Mood of the Boardroom: War in Taiwan could hit New Zealand trade hard, executives say (NZ Herald)
Mood of the Boardroom: War in Taiwan could hit New Zealand trade hard, executives say (NZ Herald)
Executives were asked in the Herald’s Mood of the Boardroom survey whether they are concerned the China-Taiwan conflict could escalate into war and if it would affect New Zealand’s interests.
Some 68% of business leaders say they are concerned. The remaining 22% are not, while 10% say they are unsure.
China’s significance to New Zealand’s economy means any disruption to trade would have far-reaching effects.
Barfoot & Thompson managing director Peter Thompson reflects this concern.
“China is a big player for New Zealand business, and if war broke out, trade deliveries would be slowed, having a huge impact on businesses back here, similar to during the Covid period.”
Complicating matters further is the delicate geopolitical balancing act New Zealand faces.
“Our two biggest trading partners at war with each other would be a nightmare for New Zealand,” warns NZ Windfarms Director Craig Stobo, referring to the United States, which last year overtook Australia to become New Zealand’s second-largest trading partner, and highlighting the complexity of New Zealand’s position.
Despite this anxiety, some respondents are confident that the situation will not escalate.
Les Morgan, who runs the Sudima hotel chain in New Zealand, trusts that “the economic impacts of such action will temper any desire to pursue formal action”, while a logistics executive suggests that “China will not invade Taiwan, they will get control economically over the century”.
Some have broader concerns over inadvertent escalation.
“I worry about the likelihood of a proxy conflict or miscalculation leading to conflict,” a public sector CEO says.
The long-term implications of such a conflict go beyond mere trade disruptions.
“The risks associated if China and Taiwan go to war extend far beyond the region, with profound economic, military, humanitarian, and diplomatic consequences,” the New Zealand head of a US-headquartered multinational says.
Others note that while New Zealand may not be directly involved, the country must be prepared for the fallout from any escalation.
Deloitte chair Thomas Pippos warns: “This is a real risk, with care required to ensure matters don’t escalate to that level — accepting that New Zealand will not be the cause or protagonist.”
Mood of the Boardroom: Kamala Harris leads among NZ CEOs in US presidential election preference (NZ Herald)
New Zealand business leaders have expressed a clear preference for Vice-President Kamala Harris over former President Donald Trump in the upcoming United States presidential election.
When asked in the Herald’s Mood of the Boardroom survey (out tomorrow) who they believe would be the best politician to lead the US, 82% of respondents favour Harris, while only 4% support Trump, with a further 10% unsure and 4% opting for “other”.
This compares to 2020 where 66% of respondents backed Joe Biden and 5% supported Trump. In the 2016 election, Hillary Clinton was the clear favourite with 92% support, compared to 5% for Trump.
Harris officially became the Democratic presidential nominee two weeks after President Joe Biden dropped out of the race in July, marking a dramatic turn in US politics. As the first woman of colour to lead a major party’s presidential ticket, Harris could be on the cusp of becoming the first female President of the United States. Despite this strong preference for Harris, the excitement for her from New Zealand’s business community is subdued.
Others note that, while Harris presents a “less risky” option compared to Trump, she has yet to prove herself as a strong leader on the global stage.
“Harris would bring a more balanced approach due to having a more balanced team supporting her,” said one transport CEO, reflecting a widespread view that her administration would provide greater stability than Trump.
There is a shared concern among many about the broader geopolitical context in assessing the potential impact of the US elections on New Zealand. “The world requires a global and outward-looking United States,” noted the director of a major bank, reflecting a desire for the US to play a constructive role on the international stage.
A professional director echoed this sentiment, warning that “in the current period of vulnerability, the huge volatility that a Trump victory would introduce is very concerning for countries like New Zealand”.
For some, Harris is seen as the least disruptive option. “In saying Kamala Harris would be best placed as president, one is hardly giving a ringing endorsement,” says a public sector chairperson.
“Nothing she has done previously in her career suggests strong presidential material. That said, she presents less risk of blowing up the world, and more chance for steady, predictable leadership than Trump. Therefore, she has to be New Zealand’s preferred candidate.”
However, not all are convinced.
Jason Paris, One New Zealand CEO, would have preferred to see former Republican candidate Vivek Ramaswamy win the nomination and go on to win the presidency. “I don’t necessarily agree with all of his politics, but he has a clear plan,” he says.
Concerns over Trump’s trade policies
The survey highlights concerns from the boardroom over Trump’s proposed economic policies, particularly his plan for a 10% across-the-board tariff on all imports into the United States.
Trump argues that this will protect American jobs and generate revenue to offset the proposed extension of his 2017 tax cuts. He has also indicated he would impose a levy of 60% or more on Chinese imports.
Economists warn that this would likely backfire, essentially acting as a tax on US consumers and potentially adding around US$1700 ($2700) a year in additional costs.
Among New Zealand CEOs and directors, 30% say the tariff would directly impact their businesses.
This is particularly concerning given New Zealand’s growth in trade with the United States.
In 2023, bilateral trade between the two countries grew 16% to reach $14.6 billion, and saw the United States surpass Australia to become New Zealand’s second-largest export market in the year ending March 2024.
Although 65% of respondents say their business would be unaffected, many highlight the potential for indirect consequences through their clients and the broader economic climate. “This will have an impact on every business in the world because it’s seriously inflationary for the US and will therefore drive up interest rates there and globally,” says an investment boss.
An independent board member with experience across broad sectors notes, “where possible, the costs for this would need to be passed on to the (American) consumer”.
