Executive Summary
This report was prepared following operational research performed for MAF Policy during the latter half of 2000.
The research objectives were to assist MAF in its understanding of:
- the implications and risks associated with e-commerce
- any impediments to the adoption and use of e-commerce in the primary sector
- the role that should be played by Government in addressing these impediments.
The programme for this study involved:
- a series of interviews with key players in the sectors of interest
- an extensive review of current e-commerce-related literature
- critical analysis and discussion to identify the key factors and their implications.
It is important to note that while the knowledge-based economy is commonly thought of as an information technology economy, with an emphasis on software and hardware, information technology is primarily an enabler, not an end in its own right (other than for data-based products such as information, software or music).
E-commerce provides the potential for New Zealand to achieve very significant benefits. Studies prepared in the UK and the USA suggest that across the whole economy:
- e-commerce could result in cost reductions equivalent to between 2% and 3% of GDP in those countries
- there will also be a freeing up of working capital equivalent to about 25% of current inventory levels
- there will be substantial changes to current business models as inefficiencies and discontinuities are removed from sector value chains, intermediaries change their roles, and current market channels and relationships change
- there is a significant opportunity for the primary sector to differentiate its produce and achieve price premiums, but also a real risk of downwards price pressure if market power moves to buyers because the sector is unable to make the transition effectively
- the rate of change in the economy will continue to increase.
There will be considerable impact on the rural community:
- input prices (supply) and transaction costs will reduce, as will the need for working capital by service providers
- the sector will benefit through better access to markets and better marketing information. Farmers and growers will find that they have more choice in how they interact with their markets and service providers
- e-commerce introduces a risk of downward pressure on prices as market power moves to buyers, but also provides an opportunity to achieve price premiums through product differentiation, provided that producers are willing and able to take up the opportunity
- new services will be needed, ranging from online market exchanges to organisations able to certify product for sale
- there may be a negative impact on small rural businesses that are unable to participate in online portals, and there is likely to be increasing difficulty with rural distribution arrangements.
Participation by the rural community in e-commerce requires that access issues be resolved, and that the various forms of resistance to change (regulation, industry structure, skills, motivation, entrenched interests) be overcome. These and other factors enable a subjective assessment to be made of the ability of the various industries to take advantage of e-commerce. This analysis suggests that the meat industries may be most at risk, and that the overall risk (and opportunity) from e-commerce is relatively similar among the others, despite considerable variation in individual factors.
Most of the development in e-commerce will occur independently of government. There are, however, a number of policy areas where government could provide leadership and facilitate co-ordinated efforts to overcome resistance, motivate the sector, reduce duplication of effort, and increase the likelihood of a smooth transition. Current initiatives in relation to e-government are a start, but these must be integrated with the other community needs that can be served online.
We believe that there are roles that MAF could adopt which would benefit the primary sector. MAF could:
- ensure that the rural viewpoint on government policies is solicited, conveyed to Government and responded to, so that innovative ideas promoted by industry thinkers and leaders are heard and acknowledged
- encourage the development of solutions providing rural communities with appropriate access to the internet
- work with government agencies as they develop and implement strategies for e-government, to ensure that the e-government systems developed will be perceived as ‘user- friendly’ by the rural community (so that they are not presented from the Government agency’s point of view)
- encourage the development of technical standards and supporting infrastructure for product certification as required by buyers using on-line exchanges
- develop and maintain a primary production database for agricultural, horticultural and forestry production units, enabling the collection of the basic statistical data required by planners and political decision-makers
- work with government agencies to ensure that support is provided for sectors which may not have adequate resources or skills to re-engineer their structure and processes to take advantage of e-commerce
- ensure that the rural community and other government agencies are aware of the risks of doing nothing, the risk of being forced into buyer-dominated exchanges, and the opportunities available through product differentiation
- advocate and contribute to the development of local community-based portals, by raising awareness, providing advice and assisting the development of a common national template, perhaps adopting a similar stance to MAFF in the UK.
Contact for Enquiries
Rural Affairs Coordinator
Sector Performance Policy
MAF Policy
Ministry of Agriculture and Forestry
PO Box 2526
Wellington
NEW ZEALAND
Phone: +64 4 894 0675
Fax: +64 4 4 894 0745
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