The producer is no longer king.
Listener: 29 December, 2007.
Keywords: Business & Finance;
It’s been a long way from the Agricultural Development Council (ADC) of 1963 to last month’s Primary Industries Summit – in both time and head space.
The ADC focused on the pastoral sector. In those days, dairy, meat and wool made up almost 90 percent of export receipts. Today the figure is about 25 percent, although other primary products – fish, forestry and horticulture – take the primary-sector proportion of exports to near 45 percent. The frequently misquoted figure of 65 percent ignores service exports, which make up 30 percent of export receipts. “Invisibles” are not invisible to statisticians.
In 1963, there were glimmerings of the need for diversification and further processing. But the greater difference is that while the 1963 conference was production-driven, there was hardly a mention of production in 2007. The focus was markets.
The earlier conference assumed that we could sell all we produced. There was a concern that this might reduce the prices, but available estimates suggested that it wouldn’t be by much. Overseas markets – mainly the British one – would take all we could send, and pay a fair price.
But although the return on commodities might be fair, it will never be high enough to keep our producers in the manner to which they wish to become accustomed. We need to sell more complex, higher-value products.
The message from the summit was that no longer is the producer king (the implicit message of the ADC). Today the consumer rules, often as queen.
Growing affluence gives consumers choice. They are acquiring “experiences” rather than buying more things. The latter – conspicuous consumption – may remain important for status but often the additional spending is on a holiday, or an exceptional meal.
The affluent population is ageing; increasingly concerned about life-prolonging health and “wellness”, and the quality rather than the quantity of their purchases. Their wealth enables them to express ethical concerns such as the planet’s sustainability. As a result, today’s suppliers who seek a premium price for their products have to worry about freshness and purity, about perceived differences, about branding – at both a national and an individual product level.
A growing concern is a product’s “traceability” through the supply chain, from its carbon footprint to the source of a particular component – say, a chemical – or the quality of the animal husbandry.
There will still be commodity exports. The trick is to fractionalise; to sell milk powder, for example, into mass markets, and other, higher-priced milk products in specific, more affluent markets – yoghurt, for example, or pharmaceuticals.
China and India have almost half the world’s population between them; they also have low average incomes. We mustn’t be seduced by the numbers and ignore the opportunities in more affluent markets. India has more millionaires than New Zealand has people, and they have to be addressed quite differently from the mass milk-powder market.
Another promising mass market is oil alternatives. Rightly, the summit was not obsessed with the (highly subsidised and therefore misleading) US biofuels industry, and instead looked to Brazil. Less was heard, however, about the way in which competition for land for biofuel crops will drive up the price of food.
The change from the ADC to the PIS is a metaphor for the changing world, as we move from mass to niche markets. I fear, though, that it’s also a metaphor for the change in thinking. Many of the PowerPoint presentations had a looseness that was obscured by flashing to the next slide.
Forty-four years on, I can still follow the logic of the ADC. Some of the IPS presentations, however, will seem confusing, if clever, in 44 days – even to their presenters – although there were some excellent ones, too.
The switch from traditional economics to marketing is also a switch from solid thinking to the ephemeral, the shallow, the fashionable – the thinking of the emotional instant.