By Alan Renwick*
Supermarket customers around New Zealand are noticing gaps in the grocery aisles that have nothing to do with the global pandemic or Ukraine war. It’s clear domestic food supply chains have been increasingly challenged by natural disasters and the ongoing impact of climate change.
Countdown recently warned customers that certain foods would be in short supply due to flooding on the East Coast. Time and again, we have seen such shortages and significant increases in the price of certain foods, particularly fresh produce.
The question is whether we have just been unlucky, or are these disruptions a result of deeper issues in the New Zealand food system? Are we more vulnerable than other countries, and if so, what does this mean for our food security?
Over the decades, New Zealand has centralised its food system and increased the risk that a single regional event could reverberate nationally. But it’s not too late to diversify and increase resilience across our food supply system.
Efficiency over resiliency
Modern food supply chains have largely been optimised for economic efficiency rather than resilience to supply-side shocks.
The agricultural sector has seen a process of increasing scale and specialised production – primarily to increase profitability. In part, this has been driven by land suitability.
The outcome is a relatively small number of large-scale processing factories and the concentration of enterprises in specific regions. For example, around 32% of New Zealand’s horticultural products come from the Bay of Plenty and Hawkes Bay.
At the retail end of the chain, large, centralised distribution centres and “just in time” delivery systems keep costs low for the two dominant supermarket chains, which account for between 80% and 90% of the food we consume. Food is brought to just a handful of distribution centres before being dispersed across their networks of stores.
But disruptions in one region can affect the entire country. In the aftermath of the Christchurch earthquake, the distribution centres serving the entire South Island were damaged. Supermarkets were forced to ship supplies from their North Island hubs.
A recent study from the Timaru District Council found that while South Canterbury describes itself as the food bowl of New Zealand, 95% of the commercially-bought food in the district comes from outside the region.
"We're getting more and more water soaking into those slopes... That's building up the loading on those slopes...and reducing the strength over time," says Prof Liam Wotherspoon of @UoAEngineering, of the recent damage to roads around Tairāwhiti.
— Resilience Challenge (@ResilienceNSC) June 28, 2023
➡ https://t.co/LIiiM86UXY
Over-dependence on roads
The current supply chain model is totally reliant on the uninterrupted movement of products across the country through our transport network – in theory, comprised of road, rail, sea and air links.
In practice, just under 93% of freight goes by one mode – road. This compares with 72% in Germany.
Topography coupled with low population densities mean many regions are served by only one or, at most, two main roads suitable for freight trucks. We are nearly totally reliant on roads but our road networks are particularly vulnerable to climatic events and other natural disasters.
Our food distribution system seems to be better set up to get exports out or imports in through ports and airports than to move food around New Zealand. The vast majority of our agricultural products are exported rather than consumed in New Zealand.
Resilience in uncertain times
All the evidence suggests climate change is going to increase the challenges in our food system, with more frequent and intense weather events. Projected sea-level rise will also put more strain on our already vulnerable food system at the farm and processing levels, as well as our ability to move it around the country.
Regional councils are clearly concerned, and there is increasing discussion of the concepts of food resilience and local food networks.
But what does a food system designed around resilience rather than optimisation look like? Does it simply mean less choice and higher prices? Or can it tackle other challenges, such as diet and health, environmental concerns and broader food security?
Two possible and compatible paths are evident. The first relates to local food networks and involves diversification of the products produced within each region, at both the farm and processing and manufacturing levels.
The idea of distributed manufacturing – basically mini-factories dispersed through the country – has been discussed in the forestry sector in New Zealand but could equally be considered for food.
Some emerging technologies that reduce dependence on the local climate for production, such as vertical farming, could be important in local food networks. Aquaponics (farming both fish and plants together), or algae production in ponds, could also diversify local food resources.
The idea of “circularity” could help reduce dependence on external inputs. Food waste products, for example, could be turned into energy as well as fertiliser.
From supply chains to systems
Alternatively, we could keep the potential benefits of national scale production, but invest to reduce the vulnerabilities in our transport networks. As recent research highlights, there could be multiple benefits to reducing reliance on roads.
And we don’t need to reinvent the wheel. Only 6% of freight is transported by rail – this could be increased to diversify shipping options.
There may also be opportunities to make more out of coastal shipping routes. At the moment, this largely comprises the movement of bulk products such as fertiliser and cement.
However we tackle the increasing vulnerabilities in our food supply chain, we need to think of it as a food system and not simply a supply chain. The complex interactions in our food system mean changes to one part are likely to have wider economic, environmental, social and cultural impacts.
Tackling our potential vulnerability to climate change needs to be undertaken in the context of a wider strategy for the entire food system.
*Alan Renwick, Professor of Agricultural Economics, Lincoln University, New Zealand. This article is republished from The Conversation under a Creative Commons license. Read the original article.