An agribusiness leader suggests “this would make the US unattractive as a market,” warning that it could cause massive instability globally. Anne Gaze, founder of Campus Link Foundation, sums up the general sentiment: “Such a policy would likely prompt us to explore alternative markets while navigating the added costs of US trade.”
Trade benefits possible with Harris
When asked whether a Harris-led US administration would open doors further for New Zealand trade, the response was divided: 28% believe it would, 26% say it would not, and 46% are unsure.
While some respondents believe Harris would be “more open to free trade” compared to Trump and “not as protectionist,” they also point out that she is relatively untested in the area of international trade.
“Compared to a Trump-Vance-led administration, she would open doors further,” says one professional director. “But compared to the current administration, I am unsure much would change.”
Business leaders emphasise the need for New Zealand to be prepared, regardless of the election outcome.
“It’s up to us to be proactive whoever gets in,” one participant said, underscoring the importance of strategic engagement with any future US administration.
With significant economic and geopolitical stakes in play, New Zealand’s business leaders are hoping for a US administration that can balance domestic priorities with global responsibilities – whoever the next president may be.
Though there is hope that a Harris administration could be more favourable to trade compared to a Trump-Vance ticket, business leaders emphasised that New Zealand needs to be proactive, regardless of the election outcome.
“It’s up to us to be proactive whoever gets in,” says Barfoot & Thompson managing director Peter Thompson.
With significant economic and geopolitical stakes in play, business leaders are hoping for a US administration that can balance domestic priorities with global responsibilities – whoever the next president turns out to be.
China and … the growth of diversification strategies
We will work hard to diversify out of China, but let’s acknowledge it’s easier said than done. CEO Despite concerns over China’s potential geopolitical moves, New Zealand businesses remain intertwined with the Chinese economy.
Prime Minister Christopher Luxon has made the case for growing New Zealand’s trade and investment opportunities offshore. That is the basis for the Government’s “China and…” approach, building the trade and economic relationship with China, but also developing new partnerships offshore, to build resilience and diversify opportunities for New Zealand businesses.
The survey results show that of those already engaged in business with China, 65% have either diversified or are planning to diversify into other markets to reduce risk. “We already have diversified market engagement, including China,” says Auckland Airport CEO, Carrie Hurihanganui. Companies are increasingly looking to regions beyond China.
OfficeMax managing director Kevin Obern notes: “Some diversification of supply is already under way – however still mostly in Asia,” while Mainfreight CEO Don Braid highlights his business’s efforts to diversify into the wider Asian region to build resilience.
“We have our own business within China, and seeing that grow is a priority. Likewise, we have diversified into the rest of the Asian region to assist our network intensity and access to other attractive country markets and opportunities.”
Similarly, the exploration of additional markets is seen as attractive. A professional director in the retail sector highlights: “We are now sourcing from India and Bangladesh in addition to China,” as part of their diversification strategy. Despite efforts to explore new markets, diversification is not without its challenges.
One CEO candidly admits: “We will work hard to diversify out of China, but let’s acknowledge it’s easier said than done.” China’s scale and growth opportunities remain unmatched, making it difficult for businesses to reduce their dependency on the country.
“China is where the growth opportunities exist,” says Cordis managing director Craig Bonnor, underscoring why businesses remain committed to the market, even as they explore alternatives.
Mood of the Boardroom: New Zealand businesses navigate geopolitical risks amid global instability (NZ Herald)
As global instability grows, New Zealand boardrooms are increasingly focused on assessing and mitigating geopolitical risks.
Now in its third year, the Russia-Ukraine war, alongside the ongoing Israel-Hamas conflict and rising tensions in the South China Sea, has made geopolitical challenges an unavoidable point of discussion.
These crises are affecting trade, sparking regional conflicts, and driving regulatory changes, with 72% of New Zealand’s top executives in the Mood of the Boardroom survey confirming that their businesses regularly assess vulnerabilities to these risks at the board level.
A further 27% of respondents say they do not have this on their risk matrix, and 1% remain unsure.
The growing complexity of global challenges has led New Zealand companies to adopt a more rigorous approach to risk assessment.
For some, like investment fund Morrison, the conversation has become a constant fixture in its strategy sessions. CEO Paul Newfield explains: “We spend part of every board meeting discussing geopolitical risks and we get great external perspectives to challenge our thinking”.
Air New Zealand Chair Dame Therese Walsh echoes this approach, noting that “as a global airline, the business is impacted by international regulations and global trends, and these are always contemplated”.
Similarly, Beca Group chair David Carter says this used to be an annual review.
“However this has been increased in response to the rising geopolitical uncertainty.”
Infrastructure: Government eyes tolls and congestion charging to fund roadingICBC: Innovative funding for green infrastructure
“Safe and efficient four-lane and grade-separated highways are not cheap, yet they are a critical piece of the puzzle when it comes to improving New Zealand’s land transport network,” said Infrastructure New Zealand chief executive Nick Leggett.
“Tolling is the way to go to help deliver these new highway projects.
“The reality is if we want modern first-world infrastructure then that will need to come through greater use of user-charging mechanisms such as tolling.”
Time-of-use charging
While the Auckland regional fuel tax was scrapped by the National-led Government on June 30, legislation will be introduced this year to enable time-of-use schemes to be developed to reduce travel times on New Zealand’s busiest roads.
“Congestion is a tax on time and productivity,” said Brown.
