Annual Report 2014/15 - AgResearch · Non-financial operating indicators 15 Financial performance indicators 20 Consolidated financial statements 21 Statement of comprehensive income

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Delivering science and technology to benefit New Zealand’s pastoral sector

Annual Report 2014/15

Contents

About AgResearch 2

Chair and Chief Executive’s review 4

Corporate governance 6

Corporate social responsibility report 7

Being a good employer 9

Commentary on progress toward achieving AgResearch’s Statement of Core Purpose (SCP) outcomes

10

Impact indicators 12

Non-financial operating indicators 15

Financial performance indicators 20

Consolidated financial statements 21

Statement of comprehensive income 21 Statement of financial position 22 Statement of changes in equity 23 Statement of cash flows 24 Statement of accounting policies 25 Notes to and forming part of the financial statements 34 1 Other revenue 34 2 Operating expenditure 34 3 Other gains and (losses) 34 4 Finance costs 34 5 Taxation 34 6 Equity 36 7 Trade and other receivables 37 8 Other non-current receivables 37 9 Biological assets – livestock 38 10 Biological assets – forestry 38 11 Trade and other payables 39 12 Property, plant and equipment 39 13 Non-current assets held for sale 40 14 Heritage assets 40 15 Provisions 40 16 Reconciliation of surplus after tax with net cash flow from

operating activities 41

17 Contingencies and commitments 41 18 Operating lease arrangements 42 19 Investments in subsidiaries 42 20 Investments in associates 43 21 Other investments 43 22 Joint operation investments 44 23 Transactions with related parties 44 24 Financial instruments 45 25 Term loans 46 26 Fair value measurements recognised in the statement of

financial position 46

27 Capital management 47 28 Other non-current liabilities 47 29 Significant events after balance date 47

Independent Auditor’s Report 48

Statutory reporting 50

Core funding report 52

Statement of responsibility 63

Directory 64

AgResearch 2015 Annual Report [1]

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About AgResearch AgResearch partners with the pastoral sector to identify and deliver the innovation that is needed to create value for the country. It is a vibrant organisation with staff spread across four campuses and farms in the Waikato, Manawatu, Canterbury and Otago.

Agriculture is New Zealand’s largest export income earner, and AgResearch plays a key role in delivering new knowledge and technologies which underpin the pastoral, agri-food and agri-technology value chains. We do this by working closely with sector partners and our strategy is outlined in our Statement of Corporate Intent.

We are the lead CRI in the following areas: • Pasture-based animal production systems• New pasture plant varieties• Agriculture-derived greenhouse gas mitigation and pastoral climate change adaption• Agri-food and bio-based products and agri-technologies• Integrated social and biophysical research to support pastoral, agri-food and agri-technology sector development.

We work with other research providers and end-users to contribute to the development of the following areas: • Biosecurity, land, soil and freshwater management• Climate change adaption and mitigation• Food and beverage sector (including foods for human nutrition and health, food technologies and food safety).

A snapshot of our capabilities that support the full value chain from paddock to consumer.

Our understanding of plant and endophyte technologies, such as metabolomics and epigenetics, leads the supply chain and supports the development of a new generation of livestock and plant-derived products. Our subsidiary Grasslanz Technology takes these technologies to an international market.

Land use and land management are studied in relation to environmental impacts and climate change. Improving dairy, beef, lamb and deer production systems is addressed by innovative research on soil and water management, pasture fertilisation and farm nutrient management, while reducing negative impacts on the quality of soil, water and atmosphere and ecosystems.

We are finding ways to improve the nutrition, health and welfare of livestock for efficient and sustainable animal production. AgResearch scientists have recognised expertise in the parasitic and infectious diseases of pastoral livestock and understanding of rumen and animal processes behind healthy productive and efficient ruminant livestock. We use a broad range of physiology and genomics-based research tools that will detect and utilise the natural gene variants that control economically important traits such as growth rate, fecundity, meat quality and disease resistance and we are developing advanced technology options for animal reproduction and enhancement of animal performance.

Systems thinking is an integral part of our research and development approach. Our agricultural systems research focuses on creating more profitable and sustainable farms and agribusinesses and provides the capacity to understand complex, interconnected agricultural issues.

We are committed to delivering solutions focused on the distinctive needs of Māori in the pastoral sector to assist in increasing the performance of Māori-owned farms.

Our food research and development creates the knowledge and tools to develop high value foods and ingredients from pastoral-based industries, tailored to market and consumer preferences for quality, human health and well-being.

Our biocontrol and biosecurity work is on the sustainable management of pests and weeds for the benefit of New Zealand’s pastoral sector and associated environments. Research includes the development of new biopesticides and technologies, and we play a role in making sure our national borders are well protected. We also conduct research around the environmental safety of these control options and the impact of novel biotechnologies such as modified crops.

Our textiles and biomaterials research includes recognising demand, formulating innovative products and seeing them through the development process to an international market. With strengths in development and engineering, we supply materials for an unlimited number of applications, from human biomedics to industry and the worldwide fashion scene.

AgResearch’s core value proposition is its ability to: “Partner with the pastoral, agri-food and agri-technology sectors to identify the innovation that is needed and deliver our collective expertise to create value for New Zealand.”

The 2014-19 Statement of Corporate Intent identified 18 impacts to which AgResearch will particularly contribute to enable the pastoral, agri-food and agri-technology sectors to achieve the outcomes they seek. Wherever possible, these impacts are aligned directly with strategies developed by industry groups or major entities in the sector. This means that AgResearch’s strategy, as reflected in the 2014-19 Statement of Corporate Intent is co-owned with the sector that it supports, as well as with the intent and priorities of the Government as shareholder. The identified impacts are as follows:

Outcome area Impacts Dairy On-Farm 1 Improved production from home-grown feed

2 Improved rate of genetic gain in the national herd 3 Adoption of new farm management practices which improve productivity 4 Improved animal health and milk quality 5 Control targets met for nationally monitored diseases 6 Improved animal welfare

Meat & Fibre On-Farm 7 Improved productivity of forage 8 Improved productivity in meat- and fibre-producing animals 9 Improved animal health status of meat- and fibre-producing animals 10 Continuous improvement in farm management practices

Dairy Off-Farm 11 New high-value dairy and food solution products and processes


http://www.grasslanz.com/

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Meat & Fibre Off-Farm 12 Meat products and processes which consistently meet the needs of existing and new markets

13 Improved processing efficiency 14 Higher value wool products

Pan-Sector and Māori Agribusiness

15 Reduced environmental footprint of pastoral farming operations 16 Practical policy solutions developed and adopted 17 Improve on-farm productivity in Māori agribusiness enterprises 18 New products from Māori agribusiness enterprises

The AgResearch management structure comprises: • Partnerships & Programmes to manage, by portfolio, the relationships with industry partners;• Research to undertake the activities of research and development;• Shared Services to provide enabling services and systems; and• Finance & Business Performance to provide monitoring and evaluation and to support corporate governance.


Chair and Chief Executive’s review The 2014/15 financial year has been one of successes and challenges for both AgResearch and our sector. We have capitalised on our successes and successfully navigated the challenges, thanks to a concerted effort from staff and close relationships with our stakeholders.

