Agribusiness: Innovation to feed the world (NZ Herald)

A ‘fourth industrial revolution’ is seeing the convergence of biological and technological solutions.

It is estimated that New Zealand’s agricultural sector can feed 40 million people. At a time where we are seeing an ever-increasing number of alternative meat products — such as the plant-based Impossible Burger that claims to “bleed, sear, and taste like meat” (and recently landed Air New Zealand in controversy) — there is an opportunity for New Zealand to export high-quality, high-value food with a focus on provenance to the world.

But as demand for high quality protein increases, the amount and variety of novel foods from culture, insects and plants will grow.

A recent Trans-Tasman Business Circle panel discussed the opportunities and implications emanating from the rapid transformation within the sector. The panel included KPMG’s Global Head of Agribusiness Ian Proudfoot, Fonterra’s Farmer Services Director Matt Bolger, and agribusiness start-up chief executives: Regen’s Bridgit Hawkins and Halter’s Craig Piggott.

Future of food

“We assume that people will eat like us in 20 years’ time,” says Proudfoot. “I can see a world where the only thing we can be certain about is that we will all need sustenance. It is not hard to imagine that sustenance may look incredibly different in terms of how we receive it during the week to how we receive it at the weekend.”

However, he doesn’t believe New Zealand should be setting out to be a commodity supplier to the likes of Impossible Foods.

“Everything we do and how we use our land has got to be focused on us being premium — the deli to the world — the place where people turn to when they want great food.

“There are plenty of people in the world who can afford to pay us for our 40 million people’s worth of food.”

In order to provide premium agricultural products to global consumers, farming systems in New Zealand will need to adapt.

“Regen’s science and insights are future-proofing the agricultural industry; we care about the future of food,” says Hawkins. “It’s going to require new ways of doing things and you need information to support those creating new farming production systems.”

It wasn’t that long ago that sheep were the backbone of the country. No one believed the day would come when jerseys wouldn’t be made from wool — and that day came quickly.

Wool struggled to compete with cotton and synthetics, leading to a decline in sheep numbers and wool prices. Export returns fell 36 per cent between 1985 and 2003, and the sheep industry struggled to recover from that.

Hawkins says this history has helped influence farmers’ psyche. “There is a real sense of ‘there is change, we’ve got to step forward and embrace it,’ as opposed to wait to have it happen to us,” she says.

Technology to boost production

This movement towards new farming systems and demand for new technologies and solutions provides New Zealand with an opportunity to use our deep agricultural knowledge to export more than just our food.

Proudfoot says this “fourth industrial revolution” is seeing the combination of biological and technological solutions for the first time — unlocking the biggest change ever in how we produce food.

It is this revolution that is seeing record levels of investment in the sector — total investment in 2017 reached US$1.5 billion.

Despite increased development in the sector, a major challenge is making those innovations attractive enough for farmers to adopt.

One of the major hurdles in implementing new technologies is that they can be capital intensive. Despite the solutions they provide — and the impact they may have on productivity, financial returns and the environment — the time to adopt them can be notoriously slow.

But this isn’t unique to agriculture. Hawkins uses electric cars to explain this hurdle in adoption: “How many of us have an electric car? Now that’s a technology we all know has some benefit for the environment, but it is expensive — and there are still some questions that remain around the batteries.

“It is a matter of waiting for someone to sort it out for us. One day, the person in our social group who is right into cars will get one. Then we’ll know any issues have been sorted out and we’ll get one. For us, we’re here to support farmers in what is a complex and uncertain time, there’s a greater focus on environmental sustainability now than at any other time in New Zealand’s history.”

For agriculture, ease of use is a further — and considerable — barrier. In today’s age of big data, it is easy to be consumed by noise. The convergence of multiple different technologies and the demands they put on farmers can lead to paralysis. Piggott says that in order to make technology adoption attractive to farmers, it must provide value in a very tangible way.

“We now have the technologies to make a dashboard that contains granular details on every aspect of the farm … but what does a farmer do with that information?,” he asks.

His start-up Halter — backed by a series of Silicon Valley VC’s, including Peter Thiel’s Founders Fund — uses cow collars that allow farmers to guide their herds around the farm, receive alerts when cows are showing signs of poor health or distress, and set virtual fences to keep cows from entering rivers and drains.

Hawkins’ Regen equips farmers with leading-edge technology to support their critical role in New Zealand’s economy. Their technology uses on-farm sensors and other data to provide farmers with daily recommendations around nitrogen application as well as water and effluent irrigation.

She says for Regen, they are at the start of the process and their work will continue to evolve, but the focus from the start has been on what the data means for the farmer, and what decisions they can make better because of it — not what the actual numbers are.

Although Regen collects millions of data points each day, its algorithms use that data to send the farmer a simple alert to say ‘this is what you should do today’.

Innovate for the world, not for Waikato

A recent report by Callaghan Innovation claims New Zealand is seen as one of four locations to watch for agritech solutions, alongside Silicon Valley, Boston, and Amsterdam.

Technologies including the Internet of Things, machine learning, robotics, and drones will help farmers predict pest resurgences, test soil samples, and improve efficiencies in livestock management — reducing and optimising the use of pesticides, fertilisers, animal feed and medication.

The government agency says New Zealand has a unique opportunity to capitalise on its reputation as one of the world’s four key agritech locations.

However, a major challenge for New Zealand agricultural innovation is that most of the world doesn’t farm like we do. Bolger says it is easy to get caught up in the farming systems used in our own backyard, innovating with them in mind — at the expense of capturing the global market.

“If we only seek to serve New Zealand customers, then we innovate for a system that is fairly unique and our potential is limited,” he says.

“If we spend 10 years developing something that works in the Waikato and then take it to Canterbury, it’s going to be really hard for virtually anywhere else in the world that isn’t like those two places. We need to ensure we think with our global customer base in mind.

“That doesn’t mean we can’t dismember our systems to find bits that can be taken offshore. The challenge is being smart so we take the right bits.”

Attracting talent

In order to reach our potential as a breeding ground for agricultural innovation, New Zealand needs to attract the right talent to the industry.

“This is a much bigger issue for the primary sector than just the technology space,” says Proudfoot.

“New Zealand needs to encourage data scientists to come and work with our great biologists — we need to bring data and algorithms together with the agricultural sector that will really enable us to make a difference.”

Piggott — who grew up on a dairy farm, has an engineering degree with first-class honours, and a year’s experience working at Rocket Lab — agrees: “There’s definitely an assumption that if you’re a world leading data scientist or an analytics engineer, you’re straight to Amazon, Google or Facebook. Going to work in a dairy shed is not necessarily top of the list.”

But Bolger says New Zealand’s history of agriculture gives us an advantage over other countries. We already associate science with the primary sector, which allows us to more easily attract top people into great careers in the industry.

“A lot of countries have moved away from agriculture,” he says.