“It means that we are away from home for longer, sitting in gridlock. It results in fewer jobs being done, fewer goods being moved, and delays to services across the city.
“Faster, more reliable travel times will increase productivity, and lower costs for businesses and their customers. That is why we are enabling time-of-use schemes to be put in place.
“Enabling time-of-use schemes is a priority for our Government and a commitment under the National-Act Coalition Agreement.”
Brown stressed that time-of-use schemes will improve network efficiency to increase productivity and enable people and freight to get where they need to go quickly and safely – and that they are not about raising revenue.
“Any money collected through time-of-use charging will also be required to be invested back into transport infrastructure that benefits Kiwis and businesses living and working in the region where the money was raised. Councils will not be able to spend this money on other priorities or pet projects,” he said.
Auckland is set to be a focal point, with the Government prioritising working with Auckland Council. The city already faces severe traffic issues, with private vehicle travel accounting for nearly 75% of commuting across the Auckland region.
The Mayor of Auckland, Wayne Brown, has long been an advocate for time-of-use charging – a term he prefered over the broader “congestion charging”.
“What we’re talking about is time-of-use charging rather than congestion charging,” he explained. “Congestion charging is when you put a ring around the city, like London, and you have to pay to go into it.”
His preference is for dynamic charging, which encourages motorists to adjust their travel time, route, or mode of transportation to keep choke points flowing during peak times.
A 2020 Ministry of Transport report found that time-of-use charging could reduce congestion in Auckland by around 8-12% when fully implemented, similar to the traffic levels seen during the school holidays.
A 2017 report from the New Zealand Institute of Economic Research calculated the economic and social benefits to Auckland if the road transport network was operating at capacity Monday to Friday to be between $0.9 billion and $1.3b. If the average speed across the network was close or equal to the speed limit (free-flow), this benefit would be even greater – between $1.4b and $1.9b.
In June, Auckland Council’s transport and infrastructure committee approved a time-of-use charging scheme to be designed for the Auckland region on the city’s motorways and arterial routes.
“It’s about making the most of what we have and bringing Auckland in line with similar cities,” the mayor said. “It’s a tried and tested solution, and one that’s relatively low-cost.”
Auckland Council has suggested that the initiative would need to be supported by “reliable” public transport, and if the scheme designed is successful, it would likely launch alongside the City Rail Link in 2026.
Timeline for implementation
The Government is drafting a bill to amend the Land Transport Management Act 2003. This will establish the legal framework necessary to introduce time-of-use charging schemes aimed at managing road network demand. This is expected to be introduced to Parliament before the end of this year and will be reviewed by the Transport and Infrastructure Select Committee in 2025.
Once enacted, local authorities will be able to propose and develop time-of-use schemes in partnership with the New Zealand Transport Agency (NZTA), who will act as the majority partner. The Government, through the NZTA, will also have the authority to propose a scheme.
After a scheme is designed, it will be submitted to the Minister of Transport for approval, then implemented through an Order in Council with clear rules governing the scheme, providing road users with certainty about where, when and how much they will be required to pay.
To maintain the effectiveness of these schemes, they will be granted some operational flexibility.
For example, they will be able to adjust charges without the need for public consultation, but only at pre-determined intervals and provided the charge remains below the maximum. They will require regular monitoring and reporting, particularly on changes in travel times and traffic volumes.
Reporting on the amount of revenue generated and its subsequent use will also be required.
The Secretary of Transport will oversee the schemes, ensuring they meet their objectives, and the Government will have mechanisms to intervene if an approved scheme fails to deliver its anticipated objectives.
New York demonstrates the challenges
Congestion and time-of-use charging has been successfully implemented in many major cities around the world.
Singapore first introduced a congestion charge in 1975, requiring drivers to pay a flat fee to enter a restricted zone during peak hours, reducing congestion by 20%.
By 1998, it evolved into a fully automated electronic road pricing system, significantly reducing traffic, boosting public transportation usage and lowering emissions.
Stockholm introduced a seven-month trial in 2006, which saw traffic volume drop 22% per day on average and emissions fall by 30%.
This led to a referendum in 2007, which saw the scheme become permanent. Stockholm’s implementation demonstrated that once congestion charging is introduced, explained, and successfully tested, it was supported by a majority of the population.
Research by the Seattle Department of Transportation, which has explored its own congestion charging scheme, found that once a detailed proposal for congestion charging is established, but before its full implementation, public support is usually low. This can be attributed to the disadvantages of pricing becoming more evident than potential advantages or fears that the technical system might be overly expensive or fail to work.
Once a system is in place, public support generally increases, usually driven by the system working and people happy with the benefits, or their initial fears not being realised.
Nevertheless, overcoming initial fears will need to be carefully managed in any rollout in New Zealand, especially in times of economic pressure.
The recent experience of New York City’s implementation highlights this challenge. Despite years of preparation and the installation of necessary equipment, New York City’s congestion pricing plan – due to be rolled out on June 30 this year – was “indefinitely paused” by Governor Kathy Hochul on June 5.
The first-in-the-nation congestion pricing scheme, approved in 2019, would have seen cars charged $15 to enter a large swath of Manhattan.
Hochul slammed on the brakes at the last minute before its introduction due to concerns about the timing and state of the city’s post-pandemic recovery.
She said she feared New Yorkers could face “unintended consequences” if the plan was introduced.
The pause leaves the city’s public transport system without an additional $1b per year in funding, with delays expected for improvements in traffic congestion, air quality, and its dilapidated subway system.
