A quarter of NZ food and beverage firms are foreign-owned, value-add exports rising, report says

A government-commissioned report aimed at attracting more investment into New Zealand's growing food and beverage sector says about a quarter of the sector is already foreign-owned.

The Investors' Guide to the New Zealand Food and Beverage Industry (PDF here), by Auckland research firm Coriolis, says food and beverage (F&B) exports account for 46% of all goods and services exports – $30.7 billion of the $66.2 billion total in 2014. New Zealand is the world's largest exporter of dairy products and lamb and a major exporter of beef, kiwifruit, apples and seafood.

Food and beverage plays a big part in two of the government's core targets – to boost exports to 40% of gross domestic product by 2025 and increase foreign direct investment to all parts of New Zealand by $5 billion over the next three years. It wants to triple F&B exports over the next 15 years.

The report says the case for investment in New Zealand's F&B sector includes a high number of free trade agreements, growing export share and value to Asia; a strong core of exports and a wide range of emerging categories; low intensity of food production with significant growth upside; and New Zealand well positioned in the value "sweet spot" of low cost and trusted by consumers.

The top 100 F&B firms in New Zealand have combined revenues of $51.5 billion, with seven dairy companies accounting for around half of that. The biggest five F&B firms by annual sales are Fonterra Cooperative Group [NZX: FCG], Silver Fern Farms, Talley's Group, Alliance Group, and Anzco Foods.

Of those 100 firms, 76% are New Zealand-owned and the remainder foreign controlled. Ownership comes from a broad range of countries with the top three – Japan, the US, and Australia. China accounts for just 4% of the industry's foreign ownership.

In particular, the dairy industry has attracted significant global investment. However, the top F&B acquisitions in the past four years cover a wide range of sectors with First Pacific and Wilmar taking 50:50 ownership of Goodman Fielder, Fonterra investing $755 million in an 18.8% stake in China's Beingmate Baby and Child Food and Universal Robina buying Griffins last year for $750 million, to name a few.

Economic Development Minister Steven Joyce said the report shows recent investment by the sector has largely gone into further processing, retail products and new high-value categories. Dairy manufacturers have invested around $1.3 billion in the past four years in new plants that produce UHT milk, infant formula, mozzarella cheese, lactoferrin, and hydrolysed protein – adding value to the basic raw material.

The four key investment drivers are increasing scale and efficiency domestically, extending value add categories, investing internationally for growth, and securing supply.

Asia is now the largest destination region accounting for 46% of total F&B exports. China is the standout at $5.4 billion annually, compared to $2.77 billion to the US, and $2.17 billion to Australia. Developing markets, and China in particular, are driving export growth.

New Zealand has significant untapped capacity to export more, with peers suggesting doubling total food production is not unreasonable, the report says. New Zealand is the same size as Italy with the population of Singapore. However, Italy feeds a domestic population of 60 million people and exports twice as much food and beverage as New Zealand, the report says.

Total food production has grown at a compound annual growth rate of 3% since 1972 to reach just under 25 million tonnes in 2013.

The country is strong in six sectors – dairy ingredients, meat, seafood, produce, processed food and beverages. It is the "market maker" in the global ingredient dairy trade and the largest supplier of powders, butter and other dairy fats, and cheese to Asia.

There has been long-term growth across all sectors with beverages hitting 14% 10-year compound annual growth rate, compared to processed foods up 11%, and other food up 11%.

The wide range of emerging categories now produce $3 billion of annual exports, including booming infant formula sales with exports rising from $10.7 million in 2004 to $455 million in 2014.

(BusinessDesk)