- Government focus on regional economies, where the primary sector operates
- Environment and climate change are key challenges and opportunities for NZ
- Change is required to business models and measurement of success
New Zealand’s primary sector industry has been one of the stars for national productivity. The past 9 years have seen consistent GDP growth, and the government is forecasting primary sector exports to grow by 9 percent this year to $41 billion. However, BERL Chief Economist Ganesh Nana asks, can we continue to rely on this in the future?
There’s much talk about the country being on the brink of transformation. With the ushering in of the self-styled “government of change” what needs to change in the primary sector in order to benefit the lives of New Zealanders?
What changes does the government promise?
1. Trade agenda
The government’s commitment to the free trade agenda through the signing of the revised version of the Trans-Pacific Partnership (TPP) will allow the primary sector to benefit from lowering tariffs, says Nana.
2. Focus on regional economies
Announced provincial growth signals a stronger focus from the government on regional economies. Nana predicts a large investment in regional infrastructure. The commitment to planting trees, for example, has a direct impact on the forestry sector, with possible development beyond in other parts of the primary sector.
Rural communities are the backbone of New Zealand’s primary sector and, Nana says, there’s a challenge for regions to maintain the infrastructure of an ageing, static population, as well as the softer infrastructure of “social capital “– the networks maintaining the rural communities.
3. Environmental agenda
Labour signed up to zero carbon emissions goal by 2050 and Nana says this will have both positive and negative implications for the primary sector. He warns that “the elephant in the room undoubtedly will be water, and how far the government will push this in terms of restoring water quality around the region.”
The potential negatives of climate change, such as floods and drought that could affect the sector aren’t new challenges. Nana comments that New Zealand farmers have dealt with these challenges over the last century. He sees climate change as an opportunity to “reinforce the need to underpin our infrastructure, and change our business models and farming methods.”
His view is that those who see change as positive will prosper, but for those unwilling to change it will limit their ability to produce things. It’s clear that “the business as usual model is not viable, not sustainable and doesn’t have a future.”
What needs to change?
Nana believes a change to how success is measured is essential for the evolution of the primary sector. “We need to change our mindset because indicators of success have to go beyond” traditional definitions of productivity and profitability. He also poses the question of who benefits from success, and encourages consideration of the environmental and social impacts of productivity.
“Success is no longer just measuring how many acres in a piece of land or how many litres we can milk from a cow.”
He questions whether New Zealand’s business models are fit for purpose in the modern world and encourages a sector-wide change to business models to avoid a short-sighted focus on productivity.
Nana says economics is all about ”the people and their futures, and we have a responsibility to make good decisions on behalf of future generations.”
Māori will be key players in the development of the New Zealand primary sector. Whether as part of the future workforce, as land owners, as drivers of export connections, as well as resource managers and guardians (kaitiaki), Māori will be increasingly significant in regional NZ and its primary sector.”
Diversification– changing the end of the value chain
New Zealand has spent the last 100 years trying to diversify away from farming, and continues to do so. While we have succeeded in diversifying “from wool and mutton to milk powder”, as Ganesh says, he believes while acknowledging NZ’s strong agricultural base, there is a need to challenge and improve the other end of the value chain – how and what is produced, marketed and sold.
As other countries begin to create competition for New Zealand with food production through synthetic means, without the need for land and primary input, Nana says there is a challenge in deciding whether New Zealand continues down the primary route or continues to explore a niche.
Nana believes there are other opportunities around New Zealand’s intellectual property, such as bio farming and pharmaceuticals, and he encourages New Zealanders to explore these possibilities further.
“There’ll be a big effort in terms of combining science with our primary sector, in how we manage our resources, land and water. These hold opportunities for productivity growth.”
How accountants can add value to the primary sector
The need for rural accountants to have a deep understanding of their primary sector clients’ needs is critical. Accountants play an important role in being proactive, advising and facilitating change, to deliver greater productivity and profitability. Nana comments that,
“We need to change business models to progress in the future as an economy, and accountants are front and centre of changing business models. Those who succeed will be willing to pick up the challenge, change the measures of success, and monitor progress.”
Primary Sector Conference 2018
Tailor-made for rural accounting practitioners working with primary sector businesses. Hear Ganesh Nana and other experts deliver insights into the New Zealand industry’s science of success.Read more