By Rod Oram
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Sunday 1st September 2002 |
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Home to the highest concentration of scientists in the country, the Waikato is in a prime position to lead the charge towards a new sophistication in farming. Rob Pringle, chief executive of Dexcel, a dairy industry research centre outside of Hamilton, says it already is: dairy farmers are perhaps six years away from completely automated milking systems where sensors monitor each cow's health and milk quality without the farmer even touching a teat. "First thing in the morning, a farmer will flick on a computer and scan the data from the past eight to 12 hours," he says.
Farming, but not as we've known it. However, the context for these advances remains an economy tied to the highs and lows of the commodity cycles - as illustrated by the example of Te Kuiti. "Back in the 1998 King Country by-election, I was campaigning in Te Kuiti," recalls Jim Anderton. "I was talking to people in the main street with 40 empty shops around us. It was a profound sight." Today there are only a few dead shops, says an employee of the Waitomo District Council.
Typically, a 10-year cycle sequences through one okay year, two great, one okay and six awful years. Certainly, 1999-2002 was the cream of the cycle for dairy and, to a lesser extent, sheep farms. Money cascaded into the Waikato. Some retailers joke that farmers retired debt the first year, bought a new tractor the second, a swimming pool the third and a Mercedes the fourth. But that's all gone sour over the past six months, with international dairy prices falling 40% and the Kiwi dollar up 20%. If history is a guide, Te Kuiti will see more empty shops by Christmas, unless enough people are running their businesses differently enough, and better enough, to effect a change in the business environment of the region. Here are six signs that business in the region may be on the right track:
1. DEC International of Hamilton is the first New Zealand company to win FDA approval in the US for an animal pharmaceutical. Its vaginal implants bring cows into heat faster, increasing birth rates and productivity. DEC is also deeply into robotic milking systems. It exports 80% of its products to some 30 countries, enjoys double-digit growth and believes it has what it takes to become a $100-million-a-year company, says general manager Dean Epps.
2. The Waikato Innovation Park is expected to be up and running by next March, although it has been a staggering 15 - yes, 15 - years since it was first mooted. "This didn't happen before because of insufficient vision and commitment," says a source familiar with the project's tortuous history. Strategically located between the campuses of Waikato University and the agricultural research centres at Ruakura, the park will help to commercialise their work. "They are enormous sources of ideas," says John Birch, the park's chief executive. Commercial discipline will be foremost. "This will not be a holiday camp for under-performing new businesses," pledges Birch, who built up and then sold MBL, a Hamilton-based engineering company with dairy industry customers at home and abroad.
3. Big infrastructure issues are being tackled, such as the decade-long project to build a decent Highway 1 south from the Bombay Hills and then around the east side of Hamilton.
4. Huge environmental challenges are starting to be met, such as reducing waterway pollution from dairy farms. The disparaging term "dirty dairying" is catching on fast, thanks to the muddy, heavily nitrated run-off from cow pastures into streams. Although high science is probably required to solve the problem, simply keeping the cows away from stream banks will help a lot. A big job: fencing the Waikato's streams and rivers could cost roughly $1 billion. "We can cope as long as it isn't forced on us," says John Fisher, president of Waikato Federated Farmers. In other words, progressive farmers are doing their best to tackle the problem, but it's a long and costly process. Some projects prompt a joke or two. Now that JAFAs are drinking Waikato river water, "we're putting up signs saying, 'Flush twice - Auckland needs the water,'" quips one local councillor.
5. After poor investments in recent years, the Tainui iwi is starting to develop new skills for running its tribal assets. "We will be instilling management-for-performance and customer-focused culture," says Steve Murray, who earlier this year returned from working in Hong Kong to become chief executive of Tainui Group Holdings.
6. The forestry industry in the southern Waikato is beginning to reach a state of stable ownership after the debacle of the Fletcher/Chinese partnership in central North Island forests. New downstream investment might now be attracted to the sector.
Where the grass is greener
Local leaders believe the Waikato's 38% share of New Zealand's exports will grow, with hot spots including the wealth of engineering companies around Hamilton. The export successes are not just agriculture-related. NDA, for example, has broadened its stainless steel fabrication from dairy into industries such as pharmaceuticals, chemicals and food processing. Pacific Aerospace builds aircraft, and Greens Industries is enjoying 20%-a-year growth in exports of high-quality kitchen and bathroom taps to Japan, the US and Europe.
"We're just flat out. It's incredible, "says Brent Cederman, Greens marketing director.
Above all, there is a new-found sense of purpose among the leaders of the regional economy. Lynda Keene, head of Tourism Waikato, says the region was traditionally "very provincial and conservative, with not a lot of cooperation". The top business people were very wealthy and very private.