It may also discourage other US cities from pursuing similar pricing initiatives that were looking to New York City’s implementation as a case study for their own rollout.
Government priorities
The Government is prioritising 17 Roads of National Significance, recently highlighted in the Government Policy Statement on Land Transport (GPS). The New Zealand Transport Agency is expected to begin procurement, enabling works, and construction of the first seven within the next three years.
- Takitimu North Link Stage 1, connecting Tauranga and Te Puna, is already under way, with construction on Ōtaki to North of Levin set to begin next year.
- The next phase of projects includes Belfast to Pegasus (Canterbury, including a bypass through Woodend), the Hawke’s Bay Expressway, SH1 between Cambridge and Piarere (Waikato), SH29 Tauriko (near Tauranga), Takitimu North Link Stage 2 (Te Puna to Ōmokoroa), Mill Road (South Auckland), and Ara Tūhono Warkworth to Wellsford (northern Auckland).
Research shows appetite for congestion charge
Aucklanders are up for a conversation on congestion pricing, or time-of-use charging.
Commissioned by policy and advocacy organisation the Northern Infrastructure Forum and delivered by Koi Tū: The Centre for Informed Futures, a think tank and research centre at the University of Auckland, research has explored the views of the community on congestion charging.
It found Aucklanders understand that what is happening now isn’t working, and new approaches need to be considered. While panel members surveyed supported congestion pricing in principle, they had some concerns. The research concluded:
- The primary objective of congestion charging must be to reduce congestion.
- There should be the strategic use of discounts and exemptions to mitigate social impacts.
- Revenue collected must be used exclusively to provide transport options for Aucklanders (particularly public transport options).
- Congestion charging should be kept simple and transparent.
That means: people need to know what they’re paying and when, with timing and pricing reviewed regularly; initial geographical boundary for the charging zone must not be too complex; it must be user friendly with reliable payment systems; there should be clear communication of benefits, particularly decongestion benefits.
ICBC: Innovative funding for green infrastructure
In its latest climate report, ICBC New Zealand, the New Zealand arm of the Industrial and Commercial Bank of China (ICBC), has reaffirmed its commitment to supporting New Zealand’s climate transition and is actively identifying climate-related risks and opportunities.
“We are in the process of dynamically integrating the green financing concept into our operation and development and striving to create greater value for our stakeholders,” says James Gill, director of corporate and institutional banking at ICBC New Zealand. “We will concentrate our efforts on improving governance, strategy, risk management, metrics, and targets, striving to make greater contributions for a good future.”
Gill says the bank recognises the need for innovative funding solutions to address the country’s infrastructure needs and support the development of green infrastructure.
Over its 11 years of operation in New Zealand, ICBC New Zealand has played a significant role in key infrastructure projects. These include the Transmission Gully motorway, developed through a public-private partnership (PPP), and the Ruakura Superhub – a 490ha development in Hamilton – residential development areas, industrial, retail and logistics, including a 30ha inland port. “Supporting these projects is our way of helping to move New Zealand forward,” says Gill.
“ICBC New Zealand is passionate about the opportunity in New Zealand to build productivity-boosting, climate-resilient infrastructure and improve outcomes for the country.”
The project was facilitated under the Infrastructure Funding and Financing Act 2020 (IFF), which allows debt to be raised without impacting the council’s balance sheet. This approach preserves the council’s debt capacity for other uses. Instead, Crown Infrastructure Partners will manage a special-purpose vehicle (SPV) that will levy most rate-paying properties in the city for 33 years, starting from July 2024.
Gill says IFF as a model provides another tool for local governments to access private financing over the long term, paying for it via targeting the direct beneficiaries of the projects.
“The defined repayment profile is attractive and allows higher levels of leverage than otherwise might have been possible.”
The project, which began construction in May 2023 and is expected to be completed by June 2026, will use chemical and mechanical processes to treat and dispose of wastewater sludge, generating biogas for heat and electricity to power the treatment process. Sludge is now piped 9km across the city to landfill, where it is buried.
“ICBC New Zealand looks forward to supporting New Zealand’s growth objectives as we have previously through the PPP and IFF infrastructure financing models,” says Gill.
“Our long-term commitment to the country positions us well to support these projects from conception to completion and throughout their operation.”
ICBC helps the world to go greener
As the world’s largest bank by total assets, ICBC is a global leader in sustainable development, promoting green finance and supporting projects that contribute to a sustainable future.
The bank’s latest Corporate Social Responsibility Report, released earlier this year, highlights its commitment to green finance and pursuit of innovation-driven development and new sustainable development opportunities.
Some of the bank’s contributions to sustainable projects include:
Uzbekistan wind power plant
The Dubai branch of ICBC acted as lead arranger, organising a US$900m international syndicated loan with international multilateral institutions to finance a major wind power project in Uzbekistan.
Upon completion, the project is expected to cut carbon emissions by 1.4 million tonnes annually.
By enhancing the power infrastructure in Central Asia, it will play a pivotal role in the region’s energy transition, contributing to global efforts towards sustainable economic and social development.
Green bus project in Hangzhou
The Hangzhou branch of ICBC has been instrumental in advancing Hangzhou’s new energy public transportation system.
The branch has provided over RMB4 billion in cumulative working capital loans and extended more than RMB1b in credits for projects including the acquisition of new energy buses and the construction of stations. As a result, all buses in Hangzhou’s downtown areas have been replaced by new energy buses, making low-carbon transportation a viable and popular choice for the city’s residents.
