GMO-free could be a cash cow
New Zealand heavily regulates any genetic modification, but there are many groups giving compelling reasons to utilise this technology.
In the past, there were two clear sides to the debate. The organic-loving ‘‘natural’’ types were against it and the production-focused, ‘‘conventional agriculture’’ types were in favour. The lines are blurred now as people can see the benefits of genetic modification.
Plant-based meats such as the Impossible Burger are promoted as having a fraction of the environmental impacts and none of the animal welfare issues associated with animal agriculture. But one of the main ingredients of the Impossible Burger is made with genetically modified yeast.
Many people who are antiGMO are also attracted to the idea of plant-based meat. They find themselves having a little internal discussion with themselves.
The farming sector has always been very enthusiastic supporters of GMO. They point to more water efficient grasses, or higher yielding crops. But genetic engineering also opens many possibilities to reduce methane production from cows, or the nitrogen in their urine.
Sir Peter Gluckman, the former chief science adviser, has said: ‘‘There are no significant ecological or health concerns associated with the use of advanced genetic technologies.’’
Despite all the apparent benefits, I think New Zealand can gain more value by being GE free than we can from using GE.
Think of New Zealand as a company. An innovative company will develop a wonderful product that sells well and makes big margins. Quickly competitors find ways to copy the product, or work around patents, and the price of the product drops and so do the margins.
To keep the high margins coming, the company needs to be constantly innovating new features or products.
Competition is good for consumers, but it destroys profits. If you are a country or company trying to make a living in the world, you want to avoid competition. Warren Buffett famously talks about buying castles with a wide moat. A business with a wide moat means it’s harder for attackers to overrun them.
Wide moats can be things like:
❚ Network effects – the more people on the platform the better the service gets. Facebook benefits from network effects. You’re on there because your friends are there. Trade Me is another example. Can you see someone moving in on Trade Me?
❚ Switching costs – the cost of a customer switching to a competitor is so great that they don’t bother. Enterprise software is a good example of this.
❚ Technical barriers – the sheer technical IP required to get into a market is a good barrier. Jet engines are a good example.
❚ Brand – a truly aspirational brand can be a moat. Outdoor apparel company Patagonia has a core following because of its commitment to sustainability. It’s really hard for a food company, or a country, to have a wide moat. And New Zealand is really a food producer.
New Zealand farmers talk a lot about ‘‘pasture based’’ being an advantage, but there are plenty of international companies selling ‘‘grass fed’’ products with much better brands, marketing and distribution than we do. Brazil and Argentina have lots of pasture to produce from.
So I don’t think our pasture-fed feature is a sustainable moat.
There are no technical barriers around New Zealand food products, certainly no network effects, and switching to competitors is very easy for consumers. Just look at how international companies have taken significant market share from New Zealand infant formula in China.
Every company or country should be focused on increasing its competitive advantage, or building a wider moat. That is not the same as increasing productivity.
If New Zealand adopts GMO we will gain incremental increases in productivity. That output will be sold in a competitive market where we have very little differentiation.
GMO-free is a brand attribute that can command a significant premium, and almost no other country can move in and compete with us on that front. In 15 years, GMO- free will be even more attractive.
We need to focus on getting more value for what we currently produce, and being GE-free in a world filled with genetically engineered produce is a very compelling brand attribute.