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Food, the new global currency

By Anna Campbell

We have often heard that when the “US sneezes, the rest of the world catches a cold.” It seems to me that the global cold is lingering. Prices for red meat and wool have now slumped, mirroring what happened earlier with dairy commodities. 

But hang on a minute...dairy prices have just gone up, pork and chicken prices are set to rise and red meat will probably go in the same direction, yet the globe is “still snuffling”. Why are we getting this commodity move against the underlying financial trend?

The US has just experienced a horrific drought, the country’s worst since 1956. This means global corn prices have hit a new high and we are seeing a ripple effect into other commodities. This is on the back of the global food shortage of 2008, which also saw commodities increase in price.

Fundamentally, what this all shows is that despite the global financial crisis, there is an underlying problem of shortage of food supply. For New Zealand, protein prospects look pretty rosy as urbanisation and consumer power in emerging countries are driving this global need for food. The requirement for clever food production systems, with minimal environmental footprints, is unprecedented and creates huge opportunities for a food producing country.

So how do we make the most of these opportunities? I have heard many times that “New Zealand can’t feed the world so we need to target the top-end consumers”. I have always whole-heartedly endorsed this philosophy and mostly, I still do. However, recently I attended a Harvard Agribusiness course in Shanghai and realised that I had developed a quite severe case of “tunnel vision”. 

There I was, first day on my course, bright and sparky, seated beside a Mr Raj Vardan, Senior Vice President at Olam International and head of their China operations. 

“So what does Olam do?” I asked him in my guileless kiwi manner. 

“We sell commodities...globally,” he answered politely. 

Fortunately, from my ignorant start, conversation took off and I was to find out that Olam is one of the world’s largest commodity producers-with a mere turnover of US$15 billion. In fact, if you eat a Moro Bar, or drink a cup of Nescafe, anywhere in the world, then chances are, you are eating an Olam product. Olam was started in Nigeria in 1989, by an entrepreneurial man named Sunny Verghese. His first export product was cashews into India. Two years later, my new friend Raj joined Olam and now the company operates (growing and selling) in 65 countries with 20 products. 

“So do you add value to those products and brand them at retail level?” I asked Raj, clearly still suffering from that tunnel vision. 

“That is not what we are good at” he said, “we produce and sell commodities, that is what we do well and how we will continue to grow”. 

In more “academic terms”, this is known as “horizontal integration”, or even better, an “adjacency growth model”. 

So here I am, back in New Zealand, with all the right lingo, wondering what this kind of model means for us. As I quietly contemplate, I note that Fonterra is busy buying up dairy farms in China and looking to expand into South America. They certainly make appropriate noises about “adding-value” and they definitely are developing innovative products, such as Anlene, but fundamentally, Fonterra knows what they are good production and commodity (ingredient) sales, simple as that. I suspect that this is, and always will be, their core business. Is this so bad?

In this new era, where the populations and wallets of emerging countries are soaring and where the new global currency is food, perhaps good kiwi ingenuity will be to work out how we can do what we do really well, but on a much more global scale. New Zealand exporters do need to sell to the top-end markets, especially products that actually come from our shores, but maybe, we should also be doing a lot more to utilise our somewhat underrated “farming skills,” to grow food elsewhere and target that vastly growing mass middle market. Targeting these emerging consumer markets is what McKinsey and Company have recently described as a $30 trillion opportunity. Who knows, for us it could be the equivalent of a flu vaccine, for the next time the US sneezes.