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Food Processing Shown as Manufacturing Powerhouse

Food Processing Shown To Be The Powerhouse Of NZ’s Manufacturing Sector

Wellington, February 5, 2004 -- The food and beverage manufacturing industry is New Zealand’s largest and most competitive manufacturing sector, a new study has found.

The New Zealand Trade and Enterprise (NZTE) commissioned study, which evaluates the economic importance of New Zealand’s food processing sector, shows that exports have doubled since 1990 to $14.2 billion in 2002, and food processing now represents half the total value of merchandise exports from New Zealand.

The sector also accounts for 5% of Gross Domestic Product (GDP), 31% of manufacturing GDP and 26% of manufacturing employment, with 63,000 full time jobs.

The study shows the food and beverage sector is performing well, but New Zealand supplies just 2.4% of the world trade in processed foods, says NZTE Sector Director for Food and Beverage, Peter Bull. The largest country has a market share of just less than 10%.

“There is still big potential to exploit,” he says. “While this sector is making a huge contribution to the New Zealand economy, it can do more and is crucial to lifting our future rate of economic growth. The reality is that in terms of international competitiveness, we are somewhere in the middle.”

While New Zealand company operations and strategy are somewhat sophisticated, more business practices that focus on a strategy of high value-added will upgrade competitiveness, he says.

The study shows increased research and development (R & D) into innovative products and greater downstream processing to produce more high-value products is essential to maximise the opportunities the food and beverage sector offers.

Carried out by Nimmo-Bell & Co and Infometrics for NZTE, the study notes that private sector spending on R & D is relatively low compared with other key developed countries, but that biotechnology provides a strong base for greater investment in higher industry R & D.

Biotechnology has been identified as one of the sectors offering growth potential for New Zealand by the Government, and the Biotechnology Taskforce has calculated that a 3% improvement in the productivity of New Zealand’s primary sector through the application of modern biotechnology would yield $500 million per year in both GDP and export earnings. This figure alone would represent 25% of the current annual growth in New Zealand’s GDP.

“The food and beverage sector is the outstanding contributor to New Zealand’s net exports,” says one of the study’s authors, Bruce Koller from Nimmo-Bell. “This is due in part to the close links between food and beverage manufacturing and agriculture. The competitiveness of New Zealand’s agricultural sector is a major factor helping to secure productivity and profitability in the food processing sector. Farmers and growers are the producers of the raw materials and further innovation will flow from the move up the value chain through functional foods and nutraceuticals.”

Health enhancement is one of the major worldwide trends driving consumer demand in the food and beverage area, as well as convenience and variety.

The report notes that in the area of productivity, New Zealand compares favourably with leading OECD food and beverage exporting countries. Using US dollars, adjusted for purchasing power parity, New Zealand’s labour productivity compares favourably with Australia, the UK and the Netherlands, but lags behind the US.

It also notes a need for more skilled labour, particularly food technologists, to support sector growth over the next decade, and says improved access to overseas markets will have significant pay-offs for businesses in the food and beverage sector. Consolidation of the global supply chain through investments or international marketing will also be beneficial, the report notes.

The report’s authors also identify the need for rivalry in the domestic market to stimulate innovation and competitiveness, balanced with the need for scale.

“New Zealand has some world-scale businesses in the food and beverage sector, particularly in the dairy, meat and horticulture industries,” says co-author, Andrew Gawith from Infometrics. “But, given the size of our economy, world scale businesses often mean few players in that industry. That can lead to a lack of domestic rivalry, which has consequences for innovation within New Zealand. However that does need to be balanced against the fact that New Zealand companies need size and scale to compete internationally.”

As with other sectors, the study points to the need for New Zealand to differentiate itself in global markets as a niche market player. A niche market, in a global scale, is worth US$1 billion. NZTE’s Peter Bull says New Zealand’s natural advantages offer opportunities to supply products in niche markets around the world, such as the healthy food segment, and to use international brand marketing to ‘sell’ New Zealand as the ‘best’ rather than trying to be the ‘biggest’.

The report again demonstrates that the food and beverage and agriculture sectors are hugely important for New Zealand’s economic future, and is the second study in a series commissioned to help shape NZTE’s strategy for working with the sector in the future, he says.

“NZTE will continue to advocate for this sector at all levels. In addition to offering significant opportunities to increase foreign exchange earnings, food and beverage businesses are also an essential component in fuelling regional economic development in New Zealand,” Mr Bull says.

The report, titled Economic Evaluation of the Food Processing Sector, can be viewed and/or downloaded on the NZTE website at http://www.nzte.govt.nz/foodandbeverage

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