NR2022

A fracturing social licence to farm.
Recruitment.
An authentic provenance story.

These are our sector’s most entrenched challenges.

At their roots, they are about culture, values and perception.

They are homegrown, non-market problems confronting a sector that has optimised to win in the global marketplace. We can’t rely on our traditional strengths to produce, R&D or market our way out of them.

There is a tacit acceptance that the way forward is to shift from designing for volume and market value, to systems that also include social and environmental values.

To support that transition, this report imagines what a values-led food & farming system in Aotearoa New Zealand might look like. It’s built around an analogy, what if food & farming was more like healthcare and education – a public good. The analogy helps us to compare systems designed to sell to consumers, with those designed to more fully meet the needs of people. It helps us to see the challenges in values-led systems (like complexity, stakeholder collaboration and empathetic design) and their benefits (like trust, engagement and local prosperity).

In addition to the public good analogy, this report looks to examples in Kaupapa Māori, proposes a ‘cheat sheet’ for values-led innovation and explores five forms of values-led food & farming operating at the
edges of the sector.

It concludes with something concrete. A strategy for values-led redesign of the domestic market focussed on scaling local food & farming economies.
It’s a strategy to realise the untapped value in our domestic food system – our home paddock. It calls for enabling some farmers to look inwards and participate directly in their town’s local food economy.

It’s about designing around our values and practices that Kiwis increasingly want to engage with – like connecting to nature, learning & healing on farms or farming-based sustainability solutions. It proposes a
framework for action on food insecurity and health, two fundamental barriers to developing the ‘food & farming culture’ we need to rebuild social licence, recruit Kiwis and tell a provenance story to the world.
At its core, this is a strategy for building meaningful, everyday touchpoints with urban New Zealanders.

Because values matter across every kitchen table, community hall and boardroom – this report concludes by covering the potential roles of each sector player in a values-led domestic system.

We’re a trading nation, and we’re good at it. But we need to front-up to the fact that under the current export-dominated model, Kiwis feel increasingly disconnected from food & farming.

To meet these entrenched social challenges, we need to have the courage to do things differently – to lean into our values and redesign our home paddock, for local food & farming economies to thrive.

Here’s how.

This paper initially set out to determine whether it was possible to better monetise sustainability with the New Zealand Deer Industry. In addition to this, I wanted to understand why NZ deer farmers seemed to achieve such poor returns in comparison to both the end value of their products, and the level of risk they accepted in producing them. And lastly, I wanted to know whether our conventional industry supply chains were going to be fit for purpose in a rapidly changing world.

To achieve this, I undertook a review of existing literature, spoke to industry leaders, academics, public servants, and business owners. Most of these were connected to the primary sector, however perspectives and experience from outside the sector were also sought for insight and comparative purposes.

In doing so I found the following:

• NZ deer farmers, similar to the wider drystock sector, are not profitable in the context of other industries and what are considered average Returns on Capital Employed (ROCE) within NZ. On average, NZ deer farmers achieve approximately 3.4% return on their capital. In comparison, the NZ share market has achieved an average return of 6.5% since 1900. Additionally, our true capital gains are virtually zero once inflation is considered.
  
  
• There are a number of macro level risks and trends in existence that are affecting the NZ deer industry now or will do so in the future. It is also likely that we are underestimating them. The risks posed by factors such a climate change, environmental degradation, geopolitical risk, and the rapid emergence of alternative proteins are significant. Each of these has the ability to significantly disrupt our industry, one that is plagued by poor returns and an increasingly unsympathetic public. Our current approach to these trends is largely one of defense and maintaining the course. This must be replaced by a strategy of active risk management and opportunity realisation.
  
  
• Our current industry supply chains do indeed place the majority of the risk onto the farmer, noting our conventional position as sellers of raw undifferentiated commodity products into global markets. This ongoing situation forces the industry to accept all production risks and the prevailing market price, while allowing multiple other members of the supply chain to add their margin. This results in farmers receiving as little as 3% of the end value of their velvet. As the range and severity of the risk’s deer farmers face increase, it is clear that we can no longer afford the status quo.
  
  
• Environmental outcomes and profit are not mutually exclusive. There are currently working examples within NZ of primary sector organisations and businesses that are achieving above average returns and positive environmental outcomes. An example of this is Lake Hawea Station that is achieving a 40% premium over the current industry average for its fine wool on the basis of its carbon zero certification.  
  
  
• Whilst environmental attributes can be successfully monetized, it is unlikely to be done successfully through our conventional supply value chains. These systems are set up to supply undifferentiated commodities onto the open market and are therefore unlikely to achieve and/or maintain a premium for those attributes, particularly when other agriculture countries are doing the same. Additionally, not all of our end customers place the same value on environmental attributes. To fully leverage positive environmental attributes, it is necessary to fundamentally change the way we take our products to market. It is also recognised that developing new business models can carry a significant degree of risk and requires a range of competencies outside of those required to run a traditional farming business.

