Summary

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Summary

• Brent Borrell
• Centre for International Economics3 March 2009

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Aims of strategic plan

• Increase profit and income in the industry by
• identifying challenges and opportunities facing
  the industry and key drivers of profitability
• devising a set of collective strategic actions to
  address these challenges and opportunities, and
• focusing efforts on the high payoff areas

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The components of FutureFocus

• Stage 1
• Macro-environmental scan
• Industry outlook
• Model/drivers

• Stage 2
• Profit potential
• Business case
• Industry strategic/action plan

• Stage 3
• Implementation
• Objectives of sub-programs
• Funding options and timing

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Today

• The profit potential
• drivers (Hi_link model)
• potential
• The need to transform how innovation is done
• whats changing and what weve got
• what needs to change
• Elements of the strategic plan

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Profit potential what is possible

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Hi_Link Model

• Domestic demand(Sales)

Imports
Price Determination(Market interactions)

• Domestic Production(Supply and cost of
  production)

Exports
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Hi_Link Model

• Domestic demand

Imports
Price Determination

• Domestic Production

Exports
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Commodity list of Hi_Link model
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Features of the model

• Key physical economic variables
• Production/export/land use
• Consumption/imports
• GVP, prices, costs, profits, mark-ups
• Full value chain (42 horticultural products 6
  processing wholesaling/retailing)

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Other features of the model

• Best data available (X-checked)
• Competition for use of resources
• Substitution in consumption (detailed demand)
• Identifies profit drivers
• Most detailed model ever
• Answers what if questions (e.g. change in
  technology, changes in quality)
• Capacity to analyse payoffs from innovation

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Profit potential the business-as-usual
scenario
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Profit potential sources of potential profit
growth
1.8
1.6
1.7
Total 2.45 billion profit
1.4
1.2
1.0
Value of growth by 2020 (b profit)
0.8
0.6
0.4
0.45
0.2
0.2
0.1
0.0
Growth in exports
Growth in domestic
Growth in domestic
Increased productivity
demand retail
demand food
services
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World market growth is strong

• Agric prod/n 1, hort prod/n 2.7
• Agric trade 4.2, hort trade 5.7
• Hort trade increases by Aust prod/n each year
• S.Hem exports increased 3b to 10b, 15 yrs
• NZ exports grew 9 a year
• Dom market growth 1 Melbourne by 2020
• World mkt growth 600 Melbournes (2020)

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Exports potentially offer big payoffs model
results

• Increase export demand
• divert from domestic
• increase production
• increase export and domestic prices
• Increase domestic demand
• divert from export
• increase production
• soften domestic price increase

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Australian has been domestic market focused

• Export intensity less than 10 per cent
• Other S.hem exporters gt 50 per cent
• Reduced incentive for productivity increases
• Australias production/yield growth has been slow
  due to domestic market focus
• No fundamental reason why Australia cant do
  better
• many climatic regions
• good history in biological/agricultural science

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Annual growth rates excluding grapes ? fruit yield
Fruit yield
6
5
4
..
3
Per cent
2
1
0
NZ
US
Chile
South Africa
Brazil
Australia
-1
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2.45 billion potential is based on catch-up,
keep-up and leap-frog

• Export intensity to 30 per cent by 2020
• Replicate NZ growth, but still behind
• Productivity increase of 15 per cent
• Domestic market growth 10 -15 per cent
• Production increase about 40 per cent
• Average price increase of 8 per cent

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Potential dividends frombetter innovation
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Can the 2.45 billion be achieved?

• Requires transforming innovation approach
• Novel products
• Quality/consistency
• Commercial platforms
• More commercial/demand focus
• More synergies through collaboration
• Others have done it
• Given plantings Australia will have to
• Cant afford not to

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Can innovation/quality pay dividends?

• Australia is high-cost labour country
• cant compete solely on costs
• must be innovative
• Demand for premium products is rising
• price premiums 30 to 500
• quality, convenience, novelty, variety, health,
  clean/green, brands (100s new products/yr)
• Need differentiation/identity to meet specs
• Taste, texture, shape, health attributes,
  shelf-life etc can be enhanced

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Examples

• ZESPRI Gold
• 20 million on development
• 50 million on market development
• 2009, expected sales 1 billion
• price about 2X green kiwifruit
• Now 20 million on kiwifruit gene mapping
• expect to manipulate colour, shape, flavour
• Repreat ZESPRI more quickly, more cheaply
• IP strongly controlled through commercial
  platforms

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Other examples

• Australia starting to move this way
• Mango genomic initiative
• Vital Vegetables with NZ
• Building scale in nuts, olives, avocados, citrus,
  mangoes, some vegetables
• Can spread costs with big world market
• NZ Superfruits
• Chile grapes

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Transforming innovation

• Innovation game is changing
• New tech/business platforms
• Large collaborative projects
• Exclusive IP
• Focused on huge global mkt to cover fixed costs
• Science is changing
• Information processing
• Convergence and global
• Expensive facilities

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Current constraints

• 900 small projects lt 100k
• NZ big projects
• Implications
• Limited ability to invest in LT, big initiatives
• Less attractive to researchers
• Limited connections/synergies
• No fundamental reason why cant overcome

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Whats at stake ? whats needed

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Whats needed

• Demand for and supply of innovative solutions
• Demand programs
• Set commercial priorities
• Ensure actions
• Logically break into sub-programs/projects
• Supply engines
• Do the innovation
• Provide the critical mass, networks competencies
• Logically break into capabilities

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What is the strategy?
INTERNATIONALLY COMPETITIVE ENTERPRISES
Support private competitive actions
PROGRAMS
Building consumer demand program
Resource use program
Market access program
ENGINES
Research engine
Policy engine
Information engine
C O L L E C T I V E A C T I O N S
DRIVE TRAIN
Leadership drive-train
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Programs break into sub-programs
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Indicative relative payoffs from sub-programs
Potential payoffs
Commercial/marketing platforms
Novel products
Eating quality
Productivity
Clean and green
Promotion/communication
2.45 billion
Export access
Market intelligence
Water
Climate change
Labour
0
100
200
300
400
500
600
700
m/year (after 2020)
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and engines into capabilities
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Indicative relative contributions from
capabilities
Contribution to payoffs
Breeding and genetics
Taste and perception sciences
Cool chain/quality management
Farming systems and productivity
Pests/biosecurity
Data technical/economic
Lessons from case studies
Strategies and directions
Value adding/ processing
Water productivity
Critical mass and approaches strategies
Benchmarking
0
2
4
6
8
10
12
14
16
18
20
Shares
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Implementation

• Investment
• 35m/yr needed
• Funding strategy
• Industry collaboration
• Joint effort to raise funds (whole of chain)
• Ensure investment to highest payoff areas
• Identify cluster of demand for innovation
• RD collaboration
• NHRN/PISC already (build on this)
• Collaborative effort to ensure capacity
• Achieve synergies

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Sowhat does this mean for me?

• Potentially, something for everyone
• Fewer, bigger higher payoff projects
• With more RD collaboration
• Reaping synergies and building capabilities
• Supported by more information on payoffs
• More emphasis on the demand side, esp.
  international demand and exports
• More emphasis on commercial platforms and
  exclusivity to capture reward for effort
• More participation by whole-of chain
• Bigger, more profitable industry

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