ITP Techblog

Paul Brislen is away this week, so we present to you: Griffin on Tech!

Everyone should know the story of Bill Gallagher and his horse Joe because it so embodies the history of Kiwi innovation.

It goes like this - in the 1930s Waikato farmer Bill Gallagher took issue with Joe using his car as a scratching post. Bill came up with a solution - an electrical circuit that gave Joe a shock whenever he rocked the car with his rubbing.

Bill got thinking about that and a few years later developed the first electric fence, which is now a standard feature of farms all over the country and the world. Gallagher was awarded a patent for the technology and built an engineering business following World War II that became the successful agri-tech company Gallagher Group today, that is still run by Bill's son, Sir William Gallagher.

Gallagher Group is our largest agri-tech company with $271 million in global revenue last year and over 1,000 staff. Along with biotech company Livestock Improvement Corporation and NDA Group, a leading maker of dairy plant equipment, Gallagher represents the impressive innovation that has emerged from our primary sector. 

Agri-tech is big business

That innovation generates $1.4 billion a year in revenue and $800 million in exports for the country, according to the Tech Investment Network's (TIN) inaugural Agri-tech Insights Report, which was launched at Fieldays earlier this week.

But the report also reveals that our agri-tech sector is likely to look very different in the coming decades. Of that $1.4 billion agri-tech companies are generating in revenue only around $26 million is currently from information and communications technology (ICT).

However, when TIN researched the landscape of emerging agri-tech start-ups for this report, it found that 47 per cent are working in the ICT space. The high-value manufacturing that spun out of homegrown inventions and on the farm innovations is giving way to artificial intelligence systems, robotics and cloud-based analytics and monitoring services as farms go digital.

It means that the business model underpinning agri-tech will also change significantly. Rather than being based on large and lumpy orders of machinery and equipment, agri-tech companies will offer software as a service and claim the recurring revenues that go with it.

TIN's chief executive, Greg Shanahan, said earlier this week that in the post-pandemic world, the rise of these new business models will help insulate us against future global shocks. 

"Increasingly the modus operandi for our technology companies is getting revenue from cloud-based services and providing essential infrastructure on a business to business basis," he says.

"They are less exposed to consumer spending, which allows them to maintain cash flows over this period."

The Xero of agri-tech

I've spoken to several local manufacturers in recent weeks who have expressed frustration about trying to win new customers with the world in varying states of lockdown and travel heavily restricted. 

Some of our agri-tech companies sell machines that cost hundreds of thousands or even millions of dollars. Prospective customers want to see that equipment and touch it for themselves before they place an order. The software-based companies doing smart things in the agricultural space have no such limitations.

An impressively diverse group of smaller companies is emerging in this space in everything from precision agriculture and farm management systems to remote satellite sensing and advanced genetics.

But we aren't moving as a country quickly enough to nurture this innovation, which has the potential to be a shining star of our tech sector in general. Agri-tech is, after all, an incredibly high-value sector, with an average sector wage of $91,020 beating the average wage across TIN200 companies ($82,040).

Each Agri-tech company earned an average of $282,690 per employee in revenue last year and there are around 5,000 people employed in the sector. Farming everywhere is going digital and we need to be fostering the agri-tech equivalent of Xero and Orion Healthcare. 

A shake-up needed

But we have problems, many of which are well articulated in the Government's draft Agri-tech Industry Transformation Plan which has been in development for over a year and which will be launched next Tuesday in its final form by Phil Twyford, the minister for economic development.

It points to underinvestment in R&D, disconnected commercialisation flows and a lack of growth capital. More fundamentally, our agri-tech companies aren't really thinking deeply about how they can take their innovations to the world and hence, we have a domestic focus to our agri-tech efforts.

"New Zealand products and innovations are not being adapted for offshore markets; and New Zealand innovators are not looking outside of New Zealand for problems to solve," the draft report notes.

"There are obvious and clear counterexamples to this, but the domestic ecosystem has tended to dominate activity," it adds.

As Shanahan put it this week: "I don't think New Zealanders have done collaboration well in the past, particularly because we are a small country in a small economy."

"When we are talking about a global opportunity, it totally makes sense," he added.

The Government put $11.4 million aside in Budget 2020 to develop its transformation plan for agri-tech and next week we will see exactly how that plan will be rolled out. We need a sense of urgency around it. The US and European countries, as well as other small advanced nations like Israel, are forging ahead in agri-tech and arguably performing better in the digital and software-driven areas of innovation in the space.

By doubling down on R&D, improving the interconnectedness of the agri-tech sector and looking globally for opportunities to solve problems that leverage our expertise and strengths, agri-tech has the potential to be our biggest growth industry. 

Peter Griffin is a freelance science and technology reporter and Techblog.nz contributor. Paul Brislen returns next week with Brislen on Tech.