“We have a large and successful agriculture sector that spans everything from the consumer back to the farm in lots of different forms and food products. It’s a sector where you can have a real impact: that’s exciting for millennials and centennials.”

Among the uncertainty of what the evolution of the sector will look like, one certainty is that the world will continue to need food.

If New Zealand can be a provider of premium food — along with innovative technologies to produce more of it — the security in that demand should provide us with a comfortable economic platform into the future.

Agribusiness: Zespri’s moves are bearing fruit (NZ Herald)

Kiwifruit marketer is building a stronger foundation in China, writes Tim McCready.

Global marketer Zespri is focused on returning sustainable wealth to kiwifruit growers — not only in regional areas of New Zealand but also in rural China.

It is planning to nearly double its global sales revenue to $4.5 billion by 2025, and this strong growth will directly benefit the kiwifruit growing areas.

David Courtney, Zespri’s Chief Grower and Alliances Officer, says “the objective of our business is to return sustainable wealth to kiwifruit growers and the communities they live in — firstly in New Zealand, but ultimately communities around the world as well”.

Last year Zespri’s global sales increased 6 per cent to $2.39b. Courtney says the sales directly brought in about $620 million for Te Puke, $160m for Katikati, $135m for Ōpōtiki and almost $50m for Northland — a total of $965m to the key kiwifruit growing areas in New Zealand.

Courtney says as the number grows to $4.5b, and kiwifruit expands outside the Bay of Plenty, “we hope that those (new) regions will really start to generate strong value back into their communities.

“Should our growing trials in China be successful, we also look forward to being able to return money back into rural communities in China where we partner with growers to grow kiwifruit — as is the case in Italy, France, Korea and Japan today.”

The mainland China region has just headed Japan as Zespri’s No 1 market, with sales having grown 10 times from $50m in 2007 — just under 5 per cent of global sales — to $505m, representing more than 20 per cent of global sales. Zespri believes sales revenue in the mainland China region will grow to $1b by 2025 — accounting for 25 per cent of global sales. With this in mind, Zespri is looking to source its own kiwifruit grown in China and is into year three of a proof-of-concept trial.

Zespri signed a memorandum of understanding with The People’s Government of Shaanxi Province in 2015, outlining the shared intention to develop the kiwifruit industry in the province, and also to establish trial production.

Zespri reached a high-level agreement with the Shaanxi provincial government to establish a centre of excellence to support research, expert exchanges and grower information.

Courtney says to date Zespri has found no insurmountable barriers to producing quality fruit in China, and work is underway to test Chinese-grown kiwifruit with local consumers.

“Of course, the greatest test for us is that we have to protect the (Zespri) brand. New Zealand kiwifruit growers — rightly so — are deeply passionate and protective of their brand, and we cannot put the brand on any fruit that would put at risk their investment over time.

“To support our efforts, it’s that level of investment behind the border in terms of building our brand, taking control of our supply chain, and potentially sourcing fruit under the Zespri brand that has allowed us to place really strong confidence in our future in China — and feed that back into our 10-year growth ambitions,” says Courtney.

Zespri’s distribution to China has changed dramatically since it first sent shipments of kiwifruit in 2000. There were no staff based in China and Zespri sold its kiwifruit to a distributor and left its business with them. “We now know that to succeed (in China), we have to take control of our business and invest heavily in people to be able to drive the business forward,” says Courtney.

Today Zespri has 57 people running targeted sales and marketing programmes in China.

“We invest about $30 million each year into our brand, and that money is invested into consumers and trade, and working with distributors and retailers around the country to make sure they understand the Zespri brand, the values we stand for, and the quality proposition we’re trying to get across to our consumers.

“Because of that marketing, Zespri is now the number one or number two fruit brand in all the tier one and tier two cities in China. That beats out big brands like Dole and Sunkist — which is quite remarkable when you think kiwifruit is only a tiny amount of the fruit bowl. We’re really holding our own against those big categories such as bananas and citrus,” says Courtney.

Zespri is now holding some kiwifruit inventory in China and selling directly to customers through e-commerce channels.

One of them is Fruit Day, which aims to sell 1.5 to 2 million trays of kiwifruit this year online and through its 10 retail stores.

Courtney says holding inventory in-market has given Zespri “a much better view of the supply chain end-to-end and making sure the product that gets to consumers is in the best quality possible.”

Agribusiness: Taking the initiative (NZ Herald)

Tim McCready spoke with visiting Southeast Asian agribusiness leaders to understand what our regions can learn from each other.

Seven Southeast Asian agribusiness entrepreneurs visited New Zealand for a week as part of the Asean Young Business Leaders Initiative. The leaders from across the sector — including producers of cricket protein, strawberries, and mushrooms — visited agribusinesses, met with New Zealand business leaders, and attended Fieldays.

The initiative is run by the Asia New Zealand Foundation on behalf of the Ministry of Foreign Affairs and Trade, with the aim of building business connections and facilitating trade links between the regions.

Herald: What could Southeast Asian agribusiness learn from New Zealand’s agricultural sector?

Sarasit: Farmers here are highly educated and use technology to achieve high productivity and food safety. At the same time, the environment and sustainability are taken into account — even if this increases the cost of production. We need to introduce more sustainable practices in Asean, though we need to be cautious of the cost of those practices. There is an opportunity for New Zealand to develop technologies that are affordable for Asean countries.

Nguyen: The most fascinating thing I will take home from my visit is that although New Zealand agriculture is doing well, the industry continues to look for better efficiency, new value-added products and sustainable measures — you’re always thinking of the next step despite being ahead of the world in many areas. That said, I believe there are further opportunities available to develop products that will ensure New Zealand agricultural products become even higher value.

Ou: The attitude Kiwis have towards agriculture is positive and a good example for Asean countries to learn from — farming is a very respected industry here, which is often not the case in Southeast Asia. We can also learn a lot from Kiwi agribusinesses, particularly how they are not afraid to develop and adopt new technologies. Private businesses and government agencies are working hard to advance the industry as well as protect it.

Phumirat: Asean agribusinesses should be more creative and innovative in their farming practices and encourage farmers to be entrepreneurial. It’s great that in New Zealand entrepreneurs with diverse backgrounds are learning about the farming industry so that they can develop technologies to help — innovation doesn’t always have to originate from the farm.

Herald: What do you think New Zealand could learn from the Asean region?

Sarasit: New Zealand could learn from the diversity of products we have. Asia has so many varieties of finished products that have different flavours, functional ingredients, and health claims. People living in the crowded cities of Asia don’t have a lot of time and are always looking for convenience — such as ready-to-eat and drink products — but they also want good nutrition and a great taste. New Zealand should look to Asean for inspiration to develop more products for local consumers, as well as those offshore.