"The only unified sound you used to hear were cow bells at Mooloo games," agrees another regional leader. "Now you are hearing the word 'maturity' a lot. We're starting to understand what our strengths are and to sell them."
Adds Keene: "There's a much higher level of community and other groups who are willing to push the Waikato." The slogan, "Waikato: where the grass is greener," started as a tourism brand a couple of years ago and is now licensed to 22 organisations covering wide chunks of the local economy. "The brand is really about building pride."
Green pastures are the perfect symbol of the Waikato's big opportunity: for farmers to marry the richness of the land with the latest technology, to develop more valuable and customised products and to act as a buffer from the commodity cycles. But it is a huge challenge. "We need to get away from commodities," says Fisher, "but we're not getting very far very fast." Deregulation of the dairy industry was the first, and most critical, step. Legislation last year tried to ensure three big changes that could - if they work - make dairying more responsive to market signals, and allow for more innovation and new downstream players. First, the Dairy Board's monopoly of export trade was ended; second, farmers can now collect the full value of their capital on exiting a co-op; and third, a new mechanism ensures incoming processors can get milk supply at a fair price from Fonterra, the mega co-op that handles some 95% of the country's milk.
The new rules are the regulatory price Dairy Group and Kiwi Co-op paid for the opportunity to merge to create Fonterra. But they also paid another price: the gallons of blood spilled as the two co-ops, Dairy Group in the Waikato and Kiwi in Taranaki, fought for dominance. Many Waikato people believe their region was the loser. Kiwi Co-op executives took the lion's share of senior jobs at Fonterra. Hamilton landmark Anchor House is still bursting at the seams with people but it has been downgraded from the Dairy Group's head office to Fonterra's manufacturing headquarters. Fonterra's head office is a small, anonymous building at Auckland International Airport. "Clearly we were disappointed not to get the headquarters," says Ewan Wilson, Hamilton city councillor and chairman of its economic development committee. "It was a wake-up call, telling us we've got other things to do. We have to change the perception of Hamilton. We're now one of the major cities in the country," says Wilson, best known as the founder of failed budget airline Kiwi International.
Fonterra has only been up and running since last October so it is too soon to know whether it will deliver the promised cost savings, synergies and high-value opportunities abroad. "How successful Fonterra is going to be is the absolute key to the future. But we're all a bit nervous about how it's going," says Fisher.
"We haven't seen any changes in behaviour and synergy," says a major supplier of services to Fonterra. "And there are high levels of suspicion between directors who came from Kiwi and those who came from Dairy Group."
Why we need GM cows
Thankfully, Fonterra isn't the whole game. Farmers themselves are exploiting new opportunities. Federated Farmers' Fisher, for example, has bought the farm next door that his parents owned and they, in turn, have put the money into investments in three new dairy farms in South Canterbury. Fisher believes it is only a matter of time before new milk processors set up, a trend that will accelerate if Fonterra fails to deliver on its promises. Why? On the demand side, the influence of retailers and consumers is starting to reach back up the supply chain. They want specialised products, from organics to nutraceuticals (foods with therapeutic properties), and detailed auditing of food safety. On the supply side, the industry fears being undercut by rivals in low-cost milk production such as South America, or outgunned by the application of scientific advances in the likes of the US. So far, New Zealand has led the world thanks to excellent farm practices.
But future success will depend far more on new, demanding scientific disciplines such as genetic modification, says Dexcel's Pringle. For example, "we need genetically modified grasses to improve nutrition and mitigate methane," he says. Cows produce wholesome (milk and its derivatives) and unwholesome by-products (climate-warming methane and water-polluting, nitrate-laden urine). But modify their feed and genes, and cows could produce more good stuff (nutraceuticals, pharmaceuticals) and less bad stuff. "We've only just started to unravel milk. But even relatively small advances would have a big impact," says Pringle. He cautions progress will be very slow. If, for example, breeding created a fantastic new ryegrass, it would take 10 years of planting and growing to become the dominant variety.
AgResearch at the Ruakura campus outside Hamilton is leading the charge for the scientific community. A hefty restructuring over the past three years gave the Crown Research Institute a strong focus on intellectual property and product development. As a result, government funding has halved from 80% of revenues to 40%, total revenues are up 48% and the number of scientific staff is up from 525 to just over 600 - half in the Waikato and the rest around the country. Moreover, it is filing some 40 to 50 provisional patent applications a year, up from the mere handful when it was established a decade ago. This new focus is helping AgResearch recruit top-ranked foreign scientists and, crucially, broaden its scope, recognising the interconnectivity of different branches of science. "New Zealand is good at biological science and we've a huge biological base in animal and plants. But it was important to lift our bounds outside agriculture into life sciences," says AgResearch chief executive Keith Steele. "New Zealand will always have a role in food production. But we can't rely any longer on low-cost pasture. We are losing our advantage over producers who use grains and other crops."
