John Caradus
New Zealand has a highly developed free-market economy with a Gross Domestic Product (GDP) of NZD $425 billion. In 2025, the Internation Monetary Fund ranked NZ as the 52nd-largest national economy when measured by nominal GDP and the 63rd-largest when measured by purchasing power parity. Over the COVID years (2021 and 2022) the primary sector maintained NZ’s economy.
The primary sector achieved record export revenue of $59.9 billion for the year to 30 June 2025. This was 82.5% of all export goods and 10% of GDP. New Zealand was the 15th-largest agricultural exporter by value in 2022. With 70 – 90% of agricultural production being exported this is generating new wealth for the country not circulating existing wealth.
However, New Zealand is unique amongst OECD countries in its reliance on pastoral agriculture for generating export revenue that underpin its economy, and this agriculturally based production system is open to an unprecedented level of challenges in 12 areas.
- Productivity
Productivity is a measure of how efficiently inputs are being used in an economy to produce outputs. NZ’s economic position still needs to seek options to improve and that will theoretically eventuate through reforms in –
- competition policy,
- infrastructure,
- science and innovation,
- education and training, and
- the labour market
NZ is ranked 24th out of the 41 OECD countries for productivity and as result we need to work more than 10 hours per day to match output of most productive country, which happens to be Ireland. NZ part of small number of OECD countries that includes Greece, Portugal, Israel, and Japan with both a low level of labour productivity and low productivity growth.
Total factor productivity measures how efficiently a business or economy uses its inputs to produce output has stalled in New Zealand compared to the OECD mean.
A recent publication by Ge 2025 – An overview of New Zealand’s economic and environmental sustainability in agriculture: 40 Years without subsidies https://doi.org/10.55845/jos-2025-113 has highlighted that ““Low levels of public investment mean that agricultural productivity growth is constrained”.
- Regulations, compliance, bureaucracy and cost of operating
Recently, 42% of rural professionals indicated that ‘compliance and regulation’ will be the biggest challenge facing the industry over the next three to five years. Farm input costs have increased in most categories but are partially offset by lower interest rates and fuel costs.
- Customer dynamics, perceptions and demands – social license to operate
Consumers are increasingly interested in where their food comes from and how it’s produced, influencing their purchasing decisions. As the primary sector intensifies, it faces growing public and media attention regarding its environmental and social impacts. A lack of social license can lead to conflict, legal action, and increased regulation, potentially hindering the industry’s growth. While a majority of the general public considers farmers to be ‘good’ at what they do, we still need clear communication and transparency of on-farm practices. Actively pursuing environmentally safe practices that care for the land and waterways in a sustainable way so that farmers are seen as being compliant and without sacrificing environmental gains will improve public perceptions of farmers.
A recent survey taken by the Land and water Science challenge (https://ourlandandwater.nz/wp-content/uploads/2024/02/Social-licence-to-operate-and-perception-of-the-good-farmer-Summary-1.pdf) has listed the top 10 attributes of what the public thinks makes a good farmer.
- New technologies
Potential advancements to enhance productivity, address environmental concerns, and improve farm efficiency may include: (a) Precision agriculture technologies like drones and sensors for monitoring crops and livestock, increased automation, (b) Sustainable practices such as eco-pond systems, bio-stimulants to reduce emissions, nutrient management and water conservation technologies, recycling programmes, and (c) Forage biotechnology to develop of drought-tolerant forages, improve forage yield, quality, and resilience to various environmental stresses.
The uptake of new technologies faces the challenges of – cost of implementation, skills and knowledge gaps, a requirement to perhaps change farm management practices, and the need to for regulatory requirements. Some technologies, like genetically modified crops, may face public scrutiny and regulatory hurdles.
- Meat protein alternatives
These may come from plant, fungi, insects sources or as laboratory grown cultured meat. They may have perceived benign environmental impacts but will lack naturalness and may have poor cultural acceptance. They may simply become a niche market and that worldwide meat consumption is still likely to grow in the future. There is a current trend for lower animal-sourced meat use in developed countries but increasing consumption in developing countries. There is a place for both plant and animal-sourced foods in future sustainable food systems.
- R&D investment and capability
R&D carried out by all resident companies, research institutes, universities and government laboratories was 1.47% of GDP for New Zealand in 2021, compared with the OECD average of 2.72% (2022). Our investment in agricultural R&D compared with Australia is shown below –
New Zealand’s agricultural innovation system has three issues blocking co-innovation and impact – (i) competitive science in silos, (ii) laissez faire innovation, and (iii) science centred innovation. Nearly 20 years ago it was estimated that investment in domestic agricultural R&D has generated an annual rate of return of 17% (Hall and Scobie 2006) and yet New Zealand continues to fail to reach its full potential through embracing widespread entrepreneurship – low investment from both public and private sources. A recent overview of NZ’s agriculture productivity (Ge 2025) concluded – “Agricultural total factor productivity remains lower than OECD averages mainly because New Zealand devotes insufficient resources to agricultural research and development”.