Ou: With a combined population approaching 650 million, no one can deny that Asean is a goldmine in terms of consumer numbers, but New Zealand seems to be behind when it comes to understanding the region. There is a great opportunity for New Zealand to tap into the Asean market by becoming more involved in the region, establishing collaborations with companies, and strengthening relationships between our respective governments.

Phumirat: New Zealand is very good at producing large quantities of product for exporting, but there is also an opportunity to create niche products for these markets too. There are consumers within the Asean region that are looking for new and exciting products that New Zealand could become competitive in.

Herald: What is the biggest challenge facing agriculture in Southeast Asia?

Nguyen: Vietnam’s population is about 95 million. We are facing a nutrition shortage and food crisis due to inefficient production and a lack of farmers. These two problems are challenging to solve as it requires involvement from both the government and the private sector. We need to make agriculture sexy — including through new technologies and precision agriculture — so that young people are encouraged to farm again.

Ou: The ethics used in farming are alarming. There are too many reported cases where harmful pesticides and chemicals are misused to maximise profit.

Phumirat: The biggest challenge in Southeast Asia is how to introduce more innovation into food production and raise awareness so consumers know what they are eating. We need to find ways to produce safe food that avoids the use of toxic chemicals.

Sarasit: The biggest challenge in Thailand is education. Most of our farmers have a poor understanding of the value chain for their products and have been influenced by politicians. They use single crop farming and a lot of chemicals and pesticides to increase productivity, which has an adverse impact on subsequent crops. Providing farmers with role models and encouraging them to learn will help us mitigate problems. New Zealand is a great role model to learn from.

Herald: How important is sustainability in Southeast Asia?
Sarasit: I have to admit that the sustainability has not been a big deal for many of the developing countries in the Asean region as our priority is on the shortage of food. We do some things for sustainability but these are generally because of regulation and not due to an awareness or demand from consumers.

Nguyen: We have a growing population, and there is a concern that the way we practice agriculture will affect not only our generation but subsequent generations too. We need to take action now, but there are limitations because we don’t have the same level of awareness as you do here and we have a shortage of technology that can provide solutions to the industry. Food safety is of greater concern than sustainability.

Ou: From a Malaysian perspective, sustainability is crucial. Malaysia has one of the oldest rainforests in the world as well as one of the most biodiverse, so maintaining a balance between the environment and using land and forests for agriculture is absolutely vital. Additionally, sustainable practice is important in order to ensure a continuous supply of food that is safe to eat. New Zealand has done a good job by implementing policies and having strict law enforcement that Malaysia can learn from.

Phumirat: In Thailand, most governments and organisations are now aware of the need for sustainability and have put in place policies to address it. There are increasing numbers of farms and businesses that care about climate change, and some consumers are now showing it is important to them by supporting fair-trade farming or local farmers that operate using good agricultural practice principles. Awareness will continue to increase, but we need increased knowledge and technologies that will allow us to produce food in a sustainable way.

 

Nguyen Hong Ngoc Bich, CricketOne, Vietnam:

Nguyen is co-founder of CricketOne, a company producing sustainable and affordable protein from crickets. CricketOne breeds crickets inside 40-foot containers, allowing them to farm all year. They feed the crickets with cassava leftovers, saving on feed costs and waste while shortening production time.

Kamolrat Sarasit, CP Meiji, Thailand:

Sarasit is the dairy science and technology general manager at CP Meiji, a joint venture between Thailand’s largest private company — CP, and Japan’s market leader in pasteurised milk products — Meiji. It is a leading manufacturer of dairy products in Southeast Asia producing a range of yoghurt and milk products.

Walaiporn Phumirat, Backyard Strawberry, Thailand:

Phumirat is founder and CEO of Backyard Strawberry, an organic strawberry producer in Northern Thailand. Using social media to tap in to dreams of rural life by city-dwellers — and educate them on the benefits of organic produce, Backyard Strawberry airfreights strawberries to Bangkok, where customers collect them hours after being picked.

Wei Wen Ou, Siong Hoong Agro, Malaysia:

Ou is the founder and manager of Siong Hoong Agro, a producer of organic mushrooms and organic mushroom-based products. A major focus of Siong Hoong Agro is secondary agriculture waste management and turning spent mushroom substrates into high value organic vermicompost fertiliser.

Capital Markets: On the radar for investment (NZ Herald)

The annual New Zealand Private Equity and Venture Capital Monitor was released last week, headlining a continued high level of overall activity of $989.6 million in the year to 31 December 2017.

This was down from a high in 2016 of $1.55 billion, but significantly higher than the $815.0m average since the survey began in 2003.

Mid-market investment activity was twice the 10-year average at $333.7m, and marked the first time mid-market investment has exceeded $300m, driven by an increase in both volume and average value of deals. This activity included investments by New Zealand-domiciled funds such as Direct Capital, Waterman Capital, Pioneer Capital, Pencarrow Private Equity, Maui Capital and Oriens Capital.

The total value of disclosed venture capital and early-stage start-up deals in New Zealand for 2017 was a record $217.3m, spread across 48 deals, with higher levels of foreign capital. This compared to $92.3m spread over 50 deals in 2016.

The relatively small size of the market in New Zealand means that the figures captured in the survey can vary significantly from year to year due to large one-off investments. The significant jump in 2017 is largely down to Rocket Lab’s capital raise — the standout transaction of the year.

Colin McKinnon, executive director of the New Zealand Private Equity & Venture Capital Association (NZVCA), says these larger deals involving reputable global venture funds help to highlight the New Zealand innovation scene. Although the initial investment may often involve a serendipitous connection, Australasia is increasingly seen as a prospect for globally relevant innovation.

“The global venture community watch each other closely and New Zealand is on the radar,” he says.

“It doesn’t get much more exciting than launching rockets into space or building technology that is wanted by Apple.”

Though the report shows New Zealand has vibrant mid-market and angel investment markets, our domestic early-stage venture space continues to be challenged by a lack of sophisticated investors.

McKinnon says this is a tough space in every country, but even more so in a small country with a very small institutional investor base.

“The presence of international venture firms investing in New Zealand innovation is positive, but we still need more New Zealand-based venture funds to bridge the gap between angel funding and international venture investment,” he says.

“If we are to continue to see more international investment, we will need to see more domestic VC — maybe micro VC — in New Zealand. “This is happening. I would not be surprised to see a range of new funds appear in New Zealand in the next 12-18 months.”

Standout sectors
Rocket Lab ensured technology remained the dominant sector for VC in 2017, while investment into software and IT reduced. Other sectors obtaining venture capital funding during the year included the food/beverage and health/biosciences sectors.

This statistic was supported by survey respondents, asked to identify which sectors they were most optimistic and most pessimistic about. Both the food and beverage and health and biosciences sectors generated the most optimism.

McKinnon puts this down to innovation in these sectors solving big issues that impact on human survival.

