Mike Peterson: Ladies and gentlemen, we’ve got eight really high-quality speakers here today. We’re going to talk about four markets. We’re going to start off with Australia. We’re then going to work our way through into the UK and Ireland, before we go to North America and South America, and we’re going to have each of NZTE people giving you an overview of the market, a quick snapshot of each of these markets before we get a business perspective about the opportunities, maybe some of the lessons learned when the businesses went into these markets and actually started to do the business. So, it’s going to be like speed dating. We’re going to do five-minute sessions for eight speakers, and then we’re going to try and find enough time at the end of the presentations for a good conversation of questions as well.
So, look, the key thing that I would just reinforce in my role as New Zealand Special Agricultural Trade Envoy is that we often talk about agritech from New Zealand. We often have a lower profile than many other countries in the world, like Israel, for example, that are very active promoting their wares around the world. But New Zealand has agritech that is world class and in fact, I think that there are more opportunities for us to work together in many other markets of the world. We don’t have all the answers, but you can adapt our agritech to different situations and different scenarios in a way that really is of benefits to both parties. So, with those opening comments I’m going to lead us through the speakers. We’re going to go to Australia. We’re going to get Cathy to come and talk about the Australian market. This is often a market where people go to first. There’s a lot of exchange happening in Australia, between Australia and New Zealand. Cathy’s going to provide an overview before we move into the business perspective. Thanks, Cathy.
Cathy: Okay, so firstly a few brief facts and figures, and then we’ll look at opportunities in the market, opportunities in the market how agritech can provide solutions and some barriers to entry. I’ll then be followed by Jonathan Stubbs from Shoof who will provide an in-market experience.
Dairy Herd - the dairy industry is predominantly located in South East Australia with cooler conditions and high rainfall, where cooler conditions and high rainfall are conducive to production. Victoria is the main producing state where 1 million dairy cows or 64% of the national herd is located. There are just over 6,100 dairy farms milking 1.5 million cows in Australia. There are just over 11,700 dairy farms milking 4.9 million cows in New Zealand. Australia exports 34% of its milk and represents 6% of world dairy products traded. New Zealand is the world’s largest exporter and accounts for 38% of all dairy products traded internationally.
The industry has declined in Australia in both the number of participants and total production levels in recent years. However, the number of large dairy farms, dairy farm businesses is growing at 11% per annum. These larger businesses spend large amounts on animal feed, and nutrition, and employing staff, thus there are opportunities to help these businesses increase efficiency of their feed systems and to achieve labour efficiencies as this is where they maybe able to reduce costs and improve profitability.
Beef cattle – Australia has a total herd size of 23 million cattle, significantly larger than in New Zealand where there’s a herd of 3.6 million. Beef is grown across Australia from high rainfall zones in Southern Australia to the arid centre in the wet dry tropics in the north. Queensland has the largest herd with 11 million. There are two distinct industries, Southern Australia high rainfall areas with more intensive pasture-based production and a greater proportion of British breeds, and Northern Australia where very large farms are mostly commercial. Some farms in Central Australia are over 1 million hectares. Queensland, the Northern Territory and Northern WA make up this industry.
Sheep and lamb flock – total flock population in 2016 was 66 million. New Zealand sheep flock was 27 million. Both industries have declined dramatically since the 1990s. 26 million or 39% of sheep and lambs are in New South Wales, followed by Victoria with 13 million and WA with 12.8 million.
In terms of opportunities for agriculture the Australian industry cannot rest on its assumed superiority and quality and safety. There is an urgent and continuing need to improve biosecurity, product safety and quality and ultimately, industry productivity in order for the sector to remain profitable in the future. To achieve this will require coordinated efforts throughout the entire supply chain, and the rapid emergence of digital technologies.
The key challenges facing Australian farmers are competitive global markets and maintaining farm profitability. Australia has maintained productivity relative to other advanced economies, but we are losing ground to emerging major producers such as Brazil and China. We will need to innovate, do more with less and unlock new sources of value to ensure our continued success. Agritech can help to improve on farm efficiency and decision making by automating routine tasks, regulations and compliance, and traceability and product assurance.
Labour is one of the most significant costs for Australian farms. The impact of digital technologies on labour efficiency is likely to be the greatest in sectors that have routine tasks with a high degree of predictability, and which need to be performed with a higher degree of accuracy. Process automation where sensors replace subjective human assessment of such things as animal health, will result in both labour efficiency increases and more accurate measure leading to increased productivity.
Regulations and compliance – one of the most common areas of labour saving will arise from the use of digital technologies for regulatory and compliance requirements. Meeting market and regulatory requirements is a major cost for many farmers. In some sectors such as the livestock export industry the regulatory burden has increased substantially in recent years. A common concern expressed by farmers, in a range of sectors, is that there is unnecessary duplication in compliance schemes and an over reliance on traditional paper-based reporting. So digital systems provide more efficient ways of meeting information and compliance requirements through automated data collection and reporting which can reduce costs and make life easier for farmers.
Traceability and assurance – digital traceability and provenance systems are becoming increasingly important in maintaining and developing new high value markets and providing confidence for end-users and consumers in relation to product safety and quality.
Barriers to entry – proximity and historical relations mean there are few barriers. Language is usually not an issue, Australians and New Zealanders speak a similar language, but there are a lot of differences. For instance, Australia’s dairy sector is more reliant on bought in feet, climate in Australia is generally a lot dryer, also there are differences in agricultural markets. For instance, New Zealand dairy processing is dominated by one large farmer owned cooperative, Fonterra. Australian dairy processing is dominated by companies, including Fonterra, with high foreign ownership and cooperatives are a very small part of the processing market. Long distances between the farms in rural areas of our wide brown land make doing business expensive and labour intensive, particularly, when compared to New Zealand.
Telecommunications – the current existing telecommunication infrastructure may impose significant constraints to the potential utilisation of agricultural data technologies. Currently only a minority of farms have reliable mobile data coverage over their farm area and the national broadband network, the NBN, is still in the rollout phase. In addition, the adoption of on farm telecommunication infrastructure is very limited with a small proportion of farms having any radio links to devices and/or mobile data linked devices.
