For the past hundred years, New Zealand's principal exports have been agricultural. It is not too bold a proposition to say that our economy depends on agriculture, horticulture and viticulture. And yet, potentially, this bedrock primary industry is under threat from changing consumption patterns and innovation in food production - linked largely but not exclusively to climate concerns and shifting demographics.
The principal threat comes from rapid innovation in plant-based alternatives, which increasingly can replicate the tastes and textures of traditional meat and dairy products at ever-reducing prices.
The expansion of plant-based production is driven partially by growing recognition of the role of agriculture in greenhouse gas emissions.
Mindful of climate and personal health effects of meat consumption, more people are switching to a vegetarian or vegan diet, with the 2020 Colmar Brunton Better Futures Report finding that in 2019, the proportion of New Zealanders eating ‘meat-free' jumped to 15 per cent, up from 10 per cent in 2018 and seven per cent in 2017. One vegan restaurant owner says he sees the trend towards plant-based consumption being led by millennials.
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The rise of alternatives to cow's milk has happened sharp and fast; walk down Ponsonby Road and see cafés advertising barista-friendly, locally produced oat milk brands, the oldest of which - Otis - was founded just four years ago, with Oatly following in 2019 and Boring popping up in only the last three months.
All are widely available in supermarkets and also sold (at the same price point) by the bottle or carton at cafés, in an urban 2020s spin on the old corner dairy distribution model.
With New Zealand oat farming having previously maxed out on demand for porridge and baking, the growth of the alternative milk category means new opportunity for a farming sector under heavy pressure to cut herd sizes - or exit dairy altogether - to meet emissions targets, if producers are able to pivot quickly.
Changing consumption habits are also affecting the wine industry, with comparative data from 2015 and 2020 showing regular wine drinkers (defined as those who drink wine at least once a month) dropping from 1.9 million to 1.6 million over the same period the adult population rose from 3.5 million to 3.7 million.
Finally, and possibly even more worrying for our agricultural sector, is the concept of yeast fermentation of dairy protein as a lab-produced substitute for milk. Commentators are suggesting that within 10 years such processes will be able to produce a milk substitute cheaper than milk from cows - and point to the climate benefits from lower methane and transport which will accrue as a consequence.
Fonterra sees the writing on the wall; in 2019 it bought a minority stake in US-based biotech company Motif Ingredients, which operates in what is called the complementary nutrition category, where plant, insect, algae and fermentation-produced nutrition co-exist alongside animal proteins, including milk from dairy production.
And a reverse NZ-US investment, New Zealand-founded New Culture just secured a NZ$35 million Series A funding round from backers including the venture capital arm of Kraft Heinz; New Culture aims to have its first product, an animal-free mozzarella, on the market by 2023.
Assuming Moore's law of computer technology innovation can equally be applied to agricultural innovation, I think it is not unreasonable to assume the costs of complementary nutrition production could halve every 18 months to two years. Witness the lab-grown / vegan 'meat' products that have gone from being fringe to dominating aspects of traditional markets in a matter of a few years, such as Chile-based NotCo, which was founded in 2015 and is expanding through Latin America and into the United States after an $85 million funding round.
NotCo uses technology to create plant-based substitutes the company claims taste better than the conventional products they are replacing, and by late 2020 was selling six times the amount of product it was the year before, including lupin and chickpea-based Not Mayo in Chile, one of the top consumers of mayonnaise, and in meat-loving Argentina, NotCo has a 50 per cent share of the whole burger market, both plant-based and conventional, with its Not Burgers.
The trend is clearly gathering pace.
There are many significant agritech innovations underway in New Zealand - but as always, access to capital is constrained, and I would argue these innovations are often at the fringe of the agricultural industry.
If my thesis about the global market incursion of plant-based innovation and complementary nutrition is correct, New Zealand is facing a crisis in agriculture by 2030 to 2035. What price a world-beating dairy industry if protein-fermented substitutes have decimated the market? What price the world's best meat if plant-based or lab-grown products are dominating supermarket shelves and consumer tastes? And what price the world's best wine if low-alcohol or alcohol-free drinks have taken over, especially as new wine regions such as China come on-stream and markets shrink in the face of more intense competition?
Kiwis have a well-deserved reputation for innovation. We are good at adapting and problem-solving, and we have the talent and ideas to meet these challenges -even if, in the agricultural world of the future, we make our money from licensing our ideas rather than selling our own products into the export market. To support innovation, the Government should harness ACC and NZ Super funds for much greater investment in research, innovation and development than we have at present.
In this respect, the car industry provides a salutary lesson. The electric vehicles pioneered by Tesla and others were regarded as fringe by the mainstream motor industry, whose response was slow. Today, governments across the world are banning sales of internal combustion vehicles within the decade, and the traditional manufacturers are scrambling after a competitor which now has a market capitalisation equal to the whole industry combined - and is consequently able to fund investment and innovation at an ever-increasing pace.
We cannot afford to make a comparable mistake. While there will always be a market (we hope) for our traditional quality products, we cannot just cross our fingers and pray. We have to invest now so our economy can adapt and keep ahead of the curve. Equally, we may need to accept that there will be a need to retrain large components of our agricultural workforce, with serious implications for the landscape of the rural economy and our country as a whole.
Now is the time for the Government to set out a clear strategy for how we will face and resolve this challenge. Nothing less than our economic survival is at stake.
Andrew Barnes is a businessman and philanthropist. He is the founder of Perpetual Guardian.