To achieve this, it is recommended that the NZ Deer Farmers Association (DFA) establish a programme of work in coordination with Deer Industry NZ (DINZ) and Central Government, with the purpose of transitioning the industry away from the sale of its products as raw/undifferentiated commodities via conventional supply chains, and towards the establishment of short value chains that are effective in matching value creation with economic return. It is proposed that the programme contain the following key objectives:

(a) Identify and support the establishment of business models and/or industry structures that have the potential to achieve the intent of the project. This work would be initially informed by those models utilised by Spring Sheep, NZ Merino and Zespri.

(b) Identify and promote the utilization of technology and web-based platforms that allow for the identification of consumers and the sale of finished products directly to them.

(c) Identify what environmental attributes can be leveraged by these business models for commercial advantage, noting that the delivery and communication of on-farm environmental outcomes will also be beneficial to the deer industries social licence.  The key focus of this objective is turning environmental compliance into economic opportunity.

It is further proposed that financial support for this project by sought from Government, based on its alignment with current political priorities, including addressing climate change through the reduction of on-farm emissions.

It is well understood by the author that many of findings contained within this report are not new, and that attempting to both capture and create more value from NZ’s agriculture products has long been an area of focus. However, our environment today is different from yesterday. We now have the knowledge, the examples, and the tools necessary to take our products to market more profitably and achieve better environmental outcomes. We as farmers, should no longer let existing structures, interests and thinking continue to dictate what we are paid and how much risk we accept in turn.

With a climate crisis, increasingly diversified  agri-businesses, interest in regenerative agriculture  and increasing membership of catchment  groups, coupled with generational change  and economic reform, now is the right time for  structural change to New Zealand Agriculture.  In the same way that farmers are being asked  to consider systemic changes to their farms,  businesses and landscapes, the leaders of Team  Agriculture should be brave enough to review  the structures which underpin the ‘industry good’  system and make the difficult but necessary  changes to improve.

The Fit for a Better World vision states that we in  the primary industries are committed to meeting  the greatest challenge humanity faces: rapidly  moving to a low carbon emissions society,  restoring the health of our water, reversing the  decline in biodiversity and at the same time,  feeding our people.

In the coming years, additional capital will  be cycled through agriculture, either via an  amended Emissions Trading Scheme (ETS) or a  farmer-led He Waka Eke Noa pricing scheme,  to reduce GHG emissions so our products can  be both the best in the world and the best for  the world.

This is a big job. We need high performance. We  could continue to operate as we are, celebrating  improved collaboration and striving to tell our  story better without addressing the inherently  fragmented system in which we operate. But  if systems determine culture, and culture is a  pre-requisite for high performance, then we  require intervention at a systems level to enable  our industry to transition from good to great and  achieve our vision.

The Commodity Levies Act and the organisations  it enables are served by robust governance  and democratic process. Structurally, free  riding is removed, and discretion provided as to  investment area. For pastoral levy bodies (DairyNZ  and Beef + Lamb New Zealand), advocacy and  lobbying have become increasingly important in  response to social licence to operate challenges  and environmental regulatory reform.  However internationally, membership  organisations perform the advocacy function.  It is my view, based on interviews, that the  mixing of lobbying/advocacy with knowledge  exchange and research & development, creates  confusion for farmers and stakeholders (including  shareholders, but also government, R&D  community etc.) as to the role or purpose of the  levy bodies and membership organisations.  As this confusion permeates, the work in the  public good space can become tainted as  organisations crave attribution for their activity in  a fragmented system.

An alternative must be underpinned by strong  principles and systems that support Aotearoa’s  whenua/land managers to create the best food,  fibre and ecosystem services on earth. The current  industry good arrangement provides farmers with  significant representation, but a system change may  need to sacrifice some farmer representation for the  sake of improved operational efficiency.

This report proposes that a new organisation,  ‘Ahuwhenua New Zealand’ be created. This peak  body would be structurally similar to both the New  Zealand Council of Trade Unions and the Agricultural  and Horticultural Development Board in the UK.  Ahuwhenua NZ would see several functions  consolidated into a single organisation. The current  levy bodies would remain, but their scope limited to  industry-specific insight and foresight. Levies would  continue to be directed to public good activities.  Membership organisations such as Federated  Farmers, removed of forced riding, would focus  on advocating and lobbying strongly for their  farming membership.

As a peak body, Ahuwhenua NZ would be a  future-focused centralised organisation tasked  with leading activities for which the outcomes  are agnostic of commodity production type (i.e.,  improved water quality, research and development,  stronger rural communities). With a focus better  connected to the land rather than production type,  whenua/land managers will be empowered to use  their resources in a manner that is best for our land,  families, communities, and planet.