By Mark Hiddleston*
Auckland's growth story is compelling.
The region containing New Zealand's largest city is already home to one in three Kiwis and its population is expected to swell by 40 per cent to around two million by 2030.
The city is the major engine driving growth for the New Zealand economy, accounting for 35 per cent of national GDP.
The region’s economy is growing at over 3 per cent per annum, creating opportunities across a range of sectors.
Auckland’s rapidly changing ethnic face means it is increasingly diverse and outward looking, particularly towards the growth markets of Asia-Pacific.
The city is also considered one of the best places in the world to do business but - and it's a crucial but - that business activity is not yet producing world-class productivity.
GDP per capita, while higher than other New Zealand regions, is low compared with many other global cities ranked by the OECD.
With New Zealand’s economic growth now among the strongest in the developed world, the question many are asking is can we convert this to greater productivity and wealth for the long term?
A key part of the solution, for both Auckland and New Zealand, lies in adding value to exports and lifting a focus on premium products.
There is a massive opportunity for the region if it can meet soaring demand from wealthy consumers in growing export markets.
As Asian markets expand and modernise, vast numbers of people are migrating to cities. The population in urban areas in China alone has soared to 700 million, outnumbering rural dwellers for the first time. Another 200 million will join them in the next 20 years.
City life means greater spending power for citizens, which many direct towards more upmarket and sophisticated products. When it comes to dining, they want food and drinks that are safe, high-quality and convenient. Many are turning to a diet richer in protein and vitamins, including seafood, meat and dairy, along with fresh fruit and vegetables.
It’s not hard to see the close match with the food and beverages New Zealand produces. Global demand for these is soaring. But NZ is not the only country to see the opportunity.
To make the most of its potential NZ must focus closely on the consumer. People at every stage of the value chain, including producers, processors and marketers, need to understand the preferences of our new customers and where and how they get their food.
NZ’s exporters stand to gain most if they target the wealthiest 10 to 20 per cent of urban households – where people not only consume more of New Zealand’s major exports, but will pay a premium for the privilege.
For example, the wealthiest Chinese households spend five times more on dairy and seafood and twice as much on meat than those on the lowest incomes. They will pay more per unit for quality, such as better cuts of meat, more premium varieties of seafood, branded, packaged or processed food, or upmarket beverages.
The people and businesses of Auckland will be centre stage in delivering on this opportunity for New Zealand. And the city stands to gain a great deal from the benefits. Auckland’s opportunity to drive this export-led growth stems from its strengths, not only as New Zealand’s largest city and business centre, but its gateway to the world.
Our infrastructure and role as a transport and logistics hub give the city a unique status as a crossroads between New Zealand’s primary producers and sources of ingredients and the dining rooms, restaurants and supermarkets of the world.
Auckland's sea and land ports handle nearly two-thirds of New Zealand’s imports, by value, and a third of all exports. Its airport handles three-quarters of international arrivals and 85 per cent of airfreight.
Auckland is in a prime position to draw on world-class food and beverage ingredients from across New Zealand, including dairy, meat, grains, seafood, fruit and vegetables – along with their associated reputation for world-class quality, safety and clean green production.
All of this means Auckland is the logical place to add value to our exports before they leave NZ shores. The region’s growing food and beverage sector can then add value - processing, packaging, marketing and exporting products to consumers around the world.
If New Zealand is Asia’s farm, Auckland is its pantry. The region’s food and beverage sector has critical mass, with a 40,000-strong workforce offering a wide pool of skills, experience and expertise.
Two-thirds of New Zealand’s top 50 food and beverage companies have their head office in Auckland, including household brands such as Fonterra, Sanfords, Sealord, Tasti Foods and Hubbards, and the industry contributes around $NZ3 billion a year to the local economy.
As the largest bank in New Zealand, and the one with the largest presence across Asia, ANZ can draw on its experience and networks to help connect local businesses to these opportunities in Asian markets. We regularly take companies to Asia to identify business leads and potential partners and network with other firms
The challenge for Auckland is to follow the lead of those companies already successful in the region and renew its focus on producing premium exports for high-end consumers in growing markets.
Only then can Auckland’s place as New Zealand’s growth engine be secure, underpinning long-term prosperity for businesses andcommunities in the city and beyond.
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Mark Hiddleston is ANZ's General Manager, Commercial & Agri, for Auckland and Northland. This piece first appeared in ANZ's Bluenotes.
17 Comments
NZ is a relatively expensive place to add value. Wouldn't producers be better off adding value in Asia where there are lower wages and less compliance costs? Auckland is a long way from Southland, I'm pretty sure I could get a container from Dunedin to Asia cheaper than I could get it to Auckland.
I don't see any answers here. China is a big country but not as big as Indo-China.
Maybe we could win with intellectual property but as those slkills are valued higher offshore thats hard to imagine.
