Innovation, who should lead?

I attended two presentations over the past two days that has made me even more aware of the importance of innovation and the danger of accepting the status quo.

I attended a lunch time presentation yesterday from Sir Tipene O'Reagan in support of a local Ngai Tahu owned insulation and energy company, Awarua Synergy. The company was created out of the pioneering Bluff Healthy Homes project, a four year programme to insulate many homes in a low decile community. Awarua Synergy has grown substantially since its early days and now provides a wide range of energy related services, using cutting edge technology.

While I didn't agree with all Sir Tipene's views around the future of  New Zealand's energy supply (he appeared to support greater investment into hydro), there was much that I did agree with. We pay substantially more for our energy than most other OECD countries despite the fact that ours is cheap and clean to produce. I couldn't find data to support it, but Sir Tipene claimed the average cost of electricity for householders in New Zealand was 70% more than in Australia. Our electricity market is a flawed one and is supported by the Government as a form of taxation. Our electricity producing infrastructure is largely paid off (hydro dams) and because it mainly uses a renewable resource the cost of production is minimal. We should be paying very little for our power and this would make a huge difference to the living costs of struggling households and provide a competitive advantage for our exporting industries.

It is unlikely that the flawed market will be fixed any time soon and it therefore makes sense for electricity consumers to try and manage best in the environment they are stuck with. Awarua Synergy, like many other businesses, have recognized that making homes more efficient in terms of energy use (for different budgets) should be a growth industry. Providing the possibility for homes and businesses to disconnect from the grid also makes sense, especially when there is no certainty around power companies paying reasonable rates for excess production and the growing cost of line charges.

This morning I attended a breakfast presentation by Rod Oram that many have probably already heard. Rod provided an economic overview of where New Zealand was placed in a global sense. Using data and graphs he was able to show how New Zealand had survived the economic recession reasonably intact, made some gains but unless we have a strategy to become more sustainable as an economy, future projections were depressing. Current predictions from Treasury and economic advisors see our country struggling to achieve 2% growth a year for some time into the future (based on our current activity and direction). This questions the Government's overly optimistic claims that are unlikely to be delivered.

Rod had lots of examples of other nations and companies where innovative thinking and research had lifted a primary commodity into products of high value. He explained how our reliance on raw logs and powdered milk to produce much of our export income exposes us to the fluctuations of those markets. As a pasture based agricultural industry we are constrained by the environmental limitations of this form of production and the external costs of the industry (contaminated water and greenhouse gases) begin to outweigh income. Competing dairying production from the likes of China and the US use housed herds where waste is more easily captured and turned into energy to power the farm. This is cost effective, if not animal friendly. While there is a market for more natural pasture fed protein, unless it is managed in a sustainable way (that accounts for animal welfare the environmental effects) we lose the market advantage.

The value famers receive for their production (meat, fibre, milk) will always be limited as long as we remain at the bottom of the value chain and export the raw commodity for others to add the value. Rod had examples of where other companies and invested in research to move dairy beyond cheese and yoghurt and into pharmaceuticals that produced an even higher rate of return. Rather than increasing income through increasing production, adding value makes far more sense and could see payouts to farmers treble and remain relatively stable. By focusing on research and producing more sophisticated products Nestle has been able to enter a greater range of markets than Fonterra and ensures a more stable and predictable income for itself and its suppliers.

Rod also expressed concern at the sort of overseas investment we were allowing into New Zealand. Rather than partnerships where there are mutual benefits, we are allowing too many overseas owned businesses to access our resources so that they can add value themselves. For example Fonterra doesn't produce infant formula and yet we have allowed a Chinese company to build an infant formula plant here to ship back to its home market. We are allowing others to profit from we should be doing ourselves.

I was inspired by James Shaw's maiden speech on Tuesday where as a Green he openly supported market forces where markets are responsibly governed within sustainable parameters. James cleverly uses his family history to explain how we must always look beyond current thinking and ideology and recognise that leading change has economic advantages. We may not be able to single handedly change the world for the better but we can take a lead in showing how it can be done and reap the substantial benefits.