Data privacy, data, sorry - the collection rates of various agricultural data types are fairly low on Australian farms. Within the livestock industries medication records, animal breeding data and individual animal herd production data were reported as the most collected agricultural data, yet they were only collected by 63%, 57% and 56% of respondents respectively. So, in terms of entering the market, communication of the value proposition that agritech can provide is really important. Despite this relatively low data collection rates among Australian farmers, farmers report that any data that is collected is regarded as very useful in informing farm management decisions. So, this underscores the importance of communicating the value proposition to farmers who were not yet collecting various types of agricultural data and working in that space.
And data privacy – farmers have concerns over risks of aggregated data in relation to privacy, financial advantage taken by other business, and the potential for it to be used to influence markets e.g. produce prices and land values. So, producers need reassurance to address their concerns about how the aggregated data will be governed and used addressing transparency, privacy, data ownership and control will encourage farmers to share their data and in turn help realise the potential value of that data and how it can work for them. There are a few helpful reports. I’ll be available after the presentation and I can point you in the direction of those reports. And over to, John.
Mike Peterson: Thanks, Cathy, a very useful guide and snapshot. Look, we’re very grateful to have the business perspective coming in today as well so in each of these markets. But John Stubbs I’m going to short roll the CVs just, so we can get through this in relatively good time. Born and raised on a dairy farm. In fact, on a sheep, no, born on a dairy farm, that’s right, born and raised on a dairy farm, worked his way up. He’s had a stint in tourism, rural banking and he’s now the General Manager for Shoof International, welcome John. Thanks for your perspectives.
John Stubbs: Afternoon everyone. I’m going to give a fairly honest and no holds barred take on success in Australia. Shoof, for people that don’t know Shoof, we’ve been around for about 45 years. Shoof started with the owner of the company Geoff Laurent coming with an idea, formulated on that, take it to market and on the back of that has grown a multimillion dollar business. Shoof’s got a fantastic story. It’s got fantastic provenance. We’d been in Australia, prior to me taking over, about 12 years. We came to Australia through acquisition. So, we bought a couple of companies, bolted them together and Shoof Australia was about to be born.
So about four and a half years ago I had the opportunity to take Australia under my wing. It had been going okay, but I think in all honesty the board wasn’t particularly happy with the return on investment and how we’d been going. So, I’d been tasked with moving Australia forward. So, in terms of what we do, we’ve got a range of agriculture ancillary on-farm products. We’ve got about 2,500 [skews] on offer. Our target markets are all industry. Our customers are rural stores and the end-users are farmers. So, success for Shoof looks like lots of product and farmstalls being sold to farmers.
So, there’s four things I’m going to talk about today, standing out in a crowded market. So, what, why’re you here? How’re you going to make a difference? The challenge of HR in Australia and the challenge that that brings. The tyranny of distance, Australia is a massive country, absolutely phenomenally massive, and tech transfer on the farm if I’m not cut off before my five minutes is up. So, I was given the opportunity to take over Australia. So, I thought this is great. I’m going to go over there. I’m going to grab the Australian by the scuff of the neck. So, I thought I’m going to pack my bags and duly hopped on a plan, and I decided I was going to live over there for chunks at a time and really immerse myself in Australia. So, I got over there, got to know the team, went out with the reps, got to know the customers, got out on-farm, got to know the farmers, and I did this all-around Australia, got into head offices and really tried to understand, what is it that makes Australia tick, what is it that’s different about Australia?
And it was really interesting because we come from a country we’re from a business with a lot of provenance, and after 12 years I would have thought people would have known who we were, but I had head offices saying to me but mate you’re just another trader, so what. I’m sitting there going, another trader, we’ve got 45 years history in New Zealand, what do you mean another trader, you don’t know our story> And they didn’t, they didn’t know our story. They didn’t really care.
So, I came back, packed by bags, came back, marched into Geoff’s office and said, Geoff, I need a one to two-page bio on who Shoof is. We need to take this to Australia. We’ve got to tell our story. We’ve got to link into the psyche of the people that make decisions. We’re talking about farmstall owners. We’re talking about farmers. We’re talking about head offices. We’ve got a great story. We need to tell it. Crickets for the next six month, Geoff was obviously a busy man. That’s okay. I came and went and came back, went from Australia and time went time.
Some six months later Geoff presented me the book, so Geoff had gone away and had written a book about his life story at Shoof, which was a lot more than I expected, but extremely valuable because I could then take that book. I could take it to farmers. I could take it to farmstalls. I could take it to head offices and tell the Shoof story. And it was really important because people, the light bulb went on, people went, uh, I understand so you’re from farming background, uh, so you owner operators like we are, you’re not just a big corporate. And a lot of lights switches turned on and it just made the path of doing business so much easier. So, make sure you understand your story if you’re there, if you’re there do people really understand your story and tell your story, and tell your story proudly because I think that any entrepreneurial based business in New Zealand has a great story to tell. I think that’s very important.
Something else that worked for us as we re-engaged with the customers. I was told by one of our biggest customers, mate, your opposition comes to the opening of a letter, you’re never there. Like, aren’t we? No, you’re never there, mate. So, we started going to the opening of every letter that went around. We invested in field days. We went to the conferences. We went to their trade shows and we wrote out some serious cheques to do so, and we invested some serious coin to do so. But the return was phenomenal because it showed the market that you were prepared to invest in them. You were prepared to support them, and by that mere effect alone they supported us in turn. And that in itself, the story, our provenance and investing in them and investing in their industry paid dividends for us.
HR – are there any Australians in the room other than Cathy? Okay, I’ll just miss some of those points out. Look, I’m going to talk about HR because don’t expect recruitment in Australia to be easy. Recruitment’s not easy anywhere, but you’re in a market you don’t know that well and there are cultural differences. We do speak English, but we communicate quite differently and at times you would think we’re speaking a foreign language the way we communicate, and it’s really important to understand that.