It has been a very successful year of significant science achievements, driving impacts and delivering outcomes for the pastoral, agri-food and agri-technology sectors. One example of many is the major gains in our work to reduce methane emissions from sheep and cattle, which has the potential to reduce New Zealand’s greenhouse gases. In research for the Pastoral Greenhouse Gas Research Consortium and the New Zealand Agricultural Greenhouse Gas Research Centre, our scientists have identified five different animal-safe compounds that can reduce methane emissions from sheep and cattle by 30% - 90%.

Other results showed for the first time that cattle vaccinated with a methanogen protein can produce antigen-specific antibody in both blood and saliva, and these antibodies are delivered to the rumen – providing good support for the idea that ruminants could be immunised to reduce methane production. This is in addition to the work for a Global Partnerships in Livestock Emissions Research project done in conjunction with the US Department of Energy’s Joint Genome Institute. It found differences between high methane and low methane output sheep which, if changes could be implemented across New Zealand’s pastoral sector, could reduce New Zealand’s greenhouse gases by 5%.

As well as potentially enabling New Zealand to meet its commitments to address global climate change, these approaches are likely to have a substantial favourable impact on animal productivity, which should encourage farmer uptake and have strong economic benefits to New Zealand. AgResearch and our partners are now focussing our resources on validating these encouraging early results. More examples of our research projects across the organisation and the benefits they are delivering for our sector are detailed in the following pages.

AgResearch constantly balances shifts in agricultural research needs – and therefore revenue – with the need to respond to emerging science opportunities to maximise impact for New Zealand’s pastoral sector.

Given the changing needs of our sector and focus areas for government investment, the Board and management team carried out a very thorough review of our business model in the first half of the financial year. This resulted in the development of business plans to accelerate several areas where we and our stakeholders feel an enhanced AgResearch investment could create greater value for New Zealand. At a high level these areas include:

• Assisting New Zealand firms in their desires to move up the value chain by growing our R&D activities in food safety andsecurity and innovative, high value food products

• Working much more closely with Māori agribusiness across the agriculture value chain• Increasing our R&D to develop future dynamic farm systems that achieve economic, social, cultural and environmental

outcomes• More strongly integrating R&D in animal and forage sciences into a farm systems framework• Growing our, and assisting others’, understanding and planning for adoption and practice change behaviour to ensure

technology and knowledge generated from R&D is taken up and deployed on New Zealand farms.

Growing the work we do with Māori agribusinesses across the value chain has involved projects such as a cultural competency programme for staff, signing Memoranda of Understanding with Te Tumu Paeroa and the Poutama Trust and the Board’s approval of our Māori Agribusiness Business Investment Case in May. The changes will enable AgResearch to create more impact for New Zealand while supporting the aspirations of these groups.

We have been investing more of our Core Funding towards these growth areas in order to catalyse new projects and grow our (and New Zealand’s) capability in these areas. Although still relatively early days, we are pleased that the level of stakeholder interest and direct financial co-investment are well ahead of our expectations and are well on-track to deliver real benefits for New Zealand. This is one testament to the willingness of sector leaders to co-invest in new innovations for their business. More examples of where we are investing our Core Funding can be found on page 52.

While we have increased science capacity in areas, like the above, where we see opportunities for our work to increase the benefit to New Zealand, we also needed to make the difficult decisions to reduce the size of other areas of science and support staff to reflect our view of the current and future need.

AgResearch’s operating profit and surplus before tax for the year both exceeded budget, a good result considering the $5.4m drop in group revenue compared to 2014. This performance was the result of targeted operating cost savings and lower extraordinary items. Nonetheless, operating margin and operating margin per FTE are slightly less than the prior year as a direct result of the volatile revenue environment we operate in and a relatively high proportion of fixed costs. We will need to remain vigilant.

Our overall financial position remains very strong. We have cash reserves of $59.9 million available to fund our investment areas, especially our new campuses at FoodHQ (Palmerston North) and Lincoln Hub, the plans for which have advanced significantly this year. Property revaluations during the period have seen our equity position increase by $9.6 million to $226.5 million at year end.

Increasing our science vitality has been an area of focus for us in the last few years, with initiatives such as our Science and Technology prizes, Emeritus Scientist positions and increasing our number of PhD students and Post-doctoral researchers. In the last year 121 graduate students were completing post-graduate qualifications with supervision from AgResearch staff, compared with 89 students in 2012.

Our drive to increase the quality of our science is also delivering results, with 66 papers published in 34 bench mark high-impact journals – our highest-ever number. In addition, 2014 saw our highest-ever number of peer-reviewed papers per FTE. We are also collaborating more with other organisations with 51% of our publications being co-authored with international authors. Connecting NZ science with the world’s best remains an important measure for us.

Domestically, the research landscape is also changing to emphasise collaboration, and our deep involvement in the National Science Challenges reflects this. We are the lead organisation for the Our Land and Water Challenge, and we are contributing to six of the other 10 Challenges: High Value Nutrition, New Zealand’s Biological Heritage, Science for Technological Innovation, A Better Start, Aging Well and Healthier Lives.


http://www.agresearch.co.nz/news/agresearch-and-te-tumu-paeroa-partnership-to-benefit-maori-agribusiness/

We are also a key participant in the New Zealand Food Safety Science and Research Centre along with Massey University, Cawthron Institute, ESR, Plant & Food Research, University of Auckland and University of Otago.

Over the last 12 months we have continued to develop the master plans for our four campuses as we lead the creation of science, education and agri-business hubs and clusters. We have updated our Future Footprint business case to reflect the increased momentum the hub concepts have gained since our original October 2012 business case, with significant integrated development planned at both Lincoln and Palmerston North. Similarly, we are very pleased to be partnering with the dairy sector in developing the Southern Dairy Hub - a research, demonstration and education facility for southern dairy farmers.

Workplace health and safety has always been important for AgResearch and this is reflected in our tertiary employer accreditation with the Accident Compensation Corporation. This past year we have focussed on increasing our level of near-miss reporting, thereby improving our ability to identify potential safety issues before they cause harm. Nothing is more important than ensuring our staff go home safely each night.

The end of the 2014/15 financial year saw the retirement of director Dr Mike Dunbier, after six years on the board. We thank Mike for his significant contributions over his two terms – his work has been much appreciated. In his place, we welcome Dr Paul Reynolds, who recently retired as Chief Executive and Secretary for the Environment at the Ministry for the Environment, and we look forward to benefiting from his expertise.

Finally, our successes this year have been thanks to our staff. Their dedication to delivering the best science outcomes for New Zealand’s agricultural sector continues to inspire us.

Sam Robinson Dr Tom Richardson Chair Chief Executive


Corporate governanceThe Board promotes the highest standards of corporate governance practice and ethical conduct by all directors and employees of AgResearch Limited and its subsidiaries. The Board endorses the overall principles embodied in the New Zealand Institute of Directors’ “Code of Practice for Directors”. It has only independent directors on the Board, whose skills and experience bring balance and diversity to decision making.

Role of the Board The Board is responsible to shareholders for charting the direction of the Company by:

• setting objectives, strategy and key policies; and• monitoring management’s running of the business to ensure it is aligned with the direction set.

