The future of food exports from NZ

In the last 50 years New Zealand has done a wonderful job of diversifying our export markets for food and beverages, a process somewhat forced by the UK joining the EU in 1973. We are in a strong position.

China is the biggest growth market for us – in both dollar and in percentage terms. That’s been a wonderful story of the benefits of our very early free trade agreement with China.

We are not the only food producer of course, and the giant exporter to worry about is the USA. Their absolute and percentage growth rate of exports is vast, and with TPPA they now have the ability to break open markets. In dollar terms the TPPA, which does not deal with their massive trade-supporting farm subsidies, will mainly be for the benefit of them.

The USA’s food system is largely one of production prioritised over quality, with hormones and antibiotics added to animals producing meat and milk, subsidised corn and sugar quotas leading the prevalence of high fructose corn syrup (HFCS) and outcomes of obesity, poor health and antibiotic resistant bugs.

New Zealand can’t hope to compete on quantity with the USA, and while our food quality here is still pretty good, one downside of these trade agreements is that people in NZ will increasingly be offered cheaper poorer quality food sourced from offshore, and that will lead to worse health outcomes for NZ (which in turn will drive worse economic outcomes).

We can and should maintain and even lift our food quality standards – but can we do so under our free trade agreements? An infamous example is Mexico being forced to open their soda market to the subsidised and cheaper HFCS sweetener. Meanwhile the US fiercely protect their own sugar producers, largely because of expat Cuban sugar growers in Florida – who wield great political power. This is at great expense to their people – with prices of refined sugar are 95% higher than global prices, and along with the subsidised HFCS that means  HFCS has a large market share as sweetener in US processed foods.

The eventual result between Mexico and the USA was a negotiated settlement whereby the US largely maintains their highly protected sugar industry and Mexico still copes with HFCS imports and substitution of sugar for HFCS. A close read of the article on the settlement makes is somewhat disturbing as we consider the impacts of TPPA.

All these fascinating charts come from the MBIE funded Coriolis Investors Guide to the Food and Beverage Industry, a worthwhile effort.

However i is a little misleading when assessing NZ’s potential to grow food production. For example, the chart below compares food production per square km between countries with varying demographics, geography and protected lands. (Other charts show production per population – again not a useful metric)

The key differences between the Netherlands and NZ go beyond our rugged terrain and highest point of 3,726 meters versus the famously flat Netherlands and a highest point of 894 meters.

The Netherlands, data from the World Bank shows, has just 11.1% of land covered by forest, but NZ has 38.6%. Meanwhile 38.6% of land in the Netherlands is arable, while NZ has just 2.1%. Are we to chop down forests?

I do not doubt that we can get more production out of NZ, even if we don’t touch the forests. But that will need to be balanced with efforts to increase positive  environmental outcomes and margins, and our resources are not as limitless as the chart above implies.

Out food is seen as cheap and safe by markets.

This is a problem  but a good one. It shows the opportunity to receive considerable margin by moving to the prestige position.

How do we do this? The answer starts at the farm. My favourite case study recently is Lewis Road Dairy – who charge outrageous amounts for their milk products sourced from an organic farmer. Their products are often sold out, and Fonterra eventually responded <correction – it was Goodman Fielder. So Fonterra is still left well behind> to Lewis Road by providing their own Puhoi branded organic milk. That’s good news for everyone, and now the real switch needs to happen at the farm level – with higher prices for organic milk (or milk/meat without palm kernels feed) driving farmers to switch their behaviour. These higher quality products sell locally and globally at super-premium prices, and there is considerable potential for New Zealand to capture and own the space globally.

What can we do as consumers?

As consumers we should demand quality foods, and we should be asking or insisting that our food quality standards remain high. Lets not allow hormone-filled meat into NZ, or dairy products produced by cows stuffed with antibiotics. Let’s reward good behaviour – e.g. by supporting McDonalds’ efforts to increase their food quality, by paying more for organic (and much tastier) food, and even switching supermarkets, as we did from the sadly declining Victoria Park New World, when high quality food disappears from shelves.