Finding people that fit your business culture and your team culture has worked for us, and it’s worked for us over and above finding someone with the best skills per se on paper. A fit for your business culture and a fit for your team has been paramount. But what I do have to say is there are cultural differences between the way New Zealanders and largely, not all, but by and large Australians treat work life balance, and I think you have to understand that and embrace that and acknowledge that to be successful. Labour costs in Australia we’re packing somewhere between 15% to 20% more in terms of actual labour costs in Australia and that just is what it is, you have to be prepared to front that.
The tyranny of distance - and it’s so geographically challenged you need to consider your distribution models, distribution to us is what we do. We need to distribute product every day to everywhere across Australia. We had two distribution centres, we brought it back to one. We gained more efficiency. We gained cost savings and we lost nothing in terms of being able to offer good customer service and good defaults delivered and follow on time numbers. So that was really important, don’t be afraid to have a central base system.
Managing teams remotely is a massive challenge so you have sales reps out there. You’ve got teams out there. They’re on a big land and you’ve got to think about how you’re going to keep them feeling engaged. How you’re going to keep them feeling loved. What we’ve worked towards is providing support and the base office, so our senior managers can get out there and spend time with them. Nothing like getting your managers out of their offices and into the cars or into wherever your staff maybe to show them you care. If you just sit in your office and you’re only picking up the phone that only goes so far from our experience. You’ve really got to get out there. So, you have to provide some provide support, so your managers can get out there.
Don’t be afraid either, I think, to pick a state, so if you’re in the dairy industry, obviously Victoria, Tasmania is an obvious place to start and take small bites of the elephant. Don’t be afraid to start your business in a state or a couple of states. Try some pilot schemes and if they work expand them to the next most likely geographical areas. You don’t have to take Australia on all in one foul swoop because it can be daunting. It can be challenging, and it could run you aground. So, working, and we’ve done it with some of our product ranges that we’ve said, hey, let’s just start in one state, let’s see if it works. If it works let’s expand it. It’s worked for us. It may work for other people out there as well.
Finally, tech transfer on-farm - in New Zealand we’re extremely lucky to have real accessibility to, direct to the farms and to the farmstalls and have that science extension linked so well. So, if we need to tell our story, if we need to launch a new product, if we want to talk about a new innovation we’ve got farmstall publications. We’ve got widely available rural press options. We’ve got great science extension with the likes of Dairy New Zealand. We can tap into those.
Australia’s a little more challenged in that area. The infrastructure isn’t quite so tight. The extension on-farm isn’t quite so good, and the access to media is a lot more expensive, and there’s no one go to magazine or paper you can go to, to reach what we can reach in New Zealand. So, you need to think about how we’re going to reach your target market, really important, costs some money. Look, all in all, Australia has been a massive challenge for our business. It’s taken us, we’ve been there now 16 years but it’s worth it. If you can crack it and crack a few of those small things the reward is there, and we’ve absolutely really enjoyed what’s come back since making a few of those changes in our business model. Thanks guys.
Mike Peterson: Thank you, fantastic insights, John, wonderful to get that practical on the ground information, really good. So, look we’re going to move from a closest market to probably our most furthest away market. Dan Taylor’s going to come and talk to us so returning Trade Commissioner from UK and Ireland. He’s going to talk to us about the snapshot for the UK and Ireland. Thanks, Dan.
Dan Taylor: Right, thanks Mike, good afternoon everybody. Given we’ve only got five minutes to cover the UK and Ireland it’s going to necessarily be a pretty high-level overview. I’m not going to use any slides, but I’m more than happy to talk in a bit more detail later. We’ve got UK and Ireland on the screen here and I think it’s an important point to note first off that while there’s a lot of similarities in those markets, they are quite different propositions and it’s really important that if you’re thinking about entering or growing that you think about them as their own markets, don’t lump Ireland with the UK mainly because it pisses off the Irish.
In both the UK and Ireland agriculture has a really long and storied history. It’s an important part of their economies, and that’s particularly so when you look at the devolved administrations of Northern Ireland, Wales and Scotland and then, of course, the Republic of Ireland and so, they have, not unlike us, they have a real empathy and a feeling for agriculture as an important part of what makes them who they are. Their systems are similar but they’re not identical. And that’s another really important point, so use the similarities, but don’t forget that there are differences in the way that these markets operate.
Traditionally, we’ve seen both the UK and Ireland have really small landholdings, average herd sizes measured in the tens rather than the 100s, and that has a real impact. It means that technology is less invested in simply because economies of scale are not able to be achieved. We’re seeing some real changes in both the UK and Ireland. We’re seeing consolidation of these small landholdings into much more commercial operations, and so suddenly technology is proving advantageous in a way that it hasn’t previously.
We’re also seeing a generational change in those who are running the farms. We’re seeing sons and daughters take over from their parents, and this new generation of farmers have grown up with technology. They expect it to be part of their business as well as their private life and that plays, I think, really well into New Zealand hands, and we’ll hear a bit more about that later I’m sure. Those younger farmers also travel, and a number of them have done seasons here in New Zealand, and so we have to use that. We have to use those people to people connections. We have to make use of the fact that there’s a real warmth towards New Zealand and it’s farming practices in those markets even though they might be a long way away.
I think the other key factor that’s driving a lot of the change in the UK and Ireland is a move to productivity and efficiency in a way that we haven’t seen in decades, and that’s partly because of the more commercial focus that we’re seeing. But there’s also some broader contextual elements, Brexit being one of them, that is meaning that these farmers are having to change the way they operate. It’s a given that there will be a change in how subsidies are managed in that part of the world, and so that means that farmers are not going to be able to rely on other sources of income as they have done previously. They’re going to have to get it off the farm, and so I think that is a real plus for New Zealand and what we have to say.