This comes from one of the banks that has profited from the debt bubble and is still happy to push the property bubble,to keep lending and to keep repatriating profits, way past the point of 'no return'. NZ's biggest problem is its debt levels.
http://www.globalresearch.ca/its-the-interest-stupid-why-bankers-rule-t…
Yes we think its a rubbish business plan for Auckland, more over for what it suggests for the rest of us - aside from confirming its windy in Wellington.
Lets hope the ANZ are not lending against such.
Q: how does a trip up to Auckland help the provenence of food products?
Could we suggest a plan that sees Auckland dramatically reduce the costs of doing business (low infrastructure, power, port, DevApps and building costs), and further capture light manufacturing/processing businesses from Australia and really focus on Australia via CER as a home market- think Hong Kong 1967.
Accepting the problems and strife Fonterra has with the 2 Australian supermarkets that one seemed not to accept Fonterra branded products for sale unless Fonterra makes homebrand/spec. competing SKUs.
mind you we saw this in the Auckland Herald
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=11380999
so its all good...
Henry, I always remind myself that China is a country with %1 of the worlds oil reserves and yet consumes %10, and %20 of the energy consumed on the planet.
Try to get hold of a copy of Richard D Kaplans book, Asia's Cauldron.
http://www.amazon.com/Asias-Cauldron-South-Stable-Pacific/dp/0812984803…
According to the authors' analysis, the high productive power of cheap energy and the low productive power of expensive labor has implications that we can easily observe. On one hand, the average citizens of highly industrialized countries enjoy a material wealth that is unprecedented in history. On the other hand, cheap, powerful energy-capital combinations are increasingly replacing expensive, weak labor in the course of increasing automation. This combination kills jobs for the less skilled part of the labor force. It is also why far fewer people work in agriculture and manufacturing today than in the past, and more people work in the service sector—although even here, computers and software are replacing labor or causing job outsourcing to low-wage countries. This well-known trend can be understood by the new model's message that energy is cheaper and more powerful than labor.
http://m.phys.org/news/2014-12-thermodynamic-analysis-reveals-large-ove…Some telling snips,
"Energy, along with the addition of a smaller "human creativity" factor, accounts for all of the growth that neoclassical models attribute to technological progress."
Sums up my argument v say Phil Best for the last 6? years in one sentence.
"argue that the missing ingredient represented by the Solow residual consists primarily of energy."
Agree.
What happens though when that energy is no longer cheap? and even scarce?
Energy is like water out of the tap, ignored as precious, expected to be there in first class condition, yet wasted in copious amounts. This almost mutually exclusive aspect of automation to peak oil is one that's going to unfold in the future. There was a farmer in the UK who tried really hard to reduce his dependancy on fossil fuels, the best he could do was get down to 75%. What then happens to food production if only say 50% of the fossil fuel need to run a farm is available? or priced so high that the farmer cant seel to consumers?
Conventional farming uses fossil fuels, hydroponics often uses electricity and capital....and water...and oh wait fossil fuel based fertilizers.....darn.
The next Q is the marketeers created consumerism to absorb the un-employed producing goods of very limited lifespans in order to keep the churn going. What happens to this model?
So,
"the new model's message that energy is cheaper and more powerful than labor."
like, duh....anyway that was the past.
Happy New Year, everyone!
Australia's experience has been an unprecedented 20-year coal/ore boom with proceeds having been "invested" in an obscene housing bubble and Mercedes transporters for Australia Post.
No viable industries have been created from the China bonanza. The car industry has shut down instead. It is all too easy digging stuff up and selling it to China and maybe India next, and all too difficult to get up from the lazy bum and create new, really new business models.
New Zealand will do as Australia did because it is too convenient to leave the hard work to others and because there is no leadership in this country that would encourage people to exel.
Japan was probably the ideal market to test NZ's ability to add value. From my understanding and experience, the only real sector to capitalize on this has been wine. Dairy most definitely hasn't becuase you can only do so if you have control of or partnerships with local distribution. Japanese companies control that and NZ business has little influence to forge the right relationships.
So let's assume that Japan is toast in the mid to long term and China is the ideal target. How much understanding do our companies really have of the Chinese consumer (tastes, motivations, occasions, etc)? This is the obvious departure point but you don't see the challenges and barriers talked about in the media. You only seem vague estimations of the size of the pie.
Why Auckland? Costs? Proximity to market? Human resources? The most successful foreign brand of cheese in Vietnam manufactures in....Vietnam. Any foreign made cheeses are subject to tariffs and have to compete in a crowded market to less than 5% of the market (in terms of household income). Sure, that might represent 4.5 million people, but with a developing consumer class, there are many things to purchase besides cheese. You'd be better off targeting the opportunities, such as infant formula, which are more attractive to the emerging middle class and either dominating the market or securing a niche.