33 Comments
Relocalisation need not mean " more expensive". Get the supermarket duopoly out of the equation and support proper local markets, as they exist in other parts of the world. NZers have been trained to accept a monopolistic food delivery system that's both expensive and unstable!
It'll be more expensive for anything that's not locally sourced, because lots of smaller players is less efficient at shipping and distributing than a handful of large ones. That's why 'supermarkets' came to be in the first place. And entities like Amazon.
Monopolistic supermarket chains are fairly common globally for the same reason, most markets rarely have more than about 2-3 large players. Our is more expensive by small degrees, because NZ isn't a very cheap place to move things around and operate in. People just want to blame the supermarkets, but there's unavoidable gravity to the situation.
Nope disagree. A major reason small can't compete with the existing monopoly system is the big guys get huge discounts from wholesalers for bulk, which makes the small accessing those same products uncompetitive across the board. Big are not better businesses, they are run less efficiently in my experience. They just have the advantage of huge advertising budgets and turnover that allows pathetic margin to look like a profit. Take the advertising, which the customer pays for, and the purchasing advantage out and small retailers would wipe the floor with them!
It really is all about economies of scale, look at how many big boxers have displaced mom and pop retailers. It's cause they could deliver the same thing cheaper.
Saying this as someone who's had businesses from 3-50+ staff, worked in nationwide retailing and distribution, blah blah. It's far more cost effective moving and selling things in larger volume than bits and bobs.
A smaller business might be a better operator, but most customers won't pay the extra it costs.
Our prices were lower than the chains, but customers believed the Warehouse and Mitre 10 were cheaper, because they were told so by the box. My wife told me the other day about a chain supplier she rang about blueberries. Out of curiosity she asked what their minimum would be. Three plants. When we tried to order from the same business as an independent, it was a trolley. Ninety plants.
I run a much smaller footprint now, and can deliver a better product at a lower price than my much larger competitors. That's an anomaly in the field I operate in.
Plants, I don't really have much experience in, but I imagine they could be more expensive for Mitre10 to retail than items that don't die/need care, with commensurately higher margins. Just like fruit and veges for the supermarkets.
The chain supplier you mentioned doesn't want to deal with smaller players so has worse terms for them.
Hear you on that one. We had the same problem with retail, either people wouldn't believe you were cheaper than the big chains, or they would find the cheapest price in the country, online or trademe , and expect you to match it .In the end , we found there was no point in trying to be among the cheapest , it was a race to the bottom , and your best customers never questioned your price anyway. And oh , the locals who presumed it would be cheaper to buy it in Auckland , never mind the $100 gas, and that it usually wasn't anyway.
We used to have warehouse customers come in for advice then walk out and drive a few km down to where they were told to shop by the shiny advertising I'm sure they were disappointed, but a cheap b@stard is always a cheap b...,... Locals are paying double for some lines now.
or they would find the cheapest price in the country, online or trademe , and expect you to match it
You have just summed up why the economy won't support heaps of smaller players.
Ultimately price is the way most (not all) people gauge value. Being the cheapest is a race to the bottom, and the internet gives a huge amount of price transparency. Many mass merchants are aiming for 5% margin. How much turnover does a little guy have to do, to make a decent living at 5% margin?
You can really only survive in most retail in 2023 hitting niches.
Small retail needs at least 50% margin to survive on retail sales alone.
The 5% markup often quoted for big retails markup is on their loss leaders , and common competitive items.They make it up on accessories like cards , batteries , wrapping paper etc , where they go at least 100%. But still , how many Harvey Normans can NZ support?
5% is a fairly standard reseller margin for a big boxer, across entire product ranges. I know this, because I used to set retail pricing, as a supplier/distributor. Over that period, the big boxers rose, and the smaller players mostly died, because you can't sell $2000 items, make $100, and survive as someone shifting single digit volume.
As you say, someone like Harvey Norman will sting you on accessories and warranties, but much of their big ticket stuff is a loss leader - and it's most of their sales.
We used to run a nursery business. It was very efficient. We grew what we knew we could sell. Anything unsold was recycled. Green waste composted, potting mix reused, pots reused, labels reused. The only things passing through the system were fertiliser and seed. We were sick of working seven days and sold up. The wife got a job at a newly opened chain. Plants are over ordered to swamp the market, what doesn't sell is tossed in the bin and heads to landfill. The sustainability of the whole local nursery market has been trashed, because customers sit in front of the "messages from the ministry of truth box" absorbing "Big is is good" every few seconds of their life. Thinking takes energy. People are lazy.
Their prices are lower than what, the larger Irish supermarket chains? You can grab a box of cereal, some toothpaste and cans of tomatoes from the local 4Square equivalent, and it's cheaper than their big box supermarket? Interesting.