In support of that we’ve got a great reputation. In both the UK and Ireland, we’re seen as, not only, good farmers but good custodians of the land as well, and that’s something that we share with UK and Ireland farmers. And so, I guess that willingness to understand what New Zealand has to offer and how it applies in the UK and Ireland context, you’re pushing on an open door, and that’s something that we need to make the most of. That said, there needs to be a commitment to these markets. These are not markets that you can manage by flying in and flying out. You need to have people on the ground who are there and able to respond in a timely manner.
We talk about the tyranny of distance, that’s not going to change. New Zealand is not going to suddenly get any closer to the UK and Ireland, so it means that our companies have to find a way to manage that, and the way to do that is boots on the ground. Understanding your own value proposition is, obviously, really important, but you need to be able to understand that from a market perspective. You need to be able to tell a great story about why your product or service is answering the problem that the farmer has in the UK and/or Ireland, and we’ve got a great story that will really emphasis that coming up.
In closing, I’ll just say that these are really important markets for New Zealand. They’re markets where we’ve got a long history of providing quality. The keys really are, and they haven’t changed since that first boatload of frozen beef went over 100 years ago, you need to plan, you then need to execute and that will lead to success. Thanks.
Mike Peterson: Thanks, Dan, appreciate that. Look, we’re going to get Andrew Cook from Rezare Systems to come up and talk to us about his experiences in this market. And Rezare have recently opened up an office in the UK, and these guys have a very good background of developing bespoke systems and software solutions for farming business and agri business. So, look, Andrew, please, love to hear from you, thank you.
Andrew Cook: Thank you, Mike, and in keeping with boots on the ground I’m wearing my boots today. And I want to endorse some of what Dan has said. Rezare has only been working in the UK since late last year and so, in one sense, I find that I’m hardly qualified to talk to you about it. In another sense we’ve been working in the UK since 2011 and in two different, two completely different modes. So, from 2011 we worked opportunistically, UK companies would come to New Zealand. They’d come to the field days. They’d look for interesting things and they’d come across us and they’d get us to do a bit of work.
And that’s all well and good and some of those were good lucrative contracts for us but extremely hard to manage. Hard to manage the follow-on activities and always dealing with that time zone challenge. And it’s rough actually asking your customers to stay up late at night for a business call or get up early in the morning. And they’re used to doing it a little bit with Europe but not to anywhere near the same extent. So, having somebody on the ground has been great for us and we’ve seeing just a huge lift and response to that.
The other thing I think I’d say is in terms of where the UK market is at, and we didn’t talk about telecommunications and those sorts of things, Dan, but we have benefitted from that investment and the infrastructure even though we complain about it in the rural space in New Zealand. You get a little way off the beaten track in particularly Scotland or Wales and you’re looking at no bars, no coverage, no wi-fi and an incredibly slow home connection, and it’s what they’re used to. But things are changing and they’re changing rapidly and the UK government through a number of means as making huge investments in technology, huge investments in infrastructure, and huge investments now in agricultural technology, and looking at how they can lift the efficiency and productivity of UK farming. And Dan’s right, Brexit is going to drive that at an incredible rate and we’re going to see some big changes.
When we started to work in the UK we were warned that Europe sees New Zealand as a low-cost producer, not as a technology base and so, and I know that some New Zealand companies who are trying to sell products in that market have definitely found that to be a challenge that we’re not recognised brands over there. For us, we’re working in the services space, and it is in some ways quite different. Our customers are businesses who are themselves developing products to promote, or maybe they’re trying to create new services to help farmers be more efficient or more effective, and New Zealand’s legendary efficiency is actually a real string in our bow. It’s what people like and so we found very open arms.
We also have an Australian subsidiary and one of the big differences we’ve noted is, here in New Zealand most people if they don’t know you will know somebody you know, yes, that’s our two degrees. In Australia they’ll hang the phone up on you, don’t need to talk to you, click. Even if later on they realise actually we did need to talk to you, but we didn’t realise it at the time. My experience so far in the UK is, look, everyone’s incredibly happy. Let’s have a cup of tea and sit down and have a chat, and it can be very hard to distinguish what’s a real lead, a real opportunity and what’s not, and we’re looking at how we can better understand that at the moment.
Logistics is a challenge. The egg industry is very fractured in the UK, apart from the major supermarkets everyone’s a small player, and even the big feed and fertilizer and other companies are small on our scales, which means investment is hard to justify and it means you’re travelling to them. They’re all scattered around the country and fantastic roads but still long, long journeys. So, a whole heap of increased logistics things to think about for us who are used to doing business in our relatively small ecosystem.
I think that’s probably all I need to say. I would say for us it’s been really great working in that space with New Zealand Trade and Enterprise because between the NZTE staff and the Beachhead advisors they get this. They understand that market, and their advice on approaches and what to do and what not to do so far has been invaluable so, thank you.
Mike Peterson: Well done, Andrew, thank you very much for those insights, very valuable indeed. And we’ll come back to questions later on. Across the Atlantic now we’re going to get Paul to come up, Paul Vaughan to come up and talk about North America, and Paul’s a Regional Manager here, but he knows everything about the world so that’s great, Paul.
Paul Vaughan: So how does this little buzzer work, is it …? Right, so I’m just going to use a whole lot of slides to give you a picture and a story of North American Dairy. I’ll try and rattle through them in five minutes. So, this is where it all started in the States, the dairy belt, and a lot of you who know the States know that a lot of their activity is still based in Wisconsin up in the north, which is where their World Dairy Expo Show is, and it’s still one of the largest milk producing States. And we’ve traditionally had a business development manager based up in New York because that was the heart of dairying. The other curious thing about that is actually that’s the coldest part of the United States. It’s also the freeze zone so that’s one of the reasons that the cows don’t go outside in the winter because it gets very cold.
There’s been a bit of a change over the last 15 to 20 years and you can see there that the biggest producing state by a long, long way is California. And Texas I think if we did that that was in 2014, I think now this year Texas is in the top five as well. So, there’s been a big shift of production from that north east towards the west and that’s where the big, big units are based the 24/7 farms who use rotary systems in bits and pieces, but not much is based on grass.