The Board delegates the conduct of the day-to-day affairs of the Company to the Chief Executive. The Board is responsible for the appointment, from time to time, of the Chief Executive and annually reviews their performance.

The workings of the Board and its code of conduct are governed by the Companies Act 1993, AgResearch’s constitution, the Crown Research Institutes Act 1992, the Crown Entities Act 2004, the annual Statement of Corporate Intent and the Board’s manual. This manual sets out all the functions and operating procedures of the Board. The policies approved by the Board clearly set out those matters on which only the Board can make decisions. These include dividend payments, solvency certificates, raising new capital, major borrowings, approval of the annual financial statements, appointment of directors to subsidiaries and associates, major capital expenditure and acquisitions.

Each year, the Company produces a Statement of Corporate Intent and an operating budget, which are reviewed and approved by the Board. Monthly management accounts are prepared and these are reviewed by the Board throughout the year to monitor management’s performance against the budget and the Statement of Corporate Intent.

Independent professional advice With the prior approval of the Chair, each Director has the right to seek independent legal and other professional advice at the Company’s expense concerning any aspect of the Company’s operations or undertakings to assist in fulfilling their duties and responsibilities as directors.

Director education The Board had a budget of $15,000 to assist Directors with the financial costs of attending courses and conferences on governance matters. Directors who attend report back at Board meetings on matters learnt that would improve the governance of the Company. The Chair authorises expenditure from this budget.

Board membership The constitution currently sets the size of the Board at a minimum of two Directors and a maximum of nine Directors. The Board in the financial year consisted of the Chair and eight other Directors. Directors are generally appointed for a three-year term and may be reappointed for further terms.

During the year following appointments were made to the Board: • Michelle Alexander on 1 July 2014

At 30 June 2015 the Board consists of the Chair and eight other Directors.

The constitution does not permit Directors to hold shares in the Company.

Directors’ and Board Committee meetings The table below sets out the Board and Committee meetings attended by Directors during the course of the financial year. The Board has established two standing committees to guide and assist the Board with overseeing certain aspects of corporate governance – the Audit and Risk Committee and the Remuneration Committee. The Board and each Committee is empowered to seek any information it requires from employees in pursuing its duties and to obtain independent legal or other professional advice.

Board of Directors

Board meetings attended

Audit and Risk

Committee meetings attended

Remuneration Committee meetings attended

Sam Robinson 10 n/a 3 Barry Harris 9 1 3 Teresa Ciprian 9 4 n/a Dr Michael Dunbier 10 n/a 3 Jeff Grant 8 n/a n/a Andrew Macfarlane 8 n/a n/a Tania Simpson 9 3 n/a Michelle Alexander 9 4 n/a Dr Peter Stone 10 2 n/a Number of meetings held 10 4 3


Corporate social responsibility report AgResearch has incorporated into its Statement of Corporate Intent its commitment to meet high standards of ethical, social and environmental responsibility.

This is demonstrated by AgResearch: • operating in accordance with high standards of legal and ethical compliance;• acting in an environmentally responsible manner; and• actively participating in, and communicating with, the communities it serves and those within which it is located.

Stakeholders include staff, collaborators and partners, customers, the pastoral sector and community.

Ethical compliance A significant area of legal and ethical compliance for AgResearch is its legal and moral responsibilities concerning the use of animals in science. AgResearch values its authorisation to use animals for research and the welfare of those animals is of primary importance. Approval to use animals for research or teaching must be given by an Animal Ethics Committee (AEC), which operates under a Code of Ethical Conduct (CEC) approved by the Director-General for the Ministry of Primary Industries. AgResearch maintains three such Committees, which function under a common CEC. The Committees have representatives from AgResearch farm staff and science, an animal welfare officer and a minimum of three external representatives from the local community (lay persons) appointed in accordance with the legislated requirements under the Animal Welfare Act. The AgResearch CEC requires that all approved projects are regularly monitored by the appropriate AEC to ensure compliance.

AgResearch’s Human Research and Ethical Conduct Policy requires that any research involving human participants is conducted in accordance with ethical standards. AgResearch seeks to promote ethical practices in research and to ensure that all researchers are aware of ethical issues concerning research activities that involve human participants and/or human samples.

Robust financial risk management is important to AgResearch. AgResearch’s Fraud Policy facilitates the detection of fraud and sets the reporting and investigation processes applied when a fraud, theft or corruption is alleged. AgResearch’s regularly promoted Protected Disclosure Policy encourages staff to disclose information related to serious wrongdoing, misconduct or any serious and sensitive concerns.

Internal environmental and social initiatives Internally, there is a process of continuous improvement operating for environmental sustainability. Recycling systems are in place at all sites and environmentally friendly products are the primary choice for cleaning.

As a positive step towards reducing AgResearch’s carbon footprint, wherever possible, alternatives to travel are promoted through the use of communication facilities, e.g. tele-conferencing and video-conferencing.

Carbon reporting is in place for travel, petrol, diesel, heating fuel, electricity, refrigerants, fertiliser and livestock.

Health and Safety for staff is a strong focus on every campus. Prevention of injury from workplace hazards and focus on injury management and rehabilitation are top priorities for AgResearch, with the support of Health and Safety professionals based on each site. Over the past year the Health and Safety Committees continued to highlight aspects of personal health management to staff and have recently launched a Discomfort, Pain and Injury Prevention Initiative. Other health initiatives have included flu vaccinations, skin checks and site-based seminars, displays, sports, massage and recreation.

The latest annual audit under the ACC Partnership Programme has again accredited AgResearch with the tertiary level, this being the highest level for workplace safety management practices.

Environmental responsibility through research AgResearch is a core founding member of the New Zealand Life Cycle Management (NZLCM) Centre, which was established in 2009. The Life Cycle Assessment (LCA) team in AgResearch is actively involved in activities of this Centre and it has provided new opportunities to collaborate with industrial partners as well as other CRIs and Massey University on environmental footprinting projects. These have included industry-funded projects on carbon and water footprinting and on greenhouse gas LCA databases. Currently, AgResearch Land and Environment Principal Scientist Dr Stewart Ledgard and the Associate Professor of the NZLCM Centre are jointly supervising a PhD student, based at AgResearch’s Ruakura campus, who is applying LCA in agricultural systems.

AgResearch’s goal is to further develop its LCA and LCM capability in agricultural systems, to enhance New Zealand’s capacity to reduce the environmental impacts of agriculture and to assist in ensuring access to environmentally-sensitive markets of its clients.

Community participation and communication AgResearch has a strong commitment to communicating the value of its science to the New Zealand public and other stakeholders, to demonstrate how its research and development are fundamental to the pastoral sector remaining internationally competitive and sustainable and how the organisation contributes to New Zealand’s well-being.

This year’s National Agricultural Fieldays at Mystery Creek theme was ‘Growing capability in agribusiness’ and the closely aligned theme of the AgResearch stand was “Science to grow agribusiness capability”. It featured our work that farmers could use to increase their farm’s performance - ranging from genetics to plant cultivar selection and the identification and eradication of pests.

