What really needs to change
I had to find a title for a presentation I was giving recently and I was discussing it with my chairman.
I suggested using the word ‘‘innovation'' in the title, to which his eyes rolled almost full circle before he stated that innovation had to be one of the most over-used words right now.
He was probably right and I found another word to use instead, but as we ponder low dairy and lamb prices, it feels as if innovation - or rather a lack of it - is coming back to haunt us.
Rather than beat ourselves up as to why we have become victims of a commodity cycle once more, it's interesting to examine what is happening that is innovative, understand why and how it happened, and determine how we can do it at greater scale.
A bright light on the dairy front is Synlait, which has doubled its sales of nutritional products during the past year and has reported a big increase in profitability.
Synlait contributes significant volumes of A2 milk (which contains only the A2 type of beta-casein protein rather than the more common A1 protein commonly found in regular milk) to the A2 Milk Company, and has also developed new products such as iNdream3T, which is produced from cows milked at night and is high in melatonin to aid with sleep.
Other companies I follow with great interest in the dairy and meat industries include Tatua, Firstlight Foods, and Progressive Meats whose CEO, Craig Hickson was last year named New Zealand's EY entrepreneur of the year.
Often when you bring up these examples to players predominantly in the commodity space, their answer is, yes, but those players are niche. They don't have the volumes of product to deal with that the likes of Fonterra have.
In thinking about this, I am reminded of a great case study written on Nespresso (2013, IMD) which is an operating division of a large parent company, Nestle.
In a course discussion about the case study, we talked about innovation needing to happen away from the main core of a business, because the drivers of innovation are often so different from the drivers of a scale, efficiency and sales business.
The examples of innovation in New Zealand’s agriculture that I gave above, happened in some of our smaller meat and milk exporting companies, but what the Nespresso case study showed was that by separating out a division or company, with the right people, drivers and levers, innovation can happen in a large company.
It is also important to note that Nespresso products, like the New Zealand innovations of A2 milk and iNdream3T, were commercialised from many years of research and development programmes.
Too often, we get caught up with trying to find structural solutions to industry challenges, rather than understanding what really needs to change.
Merging meat companies is not a silver bullet. Neither is sticking the knife into Fonterra when it has achieved many great things in terms of economies of scale.
What we need to do is recognise the need for greater innovation in our primary sector.
This has to come from having a strong supporting science and technology sector, and either small companies, or arms of larger companies tapped into that sector, in order to commercialise findings and turn them into something useful.
To achieve this will require tremendous drive and focus, the right people and a long-term strategy which allows science groups and business sectors to be totally focused on adding value to commodities.
This is a New Zealand challenge, not something the export companies can do alone.