06 November 2017

Positioning for disruption: the future of agriculture and manufacturing in New Zealand

With the changing nature of technology and trade upending New Zealand’s key export industries, HSBC’s Rob Roughan insists it’s about adapting to disruption not as a threat, but an opportunity to get ahead of the curve.

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Rob Roughan

Head of Commercial Banking, HSBC New Zealand

Originally used to solve a variety of practical problems, the Number 8 wire was a staple for farmers in early rural New Zealand. And while the country's agricultural sector has come a long way from a piece of wound up metal, the mentality of innovation, adaptation, ingenuity, and resourcefulness commonly associated with the Number 8 wire has continued to persist in the country's cultural mindset.

It's a mentality Rob Roughan, Head of Commercial Banking at HSBC New Zealand, says is integral to the future development of not just the country's agricultural sector, but manufacturing sector as well. This comes down to the accelerating pace of technological development occurring all over the world - one that New Zealand should ensure it's well placed to keep up with.

Robotics and artificial intelligence, for example, have already made their indelible mark on both New Zealand agriculture1 and manufacturing, with Roughan citing how those who can adapt and innovate first are putting themselves in pole position to compete in today's globalised market.

You can view it [innovation and technology] as a threat or your can view it as an opportunity. In reality, it's both.

Rob Roughan, Head of Commercial Banking, HSBC New Zealand

“Ultimately, I think it's about how you position yourself and how you choose to invest. It's an important point of dialogue when it comes to speaking with the companies we work with. Are they embracing it? Are they upskilling? Are they deploying this technology? Whatever industry you're in, we're all capable of being disrupted and we all need to reinvent business models to make sure we're embracing rather than fearing technological developments.”

Take a meat processing plant, for example. Things like the increasing use of robotics can enable more efficiencies, productivity, reduction in wastage, and improvement in product quality. Some of the earlier adopters of robotics technology among the meat companies now have a competitive advantage not just against other meat processors in New Zealand, but meat processors from around the world.

But technological developments aren't the only thing significantly disrupting the status quo as businesses in New Zealand are also having to utilise their Number 8 wire mentality to adapt to the shifting nature of New Zealand trade.

In 2013, China overtook Australia to become New Zealand's largest goods trading partner2, with annual exports to China rising to $12.3 billion3 in 2016. By 2020, the two countries hope to reach $30 billion worth of two-way trade, with China providing an important opportunity for growth in light of the US's withdrawal from the Trans-Pacific Partnership and Britain's impending exit from the European Union.

“Over the next two or three decades, we see a shift in global consumption from the Western world more towards the Asia-Pacific, particularly China, as the middle class and incomes grow. It's already happening, but we're seeing that trend accelerating,” explains Roughan.

“One of the key things a more prosperous middle class wants is better quality food, and the integrity of the food and supply chain - right back down to the farm and even down to the cow and sheep - is going to become increasingly important.”

Already, we see this trend playing out, with New Zealand's reputation for high quality, trusted goods paying off handsomely. New Zealand lamb, for example, has increased the proportion of meat going into Asia4 rather than with its more traditional markets in the UK and Europe as it seeks to service increasing demand in the region. Furthermore, New Zealand's impressive feat of becoming China's first FTA partner in 2008 has been followed up by a series of moves that have helped strengthen the country's most important trade relationship of the 21st century. Most recently, during Premier Li Keqiang's visit to the country earlier this year, New Zealand agreed to support China's Belt and Road initiative5 - its global multi trillion-dollar infrastructure project. And while it's not a FTA, it's an important endorsement of China's top foreign policy initiative.

“I think what the New Zealand government, diplomatic services, and support areas - such as NZTE - have done is embrace [the relationship with China] and keep well ahead of the curve,” says Roughan.

“It links back to China growing its middle class, growing its income base, and transitioning its economy from a lower value manufacturing economy to a higher tech, high income economy. So all of these factors are interlinked.”

While China continues to be the talk of the town, it's important to remember not everything has been susceptible to change, with New Zealand's `special relationship' with Australia continuing to persist, owing much to the historical, geographical, and cultural aspects mediating how the two countries trade.

“[Despite China's growth], the actual value of the Australian relationship has also increased significantly in the last 10 years as both our economies have prospered and done well. I think it's partly historical, partly geographical, and … [partly to do with] the ability to work together in a common language and common socio-economic system,” says Roughan.

“When it comes to our relationship with Australia, it's just as important to see that continue to prosper.”

But with the growing prevalence of Asia-Pacific trade and technological advancement, Roughan believes that the companies best positioned for current and future growth in the agriculture and manufacturing sectors are the ones embracing both these key elements.

“They need to be the key thrust of their strategy,” he says. “We're increasingly encouraged from an HSBC perspective how New Zealand companies are positioning across both. We have a good vantage point in terms of New Zealand companies trading into China and the wider Asia-Pacific given our position right across that region. And similarly, given the scope for disruption across the industry, just understanding where companies have invested and are positioned across the technological spectrum is an important area for us to understand for companies.”

“It goes back to that Kiwi ingenuity and Number 8 wire mentality. I think New Zealand companies are generally well-placed in that regards. Long may it continue.”

1. http://www2.nzherald.co.nz/the-country/news/article.cfm?c_id=16&objectid=11860769

2. http://www.stats.govt.nz/browse_for_stats/industry_sectors/imports_and_exports/trade-china-tripled-decade.aspx

3. http://www.stats.govt.nz/browse_for_stats/industry_sectors/imports_and_exports/trade-china-tripled-decade.aspx

4. http://www.mbie.govt.nz/info-services/sectors-industries/food-beverage/documents-image-library/What%20Asia%20wants%20for%20dinner%20Part%201.pdf

5. https://www.victoria.ac.nz/chinaresearchcentre/programmes-and-projects/roundtables/the-belt-and-road-initiative-and-new-zealand-china-relations

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