A range of AgResearch annual sponsorships foster relationships with key pastoral stakeholders and the community. These include being a sponsor of the Te Ahuwhenua Māori Award, recognising and supporting excellence in Māori farming, and lead sponsor of the New Zealand Grassland Association, supporting their aim of enhancing pastoral agriculture through providing a forum for communication of science, technology and knowledge.

AgResearch science staff regularly communicate with stakeholders at conferences, farm events and seminars as well as providing information for media, reviewing journal papers and students’ theses, participating in scientific societies, hosting visitors from research and education organisations and hosting international government representatives.


Collaborations and partnerships AgResearch continues to expand and develop its partnerships and collaborations with other Crown Research Institutes, Universities, Māori agribusiness and the pastoral sector, as well as linkages with international research organisations.

AgResearch especially values its partnerships with the pastoral industries including, but not limited to, DairyNZ, Beef+Lamb NZ, Fonterra, Ravensdown, Ballance Agri-Nutrients, Deer Industry NZ, Dairy Goat Co-operative, all Regional Councils and the relationship with PGG Wrightson through a joint venture with AgResearch’s subsidiary Grasslanz Technology Limited.

In New Zealand AgResearch has a commitment to many sector collaborations including those with the Pastoral Greenhouse Gas Research Centre, Pastoral Genomics, The EpiGen Consortium, Hopkirk Research Institute, the Riddet Institute, the Liggins Institute, Gravida (National Centre for Reproduction and Development), the BioProtection Centre of Research Excellence, Massey and Lincoln Universities, Joint Graduate School in Dairy Research and Innovation, the University of Otago including the Centre for Reproduction and Genomics, the National Centre for Biosecurity and Infectious Diseases and the New Zealand Agricultural Greenhouse Gas Research Centre.

AgResearch has important relationships with key Māori incorporations, trusts and collectives including, but not limited to, Te Tumu Paeroa, Miraka, Ngāti Apa Settlement Trust, Poutama Trust, Waituhi Kuratau Trust, Tuwharetoa Collective, Nga Uri o te Ngahere Trust, Aohanga Farm Trust and Wairarapa Moana Inc.

AgResearch and Te Tumu Paeroa: the new Māori Trustee have signed a memorandum of understanding (MOU) which signifies a new long-term relationship with positive implications for the future of Māori agribusiness in New Zealand and wide-ranging research opportunities to optimise Māori farm performance.

AgResearch is actively involved in many innovation hubs around New Zealand, whose aims are to build centres of collaborative research, promoting the regions capability and delivering innovation, productivity and sustainability across the agri-sector. AgResearch is a committed partner in the Lincoln Hub, Waikato AgriHub and FoodHQ.

In 2013, the Government launched the National Science Challenges which are designed to take a more strategic approach to the Government’s science investment by targeting a series of goals that would have major and enduring benefits for New Zealand. AgResearch is participating in three Challenges (High-Value Nutrition, New Zealand’s Biological Heritage, Science for Technological Innovation), and is the host of the Our Land & Water Challenge.


Being a good employer AgResearch is committed to being a good employer and has introduced many initiatives to build a great place to work.

Organisational culture and staff engagement Whilst the overall level of staff engagement assessed in our 2015 staff survey did not meet our goal, some important indicators (such as staff members’ sense of commitment to AgResearch and staff feeling inspired to go the extra mile to help AgResearch succeed) showed significant improvements over 2014. We expect initiatives put in place during 2014/15 to increase these measures further in 2015/16, including:

• leadership development, particularly in the areas of change leadership and developing a coaching culture;• enhanced recognition of high performance by allocating 1% of our 2014/15 remuneration budget to lump sum performance

awards.

Accountable and effective leaders and managers AgResearch’s leaders demonstrate clear strategy, direction and accountability as well as motivating and enabling their teams to meet organisational goals. Our 2015 staff engagement survey showed significant improvements in the percentage of staff who agreed they understood how their performance was measured, that line managers communicated goals and objectives effectively with them and that line managers involved the team in making changes since the last survey.

Recruitment, selection and induction Recruitment and selection of senior scientists, particularly in growing areas of science capability, is an on-going industry and organisational challenge. We make effective use of the ScienceNZ recruitment system (https://careers.sciencenewzealand.org/) which enables pan-CRI employment branding and sourcing via a shared portal and supporting software. New staff are inducted into AgResearch as a whole and the team in which they work, including thorough coverage of health and safety expectations and responsibilities.

Staff development In accordance with the 70:20:10 philosophy of learning, we aim to have 70% of our staff development result from stretching assignments in project work, for which opportunities are identified by line managers and staff members themselves. Leaders work with staff to identify specific development needs as part of our Apex objective-setting and performance appraisal process. 20% of our staff learning is from others through feedback, coaching, mentoring and networking and this is an area that we have strengthened over the last year through our Coaching Capability programme.

For the 10% of learning that takes place through formal learning methods, we have a comprehensive Learning & Development programme that supports our competency and leadership development frameworks as well as the development of role-specific skills. Learning and Development is available to all staff and provided through multiple avenues including short courses, on-the-job learning, conference attendance, professional membership and university study. We support some staff members who are working towards postgraduate qualifications.

Senior leaders meet on a bi-annual basis to review and plan the growth of organisational talent and those staff being considered for promotion.

Flexibility and work design A number of staff continue to take up flexible work opportunities under AgResearch’s Staff Wellbeing policy, which offers flexible options to attract and retain staff at different stages of their lives. Some of these options include working part-time, flexible working hours and a gradual retirement programme which assists with succession planning, capability retention and business continuity.

Remuneration, recognition and conditions Our remuneration strategy focuses on rewarding ongoing high performance through increased remuneration and lump sum payments to recognise particular outstanding achievements. We monitor our overall remuneration levels using market data to ensure our remuneration continues to be competitive.

Harassment and bullying prevention / EEO We aim to have a positive working environment for all staff. Our ‘The Way We Work' principles set clear standards and expectations regarding workplace behaviours. Bullying or harassment is not tolerated in the workplace. Any allegations are fully investigated, often in collaboration with the Public Service Association.

We have good Equal Employment Opportunity (EEO) practices including enabling staff to purchase additional annual leave and have flexible working hours.

Safe and healthy environment / wellness We continue to hold a tertiary employer accreditation with ACC. Health and safety advisors are aligned to all sites and work actively with injured staff and their leaders to assist with rehabilitation plans. Each site has health and safety coordinators who facilitate awareness and compliance. Accidents and near misses are investigated by line managers with support from health and safety specialists and the Board receives reports on significant incidents and overall statistics at each of its meetings.

During 2014/15 we focused on increasing our level of near miss reporting, which is improving our ability to identify safety issues before they cause harm, and we have responded to quad-bike-related incidents during the year by replacing quad bikes with vehicles that are intrinsically safer wherever possible.

We also offer a range of wellness initiatives such as influenza injections for all staff, retirement planning seminars, reimbursement of eye tests and subsidised prescription glasses or lenses. Our Employee Assistance Programme provides a supportive and strictly confidential framework to assist staff with difficult personal or work situations.


https://careers.sciencenewzealand.org/

Commentary on progress toward achieving AgResearch’s Statement of Core Purpose (SCP) outcomes For the year ended 30 June 2015

AgResearch’s Statement of Core Purpose (SCP) defines four outcomes. Progress toward achieving those outcomes is summarised below. Further detail on the impact indicators underpinning these outcomes is set out in the following section. In some cases, it has been possible to quantify progress towards measurable target outcomes. In other cases, we have described examples of AgResearch’s research, development, technology and knowledge transfer activities that are expected to contribute to delivering our SCP outcomes.

