Radical is the new normal
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Transcript of Radical is the new normal
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Radical is the new normal
Rod Oram’s presentation to theIrrigation New Zealand Conference
Napier, April 8th, 2014
Securing the future
Kiwiki on Facebook / Twitter @RodOramNZ
[email protected] / +64 21 444 839
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Agenda
• New Zealand• Dairy
• Paradox• Revolution
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The world• …is doing OK, broadly speaking
• Some economic traumas…...and big changes…still to come
• But most economies are showing more stability and momentum• Europe first signs of recovery• Australia slogging• US strengthening• Asia succeeding
• …enough for us to earn a living
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Our growth• …is gaining momentum
• Largely driven by Christchurch, whole milk powder, housing market, consumption• Export volumes growing only slowly…as is business investment
• Reserve Bank forecasts• Growth in year to March: 3.0% in 2014 3.5% in 2015 2.4% in 2016 2.3% in 2017
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Our economy is constrained• The economy is constrained by e.g.
• Skills and capital shortages• Weak business investment• Limited government investment
• As a result “potential GDP” (the rate at which the economy can grow without causing inflation)is low
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Government Strategy Mk III• “Business Growth
Agenda”• 6 ingredients of
business growth
• All driven by incremental change• Doing a bit more,
a bit better
• Some big goals• E.g. lift exports
from 30% of GDP to 40%
• Failure guaranteedif the game is more of the same
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NZ’s exports remain far too small a contributor to the economy….…and have stagnated at 30% of GDP…government goal of 40% by 2025
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Our exports• 2013, in value terms
• Exports to China: +45%• Exports to world: + 4.4%
• Dairy exports: +17%• All exports: + 4.4%
• Volume of dairy exports grows slowly
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Agenda
• New Zealand• Dairy
• Paradox• Revolution
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Opportunity• Growing world demand for dairy products• NZ response
• At home…more cows, more intensity – national herd doubled in 20 years• Overseas…some milk buying, & investment in farming
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Rabobank…on NZ competitiveness• t
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Holding our own
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Our impressive rise in volume• But some
overseas producers growing fast
• E.g. Ireland:
• 50% more milk by 2020• +5bn litres
• 100% by 2025• +10bn litres
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Our impressive rise in costs
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Diagnosis - Value Creation• World Economic Forum – Global Competitiveness Report
• Competitive advantage measured on a scale of:• 1 = low cost of natural resources to 7 = unique products & processes
New Zealand scores 3.8Ranks 36th
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Diagnosis - Value Capture• Value chain measured on a scale of:• 1 = role in chain mainly confined to one step, eg resource extraction• …to 7 = involved all the way down the chain, capturing extra value
New Zealand scores 3.8Ranks 58th
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Value – creation and capture• $25.3bn – Shipped value of our food & beverage exports (fob)
• $140bn - $200bn – Consumer value of food & beverage products primarily of NZ origin; source – Coriolis Research
• 1 Fonterra plant in NZ makes infant formula for Pfizer
• 8% Pfizer’s Chinese market share for infant formula
• US$12bn Nestlé paid for Pfizer’s infant formula brands
• = 3 x Fonterra’s net asset value
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NZ investment in value add…in NZ• Fonterra’s UHT plant at Waitoa
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Chinese investment in value add…in NZ• Mengniu’s infant formula plant at Pokeno
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Is US$3,500 still the long-run price?
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Agenda
• New Zealand• Dairy
• Paradox• Revolution
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Paradox
Abundance Scarcity
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Poverty
Cows Scientists
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Poverty
Tourists Engagement
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Poverty
Sustainability
Weak Strong
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Re-invention
Scarcity Abundance
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Wealth
Lacto-pharmaceuticals Milk powder
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Wealth
Travellers Tourists
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Wealth
Sustainability
Strong Weak
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Agenda
• New Zealand• Dairy
• Paradox• Revolution
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Comvita – a 10-year transformation
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Comvita’s value chain• Building it by…
• Floating on NZX to raise funds• Buying back distribution• Investing in retail• Investing in science• Investing upstream in bees
• Virtuous cycle…• …each step generated new cash flow to
take the next
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Comvita: High science, high value• 250gm of honey
• Clover honey…………………………….. 1
• Comvita wound care……………………. 25x
• Comvita wound dressing………………. 55x
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2010 EBITDA 2010 total environment cost as a % of EBITDA Source: Trucost 2012, KPMG
22
153
84 100
223
89 97
26
134
670
482
0
100
200
300
400
Airlines Automobiles Beverages Chemicals Electricity Food Producers
Industrial Metals
Marine Transportation
Mining Oil & Gas Producers
Telecom & Internet
US
$ in
bill
ions
800
700
600
500
52%22% 42% 43%
87% 224%
71%
59%
64%23%
2.5%
Full environmental cost of food production US$199bn
Opportunity:
• Reducing farming's environmental impacts will:• Improve nutrient and resource efficiency• Increase value, resilience and sustainability
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NZ Agricultural Greenhouse Gas Research Centre• Global Research Alliance on Agricultural Greenhouse Gases• Proposed by NZ government at Copenhagen in 2009…to:
• Reduce emissions; increase food production• Help developing countries to join global climate change frameworks
• Alliance now has 36 countries + 3 observers including the EU• = 70% of global agricultural GHGs; agriculture = 15% of total GHGs
• Three main workgroups:• Livestock, led by NZ and Netherlands, 483 projects identified to-date• Croplands, led by US, 429 projects to-date• Paddy Rice, led by Japan, 60 projects to-date• Secretariat: NZ
• NZ Agricultural Greenhouse Gas Research Centre: $48.5m over 10 years• Four main workstreams: Mitigate methane; mitigate nitrous oxide;
increase soil carbon; deliver farming solutions
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Our opportunity• 1 litre of milk = 940 gm of CO2 equivalent
20,000,000,000 litres = 18,800,000,000 kg of CO2 eq
• 18.8m tonnes of CO2 eq per year is not a waste product, a liability
Closing the nutrient cycle…is a brilliant business opportunity…
healthier cows and soil…= more food
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Ruataniwha - a major initiative• Challenging…and on some issues pioneering
• Scale• Nutrient control• User price structure• Infrastructure proposition• Ownership structure• Government funding
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Ruataniwha - a personal view, pre-draft decision• Storing water ✔ But climate change accelerating
• Environmental flows ✔ But flushing is a fix not a cure
• Farming upside ✔ But perpetuates commodities
• Nutrient management ? Controversial, unproven approach
• Ecological integrity ? Offsets aren’t integrity
• Economic viability ? Water price, contract are a big ask
• Corporate structure X Ownership complexity, conflicts
• Government funding X Debt; must be long-term equity
• Economic development X Doesn’t lift region up value chain
• Public trust X Case not yet compelling
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a• a
How about creatingthe NZ-China Global Centre for Dairy Nutrigenomics
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“You’ll have no future…
…if you don’t make onefor yourself”
…Johnny Rotten: