Greater productivity needed for NZ food and fibre sector.

The food and fibre sector in New Zealand plays a crucial role in the economy, driving economic activity and serving as a major source of export earnings. It is also pivotal in supporting the government’s growth and export targets. Recent changes in US tariff policies are reshaping global trade dynamics, presenting both challenges and opportunities for sector participants.

The food and fibre sector, in a narrow sense, covers land-based agricultural activities focused on growing crops or raising animals. However, more broadly, it also includes primary processing, such as converting raw milk into dairy products or processing meat, as well as sorting, packing, storing, and transporting produce from farms to markets or exporters.

In 2024, agriculture, forestry, and fishing directly contributed 5.4% to New Zealand’s GDP, a significant share supported by downstream sectors like processing and transport. World Bank data suggests that New Zealand trails only Turkey and Columbia within the OECD. See fig 1.

While export values have risen due to higher global prices, actual export volumes have grown only modestly as:

• there has been ecological limits and declining agricultural land—from 15.6 million hectares in 2002 to 13.1 million in 2024—as well as fewer farms but larger average farm sizes.

• Livestock numbers have similarly declined.

• Increases in export volumes are mainly due to productivity gains, but these gains have slowed, with current agricultural productivity only slightly above levels from five years ago.

How can agriculture lift its productivity levels? Boosting productivity in New Zealand’s food and fibre sector often requires new investment, funded through domestic and foreign capital, bank debt, or retained earnings. Investors demand returns above risk-free rates due to operational risks and the illiquid nature of real assets, with required margins typically between 4% and 8%, translating to total returns of 7% to 10% annually across most agricultural sub-sectors. Also economies of scale need to be exploited – see mindmap

A critical investment factor is strong operating margins—ideally keeping costs below 50% of income—as higher productivity usually yields better margins. Strong margins ensure that most returns come from cash profits, helping businesses withstand weather, market, and operational risks.

Source: Westpac – INDUSTRY INSIGHT – Building resilience in the food and fibre sector. 6 June 2025.

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