AgResearch’s purpose is to enhance the value, productivity and profitability of New Zealand’s pastoral, agri-food and agri-technology sector value chains to contribute to economic growth and beneficial environmental and social outcomes for New Zealand.

AgResearch will fulfil its purpose through the provision of research and transfer of technology and knowledge in partnership with key stakeholders, including industry, government and Māori, to achieve the following outcomes:

A. Increase the value of these industry sectors to the New Zealand economy through the development of high-value pastoral-

based products and production systems that meet current and future global market needs

According to Statistics New Zealand's InfoShare database, the value of exported products covered by HarmonisedSystem (HS) codes 02, 04, 15, 16, 35, 41, 42, 51, 56, 57, 58, 59, 60, 61, 62 and 63 (which represent our industrysectors)I by New Zealand was $22.5 billion for the year ending June 2015. The trend was (in $ billion):

More specific measures of the impacts that contribute to this outcome are shown on the following pages. Some of the key contributions by AgResearch to this outcome during FY15 were:

- Developing improved breeding strategies for grasses that target multiple traits to lift the rate of gain in theForage Value Index.

- Working with Beef+Lamb New Zealand to survey New Zealand’s earthworm population, which improvesannual pasture growth and boosts environmental performance.

- Leading the Hungate1000 project, an international collaborative effort to generate a reference set of rumenmicrobial genome sequences funded by the New Zealand Government in support of the Livestock ResearchGroup of the Global Research Alliance on Agricultural Greenhouse Gases and with the US Department ofEnergy Joint Genome Institute as part of their competitive Community Science Program.

- Working with New Zealand biotechnology company PolyBatics Ltd to develop an improved test for bovinetuberculosis by displaying three or four specific M. bovis proteins on the surface of polyester beads(bionanoparticles).

- Carrying out trials of a product containing a natural insecticide, Yersinia entomophaga, to fight one of NewZealand’s worst agricultural insect pests, Black Beetle, including investigating the optimum application rateand production scale-up.

- Carrying out Porina management field days on the West Coast of the South Island in association with theSustainable Farming Fund.

B. Position New Zealand as a global leader in the development of environmentally sustainable, safe and ethical pastoral production

systems and products

Out of 133 countries studied in the Social Progress Index initiated by Professor Michael Porter, the Social ProgressImperative and Deloitteii, New Zealand was ranked fifth overall in 2015 (first in 2014), though our index valueincreased from 2014, as shown below.

New Zealand was ranked 34th (32nd in 2014) on the ecosystem sustainability component of the index, which includedmeasures of greenhouse gas emissions, water withdrawals as a percentage of resources and biodiversity and habitatprotection. New Zealand’s index value for this component was unchanged from 2014. Specific measures of theimpacts that contribute to this outcome are shown on the following pages.

Some of the key contributions by AgResearch to this outcome during FY15 were:- Identifying five different animal-safe compounds that can reduce methane emissions from sheep and cattle

by 30 to 90%.- Contributing to the FoodHQ Ewe Milk Products and Sheep Dairying conference, which attracted 160

delegates and included farmers, consultants, agricultural industry representatives, scientists and staff fromthe Ministry for Primary Industries and Ministry of Business, Innovation and Employment. AgResearch FoodNutrition & Health.

- Establishing a new dairy goat research facility at our Ruakura campus, focused on growing the supply ofdairy goat milk through improved forage supply systems and superior animal welfare practices.

- Working with DairyNZ, Fonterra, the Dairy Companies Association of New Zealand, Beef + Lamb NewZealand, Massey and Lincoln Universities and the Ministry of Business, Innovation and Employment in thePastoral 21 project to boost farm productivity and reduce environmental impacts.

C. Ensure that New Zealand’s pastoral, agri-food and agri-technology sectors are able to protect, maintain and grow its global

market access

We do not have an overall measure of this outcome. Specific measures of the impacts that contribute to this outcomeare shown on the following pages.

A key contribution by AgResearch to this outcome during FY15 was:- Holding the “Meating the Future” Workshop which was the biggest in the Meat Industry Workshop’s 11-year

history, covering future technologies, food safety and future research opportunities.


D. Increase the capacity of rural communities and enterprises to adapt to changing farming conditions in ways that balance

economic, environment, social and cultural imperatives

We do not have an overall measure of this outcome. More specific measures of the impacts that contribute to thisoutcome are shown on the following pages.

Some of the key contributions by AgResearch to this outcome during FY15 were:- Supporting the second annual DairyNZ Year 13 Science Career Day, which aims to educate senior science

students about the many and varied career opportunities within New Zealand agriculture along with LIC andthe University of Waikato.

- Signing a memorandum of understanding (MOU) with Te Tumu Paeroa: the new Māori Trustee that signifiesa new long-term relationship with positive implications for the future of Māori agribusiness in New Zealand.

- Carrying out research for the Whai Hua PGP programme with partners Wairarapa Moana Incorporation andMiraka Ltd that aims to develop natural dairy milk products targeting health-conscious consumers in Asianand New Zealand markets.

Declaration that all activities undertaken by the Crown Research Institute are within the scope of operation as specified in its

SCP.

All of the activities undertaken by AgResearch are: within the scope of our Statement of Core Purpose, or to assist collaborating research organisations achieve their Core Purposes, where it is most efficient for AgResearch

to provide the capability to do so, or to develop capability that will enable us to undertake activities to achieve our Core Purpose.


Impact indicators For the year ended 30 June 2015

AgResearch’s 2014-19 Statement of Corporate Intent (SCI)i identified the following impacts and indicators against which our progress to achieve our SCI outcomes can be measured. Only limited progress is expected to be observable for many of these targets after three years, given that many of the impacts are expected to be achieved over a longer timeframe. Also for this reason, the organisations that measure progress toward those impacts do not report that progress every year and, therefore, objectively-measured progress cannot be reported for all impacts. Finally, where indicators are based on industry strategies, the strategies referred to below are those that were current when AgResearch’s 2014-19 SCI was drafted.

In addition to the indicators shown below, the 2014/15 AgResearch Highlights document includes 12 case studies of impacts that AgResearch has delivered to our sector over the last several years.

No. Impact Indicator Progress Report

Dairy On-Farm

1 Improved production from home-grown feed (Statement of Core Purpose (SCP) Outcomes A and B)

Profit from Productivity, which describes how much of a farm’s profit in any given year is due to production efficiency gains made on that farm over a period of time. This is measured across the whole of New Zealand dairy farming, as well as at farm level. Dairying’s economic contribution to national prosperity.

Profit from productivity as reported by DairyNZii was $1,214/ha for the year ending 2014. The trend was (in $/ha):

While there is significant variability from year to year, there is a clear upward trend in this measure. Dairying’s economic contribution to national prosperity is demonstrated by the value of its exportsiii, which were $13.18 billion in the year to June 2015:

2 Improved rate of genetic gain in the national herd (SCP Outcomes A and B)

Components of animal production efficiency, specifically rate of genetic gain in Breeding Worth in the national dairy herd.