“New Zealanders believe that we have a globally competitive advantage in these sectors. We want these ideas to be successful and we expect that success will pay dividends,” he says.

“Investors — like Brandon Capital, BioPacific Partners and Auckland University’s UniServices — are attracting large international investors into the New Zealand bioscience and life science space. These investors bring sophistication and global connections that will help accelerate the ambitions of our founders and entrepreneurs.”

Fund managers had a more pessimistic view of the energy and media/communications sectors, and a split view regarding manufacturing. The Monitor notes that this potentially demonstrates that niche manufacturing opportunities still exist in New Zealand.

Outlook
The Monitor showed a subdued short-term outlook compared to last year, but one that is still largely optimistic. This reflects the New Zealand economy’s relative resilience compared to globally markets.

McKinnon notes that this small dip likely had more to do with the timing of the survey, which was conducted in February at a time where there were several issues contributing to uncertainty, including the recent change of Government and increased international tensions.

The outlook for the next 18 months remains consistent with that of recent years, with geopolitical uncertainty an ongoing factor.

Capital Markets: Commission fans headwinds (NZ Herald)

“The findings of the Australian Royal Commission have been far more material than anticipated,’ say UBS in a research report out this month.

Christopher Simcock, Country Head, UBS New Zealand, says the Australian banks are looking to divest or get back to their core business.

“The regulators have made it very clear they’re not prepared to tolerate any bad behaviour,” says Simcock. “And we’ve seen through many, many cycles, that these huge organisations, these huge conglomerates, are very difficult to control.

You might have the best systems in the world but if you’ve got 150,000 employees doing 57 different things in 74 different countries, it’s tough being a board member presiding over that.

“Whereas if you’ve got that number of staff in that many countries doing three things you’ll probably sleep better in the evenings.”

Executive Director of Investment Banking Andrew Fredericks points to UBS analysis suggesting one risk is the Royal Commission being a catalyst for a credit crash in Australia.

“When you look at some of the work done in that sector on interest only loans, those changes got made a year ago, we think it’s 2019, 2020 when that bow-wave really hits the consumption side, when people have to move to principal as well as interest only,” he says.

The concern in Australia is that the response by banks to apply more stringent standards in respect of customers’ income, expenses, assets and liabilities could lead to a sharp reduction in credit availability. This could have implications on house prices, consumption and growth.

Despite claims that New Zealand banks operate under a different regulatory and governance framework, there are concerns these same implications could spill over to New Zealand’s Australian-owned banks.

This concern prompted the FMA and RBNZ to meet with the chief executives of New Zealand’s registered banks. Earlier this month they issued an open letter to banks requiring written responses by May 18 that detail what actions have been taken to mitigate the risk of misconduct.

The letter says: “We expect you to show us what you have done in order to be comfortable that there are no material conduct issues within your business. We anticipate that you will have undertaken an exercise of that nature after our Conduct Guide and may be extending or enhancing that work in response to issues raised at the Royal Commission or more broadly as a result of that inquiry.”

“I don’t know how the banks are going to respond to that letter from the FMA and RBNZ, but they were given three weeks to do it, and I would have thought they are going to be very cautious on credit availability,” says Fredericks.

David Lane, UBS’s Head of NZ Equities says executives and boards of local banks have been quite careful.

“They started putting in place — probably prior to the macroprudential requirements — cleaning up their balance sheets. We haven’t seen the banks take any major hits on construction or apartment buildings — it’s been the promoters that have worn it. Having the pre-sale requirements and the bonds, etc, the banks have been quite careful.”

The research report from UBS says: “It is impossible to be definitive about the possible flow-on effects from the Australian Royal Commission to New Zealand, other than to say, from an economic perspective, they can only be negative risks. Moreover, the greater the fallout in Australia, the greater the downside risks (direct and indirect) will be for New Zealand.”

New Zealand shares some of the same concerning features as Australia on household debt, including the escalation in household debt since the GFC, the extent of debt-to-income ratios above 6, and the associated rise in house prices.

If the same tightening of lending standards transfers across to New Zealand, it would likely have an influence on the availability of housing credit in New Zealand.

The earlier UBS report out of Australia said that the country had a world record house price boom of 6556 per cent over the past 55 years, which went longer and higher than many investors thought possible.

UBS analysts say Australian lending standards in recent years have been so lax that three-quarters of loans have simply assumed household living expenses around the household expenditure “Basic” benchmark of A$32,000 pa (“remarkably, below the Australian Old Age Pension”).

To comply with “Responsible Lending Laws” banks will lift due diligence amid the “macroprudential phase 3” focused on regulation and lending standards.

UBS analysts say the impact may be that mortgage borrowing limits in Australia may drop by 30 per cent — 40 per cent.

In New Zealand there is a risk a spillover from the Australian inquiry could compound the headwinds already mounting for the housing market. Other potential dampening effects on housing under way by the Labour-led Government include policies on immigration, the extended bright line test, a ban on foreign buyers, KiwiBuild’s aim to deliver 100,000 houses over 10 years, and indications that today’s Budget will signal an end to negative gearing.

China Business: Payment giants battling the banks (NZ Herald)

Tencent is probably most well-known around the world for WeChat — which has transitioned from being an instant messaging system to more of an ecosystem and way of life in China. WeChat is used for everything from chat and games to paying bills, ordering a taxi, booking doctor’s appointments, and filing police reports.

Government policy dictates WeChat users register with their real names, and a pilot programme by WeChat has seen virtual ID cards launched through the platform, which serve the same purpose as traditional state-issued ID cards.

The platform has more than one billion monthly active users; 400 million use its payment system Tenpay (which includes WeChat Pay). Alibaba’s Alipay, run by Ant Financial, has 520 million users.

The transaction figures are astounding. Between those two major players, they control nine out of every 10 renminbi of the US$5.5 trillion (NZ$7.6t) spent by Chinese consumers on mobile payment platforms — and both have lofty ambitions to move beyond China.

China’s payment companies have begun expanding into global markets. Alipay and TenPay chose to first introduce their payment facilities in popular destinations for China’s increasingly affluent and digital-savvy travellers — South Korea, Japan, and Thailand.

The World Tourism Organisation estimates Chinese tourists spent US$261b abroad in 2016. Retailers and service providers taking up the payment systems are hoping to entice Chinese shoppers to spend their renminbi with them.

Finland is an increasingly popular destination for Chinese tourists, and became the first country to offer Chinese tourists an entirely cashless experience when they visit.

Partnering with Finnish payment platform ePassi and tourism group Visit Finland, Alipay introduced the “Smart Travel” initiative to connect local businesses with Chinese travellers at every point during their visit. Shopping, services, activities and experiences can be paid for using Alipay — even receiving duty-free refunds at the airport.