At the same time, the demand for "health and well-being" products is rising rapidly. Science is essential to meeting those challenges, Steele says. As New Zealand researchers can't supply all the answers, AgResearch is pursuing a tactical approach. "We need to create enough pieces of intellectual property so we can create a 'minefield' around any topic. Then people abroad will need to collaborate with us." For example, AgResearch has identified the compounds that make deer antlers the fastest growing tissue known. Further work with pharmaceutical companies could lead to new ways to treat human wounds. It has also set up an animal cloning joint venture with a UK company, based in Australia and New Zealand and with an eye on Southern Hemisphere markets. Biotechnology is at the heart of most of AgResearch's activity, with one particular discipline - genetic modification - playing a key role. "It is a crucial tool in our work. In the environmental area, for example, it helps us understand processes better and faster." But AgResearch says it is seriously hampered by the regulatory climate. It argues for speedier processes, not easier rules. The Environmental Risk Management Authority "operates outside the scientific and commercial timeframe. As a result, we're losing investment from overseas", Steele says.
Leaving aside the agricultural sector, the Waikato is home to businesses such as an environmental initiative described as "an inland island" - a company that services hydro plants - and a helicopter-building firm. There's also a fledgling tourism industry. The Maungatautari inland island is some 20km southeast of Cambridge. David Wallace, a local farmer, has persuaded 25 landowners, Maori owners, the district council and the Department of Conservation to agree to a 47km fence enclosing 3200ha and an 800m mountain. Predators will be exterminated for native species to flourish. "Flora and fauna health is plummeting across the country," Wallace says. "It is very hard to value conservation but if we can, we can accelerate it. Wouldn't it be great if we had environmental initiatives that created jobs and wealth?" In a 16ha trial of the pest-free model, DoC pays him to raise kiwi chicks, for example. His intention is for the Maungatautari project to become an educational, tourist-luring money-spinner. A trust is raising the $14 million required and one piece of the technology is ready: Wallace's predator-proof fence, the Xcluder. With enquiries coming from around the world, the fencing technology is likely to become a commercial venture in its own right.
Naturally, many of the Waikato's manufacturing and engineering companies have their roots in the natural resource sector. Industrial Valve Engineers (IVE) of Tokoroa, for example, was founded in 1976 by Margot Hudson and her husband Jamie to service equipment at the nearby Kinleith pulp and paper mill, now owned by Carter Holt Harvey. With a branch in Taranaki, IVE services the likes of hydro plants and heavy industry countrywide.
A very different kind of venture is taking off across Highway 1 from IVE. Alongside the paved runway of the Tokoroa airstrip is a new hangar. Inside, Stewart Hamilton and Bruce Bellfield are building helicopters. The Safari is a two-person light helicopter designed by a Canadian company. Hamilton and Bellfield buy the rotor blade assembly from the Canadians, sourcing the rest of the equipment from far and wide. The helicopter does not have a commercial certificate of airworthiness, so it can't be used for fare-paying passengers or cargo work, but it's ideal for owner-operators such as farmers and recreational pilots, says Hamilton. He claims a Tokoroa-built Safari costs about one-third of the commercial equivalent, the Robinson, to buy and run. Having built helicopters for themselves, Hamilton and Bellfield are now looking at selling choppers to other owner-pilots.
Tourist destination or toilet stop?
Tourism may seem a more natural bet for the Waikato than helicopter manufacturing, but it's a sleeper industry. "Even with 1.5 million people on our doorstep, nobody knows we're here," admits Tourism Waikato's Lynda Keene. "Hamilton was just a toilet stop." Yet Hamilton is a great base for seeing many of New Zealand's most enticing charms: mountains, high desert, beautiful coasts, forests, farmland and the country's biggest, most international city are all within a two-hour drive. Tourism contributes some $480 million in revenue a year to the regional economy and the infrastructure in the sector is starting to come together. In recent years, Hamilton has gained high-quality hotels from international chains CDL and Accor, international routes for its airport (which saw 150,000 international travellers last year), a casino is about to open and there are plans to open up the Waikato river banks as a downtown esplanade.
Finally, though, for another take on the issues facing the Waikato, take a look at Tokoroa. There's a big challenge here. Tokoroa has a lot going for it: forests as far as you can see, a handy location and the urban infrastructure of a far bigger town. But that's its problem. The Kinleith pulp and paper mill and other forestry operations shed many employees as they fought to become world competitive. Unemployment is high and 30% of the population earn less than $15,000 a year, says Noel Ferguson, economic development officer for the South Waikato District Council. "That's poverty. Serious. Big time." But he is undaunted. One of the town's strengths is the "Tokoroa tribe", he says: the 37 cultures of its citizenry. It is the third-largest Pacific Island community in the country. He is searching for people and ideas to help turn things around, calling on Gordon Dryden and Frances More in education and Ernesto Sirolli in community business development. "Our literacy rate is barely 60% but we can get that to 100% by the end of next year if we choose the right programmes."