Marine carbon sink ecological products in Guangdong Province
Nan’ao County Island, located in South China, is home to Guangdong Province’s largest oyster cultivation base, with an annual output exceeding 30,000 tonnes.
Recognising the environmental benefits of oysters, which capture and store carbon dioxide as they grow, the Guangdong branch of ICBC introduced a “loan pledged with right to expected earnings of marine carbon sink” financing product.
This allows farmers to secure loans by pledging the expected earnings from the carbon sink value derived from their oysters, providing crucial financial support for sustainable aquaculture practices.
Green building project in Beijing
The Beijing branch of ICBC, acting as the lead bank, provided a syndicated loan of RMB270m to meet the funding needs of an enterprise for an intelligent green building project using prefabricated components.
After completion, it will be able to achieve an annual production capacity of one million square metres of prefabricated components, while solving problems such as noise, dust, material waste, and environmental pollution in the traditional construction industry and building material manufacture.
Agribusiness & Trade: Has offshore investment swamped our dairy sector? (NZ Herald)
Agribusiness & Trade: Has offshore investment swamped our dairy sector? (NZ Herald)
The allure of New Zealand’s dairy industry has not gone unnoticed on the global stage. The country’s reputation for high-quality dairy products and well-established supply chains has seen international investors increasingly drawn to the sector.
A recent report from market research firm Coriolis on the New Zealand dairy industry lays out the investment landscape in New Zealand dairy processing. The industry has attracted foreign investment from across the globe. China, Japan, Singapore, France, the Netherlands, the UK and Germany are all significant sources of investment.
Coriolis managing director Tim Morris says the “smart money” can see New Zealand is winning in dairy.
“New Zealand is really good at dairy and the rest of the world have realised it,” he says. “Since deregulation of the industry, we have had wave after wave of global firms show up because they know they need to have a position here.”
Despite the presence of multinationals in New Zealand, the report shows that most of the capital committed to the sector remains domestic, both into co-operative processors and through private capital.
In total, the industry is made up of investment from five private equity firms, 14 global multinationals, seven state-owned enterprises, three local co-operatives, three locally listed firms, two Māori investor groups and hundreds of private family interests.
The report lays out five key objectives that are driving strategic investment activity in the New Zealand dairy industry.
1. Strengthening existing market positions
In 2019, Westland Milk Products was bought by Chinese dairy giant Inner Mongolia Yili Industrial Group Co Ltd (Yili) for $588 million. Since then, Yili has supported further investments to strengthen the West Coast dairy company’s position.
In 2021, Westland announced it would invest $40m to double its consumer butter manufacturing capacity. The following year it acquired Hamilton-based foodservice butter processor Canary Foods.
Last year, Westland announced a $70m investment to construct a new lactoferrin plant at its Hokitika facility. Supported by parent company Yili, this investment will more than treble production capacity of the multifunctional protein. Lactoferrin has growing international demand across a variety of nutritional categories because of its reported health benefits.
Increased competition as more players enter the market is driving a shift higher up the value chain, with focus shifting to producing higher-margin, value-added products rather than just raw milk.
Morris notes that this more developed competitive framework is a marked change from the past. “This shift necessitates a strategic approach to investment and operations, ensuring that New Zealand’s dairy industry remains competitive on the global stage,” he says.
One such approach is the diversification of product categories into high-value niches such as infant formula (particularly specialty formulas designed for the dietary management of special infant feeding needs), protein supplements, and functional foods that can offer health benefits beyond basic nutrition.
New Zealand produces numerous innovative dairy-derived nutraceuticals. For example, New Image’s Symbiotics brand sells a goat milk drink with phosphatidylserine to support awareness and cognition.
These products not only command higher prices but also cater to growing consumer demands for health and wellness.
2. Arriving to take a position in New Zealand
In the past five years, multinational companies including Lactalis (from France), Froneri (UK), Olam (Singapore), Wilmar (Singapore) and Imanaka (Japan) have entered the New Zealand dairy industry.
The arrival of new players is transforming the sector, with more companies eyeing New Zealand’s milk supply.
One notable entrant stirring up the sector is Singapore-based food and agribusiness conglomerate Olam. It has established a new milk processing and exporting operation in Waikato under the name Olam Food Ingredients (Ofi).
Ofi is challenging Fonterra by offering farmers a premium milk price to entice them away from the co-operative.
Despite this increased competition, the Coriolis report highlights that total milk production in New Zealand peaked in 2015 after a long period of growth but has stalled over the past 8-9 years.
Morris explains that this is due to the balance between milk price paid to farmers and their production costs. With input costs rising faster than milk prices, there has been little incentive to boost production.
3. Seeking new growth platforms
Companies are moving into more attractive areas of the industry. Notable examples include:
Nestle Health Science, a global leader in nutrition, bought The Better Health Company in 2022, which included the supplements brand GO Healthy. Nestle Health Science described the acquisition as a strategic fit, enhancing its global portfolio of active lifestyle and health and wellness brands.
In 2020, New Zealand’s largest seafood company, Sanford, acquired a 50% stake in Two Islands. This merger leverages marine collagen, a by-product of Sanford’s certified sustainable hoki fishery, which is used in Two Islands’ range of beauty and wellbeing products.
4. Investing in increasing sustainability
Companies are investing in sustainability to align with changing customer, consumer and government requirements. Examples include:
Talley’s Group, New Zealand’s second-largest food company, acquired Nature’s Flame, a producer of wood pellet biofuel from Norwegian pulp and paper company Norske Skog. This renewable fuel, derived from timber processing waste streams, is being used to reduce the company’s carbon footprint by replacing coal in some dairy plants.