Last year Christchurch Airport signed a memorandum of understanding with Alibaba, agreeing to promote Alipay in the South Island, and in the past month Smartpay announced a partnership with Alipay that will see Alipay capabilities rolled out to Eftpos and credit card terminals for up to 25,000 merchants.

Alipay Australia New Zealand’s managing director George Lawson says Alibaba now partners with approximately 2000 merchants here and expects this to grow dramatically.

“The recent Smartpay announcement will drive a lot of this growth as it gives Alipay access to tens of thousands of merchants with one software update. This is very exciting as it makes it much easier to accept Alipay with existing terminals.”

Increased use of Alipay in New Zealand means Chinese visitors can more easily find, rate, and pay for goods and services using their mobile phone app, providing a platform for Kiwi businesses to promote themselves and form a relationship with tourists before, during, and after they visit.

More than 400,000 Chinese visit New Zealand each year, and spend around $1.7b per year. MBIE estimates this figure will grow to $4.3b by 2023, and as independent travel grows in popularity the scale of the opportunity for business is clear.

Christchurch Airport’s Chief Aeronautical and Commercial Offer Justin Watson believes making the payment process easy and familiar will benefit businesses that take up the technology.

“The Chinese use Alipay more than credit cards,” he says. “They trust it and know how it works; our Chinese guests are more likely to spend with a business that offers Alipay than one that doesn’t.”

Lawson agrees: “The Alipay brand is a beacon for Chinese tourists as they are familiar with it, receive the best exchange rates and it reduces anxiety associated with dealing with another currency. It also breaks down language barriers.”

Though these payment services are initially targeting Chinese tourists, they are hoping to rub off on China’s growing diaspora — and ultimately more widely — encouraging locals to make use of mobile payments.

To support this ambitious growth strategy, Alibaba and Tencent are quickly expanding their presence outside China through partnerships and investments in global brands and foreign payment networks.

Tencent has acquired a stake in over 15 foreign companies at a cost of US$4.3b, including 10 per cent in Snap (the parent company of social media craze Snapchat) and 5 per cent in Telsa.

Tencent’s music unit recently exchanged equity stakes of just under 10 percent with Spotify.

Alibaba has also been investing globally over the past few years, including Southeast Asian e-commerce company Lazada, India’s largest online food and grocery store BigBasket, and Indian payment app Paytm.

Analysts say these investments are made for a variety of reasons: to help Alibaba and Tencent capture data and gain intel from market leaders, to export what they have learned from their operations in China to other countries, and in some cases to encourage customers in global markets to use their online payment system, cloud services, and other infrastructure.

Cracking the global payment system will lay the foundation to provide other services, including insurance, loans, and investment offerings.

Despite this growth in acquisitions, the US is starting to hit back at China’s expansion.

Ant Financial made a US$1.2b move to acquire MoneyGram — an American money transfer company with around 350,000 remittance locations in over 200 countries.
This takeover was under a year-long regulatory review as questions were raised over customer data and privacy.

In January, the US Committee on Foreign Investment — a multi-agency government panel — scuppered the deal over national security concerns.

This has been the most high-profile Chinese deal to be axed by the Trump administration to date — occurring despite Alibaba’s founder and executive chairman Jack Ma wooing then-US President-elect Donald Trump prior to his inauguration with a promise to bring a million jobs to the US.

Piyush Gupta, chief executive of Singapore’s DBS bank, also recognises Alibaba and Tencent as among the bank’s biggest competitors and considers their rapid rise in China a salient reminder of the disruption that can occur if banks don’t react swiftly to innovation.

Gupta told McKinsey that it is not enough to apply digital “lipstick”.

“In 2013, the DBS board therefore took the view that the future for us and for our industry would have to be digital. We felt that if we didn’t lead the charge, frankly, we might die,” he says.

DBS recently launched its mobile-only bank to take on China’s e-banking giants. The bank is using the service as a strategic tool to strengthen its presence in emerging Asean markets — where the World Bank estimates 264 million people do not have access to banking facilities, and just 30 per cent of adults have debit cards.

The opportunity is significant, and the race to cash in is well and truly under way.

China Business: Tapping into the food chain (NZ Herald)

Leading nutrition companies spoke to Tim McCready about expanding into China. Among topics discussed with Sanitarium’s China Country Manager Tanne Andrews, Blackmores’ Asia Managing Director Peter Osborne, and Fonterra’s Greater China President Christina Zhu were challenges they face in the market and the impact of e-commerce.

Herald: Could you describe your presence in China?

Christina Zhu: We refreshed our China strategy five years ago and we’ve gone from strength to strength in that time. China is our largest and most important strategic market accounting for a volume of 5.5 billion liquid milk equivalents (LMEs) which is equivalent to over 1000 glasses of milk sold every second. Today, we have a fully integrated model that enables us to capture value for our farmer shareholders — from the farm gate through to the end consumer.

Our business model is unique in China. No other multinational or local dairy company has the same mix of businesses and reach across sectors that we have. We have a strong in-market presence and operate a range of business units — including consumer brands, foodservice, ingredients and farms, as well as a number of strategic partnerships. In the past 12 months we have made great progress integrating these businesses more closely to capture the opportunities being created by rapid changes in China’s food industry, such as growing household affluence, demographic changes in the population and the rapid growth of technology and e-commerce.

We are the market leader in food service, Anchor is the number one imported milk brand both online and offline, we have around 35,000 cows producing a significant amount of milk each year and we are a leading supplier of dairy ingredients to major international and local food companies in China.

At the same time we are Fonterra’s biggest employer off-shore with close to 1700 people in the greater China region (mainland China, Hong Kong and Taiwan).

Tanne Andrew: We’ve been an export business into China for about five years, and have had a functional office in China for about the past 18 months.

Chinese consumers increasingly want to try things from the West and there is massive growth in breakfast cereal in China. We are building trust in Sanitarium’s brand, which we want to expand on. Light ‘n’ Tasty will likely be the next product we bring to the China market.

Peter Osborne: We’ve been here since 2012. We have a wholly-owned foreign enterprise in Beijing, our head office is in Shanghai, and a team of 50 in China — spread across Beijing, Shanghai, Guangzhou and Chengdu. We have an A$250m business in China, with over 3000 points of retail presence across China and an extensive presence on e-commerce — both domestic and cross-border.

What are the challenges you have noticed specific to China compared to New Zealand or other parts of the world?

Zhu: The Chinese consumer is unique and like all markets we operate in, it’s essential to appeal to local tastes and trends. Chinese consumers are very discerning and companies work tirelessly to meet their ever-increasing expectations.

This is both a challenge and opportunity — to capture the opportunity we need to have innovation at the heart of everything that we do. That can mean new packaging, taste profiles, or the way you engage with consumers. The market is evolving so quickly, businesses need to run fast just to stay where they are. Only by running faster though will they ever move ahead.

