this value is captured and transmitted down the value chain.