Adopting the open-minded Antipodean approach

OPINION:The Food Harvest 2020 mantra is "smart, green growth", but what would an innovation-driven sector look like? As far as Ireland's dairy sector is concerned, we could look to New Zealand for some insights.

Like Ireland, New Zealand has an export-driven dairy business whose competitive advantage is the ability to produce milk cost-effectively off grass. With milk quotas set to be abolished in Europe in the next few years, our interest in what our New Zealand counterparts are doing has intensified as we look to expand Irish milk production by 50 per cent.

For nearly 30 years, Irish farmers have looked on in envy as New Zealand expanded milk production in a quota-free scenario. If the Irish dairy sector had continued to grow at its pre-quota rate over this period, it would now be processing about 19 billion litres of milk – about the current New Zealand level of production.

What can we learn from New Zealand?

At a macro level, it’s refreshing to see such a strong level of support for its natural resource industries (mainly dairy and tourism) from the highest levels of government. There is a palpable sense that these sectors are the bedrock of national prosperity. It is only comparatively recently that a similar appreciation is apparent in Ireland.

New Zealand is staking its recovery from the current recession on export-led primary-based production.

Given our recent economic woes, Ireland too is looking to its primary agricultural sector, with its strong export earnings and significant contribution to jobs. Innovation and greater adoption of technologies at farm level and in the processing sector, as with New Zealand, will be critical to realising this outcome.

About 22 per cent of all R&D performed in New Zealand supports agriculture, forestry and fishing. As director of Teagasc, the organisation charged with leading agricultural research in Ireland, I think this is a particularly important message for the Irish Government.

In policy statements, the New Zealand government has reiterated its commitment to maintaining the largest share of its science investment in land- and food-based science.

Investment in knowledge, intellectual assets and new technologies, as well as the adaptation of existing business practices and technologies, has always been the key to value creation in the New Zealand agricultural sector.

Early on, it recognised the vital importance of building and retaining its own scientific capability in order to underpin its comparative advantage in grass-based agriculture.

It has managed to invest in the order of 1.5 per cent per annum of agricultural GDP in agricultural research over a long period, resulting in a high level of innovation in the sector, the creation of new markets and ongoing efficiency gains.

Maintaining an environmentally sustainable system of production is high on the agenda of all food producers, particularly in countries that have to survive in competitive export markets.

In 2010, New Zealand invested in a Domestic Centre for Agricultural Greenhouse Gas Research and in the Global Research Alliance, while will further boost research expenditure on agricultural greenhouse gas emissions.

But it’s not only in technology that New Zealand is innovative. Its organisation of dairy-processing is streets ahead of other countries, including Ireland.

Fonterra is one of the largest processors of milk in the world and dairy farmers everyone track its milk price on a constant basis. It was a tremendous leap of faith by New Zealand dairy farmers to appreciate the potential benefit to them of amalgamating their co-ops under a single processor.

The gains in terms of the exploitation of scale economies alone have been huge. New Zealand now has some of the largest-scale milk dryers in the world, which provide the sector with a significant advantage in a range of milk commodity exports.

The scale of Fonterra also confers significant benefits in terms of R&D and marketing investments.

Everyone remarks on the differences in farm size between Irish and New Zealand farms. However, the difference that I noticed most related to mindset. Dairy farming is seen first and foremost as a business. New Zealand farmers will frequently talk about their return on equity. This metric is rarely, if ever, mentioned in Ireland.

New Zealand farmers see themselves working so as to retire completely from farming on a good pension. Farmers in their 50s will frequently sell a fraction of their equity to family members or others and take a more relaxed role on the farm.

This means that generally productive land is held by people that want to maximise the returns from its use. This open-minded approach to land ownership means that people without any land can find ways to become large-scale dairy farmers. “Share” milking, whereby people without land can work on a dairy farm and earn a share of the profits, is an innovative way of enabling landless educated young people with drive and motivation to enter the industry.

In many cases, landless people can also obtain an equity stake in dairy farms. These mechanisms ensure that land is managed by those who are motivated to use it optimally.

I don’t think we’ll ever see farm size increasing to New Zealand levels but I do believe that we will see a change in land tenure arrangements and that new business models will also emerge, perhaps along New Zealand lines.

I also think in time we will see further rationalisation of milk processing as we inevitably engage in competitive with New Zealand and other countries for new customers on global dairy-product markets.

Prof Gerry Boyle is director of Teagasc, the Agriculture and Food Development Authority