Is Efficient Effective?

The underpinnings of agriculture – An efficient or effective model?
Colin Riden

An independent, no holds barred, externally based SWOT - strengths, weaknesses, opportunities, threats - analysis of NZ agriculture would produce a result most people wouldn't expect, especially those involved in agriculture. Collectively, we have a poor idea of our agriculture’s strengths and weaknesses. And this limited understanding is likely based on circumstances relevant in 1987.

If our hypothetical SWOT analysis is sound it will be focused on our international competitive advantage - NZ agriculture is almost entirely export based. Trends in all aspects of productivity will feature strongly.

If the analysis is really thorough it will be looking for answers to questions similar to those not answered by the OECD in their last assessment of NZ. Essentially, why is it that the level playing field and best practice systems in place are not delivering more than very average results? Why does the performance of agriculture as a whole appear to be less than the sum of its best practice components?

What answers would we expect if we had improved this and achieved above average results?
Apart from a financially healthy agricultural sector, an ability to adapt - with some variation in how things are done so that options are available when the wider environment changes. Some anticipation of change would be great.

We would also expect to see a good information base and openness to ideas. These would assist responsiveness to market signals and reduce surprises. Improving productivity will be focused on profit and not production. And building defensible competitive positions in overseas markets would be recieving significant research funding.

We would be keeping up with advances in technology, even if most of it was coming from offshore, but more importantly attitudes support the possibly of true innovation rather than claiming incremental technical advances as innovation.

Leadership would be evident and a longer-term vision, other than simply producing more with less, is starting to emerge. Sustainable farm practice will be paying financial dividends.

And someone, somewhere would have clear responsibility and accountability for the overall performance of NZ agriculture.

Being stuck in the 1980s ...
The relevance of the late 1980’s to our idea of agriculture’s strengths and weaknesses is no coincidence. This period saw agriculture made efficient. Government became hands off. Many crown entities become state owned enterprises(SOEs). University funding changed. New crown entities emerged to allocate research funding.

With the restructurings came expectations of higher productivity – more of the same from less. Much of which was initially delivered. It was certainly delivered on farm, and also by many State Owned Enterprises.

This process also bought with it: Efforts to ‘fix’ research funding; A Tertiary Education Commission created; The effective demise of producer boards; A merging of the Dairy Board, Kiwi and NZ Dairies into Fonterra; The merging of Dexcel and Dairy Insight and; Turf wars between SOEs as they sorted out how to avoid competition.

There are still ongoing side effects including: A record exchange rate against the US dollar; Overvalued agricultural asset values; Very high agricultural debt with high interest rates and; Rising costs.

Twenty years after it was made efficient, NZ agriculture remains doing what it was back then – trying to be efficient and produce more from less. Unfortunately, the rest of the world has moved on to making more money - be it from innovation, marketing, providing more information (traceability) or demanding low carbon, sustainable agricultural production.

... reduces effectiveness
The problem with focusing on efficiency is that businesses become ineffective over time. For any system to be effective they need to be able to adapt to change, which requires having some fat. They need enough fat to able to try things that probably won’t work but are worth the risk because the benefits are high if they do. They need some redundancy so that they can anticipate where things may go and have a capacity to respond when the environment changes.

It may just be a matter of time before NZ's ‘efficient’ model of agriculture adapts and delivers, but that may be a very long time. After 20 years in evolution the model now looks less sustainable than it did 10 years ago. It is showing little sign of changing its production focus - be it at farm, education, research or processor level.

With hindsight, I wonder why a mix of efficient but essentially uncoordinated enterprises would spontaneously adapt their initial direction to continue delivering more than the sum of their parts.

A whole which delivers greater than the sum of its components doesn’t happen by default. It requires a strategy, some body to have ongoing responsibility for carrying out the strategy, and accountability for its delivery.

And this is where it gets interesting. Which body – government, private, producer-board, co-operative, academic - is taking overall responsibility for the sum of agriculture delivering?

Therein may rest a fundamental problem. Political reality is that in benign times no body would want to go near the responsibility. It is only in times of significant duress that such leadership may emerge. The best you can otherwise hope for is that bodies take responsibility for parts of the whole.

So, if the ‘efficient’ model is still taking agriculture in the direction it was given in the late 1980’s, and it is unlikely the model will be substantially changed in the short term, how do you make the best of a poor situation?

You can a) pretend there is nothing wrong with the model, b) accept things are far from ideal and adapt to working with that state of affairs, or c) prepare to influence or change the model when or if opportunities arise.

The predominating state of affairs around most of the world is probably some form of option (b). Option (c) is hard work, requires leadership and is only for the dedicated. NZ is probably unusual in endorsing option (a).

On an individual basis you can think and act independently, be aware of how our model of agriculture is not adapting to new directions, and take any opportunity to withdraw yourself or support from the existing direction. But farmers have abdicated much of their thinking to professionals. Paying research levies means that someone else is effectively responsible for ideas and innovation. That these responsibilities have been delegated would be fine if someone somewhere is taking overall responsibility for the direction of agriculture. But there is an issue if this is not the case.

So long as the rest of the world is not better at setting the direction for agriculture, this will in the short-term amount to no more than a missed opportunity.

All NZ agriculture then needs to remain competitive is exchange rates, asset values, tax rates, interest rates and costs on a par with competitors.