Fonterra recently announced a $790m plan to decarbonise its operations. The plan includes exploring technologies to phase out coal and transition to renewable energy across its manufacturing sites.
5. Divesting non-core businesses
Fonterra’s recent announcement that it is considering full or partial divestment options for some or all of its global consumer business, which includes well-known brands such as Anchor, as well as its integrated businesses Fonterra Oceania and Fonterra Sri Lanka.
This strategic move will allow the co-operative to focus on being a business-to-business dairy nutrition provider, working closely with customers through its high-performing ingredients and foodservice channels.
Fonterra says this refocus will strengthen its role in the dairy nutrition value chain, leveraging its strength in producing world-class, innovative ingredients for customers to take to consumers.
Another example of divestment was seen from Synlait, which last year announced its plans to sell off its household dairy brands Dairyworks and Talbot Forest Cheese in order to pay down debt. At the time, Synlait said this move would allow it to focus solely on its value-added, advanced nutrition and foodservice businesses.
6. Dairy remains an attractive investment
Morris is clear that the dairy market will remain an attractive investment into the future and doesn’t mince his words on the potential for “alternative milk” to supersede the industry.
“It is easy for people to convince themselves that because their daughter is vegan, or friends of theirs have started to drink oat milk, that everywhere on Earth is suddenly just like them.
“It’s just not true.
“Silicon Valley venture capitalists will try to convince you that we are at peak cow or peak milk or some other such nonsense. Any minute now, mothers everywhere will be feeding their children massive amounts of vat-grown sludge instead of real, natural, healthy milk and dairy products.
“There is no actual evidence anywhere for this common fantasy. Veganism is trending down, fake food start-ups are failing, while milk consumption is heading only one way, up.”
The data supports increasing consumption.
Dairy currently ranks as the third-largest food source by volume, following grains and vegetables, with the average person consuming around 90kg of milk and dairy products annually — equivalent to 117kg of raw milk.
Total global milk consumption is growing. Global raw milk production grew by 169 million tonnes (or 22%) in the last decade, or roughly 17 million tonnes yearly — a figure that equates to a “new New Zealand” (20.7 million tonnes) worth of dairy production every 1.2 years.
In 2022, the global dairy industry produced 930 million tonnes of milk worth an estimated $840 billion — that is at least twice as large as the total revenue of tech giant Apple for the last financial year, and 11,000 times more volume than lithium.
Sunlight of Spain, climate of Bordeaux, and water …
New Zealand is the world’s largest dairy exporter by value, commanding 14% of global trade and a market share that is trending up over the long term.
New Zealand has a robust dairy supply chain, with 4.7 million cows spread across over 10,000 dairy farms. It is the leading dairy supplier for many countries, particularly in Asia, capturing 55% of the China market, 50% of Thailand, 42% of Indonesia, 40% of Malaysia and 61% of Nigeria.
“New Zealand is the size of Italy with the population of Singapore,” says Morris. “It has the sunlight of Spain, the climate of Bordeaux, and abundant water — both on a per-person and a per-square-kilometre basis.”
New Zealand has almost 50 large raw milk intake sites and, depending on definition, 600-700 dairy companies. Extending further into the supply chain, New Zealand also has a farmer-owned dairy genetics firm, two farmer-owned fertiliser firms and three farmer-owned farm supplies firms.
“All of this comes together to make New Zealand the most competitive dairy producer and exporter on the planet,” says Morris.
Capital Markets Report: How artificial intelligence is being used to detect fraud, find sharemarket patterns and act as virtual assistants
Capital Markets Report: How artificial intelligence is being used to detect fraud, find sharemarket patterns and act as virtual assistants
The pace of artificial intelligence (AI) innovation has been remarkable, as has been the speed with which businesses are adopting it.
AI’s impact is evident in virtually every sector, including capital markets and financial services, where it is being used in data analysis and decision-making, customer experience, and operational efficiency.
Recent analysis from McKinsey suggests generative AI could have a significant impact on the banking industry, generating value from increased productivity of 2.8 to 4.7 per cent of the industry’s annual revenues, or an additional US$200 billion ($325b) to US$340b.
In the financial industry, AI is able to rapidly process and extract insights from enormous amounts of data.
It can bring together information from a variety of sources, such as real-time trading data, social media, economic indicators, and geopolitical events.
The analysis of unstructured and complex data was previously time-consuming.
However, machine learning – a key component of AI – is now being used to rapidly identify market patterns. This allows for live insights, which can be critical in financial markets.
Fraud detection
The threat of fraud is a constant concern in the financial sector, requiring detection and prevention abilities to protect both firms and their clients.
Given AI’s ability to identify patterns and anomalies in data, it can process vast amounts of transactions and spot potential fraud with greater speed and accuracy. The ability to process data in real-time is critical in mitigating losses and preventing fraudulent transactions from being completed.
Since AI systems can learn and adapt continuously from historical data, fraud detection capabilities are able to improve over time, identifying new fraudulent tactics as they emerge. This also helps to prevent false positives of legitimate transactions, minimising customer inconvenience.
Later this year, Mastercard will launch its generative AI model that will help banks improve their assessment of transactions. Mastercard says its AI enhancement, which assesses the relationships between multiple entities surrounding a transaction to determine its risk, will boost fraud detection rates on average by 20 per cent and as high as 300 per cent in some instances.
