Southland is looking into an alternative to dairy farming that taps into surging Asian demand, but uses less capital and water and produces less nitrates and greenhouse emissions. Baz Macdonald reports.
By: Baz Macdonald
Agriculture represented 4% of NZ’s real GDP in the 2016 financial year, yet an OECD report released last year showed the sector produced half of our countries greenhouse emissions – making NZ the second highest creator of emissions per unit of GDP in the world. The recommendation from the OECD was that we develop “alternative measures to counter the pressures of farming”.
Southland’s economic development agency, Venture Southland, has been researching just such an alternative for the region.
Their team looked for a crop that best uses the region’s climate and soil types, is environmentally sound, and can offer local farmers a similar financial return to the current high-earning land uses such as dairy and lamb.
Their research, and some creative thinking, produced a winner – oats.
Headed by Steve Canny, who received an Order of Merit for his development work in Southland, a team at Venture Southland have developed a business plan to export an oat-based health beverage to the Asia/Pacific market.
This beverage would be manufactured in Southland, and offer farmers throughout Southland, and the lower South Island, an alternative type of farming which Canny said has the potential to offer returns equal to, or greater than, dairy and livestock.
“This is a sound response from an environmental perspective and a very sound response from a commercial and market perspective,” Canny said.
The environmental advantage
Southland is one of the biggest agricultural regions in the country, and is a large contributor to New Zealand’s greenhouse omissions. However, the environmental impact of agriculture on the region is further reaching than just omissions. A 2014 study by Environment Southland concluded that current farming practices had “increased pressures on the region’s soil, water and air resources to the extent that we are seeing significant declines in soil and water quality across the region.”
Though this study highlights dairy as a contributor to this decline, it said another major contributor were farmers using land unsuitable to their purpose, which then require a large amount of resources – through irrigation, for example – to make the land viable for their crop or livestock.
One of the biggest advantages of moving to oat crops, Canny said, is that the climate and heavy soils of Southland’s farmland make it perfectly suited for grain crops.
“That means we can produce good, reliable crops on non-irrigated land. That is the huge advantage – one, because it is a huge environmental advantage, and two, it means the cost of production is significantly down, making it more competitive,” Canny said.
Canny and his team have gone further to optimise growth by working with grain cultivators to identify the best strain of oat for southern NZ farms.
“We have been able to match soils to an optimised variety of oats, driving the average production from about 5.7 tonnes a hectare, to 10 tonnes a hectare,” Canny said.
Because of how well-suited the oats are to the Southland farmland, far less resources are required to grow these crops – needing only one tenth of the water of the dairy process.
Venture Southland’s project is driven primarily by a need to create a more diverse types of farming in Southland. However, the team have been particular about making sure the solutions they generate adhere to the principles of Kaitiakitanga – which says that any use of our earth must leave the land in the same condition, if not better, than the way you found it.
“Everybody accepts that there has to be a change in the way we go about our production activities,” Canny said.
“We have to consider the fact that we have got global warming happening, and we are potentially very highly impacted by that. We have got to ensure that we use low-carbon processing, that we are being water efficient. We can’t simply rape and pillage our natural resources – that is unacceptable in any setting.”
For this venture to be successful, however, Canny said that as well as being environmentally friendly, this new venture had to be financially viable for farmers to consider making the transition to oat crops.
“We want to offer other alternative options for providing returns equal to, or better than, with a lesser environmental footprint.”
Agriculture is the lifeblood of Southland, after all. In 2014, Agriculture accounted for almost $1.4 billion of Southland’s GDP, representing a quarter of the regions revenue.
The business reality
For oats to be a financially viable to farmers, Canny and his team had to think creatively. After their research showed oats to be the most viable crop for Southland, he and his team looked at the uses for oats and compared them to market trends.
The uses for oats are surprisingly far-reaching, with oats capable of being processed into a range of products from cheeses and spreads to skincare products.
In the end, it was decided that the most market viable use for the oats was a beverage which would be marketed as a health product and exported into the Asia/Pacific market.
Oats have generally been thought of as a healthy grain, being high in fibre and offering a suite of essential nutrients. But, it is only in recent years that research has shown that beta-glucans found in oats can lower the cholesterol of those who eat them. These findings have led to an acceptance of oats as a health food.
Canny and his team saw the potential to create a product that improves the health of those who consume it, and as such is considered a high-value product in the marketplace.
“Estimations show that the value of the global trade of health and wellness products will be over one trillion US dollars,” Canny said.
“In the UK and Europe, for example, the growth of this industry has been 33 percent year on year. That is phenomenal growth.”
The Asian market has mirrored this global trend, with a 2017 APAC consumer study showing that of the foods introduced to the region in the last year, a quarter made claims as natural health and wellness products.
Canny said the reason the Asian health and wellness market is growing so quickly is because of filial piety – a culture of respect and care for your parents and elders. Market research shows that typically 25 to 45-year-old women are responsible for the purchasing decisions, and are heavily favouring products which they think will aid the health and wellness of their parents and grandparents, as well as their partners and children.
“Our research has shown us, that [our oat-based beverage] is the kind of food these decision makers are looking for.”
This product would break Southland into a different market than it usually trades in– with these beverages considered high-value products, as opposed to the kind of commodity product that Southland primarily produces.
Canny said that this initiative is a move to protect Southland from the vagaries of these commodity markets – with constantly fluctuating dairy, meat, and wool prices.
Production of these beverages will start small when first entering the market, but there is a plan to scale.
“In the fullness of time, you could see this developing into quite a significant industry,” Canny said.
Venture Southland’s projections show that oat farmers could expect returns to be equal, if not better than, that of dairy – but with a quarter of the capital spend.
“To provide a competitive land use that is comparable to Dairy the returns after costs have to be in the range of $2,250 to $2,500 per hectare,” Canny said.
The NZ oat market
Harraways Oats in Dunedin, who celebrated its 150-year anniversary last year, produce rolled oats for local and international distribution – including selling into the Asian market.
Harraways chief executive Stuart Hammer agrees with Venture Southland’s assessment that there is a real opportunity for an oat based beverage to be a success in the Asia/Pacific market.
Hammer said Harraways too has looked at branching their business out into oat based products, like drinks, spreads and cheese’s, but that the company decided to remain focused on rolled oats as their core business, in order to “grow the business in the short-term”.
“We are utilising our current product range, selling locally and internationally at higher and higher volumes,” Hammer said.
“We have had sustainable, solid growth in the last fifteen years without having to go into that product range and line.”
Hammer said discussions between Harraways and Venture Southland are in the very early stages, but there is the potential that Harraways could be the primary supplier of oats for the creation of these beverages.
Final production details such as these are still being ironed out on the project, but all of the food designs and formulations have been designed and the business cases have been completed. Venture Southland has investors interested in the project.
“All of the plant design and optimisation has been completed. We expect to be starting building the process plants in Q3 of 2018,” Canny said.
“The aim is to build the processing and manufacture capabilities in Southland.”
Canny said they expect the project will employ around 250 people at its inception stage, and then hopefully grow far beyond that as they scale production.
The aim is to be market ready by 2019.