The Breeding Worth for Holstein-Friesian cows born into the national herd in 2013 was 138, as reported by DairyNZ and LICiv (data for cows born in 2014 are not yet available). The trend was:

The upward trend in this measure has clearly accelerated since the late 1990s. 3 Improved

animal health and milk quality (SCP Outcomes A, B and D)

Tracking progress on specific industry initiatives and regular objective assessment of border security and industry preparedness for biosecurity incursions.

One long-term industry initiative has been to manage somatic cell count in milk. According to DairyNZ and LICv, the national herd test average for somatic cell count for the 2013-14 season was 187,000 cells per ml. This figure was lower than for the 2012-13 season and was the lowest overall somatic cell count during this period (in thousands of cells per ml):

The Controller and Auditor General reported on New Zealand’s border security and preparedness for biosecurity incursions in 2013vi and found that “MPI and its predecessor organisations responsible for biosecurity have been, by and large, successful at responding to incursions, dealing with between 30 and 40 incursions a year. They have developed generally high-trust relationships with partners by working together on responses and have improved biosecurity by sharing knowledge and fostering innovative practice.” The Auditor General noted some weaknesses and that improvements were being made but that there was still a lot to do.

4 Adoption of new farm management practices which improve productivity (SCP Outcomes A, B and C)

Practice change measures such as the adoption of farm planning.

The trend in dairy farm profit from productivity is shown under Impact 1 above. The cumulative contribution to that trend from total factor productivity, from the 2002-03 to 2013-14 season, was -6% according to our analysis of data presented by DairyNZvii. The trend over that period was:

. DairyNZ noted that “High milk prices and dry summer/autumn conditions generally lead to productivity losses”. No recent reports were available on the adoption of farm planning in the dairy sector.

5 Control targets met for nationally monitored diseases (SCP Outcomes A, B and C)

Maintain national TB infected annual period prevalence at the lowest possible level and at no greater than 0.4% during the strategy (i.e. to 2025).

According to OSPRIviii, the annual period prevalence percentage of bovine Tb infected herds in the year ending 2014 was 0.21%. The trend was:

The prevalence of TB infected herds remains close to its lowest recorded level.



6 Improved animal welfare (SCP Outcomes A, B and C)

Compliance with the New Zealand Animal Welfare Code (2010) for dairy cattle.

DairyNZ reported that by the end of 2013/14, there were 211 accredited national body condition score scorers and a lameness scoring system was developed and training was provided through Healthy Hoofix.

Meat and Fibre On-Farm

7 Improved productivity of forage (SCP Outcomes A and B)

Development of new forages and forage management solutions for pastoral breeding and finishing farms that will contribute to a step change in farm productivity.

According to the Beef + Lamb Economic Servicex, the weighted average sheep and beef farm was forecast to have a profit before tax for the season ending 2015 of $26.90per stock unit. The trend was as follows:

While there has been considerable variability from year to year, there has been an overall upward trend in this measure.

8 Improved productivity in meat animals (SCP Outcomes A and B)

Increase in production and profit from lambs and beef cattle per hectare. EBIT/kg venison produced raised from $2.34/kg in 2013 to $3.82/kg in 2023.

From the number of ewes and cattle and the total inspected production of lamb and beef (with veal)xi, the weight of lamb produced per ewe in the season ending 2014 was 18.6 kg. The trend was:

The weight of beef and veal produced per adult cattle was 61kg. The trend was:

By these measures, the productivity of lamb production has continued to increase over time while the productivity of beef production has changed little over time. It should be noted that most of the cattle included in the beef production calculation were dairy cattle so more important productivity measures for most of those animals were dairy-related measures. Steer and heifer carcass weights at slaughter averaged 276kg for the season ending 2014. The trend was:

Bull carcass weights at slaughter for the season ending 2014 averaged 301kg. The trend was:

While these weights were variable from year to year, the trend over time was downwards in each case. According to Deer Industry New Zealandxii, earnings before interest and tax (EBIT) of deer farms averaged $2.22 per kg of venison, unchanged from 2013. The trend was:

Deer Industry New Zealand’s Passion to Profit programme aims to increase this measure by a further $1.60/kg by 2023.

9 Improved animal health status of meat animals (SCP Outcomes A and C)

Contribution to fulfilling the National Pest Management Strategy for Bovine Tb.

The trend in annual period prevalence for bovine TB was reported for Impact 5.

Contributions to reducing the incidence and cost of economically significant pests and diseases in sheep, beef and deer.

10 Continuous improvement in farm management practices (SCP Outcomes A, B and D)

In addition to indicators of improved farm productivity and management practices (Impacts 7, 8, 9, 15 & 16), AgResearch will contribute to improved adoption and value chain alignment in the red meat sector.

Indicators of farm productivity and profitability were shown above for indicators 7 and 8. Farm planning using software such as Farmax has been estimated to have added $425 million in gross margin to sheep and beef farms over ten years to 2013xiii.

Dairy Off-Farm 11 New high-value

dairy and food solutions products and

Contributions to new combinations of products, processes and services for a range of foods and food

Researchers from University of Auckland, the University of Otago, Massey University, AgResearch and Plant and Food Research lead the High Value Nutrition National Science Challenge, which aims to develop high value foods with validated health benefits, including dairy products.



processes (SCP Outcomes A, B and C)

solutions with high dairy content.

Meat and Fibre Off-Farm

12 Meat products and processes which consistently meet the needs of existing and new markets (SCP Outcomes A, B and C)

Contributions to new differentiated products for existing and new markets.

Researchers from University of Auckland, the University of Otago, Massey University, AgResearch and Plant and Food Research lead the High Value Nutrition National Science Challenge, which aims to develop high value foods with validated health benefits, including meat products.

13 Improved processing efficiency (SCP Outcomes A, B and C)

New technologies that contribute to improved processing efficiency.

No quantitative data were available for the past year on the use of new technologies to improve processing efficiency.

14 Higher value wool products (SCP Outcomes A, B and C)

Contributions to new differentiated fit-for-market products for new markets.

According to Statistics New Zealand's InfoShare database, the f.o.b. value of New Zealand’s exports of Carpets and other textile floor coverings (HS57), relevant to these stain resistance and insect resistance technologies in the year to June 2015 totalled $130 million. The trend over time, in $million, was:

Pan-Sector and

Māori Agribusiness

15 Reduced environmental footprint of pastoral farming operations (SCP Outcomes B and C)

50% of dairy farms with waterways will have a riparian management plan by 31 May 2016.

AgResearch hosts the Our Land and Water National Science Challenge, which carries out research to enhance primary sector production and productivity while maintaining and improving our land and water quality for future generations. DairyNZ reported in 2014 that 20,400km of waterways had been fenced offxiv.

16 Practical policy solutions developed and adopted (SCP Outcomes B, C and D)

Inform three policies each year in the areas of natural resource management and primary production activity at regional or national scale.