So, milk production that’s what it’s been doing in the United States. It’s been climbing quite rapidly and they’re now actually an exporter and a competitor of New Zealand for exported dairy products. And as you can see consumption in the states has been rising, but not really as rapidly as has been their production. Which is why they’ve now got to think about exporting which is putting some pressure on the industry, because it has to export but it’s not necessarily a competitive industry. And that’s a very sad story, that’s American milk consumption. So, a lot of the dairy industry in New Zealand is based on exporting always has been on powders, but in the states a lot of it is based on supplying liquid milk for the retail sector. So that’s gone down and that’s caused lots and lots of issues for US farmers who are producing milk for liquid consumption because basically there’s not much being drunk anymore.
So, they’ve got some big issues, dairy consumption is falling. You’ve all heard about the alternative plant-based milks which are very popular in the States and they’re increasing rapidly in market share, and that has led to this over production because unlike some other countries there are no production caps, so they can produce as much milk as they like, and so they’re probably producing way more than they need and so they’re starting to export.
There’re some trade policy issues. there biggest export market is actually Mexico who they’re seriously pissing off at the moment with Mr Trump, so I don’t quite know what’s going to happen there. And they’re seriously banging on the doors of Canada because they said the Canadian system’s very unfair and they’d like the Canadians to open up for America and I don’t think that’s going to happen in a hurry. Back on the farm they’ve got concerns about animal welfare sustainability. So that’s pushing actually a nice trend which could help New Zealand towards farming more on grass, more naturally and also to organics, and there’s some regulations in the States which ensure that organic farmers actually do have cows outside on the grass for at least part of the year which is going to help some of our technologies.
Profitability four years of low prices so grass farmers are supposedly surviving better than the guys who’re on what they called TMR, Total Mixed Rations, but I actually rang up ahead of this. I rang up a good friend of mine who’s in Georgia and is in charge of aid extension in Georgia which is, according to the US DA, the most profitable region in the States to farm because it’s mainly on grass. He says in the last three years 20% of the dairy farmers in Georgia just walked off the land because can’t compete anymore, so they’ve either gone into beef or they’ve just closed down.
Aging farmers so we’ve got the same system that you’ve got happening in Ireland and the UK that’s leading to lots and lots of consolidation and bigger units. So, I guess that’s one way for them to become more competitive and stay in business. And as we heard before obviously a lot of emphasis on new technology with these younger farmers. We’ve got all these devices which monitor cow performance and lots and lots of data for the farmers to use.
That’s an interesting graphic, that actually shows how high your percentage of feed is as a percentage of your budget, and you’ll see that in these new regions they’re really dependent upon feed, imported feed for their animals, and that poses challenges when feed prices go up, but at the moment they’re relatively low so they’re quite competitive. In the older states up in the north west that’s, as I said, where the grass-based farmers traditionally were.
Organics, as I said, they’re obliged to graze outside so we’ve had a bit of a focus in trying to get New Zealand technology out to those organics farmers. I think some of it’s what you might call [foe] grazing so they go outside and stand on the grass. But they don’t actually eat much, and they go back inside and eat their rations. But certainly, there is a move and as you can see some of them are quite large herds, California 511 back in the north west, the area we were talking about, north east, sorry, still pretty small herds 60, 56. So like we were talking about Ireland their ability to invest in new technology is quite low because they just don’t have the money to invest.
And finally, just a picture of US farms, that one on the left is what they call a free stall so that’s about as free as the animals get so they can actually move around inside. And the ones on the right that’s the traditional form of farming it’s called a tie-stall. So, as you can see they’re actually tied up and they don’t move very far, and they might actually be milked in situ, so they’re not exactly like a New Zealand cow they don’t move very much. And that’s the milking systems not the same as ours in New Zealand. Those ones on the left that would be a big system it’s called a Parallel System, huge amount of labour involved in those systems, not as efficient as a rotary but that’s what they like. And the ones on the right those are those poor cows in the tie-stalls, so you can see they haven’t moved very far. And they’re being milked exactly where they live which I regard as totally inhumane, but that’s how apparently most of the farms are. And that’s what they call a CAFO so that’s a Concentrated Animal Feeding Operation. That’s a Californian beef farm, not quite like a New Zealand operation.
Mike Peterson: No, not quite like a café, sorry, Paul.
Paul Vaughan: That’s it, timing is impeccable.
Mike Peterson: Thank you very much, Paul. Thank you, Paul. We’re going to get an industry perspective now from Stephen Hoffman. He heads up Gallagher International Sales and Marketing team. So, thank you very much Stephen we look forward to your talk.
Stephen Hoffman: Thank you, Mike. I guess Gallagher have been operating in USA and Canada, but particularly USA for about 40 years. So, William started the business up there with some independent distributors that was marginally successful. Those that paid us were success. The ones that didn’t were the ones that weren’t successful. So about 25 years ago we formed a joint venture company up there with a partner and we were a minority shareholder, and that was the start of the success of the business that created a brand awareness for us in the rural industry. And then about eight years ago 2010, we bought out our partner and it became a fully owned subsidiary which I’m now responsible for.
So, I’ve been travelling up there personally for around 25 years. I currently go up four or five maybe six times a year because, as it’s already been pointed out, same as some of the other markets immersion is important. I don’t want to live up there fulltime, but you sure as heck can’t run a business in North America from a Pacific Island somewhere down in the bottom of the world that the average American doesn’t care about.
The other thing I’ve found if you think about USA as one market you’re likely to get distracted and not be successful, USA is not dissimilar to Europe. It’s lots of little states in their instance and they are quite different. Their language is often different. Their socioeconomic positions are different. Their religions are different. Their language, well, it’s based on English, I can’t understand a word my staff out of some of some of the Southern States say so it’s quite different and I think that’s really important. So, if you move up there you need to think about where you want to go, and I think it’s already been said by somebody else, it’s about bite by bite, just handling it as one big market really, you’re going to struggle with that.