What can we do as investors?

This is something that entrepreneurs and investors can get involved with, as Lewis Road (and Firstlight Foods and others) have demonstrated that the incumbents, who are focussed on volume, can be disrupted by smaller producers and marketers. Eventually the bigger producers will lose their suppliers, or they will have to switch to higher quality inputs. We all know that a fancy packet, Silver Ferm Farms, does not change the quality of the contents.

At the back of the report is a hit-list of 200 companies. Private equity and other offshore money has made a few plays, but there are a substantial number of very high quality companies that are tightly held. Some of my favourites, such as Balle Brothers, and Dairy Goat Farm, will never sell, but there are plenty of opportunities for those with very large check books. Sadly those investors are mainly from offshore, and NZ has very little capital at work to support high growth businesses of any type. But that’s another issue.

Yes we can

It might take time, but the report does show that the farmers and growers will respond to market demand. The challenge is whether we can, as a society, help our food business ecosystem accelerate the change to owning the global high margin premium food position.


Posted in NZ Business | 5 Comments

Punakaiki Fund Update – Mike Bennetts is Chair

An update from Punakaiki Fund. At our September 30th AGM we elected three new directors – Mike Bennetts, Bryan Hutchins and John Berry. We held our first board meeting earlier this month. It’s a great board, and we continue to be also inspired by the founders and staff from the companies we have invested into. Chris and I have also moved into an office in downtown Auckland – a significant step after working from home for three years.


The directors elected Mike Bennetts as Chair of Punakaiki Fund. Mike brings considerable governance and executive expertise to the boardroom, and, along with the other directors, is an investor in the fund.

The board also determined that the Net Asset Value of the fund at the end of September was $12.3 million, or $14.60 per share, up from $14.14 at the June fundraising.

The Net Asset Value generally changes only when there are investor transactions within portfolio companies, and with some of our larger investments it has been a while between funding events, so Chris and I see considerable value beyond this.

The board has provisionally approved that LWCM make an offer to qualified investors before the end of 2015, most likely at a price of $16.50 per share.

Posted in NZ Business

Flounders Meetings – for founders only

Flounders Club is a periodic gathering of Auckland-based founders of companies, generally very high growth and relatively early stage.

It’s not actually a club – but simply an event focused on learning from other founders (rather than advisors or other boring speakers), and on meeting other people like yourself who are going through the start-up journey.

There are also two smaller Flounders dinner groups that meet about every month, and the ambition is that more of these will be created as well.

The event is by founders and for founders, and while food and some beverages are served the main value is that everyone in the ecosystem is getting better.

The Next Event

The next event is on Tuesday 10th at 6pm. There will be 3 guests up front as normal – this time they are Lance Hodges – ex VP of Product at Vend and co-founder of HopVentures, Josh Robb, who is VP of Engineering at publicly listed PushPay and coping with outrageous US growth and Belinda Tuki, a 2nd time founder who is rapidly growing The Honest Food company.

The speakers are more there to provoke conversation – we learn from them, but also from the interaction with the audience during and after their talk.

Get in quick

The next event is at GridAKL on Tuesday 10th at 6pm. Sign up now.

Posted in NZ Business

Punakaiki Fund adds three new directors

Punakaiki Fund press release today, marking the beginning of a new era for the fund. Chris Humphreys and I are very happy to be able to welcome such an excellent set of directors.  