“The precision of the solution – achieved by scanning potential points of sale in real time – has been shown in our own analysis to not only increase accuracy, but also reduce the number of false positives by more than 85 per cent,” says Mastercard’s president of cyber and intelligence, Ajay Bhalla.
Virtual assistance
AI-powered virtual assistants provide the ability to offer 24/7 support, handling inquiries with levels of efficiency that were previously impossible.
This is being used to a varying extent by different organisations in the finance sector, but the highly regulated nature of the industry necessitates cautious implementation.
Speaking at a recent AI summit, Promiti Dutta, Citi’s head of analytics acknowledged the potential of AI and large language models, but noted they can be problematic when precision is the goal.
“Things can go wrong very quickly, and there’s still a lot to be learned,” she said. “In an industry where every single customer interaction really matters, and everything we do has to build trust with customers, we can’t afford anything going wrong with any interaction.”
Dutta said that while a customer might forgive an online shop suggesting a pair of shoes in the wrong colour, the stakes are higher in the financial services.
“If we tell you to get a loan product that you don’t necessarily want or need, you lose a little bit of interest in us because you think ‘Oh, my bank really doesn’t understand who I am’.”
She says that Citi is starting conservatively, and making sure there is always a human in the loop for anything assisted to learn what it is doing – and what it is not doing.
Less risky is the use of virtual assistance internally within firms. Last year, investment bank Morgan Stanley launched its own AI assistant to enhance the efficiency and effectiveness of its financial advisers and support staff.
The assistant, developed in collaboration with ChatGPT founder Open AI, provides access to the firm’s internal knowledge database of around 100,000 research reports and documents. It allows users to find and tailor information for clients almost instantaneously.
Morgan Stanley co-president Andy Saperstein told staff that generative AI will “revolutionise client interactions, bring new efficiencies to adviser practices, and ultimately help free up time to do what you do best: serve your clients”.
As well as enhancing client interactions, AI is transforming operational management within these institutions.
Automation of routine tasks, including account management, credit checks and report generation, allows employees to focus on more strategic tasks requiring human insight. This shift not only has the potential to reduce cost, but also enhance efficiency.
Regulatory compliance
In such a highly regulated sector, AI is helping to automate regulatory compliance processes and ensure adherence to rules and regulations. AI-powered systems can also help to eliminate manual errors and reduce the risk of non-compliance.
One example is Citigroup’s response to United States federal regulators’ new capital rules. The investment bank used AI to dissect a 1089-page document to analyse the text and articulate the implications of the changes for the bank’s leadership.
Looking ahead, regulation of AI itself is an area to watch. The financial sector must prepare for a wave of legislation, codes of conduct and guidelines – some of which is already occurring. While the benefits of AI are evident, it has the potential to exacerbate existing risks and introduce new ones.
Firms will have to consider AI within existing compliance frameworks to ensure that as they embrace the advantages of AI, they remain vigilant of its possible pitfalls.
AI driving global stock markets skyward
The recent surge in AI has translated to impressive gains on global stock markets, which saw their strongest first-quarter performance in the past five years. Investors have shown an insatiable appetite for technology stocks, fuelled by the potential of AI to revolutionise industries worldwide.
At the forefront of this market rally is Nvidia, a leading chip designer whose role in the deployment of AI technologies has been crucial. Its market value soared by more than US$1 trillion in just the first three months of this year.
Recent analysis from Goldman Sachs suggests that Nvidia represents the first phase of the AI boom. It says the next phase will involve infrastructure companies that are essential to the development of AI: semiconductor firms, cloud providers, data centres, security software and utilities companies.
The third phase, it projects, will benefit those companies that can enhance their revenues from the adoption and monetisation of AI technologies.
“Software and IT services seem best positioned for this phase of the AI adoption cycle, with many companies describing how their tools will enable other companies to utilise AI,” Goldman Sachs says.
The fourth phase will favour those companies that achieve significant productivity improvement through the adoption and integration of sophisticated AI.
“Software and services and commercial and professional services have the largest potential earnings boost from widespread AI adoption via labour productivity,” Goldman Sachs says. “These three industries have a combination of a high share of their wage bill exposed to AI automation and relatively high labour costs.”
Capital Markets Report: How a record election year will shake up markets - Tim McCready
Capital Markets Report: How a record election year will shake up markets – Tim McCready
2024 has been dubbed “the year of the vote”.
There will be more elections this year than ever before in history, and by year-end, countries accounting for over 60 per cent of the world’s economic output and more than half of its population will have voted.
Some of the most consequential elections for the global financial landscape will be the United Kingdom general election on July 4 and the United States presidential election on November 5.
And just last week, India’s stock market took its worst tumble in four years after Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) lost its parliamentary majority in India’s general election.
The US presidential election will be heated.
During the 2020 presidential debates, then-President Donald Trump warned of a market meltdown if Joe Biden was elected. Now, as the Republican Party’s presumptive nominee up against President Biden, Trump is at it again:
“If we lose, you’re gonna have a crash like you wouldn’t believe,” he told attendees at a campaign rally, suggesting his loss would result in “the largest stock market crash we’ve ever had.”
Yet, US stocks have reached record highs this year under President Biden, though Trump has been quick to take credit for the rise.
“This is the Trump stock market,” he posted on his own social media platform, Truth Social. “Because my polls against Biden are so good that investors are projecting that I will win, and that will drive the market up.”
Regardless of the rhetoric, US market analysts tend to agree that trying to attribute financial market performance in the medium to long-term on election outcomes is a fool’s errand.
