Risks included consolidating in fewer markets, growing debt, the potential for more non-tariff barriers and the risk of labour shortages, Norman said in Westpac’s Industry Insights into Horticulture.
The sector was small in terms of jobs with about 39,000 full-time equivalents but accounted for more than 7% of merchandise exports with earnings of $3.4 billion in the year to May. Its exports, accounting for 60% of production, had grown 140% this century compared to 94% for all exports.
“The sector is enjoying a period of exceptional growth across almost all sub-sectors,” Norman said.
Success was driven by increasing yields up to 50% with new onfarm practices or growing different varieties. Marketing of individual varieties as brands had opened up new markets and there were benefits from freer trade.
“At the same time, huge changes are underfoot in the sector. Some of these pose additional opportunities for the sector’s growth while others mean considerable risk is developing.”
Consolidation and corporatisation was reducing the number of “front doors” because of the importance of scale in ensuring financial viability through better technology, attracting more skilled managers and reducing the risk of geographic dispersion of growing capability.
More corporatisation was expected, especially of manuka honey businesses.
Both low-tech and digital technology improvements were helping but they were also available to competitors in the northern hemisphere, where most exports went. That could reduce the attractiveness of fresh New Zealand produce relative to local produce stored with new refrigeration technology.
Norman expected more automation of sorting and packing and the need to use technology to support corporatisation.
Another risk was that some products were sold overwhelmingly to one or two major markets, such as blueberries and avocados to Australia. China was also a dominant customer for some products.
“Over the short term we expect to see more export concentration in China but opportunities in emerging markets like India and Indonesia may offer some diversification.”
With some sub-sectors returning yields of up to 12% land values had almost doubled in four years but that was increasing debt and the risk of financial strife for growers making buying decisions on the expectation yields would stay as strong.
“External events, such as regulatory change in a major export market, could affect the ability of some to service debt.
“Nevertheless, at current returns we expect to see further gains in land values, especially in kiwifruit and apples,” he said.
There were also concerns global politics were turning away from free trade and more non-tariff barriers might be used. Examples already in play were subsidies, changing relationships where reliance was on government-to-government deals and the use of biosecurity measures to block trade.
At home there were structural concerns about succession planning of an ageing workforce and access to skilled scientists and teachers.
“Without planning to attract and keep younger people in the sector and to boost the number of technical experts in the sector, NZ risks falling behind its competitors,” Norman said.