One area where we have really captured the essence of innovation is through our foodservice business — Anchor Food Professionals. The dairy beverage category is rapidly expanding and we’ve been able to capitalise on this trend by working with our customers to create innovative taste sensations, such as the tea macchiato. This is made using a blend of flavoured Chinese tea with a creamy cap of whipped cream and cream cheese.

Thanks to innovations like this, we are now selling around 80 million drinks per year and this is growing rapidly.

Andrews: While the opportunities in China are big, the challenges are also big. China is not the easiest place in the world to do business — complicated sales channels, language barriers, different consumer laws, professional shoppers — these are just a few of the challenges you face that you don’t have to worry about in your own domestic market.

China is very different to Australia and New Zealand — it’s the antithesis really, when you look at lifestyle. And it is extremely fast-paced. Everything changes so quickly, it’s like a different planet and you have to keep up.

As an ex-pat, if you can’t speak Chinese, you don’t have an interpreter, you don’t have a driver — you will find it very difficult. I found it surprising how little English is spoken.

We used to put a lot of emphasis on using Chinese agencies that could speak English. But now we have a local team in China we’re using some very good local agencies. That might mean they don’t necessarily speak English, but we’re finding we get a far better result.

Osborne: As a health product company, we’re used to highly regulated environments, so that’s not the biggest challenge. Keeping up with the speed of consumer evolution is.

This includes changes in the regulatory environment, how to engage with consumers online, and customer preferences and demand.

In a category like ours, preferences can shift rapidly based on key opinion leaders and influencers. Our category has a long supply chain which means it can take months to get a product to market. That’s a big challenge for any foreign brand in food or fast-moving consumer goods (FMCG).

How are you currently using e-commerce in China?

Zhu: E-commerce in China is such an important platform and it’s moving at a rapid pace.

We’re really capturing this opportunity — over half of our consumer business is online and Anchor is the number one imported dairy brand both on and offline in China.

Our strategic partnership with Alibaba is helping us deliver significant growth. Alibaba has created a huge digital ecosystem in China encompassing all online channels and we’re working in partnership with them to get more and more of our products to consumers across China. For example, Tmall.com, Alibaba’s online retail market place, is an extremely important channel for us, and enables retailers to sell Anchor, Anlene and Anmum to consumers.

A key development in the China e-commerce landscape has been the growing integration of online and offline channels — or what people are calling ‘new retail’. This year we launched a partnership with Hema — Alibaba’s supermarket chain — where we will sell our current product range, launch new products and offer cooking classes to engage our consumers. The signature product is daily fresh milk, an unprecedented development in China. This milk comes from our farms in China, which shows how our integrated business model is coming to life. We have also signed a memorandum of understanding with Alibaba on blockchain.

Andrews: This is what is difficult for people to get their head round in Australia or New Zealand. The majority of our target buy their groceries on line, over 80 per cent of our purchases are made on a mobile device. For the consumer it’s convenient and delivery is both quick and inexpensive.

If you work in FMCG in New Zealand, the majority of your goods are sold through large supermarket chains. Think how much your strategy would have to change if suddenly your goods were now sold predominantly online.

Osborne: We’ve had a long relationship with Alibaba and entered China in 2012 with a flagship store on Tmall — we were the first brand in our category to have a Tmall store.

We sell on various Alibaba platforms — Tmall, Tmall Choice, AliHealth, Taobao — and we also work with them on big strategic projects including a blockchain project for food safety and a Global Healthcare Initiative with Tmall. We have a deep relationship with them, which has really helped drive our business in China.

Online and cross-border e-commerce is a big part of our business, and Double 11 Day is a big feature of the yearly calendar. We work up to it with a range of activations — it is about consumer engagement and brand awareness as much as it is about sales. For a long-term business in China this is important, because it allows you to keep engaging with your consumers.

We did a three-hour livestream prior to Double 11 Day. We used Chinese celebrities and Chinese pop-stars as part of a broader programme produced by Hunan Television [a satellite TV station]. At its peak we had 480,000 people online viewing our livestream and we added 13,000 fans to our flagship store.

Can you give an example of an online success you had in China?

Zhu: One example of our online performance is Double 11 Day — a very important festival that has expanded to become weeks of promotion. During Double 11 Day last year, our overall online business achieved RMB100 million (NZ$22m) in sales volume, 67 per cent higher than the previous year.

This year we ranked in the top 10 of all food and beverage companies on JD.com, another e-commerce giant and also a significant partner. That puts sales of Anchor milk up there with brands like Coca-Cola and the local giants Yili and Mengniu. This is a massive achievement and reinforces that Anchor is standing strong among the biggest food and beverage brands in China.

Andrews: Our Chinese distributor got Weet-Bix onto Ode to Joy [a Chinese television series]. It appeared for over one minute on screen with actress Liu Tao — one of China’s most famous actresses — and was seen by over 350 million people. Daigou in Australia and New Zealand rushed out to buy Weet-Bix to send to China. That was when Sanitarium realised the potential China offers.

Since then, due to a trademark battle, we have had to rebrand in China to Nutri-Brex.

But Nutri-Brex retains the Weet-Bix colours and branding. It is selling very well, and the bonus for us is that Daigou don’t have access to Nutri-Brex as it is exclusive to China.

This gives Sanitarium more control over the Chinese market and eliminates problems associated with parallel imports.

Osborne: We learnt a very good lesson in China from our vitamin E cream — a product we have been selling for 30 years.

There was some social media chatter two years ago that Fan Bingbing — a very famous Chinese actress — was using our vitamin E product. Our sales went from 3000 tubes a month to one million tubes a month.

This really had very little to do with us — but we had to crank up production rapidly to meet this demand we hadn’t anticipated, all because of social media which is so dynamic in China.

Although things have calmed down now from that peak, we are still selling considerably more vitamin E cream than we used to — up into the hundreds of thousands of tubes a month.

China Business: New Zealand products selling well on 11:11 (NZ Herald)

Alibaba’s 2017 11.11 Global Shopping Festival attracted a high demand for New Zealand brands.

The festival comes from Single’s Day in China (the date is 11.11 — four singles) and is also known as Double 11 Day.

Over the 24-hour sale period, Alibaba Group reported RMB168.2 billion (NZ$36.81b) of transactions through Alibaba’s retail marketplaces. As evidence for China’s phenomenal uptake of mobile devices, mobile sales accounted for 90 per cent of the total sales figure.

Alibaba now offers more than 400 New Zealand brands through its B2C platforms Tmall.com and Tmall Global.

Maggie Zhou, Alibaba’s Managing Director of Alibaba Group Australia & New Zealand, says there is a rapidly increasing demand from Chinese consumers to source the highest quality products from all over the world. Brands from Australia and New Zealand have seen excellent sales figures during the shopping festival.

“Australia and New Zealand products are perceived as high quality and continue to outperform in China.