Ironically, ANZ is the brand that has secured a niche posiiton among high income Vietnamese.
Dairy was good ... but Fonterra targets the commodity markets to move its large volume, an old holdover from it's Hawera days. Pre-Fonterra many of the smaller coops were very successful competing in the niche quality brands, winning consistant placings and frequent gold in international competitions. But they didn't have the Hawera volume. The government loves to push the small guy under, so some of the ever increasingly expensive and restrictive (but no quality add) rules meant that much of the smaller coops were going to need to rebuild their factories to comply. The larger processors just relied on cheap bulk product, so they were constantly re-spenting on new concrete and steel anyway...and on a constant search for more supply (production, not profit being their target).
That was why they were buying up their neighbouring coops.
It was why farmers thought spending money to buy out other NZ farm coops was pointless on the world stage. That forward thinking brought the commodity players another 15years.
Re: Japan. Sadly Fonterra's finished product is very poor compared with the specialist coops and still seems caught in the mindset of "if we can stick 4 product lines of crap finished product on the shelves then everyone will like it" after all, doing advertsiing and half-heart giveaways and shotgunning social media is the same as brand development isn't it....
Who cares if half our flavours don't move, and the other half aren't in the store most of the time. It averages out doesn't it? ( 100 units placed, 50 sold = 50% product level right?)
Dairy still is good....if you're shifting milk powder. Fonterra has good tie-ups in Japan with the diary product manufacturers, but when it comes to finished product, I'm not sure. However, I doubt that Fonterra's brands are doing as well as Bel International's, who manufacture locally, not in France. In terms of branding, if you don't have the local talent who can leverage the right distribution relationships, I doubt you can succeed. From a personal experience, pricing is also important. For example, Anchor UHT sells at a 30% premium compared to Dutch Lady in the bulkier packaging. I think that there is a clear reason why DL has a dominant market share.
and an example of local examples:
http://www.lottefoods.co.kr/eng/lottefood/info.asp
and always thinking of something new
http://en.wikipedia.org/wiki/Milkis
http://mykoreanloves.blogspot.com.au/2012/03/milkis-carbonated-milk-and-yoghurt.html
Yes, so your links actually show Korean companies lining up for the Japanese market, probably with greater share of mind than any NZ brands. It shows what we're up against for the mass market. but any rhetoric out of NZ is usually about niche markets in the premium space.
Mark.
Auckland you say is economic growth of "over 3%"
but it's property investment cost/return is over 10%.
Why would the most expensive place in the country with the worst real return (3 - 10 = (-7)% just as a rough rule of thumb) be the obvious place to "add value".
Especially when the supporting structure of the rest of the country, where labour and property are much cheaper, are crying out for support. Over Christmas period I was shocked at how much empty business buildings were in Palmerston North, with some business that havee operating over 40years gone from the Main street, and many of the Malls reduced to a couple of food shops and hairdressers ! Even the larger stores have increased aisle width !
So what knd of value add were you thinking of? promotions and BS? polish and spin? Well then you might be right, after all that's what Auckland and big salary people are about, yes? Government would love that.
Or perhaps your thinking is endemic of those large businesses; that if we put _more_ process in head office then the easier and more successful they'll be, and the more process cost we can slap on the end product (since adding customer real value is expensive, but "add value" (ie pushing up consumer prices without any postive benefit to the actual customer is much better return - open source, free giveaways with advertisements, is a terrrific way to buy product dominance in the market...and the hidden cost to buyers looks just like "value add" profits..... doesn't make anyone money but it looks good on the books right ! The sales team racks up more GP, and the free product chases away the customers, and everyone has to buy in a loyalty scheme because its "free" ... )
But like many big businesses all the thinking is done at Corporate. Which is frequently held in Auckland... which is why auckland ...despite materially failing ... is surviving on the influx of such paper wealth
Auckland who...
Their [our] China-driven boom is coming to an end as quickly as Australia's. And they [we] have less to fall back on when it does.
Read more: http://www.smh.com.au/business/tears-ahead-for-chinadriven-milk-boom-in-new-zealand-20150104-12hiwq.html#ixzz3NqBwBQ9FTrouble is, China has been busily investing and encouraging others to invest in increased and globally diversified milking. Just as iron ore miners have ramped up production both from existing provinces and new projects from Africa to Mongolia, New Zealand's farmers are facing increased competition from South America to Russia and all points in between, including Australia.
This time last year I was in Uruguay, ....... Chinese investment in Uruguay is obvious and remarked on by the locals: Chinese cars on the roads, new buildings sporting Chinese brands. And Uruguay is just one small corner of the global market China has been developing as a source of commodities and consumers. It's been doing that developing both as a matter of Beijing policy and individual entrepreneur's search for opportunities.
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