Returns are more often dependent on economic and inflation trends.
In the current climate, a strengthening economy, corporate profit growth, expectations of interest rate cuts, and the allure of artificial intelligence are key reasons for stock market bullishness.
Trump’s unexpected election win against Hillary Clinton in 2016 did spark a stock market rally fuelled by promises of deregulation, tax cuts and infrastructure spending.
Last month, Trump made history – as the first former president to be convicted of felony crimes – when a New York jury found him guilty of all 34 charges in a scheme to illegally influence the 2016 election through hush money paid to porn actor Stormy Daniels, who said the two had sex.
Despite this, he can still campaign and ultimately become President of the United States. The US Constitution has very few restrictions on who is eligible to be a presidential candidate – having a criminal record is not one of them.
Trump’s guilty convictions did affect the share price of Truth Social’s parent Trump Media and Technology Group. The stock made a rip-roaring debut in March surging past US$70 (approx NZ$116) in early trade, giving the firm a market value of more than $9 billion.
But the stock, trading under the ticker “DJT”, fell as much as 15 per cent in extended trading after the convictions were announced – the share price was US$44.59 at the end of last week. Trump Media CEO Devin Nunes blames short sellers for the share price plunge and wants the Nasdaq to investigate.
Polling shows the race to the White House will be tight.
The latest Economist/YouGov poll shows that even after the guilty verdict, Trump remains in lockstep with Biden. Among registered voters, 42 per cent say they plan to vote for Biden, and 42 per cent for Trump.
Persistent inflation means the Biden campaign is struggling to allay voters’ concerns about the economy. There are also widespread concerns about Biden’s age, with a majority of voters who supported him in 2020 now saying that at 81, he is too old to be an effective president.
Although Trump is only four years younger than Biden, voters do not express the same anxieties about his age. However, there is significant uncertainty about the potential chaos a second Trump administration could bring with it.
Trump has promised steep tariffs of “upward of 60 per cent” on all Chinese imports if he regains the presidency – to bolster onshore manufacturing – conceivably leading to a global trade war. There is also concern over the impact on budget deficits from extended tax cuts which could keep inflation high for longer, hurt US government bonds and further blow out the US budget deficit, which is expected to hit $1.5 trillion by the end of the year.
Industries that look to benefit from Trump 2.0 include fossil fuel production and the broader energy sector. Trump has promised a more business-friendly approach to environmental regulation, along with cuts to the Department of the Interior (responsible for the management and conservation of federal lands and natural resources) and other environmental agencies.
He has also pledged to sharply reduce the powers of US financial regulators, which could assist smaller businesses burdened by regulatory compliance.
This move contrasts with the expanded oversight Congress gave the US government to prevent a repeat of the 2008 global financial crisis.
A Biden victory will benefit local industries aligned with his support for clean energy initiatives — including solar and renewable energy. Biden recently announced new tariffs on Chinese electric vehicles, batteries and solar cells, saying that Chinese government subsidies for EVs and other consumer goods give them an unfair advantage in global trade.
UK on track to change Government?
Meanwhile, the Rishi Sunak-Sir Keir Starmer head-to-head in the United Kingdom looks much more predictable than the US election, with Starmer’s centrist Labour Party consistently polling around 20 points ahead of the governing Conservative Party.
The anticipated change in government draws parallels to the historic 1997 election when the incumbent Conservative Party, led by John Major, suffered a resounding defeat to Tony Blair’s Labour.
When Prime Minister Sunak called the general election much earlier than anticipated last month, financial markets barely reacted to the news. The subdued response can be attributed to several factors. The Labour Party has been polling well ahead of the governing Conservative Party for some time, suggesting a Labour victory is already factored into the market.
The strong lead also means it is unlikely that Labour will adopt any policies that might unsettle the market to attract voters. Labour’s Shadow Chancellor, Rachel Reeves, has added further confidence to the market by committing to a self-imposed fiscal rule that will bind any future Labour government.
This stipulates that government debt as a percentage of GDP must decrease by the fifth year of the official forecast period.
According to a Citi analysis of stock market movements since 1979, UK stocks have historically been “relatively flat to down” in the six months following elections.
The analysis excluded the periods of volatile financial conditions during the dotcom crash and the global financial crisis.
The MSCI UK Index, which tracks the performance of large and mid-cap segments of the UK market, has historically risen by around 6 per cent six months after Labour Party victories, while it has decreased by around 5 per cent following Conservative wins.
The FTSE 250, which has a focus on domestic companies, tends to outperform the large-cap FTSE 100 following elections, particularly after Labour victories.
Sectors expected to benefit from the change in government, include house-building, infrastructure and clean energy projects, with support indicated by Labour.
It has also made bold commitments to enhance the financial services sector, which contributed 12 per cent of the UK’s economic output in 2023. Part of its plan includes making the UK a global hub for green finance, implementing a leading green finance regulatory framework, and collaborating with the financial services sector to support decarbonising homes.
It would also reinvigorate capital markets by reviewing the pensions retirement savings to boost investment in infrastructure and green industries.
Project Auckland: Panel discussion on ‘Accelerating Auckland’ (video)
Tim McCready moderates a panel discussion themed “Accelerating Auckland” with CEO of the EMA Brett O’Riley, Deputy Mayor of Auckland Desley Simpson, and Vice-Chancellor of the University of Auckland Dawn Freshwater. The panel discussion was held at the launch of the NZ Herald’s 2024 Project Auckland report following a speech from the Minister for Auckland Hon Simeon Brown.