The other thing to remember is that a farmer in USA grows crops anyway you like that’s what, if you’re talking to some American people about a farmer they grow corn and all the other crops that go with it. Livestock farming is quite different. Animals, from our perspective, they’re born, they stand on the grass until there’s a spot for them in the feed lot, and they go to those feed lots that you so rightly pointed out Paul. So, from our perspective, from a Gallagher perspective ours is about a pastoral farming solution so we’ve had to figure out how to do that. In markets like New Zealand and Australia we have the privilege of having some really good resellers we know them as the farmlands, the PGG Wrightson, the farm sources, and they focus on supplying the needs for those grassland farmers.
In North America those businesses don’t exist. I go, and we sell through some stores who have enormous square footage in towns, and of that square footage maybe 5% or 10% of that square footage is devoted to farm and ranch supplies. So, when you make an appointment to see those dealers at a head office level or at a store level, we’re a long way down the priority list, no matter whether it’s electric fencing or whether it’s anything that supplies those livestock farmers. So, pushing yourself to more relevance, becoming more important in the businesses is critical, and don’t underestimate the challenges involved in actually doing that.
The other thing is being New Zealand based is not always an advantage. We’re good at what we do, absolutely we are, but if that’s not the farming style that’s being operated or the management style, then all of a sudden, we’re less relevant. And they are very parochial, they absolutely are. We have some competitors up there who frankly their product would never survive down here. would never make it. It wouldn’t, and yet they do quite well up there. Their competitive advantage tends to be price and they exaggerate the performance of their product which does our category harm long term, so we have to take onboard the responsibility to try and improve that, but that’s also difficult.
A lot of the dealers, the resellers to get this distribution they don’t have representatives servicing them and helping them create demand. They tend to do most of their buying at buying shows. Often, they belong to an umbrella organisation and those umbrella organisations put on shows that the vendors go to four a year, and so the dealers come along and buy all of the goods they might need for their store for the next four months. They all get shipped to them and the whole process is repeated four months later, which is very different to the drivers that we have down here.
The other thing is the local people if you get involved with them most of our staff, 99% of them, are American people, they are great people. They’re hard working. They’re intelligent. They’re really smart. But in order to be able to motivate them and to understand their world, again, it’s about relating to them, not expecting them to just think that we’re the greatest place to do business with.
Now the weather, the weather of North America is a challenge, at the moment they’re just moving into their summer. Most of the states when straight from winter to summer. They had no spring this year. That’s a real challenge for a lot of farmers up there and you have to be able to understand that it’s not as dependent as it often is down here.
The other thing which we’ve certainly found important and again, it was mentioned by other people, being committed to the market. You’re going to go up there and you’re going to make some promises and you’re going to talk to some people, important that you follow through. If you don’t follow through, you’ll do New Zealand Inc more harm than good. And I’ve had it related to me by a number of potential customers up there, and I’m talking about distribution customers, that they’re being frustrated with businesses that will turn up there, promise the world, create this story, and then don’t follow through, so important that you make a commitment over a period of time. And I guess the last thing I’d add is they love our accent, use it to your advantage because I sure as hell do.
Mike Peterson: Fantastic, Stephen. Wonderful Stephen, thank you for that. They do love the accent in North America, there’s no doubt about that. So, look, wonderful insights here as well. Moving into South America now we’re going to talk to Brendon Mahar who’s going to come and give us an overview of South America so, Brendon, thank you very much.
Brendon Mahar: Good afternoon, Brendan Mahar from New Zealand Trade and Enterprise, I’m our Market Manager for South America. [Foreign language]. South America it’s a bit different to the others. It’s a huge continent. Just some quick stats up here from an economy size and country populations, you’ve got a monster in Brazil with 207 million people GDPs of $1.8 trillion, down to Peru with almost $200 billion GDP. Quite a range in GDP per capita so you’ve got Argentina and Chile, Chile the leader in the continent for GDP per capita. But what I would comment on is countries like Columbia, Peru have been growing quite headstrong economies over recent years grown at 3% to 5% year on year growth. So, they’ve seen a real movement in that from a low socioeconomic into the medium middle consumer, and that’s driving demand into a bit of product and quality of life.
One factor I will talk about here, is it easy doing business? This is a good indicator, some of these markets aren’t easy. Just commenting, Brazil’s a big one, but easy doing business 125 in the world, it can be quite difficult and that’s one of the challenges you’ll face. Whilst countries like Chile, Columbia, Peru are really trying to increase their regulatory and country environment for making it a bit easier to do business.
Just skipping across the continents, the continent here the whole of South America is what you call a big food bowl. It’s a huge, agriculture is a huge part of their economies be it coffee, be it soya bean, be it maize, beef production, milk. Milk’s big in some of the countries further down south in Argentina, Chile, Uruguay in the south of Brazil, but across the [unintelligible 00:48:57] scope there’s just a lot of opportunities if your product isn’t just focused on dairy, there’re some big industries there as well. So, you’re looking at 3%, 3.5% to 21% of their GDP is based on agricultural businesses. So, it’s just monstrous the size and the numbers and the land scale there as well.
Just to step into a couple of markets to give a bit more of a snapshot using here Chile and Argentina as a bit of contrast. Chile, as I said before, GDP per capita is quite an advanced economy in South America. It’s also its dairy industry is quite … had a bit more investment or advancement over recent years, and there’s just a small area in the south of Chile which is almost like walking through the Taranaki or the Waikato region as well and that’s where the dairy industry’s based.
So, you can see there 2.7 million head of cattle there’s about half a million dairy cows, not a huge production, leaders in milk production 2.5 billion litres of milk produced in 2016. Farm sizes you’re getting a bit more of those more intensive farms 100 head or more around 76% of the industry. And it’s a bit more focused industry it’s a bit like the distances aren’t as huge as some of the other countries. Whilst on the other hand looking at contrasting to Argentina here 52 million head of cattle and only 1.7 million in the dairy industry, so the beef industry is huge. And they huge a mix of pasture based and intensive feeding because these countries are big producers of soya and maize production. Big milk production [unintelligible 00:50:40] billion litres of milk and again you’ve got that 82% of farms with 100 head of cows as well.