AgResearch staff contributed during the year to informing policies that included the Waikato Regional Council Healthy Rivers Plan for Change, Environment Canterbury’s Canterbury Water Management Strategy and Environment Southland’s Water and Land 2020 & Beyond project. AgResearch’s contribution to developing and adopting policy solutions for regional, district and unitary councils can be quantified by the science revenue received from those councils. In FY15, that figure was $1.18 million according to AgResearch’s financial records. The trend over time, in $million, was:

While this revenue was relatively stable for most of the period, it increased significantly in FY14 and continued to increase in FY15.

17 Improved on-farm productivity in Māori agribusiness enterprises (SCP Outcomes A, B and D)

Contribution to improved Māori agribusiness enterprise productivity.

A report for the Ministry for Primary Industries by PricewaterhouseCoopers developed a framework to analyse the potential economic impact of increasing the productivity of Māori land. Among other findings, the report concluded that “several prototype interventions associated with dairy farming result in large economic returns relative to their economic costs, reflecting the high productivity potential of dairy farming”xv.

18 New products from Māori agribusiness enterprises (SCP Outcomes A, B and D)

Contribution to new products from Māori agribusiness enterprises.

AgResearch is a key research partner in the Whai Hua Primary Growth Partnership programme with Ministry for Primary Industries co-investment of $1.75 million for the three-year programme, worth $3.5 million in total. During early 2015, the programme reported that “Two in-vivo efficacy trials have been completed and preliminary results indicate that one of the target compounds has been able to suppress the population of a specific pathogenic bacterium in the gut of mice. This is an important finding from the perspective of future marketing activities.”xvi


Non-financial operating indicators For the year ended 30 June 2015 AgResearch’s 2014-19 Statement of Corporate Intent (SCI) identified the following non-financial operating indicators against which progress to achieve the SCI operating outcomes are measured. Trends in these indicators over time are shown graphically in the right hand column of the following table, with the first available value shown in blue on the left of the graph, and the latest available figure shown in red on the right of the graph and the limits of the graph shown in black at the right. Years shown are financial years ending in June 2015 or calendar years ending in December 2014xvii. Trends are shown for as many years as could be readily obtained for each indicator. Target figures in [brackets] are from AgResearch’s 2014-19 SCI. ID Indicator Definition Measure [target] and trend

G.1 End user collaboration

Revenue per FTE from commercial sources. $102k [$102k]

G.2 Research

collaboration Publications with collaborators. (Percentage of publications with a) only AgResearch authors, b) with other NZ authors, c) with international authors or d) with a combination of NZ and international authors). (Data for this indicator are reported for calendar years.

(a) 20% [13%]

(b) 29% [36%]

(c) 29% [34%]

(d) 21% [17%]

G.3 Technology &

knowledge transfer

Commercial reports per scientist FTE. 1.0* [1.8]

*This figure may be understated due to reports not being captured during the transition to AgResearch’s new publications database in FY15.

G.4 Science quality Impact of scientific publications. (The average value of 2-year citations per document for scientific journals assessed by SCImago, in which AgResearch staff published during the year, weighted by the number of AgResearch publications in each journal). (Historical figures are calculated from the 2014 2-year citations per document reported by Scimago for each journal or conference. Data for this indicator are reported for calendar years.)

2.62 [2.7]

G.5 Financial indicator Revenue per FTE. $213k [$211k]

ID Indicator Definition Measure and trend

1.1 Confidence of stakeholders

(a) Percentage and number of relevant funding partners and other end-users that have a high level of confidence in the CRI’s ability to set research priorities, and (b) the percentage with confidence in the effectiveness of the collaboration or partnership. Note that the MBIE CRI Stakeholder Survey from which these measures are drawn was not carried out in 2015 so the figures shown here are from 2014.

(a) 70% [65%]

(b) 80% [95%]xviii

1.2 Revenue from

stakeholders Revenue coming directly from stakeholders. Excludes revenue from central Government, includes co-investment from stakeholders with central Government

$48.7m [$56m]



2.1 Collection requests

Percentage change in the number of requests and enquiries for access to AgResearch’s publicly available collections.

The Margot Forde Germplasm Centre issued 3079 [4000] samples from its collection.

2.2 Stakeholder

reports Number of client reports submitted by AgResearch staff. 264* [600]

*This figure may be understated due to reports not being captured during the transition to AgResearch’s new publications database in FY15.

2.3 Trade publications

Number of published articles in stakeholder-relevant outlets, including trade magazines, applied industry journals, popular media and stakeholder blogs.

NA* [100]

*Data were not captured for this indicator due to the transition to AgResearch’s new publications database in FY15. An alternative way to measure this indicator will be obtained for FY16.

2.4 Licensing deals (a) Total revenue, (b) number and (c) percentage of licensing or other deals of CRI-derived IP (including technologies, products and services) with New Zealand and international partners per annum.

The AgResearch group received a total of $10.513m [$9m] of royalty revenue.

Executed 11 [20] licensing and other deals.

Of which 36% [85%] were with New Zealand partners.

2.5 Adoption Percentage of relevant end-users who have adopted

knowledge and/or technology from CRIs. Note that the MBIE CRI Stakeholder Survey from which these measures are drawn was not carried out in 2015 so the figures shown here are from 2014.

90% [95%] of stakeholders had adopted knowledge or technology from AgResearch in the past three yearsxix.

3.1 Effective

relationships with Māori

Percentage of Māori agribusiness partners and end-users who rate AgResearch as “good” or better for effective collaboration and partnering in the annual customer relationship survey.

67%* [80%]xx

*Three Māori agribusinesses responded to the survey out of six that were invited.

3.2 Revenue from Māori stakeholders

Revenue (direct and leveraged) from Māori agribusiness stakeholders.

$1.04m [$1m]

4.1 International

linkages a) Number and percentage of peer-reviewed scientific papers co-authored with an international author. (Data for this indicator are reported for calendar years).

AgResearch published 171 [100] Scopus-indexed papers co-authored with at least one international author in the 2014 calendar year.

In 2014, papers with international collaborators comprised 51% [50%] of all Scopus-indexed papers published by AgResearch during the calendar year.

b) Number of technologies licensed in from offshore. 0 [1] technologies were licensed in from

offshore during the financial year.



4.2 Research collaboration

(a) Number and (b) percentage of joint scientific peer-reviewed publications and (c) number and (d) percentage of IP outputs with other New Zealand or international research institutions per annum. (Data for items (a) and (b) are reported for calendar years. Our approach to reporting items (c) and (d) was re-evaluated during the year to draw on IP that was recorded as “accepted” during the financial year in the IPONZ patent, plant variety right and trademark databases. The new approach avoids counting IP that is protected in many different jurisdictions multiple times, as we had previously done, and therefore provides a clearer indication of the amount of IP produced by AgResearch and its partners. The targets in our 2014 SCI applied to the previous approach and are therefore not relevant to the new approach.)

a) AgResearch published 270 [180] Scopus-indexed papers co-authored with other NZ or international research institutions.

b) This was 84% [87%] of all AgResearch publications.

c) AgResearch produced 0 IP outputs with other organisations during the financial year.

d) This was 0% [41%] of AgResearch’s 10 IP outputs, for which the trend was:

5.1 Publications in

peer-reviewed scientific journals

Number of peer-reviewed scientific papers per full time equivalent (FTE) in research teams. (Data for this indicator are reported for calendar years).