Rapid expansion of the nation's forestry industry should benefit Tokoroa at the big end. At the small end, some creative entrepreneurs are at work. Take Vicki and John ten Velde, the owners of Waiata Records. When they arrived in Tokoroa 10 years ago, theirs was one of three music shops. Now, it's the only one. Yet it thrives, despite being next to The Warehouse with its deeply discounted CDs of mainstream hits. The ten Veldes concentrate on more discerning local tastes, trade globally via their music website and sell Vodafone products. Thanks to a New York-based server and New Zealand Post, they distribute the music of New Zealand and hard-to-find artists around the country and globally. When Spike Milligan died early this year, the ten Veldes were one of the few sources in the world of the Milligan classic Bad Jelly the Witch.
The challenge for the Waikato as a whole is the same: to use savvy and know-how to give the world a product that it's desperate to buy, not just another commodity. As commodity prices weaken abroad, and the hard times start to bite, let's hope the region is far enough down that track to avoid more of the pain of the past.
Waikato stats
People:
A total of 456,354 people live in the Waikato, up 2.4% from 1996. But Statistics New Zealand is forecasting fast growth: 17.5% more people by 2021 for a total of 536,300. The median age of Hamiltonians is 30.8 years, compared with the national median of 34.8.
Brains:
The Waikato is home to 20-25% of the nation's scientific research capacity. Within Hamilton alone there are 1000 research scientists. The University of Waikato has 93 staff with PhDs in life sciences and 212 students undertaking PhD research in the sector.
Animals:
Dairy cows: Hamilton boasts more than a million cows within a 60km radius of the city. Some 2.39 million cows, 52% of the national herd, are in the top half of the North Island. MAF doesn't give a more detailed breakdown but the Waikato dominates. Six years ago, the top half of the North Island had 2.44 million cows, 58.6% of the herd. The slight decline since reflects the rise of South Canterbury and Southland as dairy areas.
Beef cattle: 1.73 million, 35% of the national herd, graze the top half of the North Island, down from 1.84 million, or 38%, six years ago.
Sheep: 5.6 million, 12.5% of the national flock, live in the top half of the North Island, down from 6.5 million, or 13.8%, six years ago.
Manufacturing:
Hamilton claims 17% of the nation's agricultural machinery industry and 10% of its plastics.
Tourism:
Tourism contributes about 5% of the region's GDP and 6.5% of its employment. Tourism Waikato's strategy is aiming at a 5% annual increase in guest nights to lift the Waikato's market share of the nation's tourism from 3% to 5% within five years.
Boom times:
GST-registered purchases leapt to $6.26 billion at the height of the dairy boom in the quarter ended September 2001, a 27% increase compared with a year earlier. Right up to the latest statistics, retail sales were among the fastest growing in the country but are likely to slow sharply in future data.
On the bright side
Things going right in the Waikato:
The town that wouldn't die
Speaking very precisely, on the basis of the closest observation and the sturdiest empirical evidence, exactly how dead was the Waikato township of Tirau at the end of the 1980s? "Tirau was as dead as a maggot," says Henry Clothier, a
businessman who has helped revive the town by building and renovating premises and renting them to entrepreneurs. Clothier is recalling 1989, when he and his wife moved there to open an antique shop and found it, like so many rural communities, reeling from the mid-1980s reforms that wiped out agricultural price supports.
How did Tirau rise from the dead? By creating an identity to tout to travellers, says Clothier. "Every town has got to get its own identity. We became a destination." With a lively blend of antique shops and restaurants, along with corrugated iron monuments of a sheepdog, a sheep and a shepherd - not to mention a huge mock castle - Tirau is a welcome stop for thousands of travellers each week on Highway 1 between Cambridge and Tokoroa. "One antiques dealer moved here from Auckland," says Clothier. "He does more business in a day in Tirau than he did in a week on Albert Street." Thirteen years ago, Tirau had three eateries and 17 businesses, most of them struggling. Today there are 13 eateries and 55 businesses.
A serial entrepreneur, Clothier himself has built up seven businesses, including Matamata Post and Rail and, back in the late 1970s, the nationally famous Matamata donkey auction. He's known for his humour. While Unlimited was earnestly asking about economic development, someone phoned for his wife. "No, you can't speak to her," he told the caller. "She went mad, so I shot her."
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