Three new directors bring wealth of experience 

Auckland, 13 October 2015– Punakaiki Fund Limited, an investor in growth stage technology and software companies, has appointed three new directors at its recent AGM.  As it gears up for growth, its 475 shareholders have appointed Mike Bennetts (CEO of Z Energy), John Berry (co-founder of Pathfinder Asset Management) and Bryan Hutchins (director of Real Journeys).  All three are shareholders in Punakaiki Fund.
According to founder Lance Wiggs, the expanded board brings exceptional governance, commercial and capital raising experience, as Punakaiki Fund continues to raise capital and invest in more NZ high-growth technology companies.  With its last latest option round projected to raise over $1 million, the fund has successfully raised over $9 million from wholesale investors and through crowdfunding platform Snowball Effect. The fund’s assets are invested across 12 exceptional high growth companies, with two more investments pending, so Punakaiki Fund investors have a strong position in New Zealand’s high growth technology sector.  Berry says “Punakaiki Fund invests in exciting, often early stage, companies.  We look forward to giving more NZ investors the opportunity to take part in its growth.” 

About Punakaiki Fund
Punakaiki Fund invests in early stage and emerging New Zealand internet, technology and design-led growth businesses, generally well before they reach the public markets. 
Launched in April 2014, Punakaiki Fund currently has assets of over $12 million under management, including investments in Vend, Onceit, Vibe Communications,, Timely, RedSeed, Melon Health, EveredgeIP, ThisData, Influx, Boardingware and Weirdly.


Posted in NZ Business

We’ve heard this music before

The global stock markets are in turmoil. There are rumblings from China, Europe and the USA. Are we in the middle of  another crash – or is this just market turbulence? Whatever it is, we’ve seen this sort of thing before, and we should brace for the potential bear* market. It’s also just good business practice to be prepared for a downturn.

So with that in mind, here is what we potentially could expect to happen during the next few weeks and months and maybe (but hopefully not) years.

1: A global sell-off in shares will continue off and on. Shares will go up, shares will go down. Nobody can predict what will happen but the drops and rises means that investors in all asset classes are going to be more fickle.

2: Some companies with poor fundamentals (bad numbers, lousy products, poor growth, high debt, no customer lock-in etc.) will be exposed and some of them will go bust, as they will fail to raise equity and lose access to debt.

3: “Growth” (smaller, earlier stage) stocks tend to get hit a lot harder than “Blue Chip” stocks during market falls. The conventional wisdom is that you want to own mass-market breweries and sell high tech. (Growth stocks have higher Beta – volatility versus the market – and so are hit harder on both the downside and the upside. Xero’s share price exhibits  this extra-volatility versus the market)

4: Valuation multiples (versus EBIT, Revenue etc) will fall, especially for growth stocks, which will in turn change rules of thumb for a while. 

5: In the high growth ecosystem in NZ this means that it’s going to be a lot harder to raise money for early stage companies that are not exemplary, because investors get scared overall.

6: Meanwhile NZ as a distant and small market internationally may suffer from withdrawal of offshore funds.

7: Early stage valuation multiples for companies will go down, because and some will fail to raise at all.

8: It will be harder for funds with poor track records to raise money as well. On the other hand if you have a fund with lots of money then the investing will be good.

9: Revenue per customer will be lowered by the general downturn in business and consumer confidence. The number of customers may drop, and the risk of slow or no payment events rise.

10: M&A activity will occur, and at low prices.

11: The NZ housing market is not immune to a general market drop.

Advice to businesses

Make sure you can get to cash-flow positive on the funds that you have. Nobody can be sure that the next round will be there, and if it is then the valuations might be horrible.

Operate with a margin of safety, and be able to cope with a downturn in customer growth, upturn in churn and lowering of per-customer metrics. This is no time for flaky start-ups, and customers won’t like that either.

Tweak your selling proposition by emphasising how you will help your customers survive and prosper through potential tough times, for example how you will help them save dollars and grow business.

Advice to investors

That’s a trick heading – I’m not allowed to give advice under NZ law.

Punakaiki Fund

Punakaiki Fund will always try to support worthy companies and we will very much want to have funds to invest during tough times.

We remain very positive about the strong fundamentals of the companies we have invested in (they have revenue based on helping customers save, grow and achieve better outcomes) and future investment opportunities.  



*Bull Markets are when market sentiments are positive and prices are rising, Bear markets are when investor optimism turns into despair, as the prices fall.  The trick is to be positive when others are most negative – and vice versa, as this ‘contrarian’ thinking is where the bargains are picked up as the market turns. 