One of the countries over there is Columbia they’re at a different stage. You’ll probably see in the percentage of farms it’s in the smaller size and it’s all one to 50 animals per farm. But you tend to see countries like that consolidating and farms growing a lot more. So, the scale of these industries is changing and developing. Opportunities of agritech up there, big thing is productivity and efficiency. You’ve got small farms and they’ve grown into bigger farms and it goes across the whole value chain. Some of these farms have got range the dairy tankers can’t come in and collect the milk because it’s not asphalt roads, it’s dirt. Parts of Argentina you’re only about a metre above sea level across the whole of Pampas so they’ve had some flooding issues which then create issues of logistics of getting the milk out of farms.
The dairy producing processing companies are really after their quality control, so they’re really looking at the extension or the programmes they can put in place for their farmers to increase the quality of their milk production. An issue for some of them is access to capital, dairy is not, in some of these countries, a wealthy industry, so they don’t have a lot of money to invest back in their farms. And some of the governments are looking at better incentives about how they can access funds or investments into the farms. Whilst in countries like Chile you’ve got a bit more investment at the high-end and they’re really investing into that high-end milking platforms and equipment that really can increase the productivity and efficiency.
Quality of labour is an issue on a lot of these farms. A lot of the people who work on the farms don’t have a formal education or they don’t have a qualification from a technical side. So, there’s a lot of work around how you can upskill the farmer, the workers on the farms, how you put a qualification system around them, so they’ve got a bit of a technical qualification they can use. But whilst in some of the markets some of the agritech companies they’ve invested in their staff and got them up, and then they’re seen as quite good employees to headhunt from other companies, so there’s a retaining of quality staff is another issue for some of these countries.
Free trade agreements – we’ve got in early 2019 probably CP-TPP rolling out which will be the implementation which brings online a free trade agreement for Peru and Mexico for New Zealand. What we have seen in our experience in Chile, which we’ve had a free trade agreement since 2008, quite a bit of investment from New Zealand into Chile and the agritech story has really grown in depth and is probably the most advanced market. We’ve probably got $30 to $35 million of agritech investments going across to Chile. Whilst these other countries are around $4 to $5 million agritech investments or exports per year going on. And you’re seeing from these countries they’re trying to make themselves more globally integrated, so they’ve opened up free trade agreements. You’ve heard already about the Trump effect, and a lot of the Latin countries got together and they’re really going outside trying to open up new markets for themselves talking to Europe, talking to the Pacific region which brings opportunity to open up these markets.
Barriers to entry – yes, there’s language issues, most of the South American countries are Spanish speakers and obviously Brazil, being the largest, is Portuguese. But I don’t think it’s necessarily a barrier. Your more important is the quality of your local partner or your distributor in building a really strong relationship and help train those staff up or their sales reps or who’s working for you over there, and they’re the ones that go out. So, it’s building those links. It’s important to know the language and have an appreciation for it, but I don’t think it’s a real tripping point.
Regulatory concerns – usually it’s a little bit difficult to manoeuvre in this space, understand the regulatory concerns, and then there’s another process which is, the bureaucratic process, of actually getting stuff done if you have to get certification and things like that, and sometimes that can take a lot longer than you expect. In most of these markets you’ll find most of your global competitors there or there’ll be local producers or suppliers and so you’ve just got to get a bit of a map of who else is out there when you go across.
General market entry tips – probably a similar thing that we’ve heard from the other markets, takes some time to understand the markets, don’t think of them as the whole country. Like I say in Chile it’s basically a couple of provinces down in the south that you want to focus on or in Uruguay there’s a couple of areas there. Do it bite by bite and spend some time to do some desk back research, go across, walk some of the big shows, and get a feel for what’s happening in the industry there.
We talk about some of the markets are a bit easier to cut your teeth, most of our companies have learnt their business from Chile and now they’re looking to expand themselves into these other markets, and that’s usually a good opportunity or a path to market to cut your teeth in those markets where it’s a bit easy, doing business is easier and the systems are a bit more advanced. And as probably we’ve heard here key partner selection is a critical factor for your success in these markets. So that’s a real quick snapshot. I’ll pass over to Mike to introduce our…
Mike Peterson: Thanks, Brendon, really appreciate that, thank you, Brendon. But we’re going to hear from Peter Van Elzakker. He’s from CRV. He’s the Global Product Manager, born and raised on a dairy farm in the Netherlands, went to Wageningen University where he studied economics and breeding. So, look, thank you very much for coming along Peter and talking to us about your experiences.
Peter V Elzakker: Thank you, Mike. Welcome everyone. Yes, CRV is a herd improvement company and the main product that we export is genetics, dairy genetics that’s really the focus for us. Before the start Mike, and Brendon, and I were talking, and I said it was an advantage to be last. I find out it’s not because we’ve covered everything that I was going to say so we’re nearly done. What that tells me, and I think what it should tell you is that the country that you go to doesn’t really matter when the principles are the same, so I guess that’s a big lesson. Yes, you have different language, you have different circumstances, but the principles are all the same. So, I’ll go over some of the things we already discussed quickly and see what we haven’t covered. Do your homework I guess that’s sounds easy. We tell our kids they have to do that, and they still don’t do it, so, and I’ll say there’s been many companies that make the same mistake.
We work closely with NZTE and that’s been mentioned before too, they’re really valuable, add value for us, and one of their projects and one of the ways they help is through, Better by Design, and we did a design’s print in Chile, for instance, and it was really useful for us. We did it after I’d been involved in the market for at least three years and we were very, we were amazed by how much we learned from that experience. And I guess it tells us that you have to listen to customers and you have to really delve into that customer, find out what their needs are. And what you then next find is that in your home country here in New Zealand we see benefits for our products, and we rank the benefits and you can assume that those benefits are the same where you can order them in the same way overseas. But what we found in Chile is that that’s not the case and that’s why you have to do your homework, and you have to do that in every market, so that’s important. And some of those changes have to do with culture and you have to just accept the culture, it’s, it can be extremely frustrating, but the culture is the culture and you have to work with it, if you try to work against it you know the outcome.