“We are working closely with New Zealand merchants and partners to further encourage this growth.
“When we launched Alibaba Group’s Australia and New Zealand office earlier this year, one of our key goals was to show the outstanding performance of New Zealand brands in previous 11.11 Global Shopping Festivals,” she says.

“We are thrilled New Zealand brands have continued to see success on the world stage, adding further proof of the growing appetite for high-quality New Zealand goods among Chinese consumers.”

Zhou says Alibaba’s Chinese shoppers are drawn to products from Downunder, particularly skincare, health supplements, and high-quality organic goods such as fruit and wine. Rapid improvements in logistics mean that fresh items such as beef, seafood and dairy are also becoming more sought after.

Some of the highest performing brands on the Chinese e-commerce giant during the shopping festival were ecostore and Antipodes.

“The opportunity for ecostore to expand its consumer base is significantly increased through sale days such as 11.11,” says Pablo Kraus, managing director of ecostore.
“Chinese consumers are very sophisticated and their demand for an eco-friendly lifestyle continues to grow, so ecostore is honoured to be a brand that consumers choose for its reliability, authenticity, and being safe for all the family.”

CEO and founder of skincare company Antipodes, Elizabeth Barbalich, says: “11.11 presents and amazing opportunity for us to raise awareness of Antipodes in the China market.

“The Chinese market is key for us, with traditional plant remedies long considered an essential part of Chinese medicinal and beauty practices.”

Offshore companies that participate in the 11.11 Shopping Festival are required to store their products in Alibaba’s warehouses ahead of time, so customers receive their products as soon as possible after purchasing.

After midnight marked the start of Double 11 Day, the first package was in the hands of the buyer 12 minutes later. “This delivery speed makes for a far better shopping experience,” says Zhou.

Project Auckland: A view from the summits (NZ Herald)

The Memorandum of Understanding of Economic Alliance between sister city triplets Auckland, Guangzhou and Los Angeles was signed in 2014 – and if a week is a long time in politics, three years certainly is.

Since then, New Zealand has had three prime ministers. Former Auckland mayor Len Brown “The Singing Mayor” hung up his chains – replaced by Phil Goff, known less for his singing abilities and instead for his prowess in forging New Zealand’s free trade agreement with China.

Guangzhou also changed its mayor in 2016, and although Democratic Party superdelegate Eric Garcetti is still mayor of LA, President Obama was replaced by the entirely different Trump Presidency.

Over that time, three summits were held to recognise the alliance. And just as with geopolitics, the alliance has come a long way.

The first summit, hosted by LA in 2015, was attended by a humble delegation of about 43 Auckland businesses.

In 2016, Auckland outdid the council’s own expectations with over 700 delegates and more than 330 formal business matching meetings.

Guangzhou’s turn to host took place last month, and saw 70 Auckland businesses take 97 delegates, with around 800 others from LA and Guangzhou.

“Auckland companies need to internationalise,” says Pam Ford, General Manager – Business, Innovation and Skills (Acting) at Ateed.

“They have to go global from day one – and it’s hard. “That’s why we ran workshops for attendees ahead of this latest summit. They helped to build the capability of businesses to maximise their time offshore, and gave them the confidence to take part.”

Alongside business matching, networking events and showcase functions, panel discussions and keynote presenters shared insights and ideas from speakers across the alliance.

Los Angeles 2015: New York is a river, Los Angeles is a lake

The first summit saw panellists discuss the cartoonish view of cities that people – including Americans – have about the US, and stressed that the City of Angels should be seen as more than just a gateway to the US, and certainly more than just Hollywood.

Hollywood makes up only a fraction of Los Angeles’ economy. As well as tourism, it is the US’ largest manufacturing centre, a hub for aerospace, logistics, clean technology and innovation, and home to the largest port in the Western hemisphere.

It is the country’s fastest growing tech start-up region – many arguing it has benefits over San Francisco or Silicon Valley for a tech launchpad.

Despite this, there is no denying LA remains the creative capital of the US. One in seven people are employed in a creative field, and it is the top American metro area for art, design and media employment, providing more than US$140b (NZ$203b) of annual economic impact to the city.

“One of the things the LA summit did was open people’s minds that it is more than just film,” says Ford.

“LA is the place for many of Auckland’s companies that create content. Content now fits across so many more mediums – from gaming and television to social media and particularly the influencer economy.”

“But LA is also about cleantech, food and beverage, design and manufacturing. “Because of this three-year relationship, we’ve developed solid partnerships with the organisations for our companies to access – whether that is through the World Trade Center Los Angeles or the Los Angeles Business Council – that we would not otherwise have had.”

One panellist – a resident of LA – described how the city unfolds as you spend more time there. “New York is a river, but Los Angeles is a lake. If you step outside in New York you will naturally go somewhere, the city itself will take you and it is simple to navigate.

“In Los Angeles, to get anywhere you have to actively swim there – or you risk never getting anywhere at all. But that’s what makes it so exciting.”

Auckland 2016: Partnerships, People, and Cross-pollination

The Auckland summit saw global heavyweights take to the stage at the Viaduct Events Centre, speaking about the importance of partnerships and collaboration, and the opportunities that arise when you bring people together and ‘cross-pollinate’ ideas.

Sunny Bates, a serial entrepreneur and a founding board member of Kickstarter who has served as an adviser to companies including GE, TED and P&G, insisted the economic driver of the future won’t come from factories, technology, or software – it will be down to the networks of people.

“Networks are the structural basis for globalisation and for modernisation,” says Bates.

“Networks know no boundaries, and cultural networks are extremely powerful.”

Former Nike innovation expert Erez Morag agreed that networks were critical, but said it wasn’t those networks on their own that lead to innovation, but instead the cross-pollination of ideas through those networks.

“Instead of chasing the competition, chase the insights, listen to everyone, and play bigger than your size,” he says.

Morag used jogging as an example of cross pollination. In 1961, Kiwi runner and athletics coach Arthur Lydiard organised the world’s first jogging club in Auckland, promoting the cardiovascular health benefits of easy distance running.

Lydiard introduced Nike co-founder Bill Bowerman to the concept of jogging on a chance visit to New Zealand.

“[Jogging was] invented in New Zealand and commercialised in the United States,” says Morag – all through the cross-pollination of ideas.

Throughout the Auckland Summit, then-Maori Development Minister Te Ururoa Flavell reinforced the importance of trusted partnerships to the Maori economy. “Maori want to hear your heart, not just slick words.

“If there is no connection to your heart, then there can be no deal – because it will be doomed from the start” – a message that resonated strongly with Chinese delegates, who rely on guanxi – long-term, strong business relationships, based on trust and mutual reciprocity.

Guangzhou 2017: Leverage our Chinese diaspora

Auckland-based Kenneth Leong, co-founder and director at Healthy Breath – an anti-pollution mask using natural New Zealand wool filter media for international markets – spoke about leveraging the Chinese diaspora.

