As livestock numbers continue to decline, the opportunity for our primary sector to move from volume to value continues to grow as the array of Free Trade Agreements (FTAs) continue to be signed.

With Europe being the latest FTA addition hard on the heels of the UK agreement signed last year, New Zealand primary producers now have 17 FTAs in the portfolio since 1983, of which a dozen have been signed in the past decade.

It can, however, take a number of years for the full benefit of the FTAs to flow to our exporters as restrictions are often only gradually removed. With a range of FTAs now starting to reach the mature stages, there is increasing opportunity to capitalise on the improved market access.

After the surge of export success that the NZ-China FTA bought this country, that hard work has proven timely in helping to develop other diversified FTAs for new markets.

The opportunity, however, is only as good as our ability to capitalise on the additional market access and something primary producers of New Zealand should remain positive about. In this current climate with the many challenges occurring behind the farm gate, it is sometimes easy to forget about the future opportunity.

The reality is that New Zealand has an abundance of natural resources – becoming more commonly referred to as Natural Capital – which is efficiently utilised each day to produce our world-leading nutrition and fibre exports. This is particularly relevant as consumers globally become more educated about the origins of their produce and their preferences become more naturally aligned with what we have to offer.

Having options for primary exports holds more appeal in this new landscape and is more necessary now than a decade ago in New Zealand.

‘Produce it and they will come’ was a national strategic approach deployed for many decades and served the primary sector well. A transition from volume to value has been occurring for a number of years now and this transition is very much a must have reality in the world of restrictions on land use and intensification of stocking rates on rural land.

Nick Hawken, Bayleys National Director Rural, says regulations have all put a ceiling on how much New Zealand’s primary sector can continue to increase its volumes to pursue these new FTA opportunities, and one caveat on FTAs’ outward appeal is New Zealand’s ability to regularly supply the markets offering them.

Between 2002 and 2019, Statistics data has shown New Zealand has lost over two million hectares, or 13% of productive farmland, largely to housing, lifestyle blocks and commercial development.

Sheep numbers continue to decline at a rate of about 2% a year for breeding ewes over the past decade, with indications that this may have just stabilised to now be close to UK sheep flock totals.

Much of the horticultural area with greatest potential has already been developed or would require significant community investment in infrastructure, such as water storage, together with labour to capitalise on additional production growth.

Meantime dairying, the primary sector stalwart, also faces a slide in dairy cow numbers which were down 1% in 2022 and at their lowest level in 11 years.

While not necessarily ‘climate’ adjusted, a recent Treasury report highlighted how dairy production volume has flattened in recent years. Steady global demand and supply constraints have also supported prices, but the room for any significant increase in prices was limited.

“The consequences of tighter regulatory constraints around greenhouse gas emissions and water quality have put a physical cap on cow numbers, something offset to date by an increase in productivity per animal,” Hawken notes.

However, this is also expected to be pressured by a need to focus on reducing emissions per kilo of milk solids.

Overall, Treasury anticipates strong demand and tight supply will help keep global prices firm but cautions that due to developing markets’ sensitivity to price, these are unlikely to rise much further.

“Keeping these constraints in mind, across the entire primary sector they offer both a brake and an opportunity for the future. The physical volume to sell now has a ceiling, and that demands a creative, nuanced approach to how export markets are developed.

“Simply selling less of the same for more, could be an ideology. Increased market access is likely to come with added cost to ‘get to market’ given international shipping routes and volumes constitute critical economic mass. There is also an anticipated need to provide more choice to consumers requiring product innovation.”

South Korea provides an example of how such markets may develop. With a NZ FTA signed off in 2015, the country’s previously punishing tariffs on food products are starting to roll back, reaching zero by 2030.

For Fonterra in Korea, this has presented a market keen to consume quality milk proteins, often formulations in liquid flavoured milks. The company has established a reputation for its expertise on protein formulation, with outlets as an ingredient in consumer, medical and wellness products rapidly developing.

For Silver Fern Farms it has meant marketing low-fat, high protein, nutritively dense chilled packaged beef products, and for Zespri SunGold kiwifruit, appeal in a market where fresh fruit is a key part of the diet, capable of being sold in single serves.

Ultimately, the breadth of New Zealand’s FTAs is helping exporters de-risk their reliance upon any one single, and possibly vulnerable market.

“But this comes with a caution that while the variety of markets with FTAs is appealing, there is also a need to consider the primary sector’s capacity to supply regularly and at meaningful volume for what each of these markets will require,” says Hawken.

“Regardless, primary producers are entering an exciting period where, with good strategic marketing and supply, they are in the box seat as suppliers to any and all of those markets.

“As rural landowners, there is an underlying vested interest in seeing additional market access come to fruition, but it needs to be at a greater total contribution margin to drive better returns from their assets as it will ultimately influence the longer-term investment value of rural land.”

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