Though it had been fashionable to decry the pace of primary industries adding value, examples existed everywhere and added up to a sizeable chunk of export earnings, he said.
The recent lift in terms of trade felt more sustainable than historically had been the case, partly because of the spread of products and the intellectual property and brand investment.
Williams said today’s added-value was yesterday’s research and development, protection of IP, investment in product development and management changes in the supply chain.
In the feature article in his latest bi-monthly Agri Focus newsletter, Williams found numerous examples of added value in the primary sector that showed NZ was performing well versus both key competitors and the status quo of baseline commodities.
Commodities were defined as basic raw materials or agricultural goods that could be interchanged or substituted with other commodities of the same type.
Valued-added products were enhanced to distinguish them from competitors and therefore obtain a degree of pricing power.
It was generally accepted that value-added products would deliver more consistent and higher returns over the long term but not without some risks.
Leading examples were found in NZ’s horticultural sector, such as market premiums for green kiwifruit, new gold varieties, the higher returns for NZ apples compared with Chilean and South African fruit, the club varieties like Jazz and Envy now accounting for one-third of export volume and the sauvignon blanc phenomenon.
Williams also cited manuka honey, for which NZ exporters obtained 25%, 50% and even 100% premiums compared with non-NZ brands as the UMF increased.
NZ Merino had taken the characteristics of the fibre and married them with a business model based on long-term contracts that allowed growers to receive fair, equitable and sustainable returns in exchange for security of supply for manufacturers.
Fonterra’s consumer and food service business, though less than 25% of its turnover, if separated out would be the largest NZ food company by some margin, he said.
In some commodities, seasonality of supply restricted the options for adding value but in most cases a conscious effort was being made to extract value over the status quo.
That was being done through a combination of creating new products from the raw materials, changing the marketing mix, trying new sales channels, forming mutually beneficial partnerships and with brand or packaging innovation.
The average revenue per kilogram of milksolids over the past three years had exceeded the regulated milk price model by 64c/kg, earning $3.5 billion extra for the sector.
Tatua led the way for earning more than double the base price while Synlait, Westland and Fonterra’s non-reference products were about $2/kg higher than the milk price.
For Fonterra, consumer and food service products now accounted for 21% of sales and non-reference products 26% of total ingredient sales.
Finished infant formula sales by all NZ dairy companies had grown from $100m to $800m annually over the past decade.
In the beef industry about 60% of all exports remained in the manufacturing grades, 30% secondary cuts and 10% prime cuts.
The requirement for manufacturing beef was set by the high dairy origin at 70% of the total and the seasonality of cull cow processing.
“Nonetheless, many of the companies are undertaking a range of new initiatives to try to extract higher returns from the marketplace.”
Lamb exports had moved well away from frozen carcases at 90% of the total in the 1970s to chilled and frozen boneless cuts now more than 30%.
“Make no mistake – there is still a long way to go for many but the journey appears to have certainly begun and there is plenty of room for further growth.
“The primary sector and the major companies within it haven’t been standing still for the past few years so the pipeline for further value creation looks good,” he said.