- Environmental impacts
This includes land, water and air sustainability, energy use and supply, food miles impacts, reduced use of synthetic chemistry and increased reliance on microbial bioprotectants. Growing the value of land-based production, should not occur at the expense of social, cultural and environmental well-being. Two areas of concern that need to be addressed are – (a) agriculture is the single largest contributor (53%), followed by the energy sector (37%) to NZ’s total greenhouse gas emissions, and (b) fencing and riparian strips to reduce movement of nutrients to waterways.
Opportunities to further reduce greenhouse gas emissions from pastoral agriculture may include: –
- Improving the nutritive value of the grazed feed
- Incorporation of forage plants containing compounds that reduce greenhouse gas emissions when consumed by ruminants
- Dietary additives
- Breeding of animals with higher growth rates and increased fecundity
- Rumen microbial manipulations
- Soil management to reduce N2O emissions including reducing tillage
- Climate change adaptation
The primary sector will need to adapt to an increased frequency, severity and duration of extreme weather events. Frost days are likely tom decrease and warm days increase.
- Lifestyle and farming continuity – labour supply and skills
Recent (July 2025) random voluntary poll by Farmers Weekly asked – Do you think it has become easier to attract people to work in the food and fibre sector over the past year? The answer was 60% said no and 40% yes. Many thought there were not enough training opportunities or pathways open for prospective staff. Others felt it was not difficult to attract workers to rural jobs, but the real issue is retaining staff.
- Land use change – availability of land and capital
Land used for agriculture and horticulture has been decreasing, with a notable reduction in sheep and beef farming areas. This has resulted from urban areas are growing into highly productive land, and pine tree planting affecting sheep/beef.
- Biosecurity
A biosecurity breach can become a major threat to any biological economy, such as that found in NZ. It has been estimated that “a new plant species establishes in the wild in NZ every 39 days (MPI 2016). Fortunately, biosecurity risks are identified and managed at the earliest intervention point, in many cases before reaching NZ. Science also provides the foundation for an evidence-based approach to risk-management.
- Added value opportunities
The majority of agricultural exports from NZ are commodities and we therefore end up as price takers. Adding value to primary sector produce before it leaves NZ must be a major focus for innovation. The diagram below shows four possible scenarios for delivering value form grass-based farming in NZ.
- Scenarios A and B represent resource intensive farming, commodities, cost leadership and process efficiency
- Scenarios C and D reflect high product differentiation, product leadership and customer alignment
This has been taken from (Campbell-Hunt 1997 – with permission). Campbell-Hunt D. 1997. Scenarios and strategic thinking. Proc. Primary Industry Conf. Wellington. 122–126.
Concluding comment
Export of produce from the primary sector underpins New Zealand’s new wealth generation and the economy as a whole. The most significant part of this wealth generation comes from grazed pasture, and in this regard, New Zealand is relatively unique because of its temperate climate and good soils which allows year-round grazing and a low requirement for additional feed over and above forage grasses, legumes and herbs which do not feature as direct source of food for humans. However, this biological economy is potentially fragile and open to many external (e.g. biosecurity breaches, international competition for both production of and prices for commodities, tariffs) and internal challenges (e.g., available labour, environmental integrity, social license to operate, availability of suitable land). However, recognising the extent and impact of these risks and concomitantly preparing appropriate mitigation strategies to cope with them will hold New Zealand in good stead and ensure its future economic security.
R&D has significant role to play in achieving solutions; however, funding support is stagnant to decreasing – this needs to be addressed. Priority research topics that will contribute to resolving some of the 12 challenges listed:
- Farm management systems to incorporate biologically sustainable technologies reducing chemical inputs
- Technologies and management systems to further reduce emissions and nutrient losses to the environment
- Alignment of food production systems with consumer expectations
- Continued improvement processes to identify and stop potential biosecurity breaches
- Creation of new added value opportunities from agricultural outputs
- Seek technologies and systems to increase efficient use of resources, including land, water, nutrients and energy
- Continued improvements in labour productivity through use of time saving technologies
- Attention to social and ethical aspects of agricultural food production
- Platforms for very high-quality materials production that support new food technologies such as plant-based proteins
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A full version of this paper can be found at –
Caradus JR. 2024. Challenges and opportunities impacting New Zealand’s economic foundation – pastoral agriculture. Journal of NZ Grasslands 86: 17-31.
https://doi.org/10.33584/jnzg.2024.86.3710
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