Most markets operate as I've said, go to the States, you usually have 2-3 large chains servicing 10s or 100s of millions of people (but also niche bit players). I can also find exceptions, but they're rarer than common.
Māori had extensive gardens in New Zealand and became the first commercial growers of vegetables. They traded potatoes with European whalers and traders in the first decades of the 19th century and exported tonnes of potatoes to Sydney in the 1830s. In the 1840s Māori in the North Island also grew maize, tobacco, wheat, cabbage and turnips, and supplied fresh produce to the developing settlements of Auckland, Wellington and Nelson.
...and along came big dairy.
You missed a critical stage - social welfare and the IRD and the poverty trap.
You can plant crops, risk the weather and sell produce to the local market. However this will raise your income above the threshold at which your welfare is cut. And if your crops fail, oh dear, the welfare won't be paid to you, because you own all this land that could be sold. And suddenly all of this small scale land is available for sale...
...and along came big dairy.
You can plant crops, risk the weather and sell produce to the local market.
That is a fallacy - other than 'farmer's markets" and niche direct supply arrangements, to supply the local market the grower must meet supermaket supply conditions - one of which would likely be that your product must be supplied via the supermaket contracted post-harvest operator. If you are a small scale grower you have a snowballs chance in he'll of accessing a post harvest operator....and make a profit.
Bring back the auction houses.
Interesting , I didn't know the auctions were gone.
I remember the town i grew up in had 2 green grocers , for a population of abut 3000. they would drive off to the local auction city once or twice a week to come back with a truck load of produce. They actually supplied our little mini supermarket with fruit and vegies , so there must have been a reasonable margin in it for them .
Bringing back that system would be a good step.
What a load of twaddle.
Resilient food production and distribution is a serious issue for all city based consumers.
Arguably, the supermaket duopoly has limited interest in ensuring supply resilience. Product scarcity permits price increase, promotes category profit margin increase, and results less spoilage and wastage.
The duopoly has hogtied consumers to their supermarkets and, as a consumer you are supposed to be grateful for being so entrapped.
The trees aren't going to be planted on land suitable for growing crops.
Many say NZ soil / land is not suitable for growing crops , but of course , virtually all our crop needs were grown here once.
Soil can be boosted /fertilised , it seems strange that doing that for dairy etc is o.k , but the idea of making it suitable for crops is somehow not possible.
Soils of volcanic derivation are far more resilient for cropping than alluvial soils derived from sedimentary rock types. The latter rapidly lose vital soil structure under the intensive cropping regimes for vegetable production.
So, no, not all soils are good for vegetable production. The volcanic derived soils are of very limited distribution - Pukekohe and around Ohakune and Raetihi are the best of the best for vegetable production.
Are you being disingenuous?
https://www.mpi.govt.nz/forestry/funding-tree-planting-research/one-bil…
"The programme encourages the planting of native species to improve biodiversity."
It's less than 30 years since the demise of the local fruit and vege auctions.
When they operated, growers made the choice of which auction centre to supply.
It was following the auction houses shutting up shop the the concentration of market power in the supermaket duopoly grew rapidly. That drove down prices paid to suppliers, drove buyout of small grower by slightly bigger grower (until there are only a few large scale farmers), drove centralised distribution.
Resolution of food system resilience vulnerabilities is not limited to the 2 options in the article.
Reinstatement of local auction houses needs to be considered also. Such would open the door once again to smaller scale, diverse and specialised fresh food production at local level, with short transport links. And re-establish a more direct link between consumers and food production. Arguably this would also enhance environmental sustainability of food production due because the growers would no longer be subjected to the thumb screws of the supermarket duopoly constantly driving down the prices paid to the grower. Also open the door to re-establish the local green grocer.
It is a complex subject. It is no secret that the reason customers enter supermarkets through the fresh fruit and vegetable section- it is their most profitable category and the category where the duopoly us able to exert its market power most effectively to drive down supply cost and elevate profit margin.
One of the things the article doesn't mention is the resilience of Coastal Shipping in that there is no infrastructure needed between the endpoints. Nothing to wash away to be damaged in an earthquake. We should do a lot more of this rather than road freight. Moving things by water is much more energy efficient than by road (MOT quote figures of 46 g/CO2/tkm for Coastal Shipping containers and 105 g/CO2/tkm for long haul road transport).
Secondly the article might need to the implication that local production of food is better due to climate change emissions from the transport. But one of the surprising findings of the Jono Drew study at Otago university into the carbon footprint of foods in NZ was that transport emissions from the food was the least important factor. Far more important was avoiding Beef in particular, but ruminant products mainly: the carbon emissions of lentils from India was minimal compared to locally produced meat.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.