Networks they’ve been also mentioned, very important and it is important to immerse yourself in the marketplace. I’ve been involved with the South American market now for six years. I live here. I don’t speak the language, but we needed to be there and over the last six years we’ve actually put more resource into the market there. We have two people now based in the markets. One’s in Brazil, one’s in Santiago. They both speak the language and they are both there on a continuous basis dealing with the various countries, and whereby doing that we’ve seen the advantages and we’ve seen ourselves grow.
You have to have patience. It’s not instant and that’s where, where there’s culture when you look at our products when I look at the benefits South America most cows are outside on their own grass or something that looks like grass and therefore, our grazing techniques have a benefit. The culture and what people have been trained over the last 15, 20 years is very much looking and listening to North America and that you don’t change that overnight, that takes a lot of time. And well, yes, sometimes it can take a generation and we don’t have that much time, but that’s just where patience comes in.
Listen, listen, listen, that’s a big one. Do a lot more listening than talking. I’ve been blessed with two big ears, so I’ve got an advantage, but it is, it’s key you’ve got two ears, one mouth and use them in that order. The language bit has been talked about and again, I can’t reiterate enough that it’s very important to speak the same language. And I don’t speak Spanish fluently, when I went to Chile I found out that German helps, and I’ve been in meetings where we speak English, German and Spanish and it works.
But even if you think you’re speaking the same language sometimes you’re not, and I have contact with, my colleagues here have contact with colleagues in Holland and we call their English, Dinglish, because Dutch English is very different from English or New Zealand English. So, you can’t, I can’t iterate that enough. So, yes, using all these kinds of things we’ve seen our sales grow and we’ve doubled it over the last three years, so I guess if you learn and do all these things you’ll get there. Thank you.
Mike Peterson: Interesting, Peter, thank you. Right, ladies and gentlemen I’ve got time for one or two pressing questions, otherwise I’m going to suggest that you can catch up with any of these wonderful speakers over drinks and canapes outside. But are there any pressing questions, any questions anyone would like to ask anyone on the panel? One quick one.
Female Voice: If it’s all the same, we’ve heard enough about the cross functional businesses, you talked a lot about how I think market entry is the same, it’s about relationship building, it’s about knowing your customers that strong story. How much do we need to account for how you modify product for the market?
Mike Peterson: How you modify the product for the market, who’d like to have a crack at that? Industry people, NZTE.
Female Voice: Because if it’s all the same then, is it all the same?
Mike Peterson: Well, it’s not all the same, is it? You guys are really the commercial guys you know how to tailor it for the lady.
Male Voice: I think the key is talking to your customers and finding out the problem that they are looking to solve. And so, what they suggest is that as a business you’re not leading, but you’re the solution. You understand what the problem is and can tailor it so absolutely it changes on a market by market basis. A lot of the stuff we’ve talked about today is really high level. But when it comes down to the actual product hitting the market then you cannot just be an off the shelf solution.
Female Voice: So, are there any examples in the room right now where you want change something for North America versus Chile, Canada versus Chile, UK versus Ireland?
Male Voice: I can talk about South America, we just look at some of the collateral our companies use, the look at a cow in Brazil doesn’t look like a cow here. They’ve had to use totally different looking cows. They’ve had to adapt their products to that market. So, what we talk a lot about in South America is adapting your product for the market because it’s not just using dairy based systems, it’s adjusting to it. And it’s good that Peter talked about the piece [unintelligible 01:03:20] which is actually going right down to farmers, and we took samples of like farmers that have subsistence farmers and only have one or two cows right up to big commercial sized farms and getting a lot of understanding there, and that’s been used for our companies to change how they actually pitch their products or their solutions into the markets. It’s really understanding the adaptation.
Male Voice: In the environment because I, in New Zealand we don’t realise how select we are. I always talk about the strength of New Zealand’s system as an ecosystem around farmers. Everyone talks about our farmers being good, but I can go to my small town in Waikato, I can get everything I want for my farm whether it’s merchandise, advice, support, whether it’s animal health products, anything I want I can get within it’s there in the town for me that day. That doesn’t happen hardly anywhere else in the world. So, you need to think about that in the context of.
Male Voice: I can put a slightly different perspective on it, North America’s a good example, we didn’t just adapt our product to fit the needs of the North American lifestyle farmer, because the needs they had were tainted by the local product and the local product is marginally [unintelligible 01:04:36] with the style of New Zealand farming or pastural farming that we do in New Zealand and Australia and parts of Europe, so we’ve had to do two things. One is try and develop the farmer’s knowledge of how to make money by using New Zealand’s low cost system as opposed to the system that they traditionally use, but at the same time to ensure that we have enough revenue to be able to sustain the resources that that requires in the market to do that development.
We’ve also had to lower our sights, if you like, and sell some products on the market that have been designed specifically for them, otherwise we just take this premium possession, this premium product and create whatever we can with the passers-by. So, ours has been a twofold strategy get them our brand awareness, get them confident in our quality and our delivery and the fact that we’re going to be around for a while, and then use that to step them up to the product that’s going to help them be more successful in their farming operation using the methods we know down here.
Mike Peterson: Fantastic, I’m getting the call from the [unintelligible 01:05:34] that we need to keep moving so if we can just please ask everyone. But can I thank all of our wonderful speakers, the wonderful team from NZTE the wonderful industry contributions we’ve had, very stimulating. I know we went slightly overtime but, look, huge amount of information. We’ve traversed the world nearly as far as agritech is concerned. Do your homework, immerse yourself in the market.
Peter V Elzakker: We’ve filmed this and it’s going to be available at some point.
Mike Peterson: Wonderful, Peter. It’s going to be filmed and available so look there’s a lot of common themes that have come out here. Thank you very much for your attendance. Please enjoy some drinks and canapes outside and catch up with these wonderful speakers in your own time. Thank you very much.