Posted in NZ Business | 1 Comment

Introducing a decent carbon tax will reduce our overall spend on fuel

Here’s the latest chart of how we use energy in New Zealand. It’s from the excellent Energy in New Zealand 2015 publication from MBIE. As y Luca see we are edging up towards 600 PetaJoules.


Transport, in purple, makes up 36% of our energy use – and that’s essentially all petrol and diesel.

What if we could halve that, losing 18% of our power requirements? We can. Shifting all of that hydrocarbon burning from vehicles to large efficient power plants and then transmitting the resulting power as electricity to electric cars would halve the fuel needed for transport. Here’s a good explanation, using US examples.

In New Zealand we are grateful to have 80% of our electricity generated from renewable sources, and so we can save even more fuel. We can also build more of the lower cost steady state geothermal plants rather than expensive per MWH gas-fired plants, saving even more. We can more quickly adopt the trend towards micro or distributed generation, which, along with the battery packs like the Tesla ones that Vector will market, will allow us to essentially charge our vehicles free of operational costs.

It’s an intriguing vision of the future, and it’s one that is going to happen given the forces of economics. For now the prices of fossil fuels are very low, but over time the prices of solar and battery technology will become too low to ignore, and we can expect the prices of fossil fuels to be volatile, as they have always been. At the same stage the inherent advantages of electric cars – faster, quieter and safer, and a lot cheaper to operate – will become so obvious that we will all begin to switch.

New Zealand’s government is apparently chasing US companies to promote NZ as a test bed for autonomous vehicles. Perhaps we would be smarter to start by promoting New Zealand as the best place in the world for electric cars. And the easiest way to do that is by introducing a substantial carbon tax. As Gareth Morgan Foundation’s Geoff Simmons explains, even six major oil compares (and Z Energy seems to support this) demanded of the UN

we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks. We believe that a price on carbon should be a key element of these frameworks. ”

And Geoff helpfully points out France’s “climate plan which will boost their carbon tax to €56 by 2020“.

Posted in NZ Business

NZTE is offering to help you raise $1-$5m. Apply now.

NZTE (this time joining forces with Callaghan Innovation and the Asian Business Angel Forum who are looking after different categories) are once again helping companies get ready for investment by using a showcase event as a catalyst.

The last one of these was in March 2015, held for Agri-Tech businesses during the Central Districts Field Days, which is in Fielding. This built on a showcase during the Fieldays near Hamilton  in 2015, and has delivered substantially better outcomes for the companies. We are all learning, and the showcase promoted a lot more interaction between high quality companies and pre-qualified investors.

Companies in the program receive three things:

1: Workshops and coaching to help with becoming (more) investable, learning the investment process and about investors, understanding and telling your story and help with compiling a deck and a pitch. This work is done by NZTE capital specialists and external practitioners such as myself. I suspect that most of the value for the program is in this stage – helping companies get ready for investment.

2: Presence at the showcase in Queenstown on the 14th of October, including a booth, most likely, and time for 1-1 conversations with investors before and after the showcase. And of course the chance to present to (and introductions to selected)  200 or so qualified investors, many of who are from offshore.

3: NZTE help with identifying, following up and closing with investors. This, along with help with 1-1 meetings at the event is a very valuable part of the process.

NZTE have been very generous with their time, help and investment in the event in the past, and I suspect the same will apply again this year.

The showcase is a catalytic event – it helps companies move much faster in their process to become investable so that they are introduced to investors in a ready state.

Criteria and Action

NZTE are looking for technology focused companies raising between $1 and $5 million, who ideally already have credible founders and people around them – such as lead investors, advisors, deal-makers and/or board members. Also ideally you’ll be operating in international markets, especially USA and SE Asia,  as many of the investors will be from there.

There are only five slots – so get in fast and fill out the PeakApplication, returning it to

Posted in NZ Business