“We sometimes forget Auckland is home to a large, well-connected Chinese business community,” he says.

The summit and surrounding events enabled new connections between the business delegates, and deepened existing relationships.

“Cross-cultural partnerships enrich all parties, by bringing people with great ideas together with people who have connections, capital and channels to market,” says Leong.

“There is a need to accelerate integration between the migrant Chinese and mainstream business communities in Auckland. Everyone is keen to do business together, we just need to create more opportunities for interaction and relationship building.”

New Zealand’s connection to Guangzhou goes back a long way – many of the first Chinese immigrants to New Zealand came from the Pearl River Delta region, including Guangzhou.

Now, Guangzhou is China’s third largest city, contains seemingly endless skyscrapers, and is considered a manufacturing and commercial hub.

It has been consistently ranked by Forbes magazine as the best commercial city in mainland China for ease of doing business, talent, location, and international connectivity, and in many cases, could be a more accessible market for New Zealand businesses than the more recognised larger markets of Shanghai and Beijing.

Project Auckland: A positive vector for growth (NZ Herald)

Tim McCready sat down with Vector chief executive Simon Mackenzie to discuss the future of Auckland’s energy sector, and beyond.

“It’s almost like we’re back to the future,” explains Vector chief executive Simon Mackenzie as he discusses the energy industry’s shift towards distributed energy systems.

It’s a future Mackenzie seems relatively at ease with, despite it completely disrupting the business models of the industry in which Vector operates as a distributor.

“The whole investment focus is now turning to: how do we utilise technology in the energy sector to still deliver energy in an affordable, yet renewable, sense?” explains Mackenzie.

“We’re seeing a huge tipping point in terms of customers driving what they require from energy.”

Where energy is currently generated at a centralised location — say, a dam — and then transmitted via the national grid to distributors such as Vector, increasingly customers are gaining the ability to generate the energy themselves, within — or on top of — their homes.

This shift has been driven and accelerated by global initiatives to reduce the use of fossil fuels from transport and energy sources in response to the threat of climate change.

And while the lack of international progress on emission reduction targets is often lamented, beneath the surface there has been significant subsidies provided for the development of renewable energy generation and a reduction in the price of technologies, such as solar panels.

“The customer has choice and may send energy back out to others, but even in urban environments they still probably need to move that energy around within the urban environments.”

In this context, says Mackenzie, “transmission and generation are becoming more and more commoditised. At some point in time it will be there more for a backup, or segmented needs.”

The position of Vector as a distribution company — downstream from those increasingly commoditised sectors — appears to be enabling the company to embrace the disruption.

“There’s a desire for more physical solutions — things like solar and batteries and the like — but I think one of the other sides is that we’re now seeing the convergence of transport coming into energy with electric vehicles, and that whole infrastructure to support that,” he says.

“Essentially, an electric vehicle could also be a mobile battery that you connect into your home, so we’ve got technology that enables that.”

And to complement the physical technologies being developed and deployed, Vector is heavily invested in software and digital innovation too. Data analytics is increasingly playing a role in how the company makes decisions, for example.

“We do a huge amount of work on data analytics, and we’ve worked really well and collaboratively with Auckland Council,” says Mackenzie. “We’ve got a huge amount of data and information with them.”

That includes layering data relating to housing construction and demographic trends with behavioural economics insights to generate predictions about future energy and transport usage.

Mackenzie says this unlocks “latent capacity” in the market currently; getting more usage hours for less, without necessarily needing to construct new hardware assets.

Similarly, giving customers the ability to optimise their energy usage by controlling devices from their mobile phones is another way Vector are hoping to use technology to access efficiencies.

“That’s all centred around de-complicating,” says Mackenzie. “Because we don’t believe customers want to be computer programmers to run their energy lives.”

“That sophistication now of being able to co-ordinate and optimise everything, we can provide through technology that we’re utilising.”

“That means there will be a lot more customers with those types of solutions either in their homes or on their roofs. Or they could be connected through other community initiatives such as peer-to-peer trading, or a school might have solar and battery in it that’s not used in the weekends or holidays — so then how does that get shared with communities?”

“The way we see the overall picture is Auckland becomes more and more self-sufficient, so the remote transmission and generation becomes more of a backup in the long-run, and more of a security layer, as opposed to the primary.”

Mackenzie says this vision is one in which Auckland is also a more resilient city, no longer dependent on remote transmission.

Interestingly, Vector’s modelling predicts the primary climate change impact in Auckland to be more high wind events, meaning building resilience and continuity of supply is of heightened importance.

The company also wants to raise the awareness on how climate change will differentially impact New Zealand’s various areas — with some areas more susceptible to sea level rises, for example, than Auckland.

“From the modelling we’ve done, from the global research, we worry about the fact that things are changing a lot quicker than people think, and I think we need to raise the debate and awareness around New Zealand on that.”

A company target of net zero emissions by 2030 reflects that awareness.

Another example of how the company is looking to lead the community and shift attitudes about how energy can be generated, traded, and used is the project with Auckland Council to light the Harbour Bridge using smart energy technology.

From this coming Auckland Anniversary Weekend, the bridge will be lit by some 90,000 LED lights, utilising solar-generated energy, new battery technology, and peer-to-peer energy trading.

“We saw that as a great fit for us, because it’s really iconic,” says Mackenzie of the project.

“For us, it’s a representation of giving back to Auckland but also displaying how we see the future of energy.”

The bridge will have static ambient lighting on most nights, but can be programmed with dramatic animated displays for special events, such as Waitangi or Diwali or the America’s Cup. The intention is to have between 12 and 15 of these events over the first year.

Partnerships, collaboration, and cross-industry learnings underpin much of how Mackenzie discusses Vector’s strategy in this fast-changing industry.

The company has worked with companies such as LG Chem and Tesla to bring their energy storage products to New Zealand consumers, for example.

Though there is not a great deal that is fundamentally unique about the Auckland energy market and infrastructure, or the city from an environmental perspective, these are features that has made the city amenable to innovation.

“Auckland is of a large enough scale to be globally recognised as an international city,” explains Mackenzie. “It’s got a political and regulatory environment which is seen as pretty conducive to actually adopting these technologies.

“For some of the technology companies we work with, they see that as a real positive because it becomes a proving ground for what they want to deploy into markets which are going to be a lot slower to adopt.”

Adopting new technologies early is seen as vital given Auckland’s pace of growth.

“What we’ve found, is that using technology has enabled us to build a whole new layer of networks internationally — and it’s not all from the energy sector — a lot is from outside of the sector, or from adjacencies,” says Mackenzie.

“Although we are small on a global scale, the reality is that doing these deployments or adopting these technologies early is advantageous.

“If you’re not an early adopter, by the time technologies gain a lot of interest from other parties, you’ll end up falling right down the pecking order.”