AgResearch published 338 Scopus-indexed publications in the 2014 calendar year.

AgResearch published 0.75 [0.5] Scopus-indexed papers per FTE in research teams during 2014 calendar year.

5.2 Quality of

scientific publications

Number of publications in journals included in AgResearch’s list of 34 benchmark high-impact journals that are relevant to our SCPxxi. (Data for this indicator are reported for calendar years).

AgResearch published 66 [60] papers during 2014 in journals that were included the list of 34 benchmark high-impact journals relevant to our SCP.

6.1 Staff satisfaction Staff survey result for overall level of staff engagement. The value of the “engagement index” in

AgResearch’s staff engagement survey was 58.2 [68].

6.2 Develop and

unleash talent to deliver our value proposition

a) Staff survey shows a positive trend in career development / training (measured by the percentage of staff agreeing that “there are career development opportunities for me in AgResearch”) and (b) a positive trend in team co-operation (measured by the percentage of staff agreeing that “teams at AgResearch work well together”).

When staff were surveyed in 2015, the statement “there are career development opportunities for me in AgResearch” received a weighted mean score of 48.1% [54%].

The statement “teams at AgResearch work well together” received a weighted mean score of 61.9% [65%].



(c) number of graduate students completingpostgraduate qualifications and (d) postdoctoral (fixedterm) research either in AgResearch or with significantAgResearch staff supervision.

121 [90] graduate students were completing postgraduate qualifications in AgResearch or with significant AgResearch staff supervision in June 2015.

13 [15] postdoctoral fellows were working in AgResearch in June 2015.

6.3 Assets fit for purpose

Infrastructure reinvestment relative to depreciation, as an indicator of the “current-ness” of equipment and infrastructure.

0.71 [1.2]

8.1 Workforce Composition and Demographics

8.11 Total FTEs and % of total FTEs

Excluding casuals and fixed term employees of less than 6 months duration, by:

a) Research Teams

b) Research Support

c) Other

d) Total

a) 448.95 (64%) [484 (64%)]

b) 177.03 (25%) [186 (25%)]

c) 76.14 (11%) [83 (11%)]

d) 702.12 [753]

8.12 Total FTE and Headcount in Research Teams

Divided into:

a) Scientists FTE

b) Scientists Headcount

c) Technicians/Technologists FTE

d) Technicians/Technologists Headcount

a) 267.56 [279]

b) 286 [294]

c) 212.99 [245]

d) 248 [275]

Headcount of other staff was 238 and total headcount was 772.

i http://www.socialprogressimperative.org/, accessed 17 August 2015. ii DairyNZ (2014) DairyNZ Economic Survey 2013-14 [http://www.dairynz.co.nz/publications/dairy-industry/dairynz-economic-survey-2013-14/], p.16, Figure 3.7. iii Obtained from Statistics NZ's Infoshare database Imports and Exports data, from Exports - Summary Data - EXP Table: Key Statistics Table 7.04 - Value of principal exports (excluding re-exports) - SH (Annual-Jun), including “Dairy Produce: Total” and “Casein and Caseinates”. iv DairyNZ and LIC (2014) New Zealand Dairy Statistics 2012-14 [http://www.dairynz.co.nz/media/434163/new_zealand_dairy_statistics_2012-13.pdf], p.47, Graph 4.21. v DairyNZ and LIC (2014) New Zealand Dairy Statistics 2013-14 [http://www.dairynz.co.nz/media/434163/new_zealand_dairy_statistics_2012-13.pdf], p.27, Table 4.3. vi OAG (2013). Ministry for Primary Industries: Preparing for and responding to biosecurity incursions. Wellington, New Zealand, Controller and Auditor General [http://www.oag.govt.nz/2013/biosecurity/docs/oag-biosecurity.pdf]. vii DairyNZ (2014) DairyNZ Economic Survey 2013-14 [http://www.dairynz.co.nz/publications/dairy-industry/dairynz-economic-survey-2013-14/], p.23, Figure 3.4. viii OSPRI, TBfree New Zealand and Animal Health Board Annual Reports 2008 to 2014 [http://www.tbfree.org.nz/annual-report.aspx, http://www.ospri.co.nz/] ix DairyNZ (2014). 2013/14 Annual Report. Hamilton, New Zealand, DairyNZ, p.16. x http://www.beeflambnz.com/Documents/Information/Farm%20survey/nz%20class%209%20nz%20all%20classes.xls xi Beef + Lamb New Zealand Annual Reports, 2001 to 2014, and sheep number trends from 2004 to 2014 [Source:

http://beeflambnz.com/Documents/Information/New%20Zealand%20sheep%20trend.pdf]


http://www.beeflambnz.com/Documents/Information/Farm%20survey/nz%20class%209%20nz%20all%20classes.xls

http://beeflambnz.com/Documents/Information/New%20Zealand%20sheep%20trend.pdf

xii http://www.agresourced.co.nz/case-studies/case-study/ and Deer Industry New Zealand “At a glance industry statistics” for 2013 and 2014 [http://www.deernz.org/about-deer-industry/nz-deer-industry/deer-industry-statistics/glance-industry-statistics#.U-vnl62KCHs]. xiii http://farmax.co.nz/news-and-resources/media-room/general-news/decade-of-farm-analysis-and-planning-adds-425-million-to-pastoral-industry-/ xiv DairyNZ (2014). 2013/14 Annual Report. Hamilton, New Zealand, DairyNZ, p.15. xv PwC (2014) Economic Analysis of Prototype Interventions to lift Māori Agribusiness Productivity, Ministry for Primary Industries, Wellington, New Zealand. xvi https://www.mpi.govt.nz/document-vault/7848 xvii Data reported for calendar years mainly related to publications, for which data were obtained from the Scopus database. Scopus data was found to be more complete if searches were done by calendar year than the monthly searches required to obtain data for an AgResearch financial year. xviii AgResearch stakeholders surveyed during the July 2014 CRI stakeholder survey who responded to these two questions, this is the percentage that provided a score between 6 and 10. xix Of the AgResearch stakeholders surveyed during the July 2014 CRI stakeholder survey who responded to this question. xx Of those Māori stakeholders who were surveyed in AgResearch’s customer survey and who provided a rating. xxi In our 2012 SCI, this indicator read “At least 5% of peer-reviewed scientific papers in the top 10%, and at least 10% of peer-reviewed scientific papers in the top 25% respectively, of scientific journals (based on impact factors) relevant to AgResearch’s SCP”.


http://www.agresourced.co.nz/case-studies/case-study/

http://www.deernz.org/about-deer-industry/nz-deer-industry/deer-industry-statistics/glance-industry-statistics#.U-vnl62KCHs

Financial performance indicators

For the year ended 30 June 2015

Actual Budget Actual

2015 2015 2014

Projected cash flowNet cash flow from operating activities $m 11.0 7.5 16.8

Net cash flow from investing activities $m (7.0) (33.3) 27.2

Net cash flow from financing activities $m - - -

Total net cash flow $m 4.0 (25.8) 44.0

Cash at the beginning of the year $m 55.8 55.8 11.9

Cash at the end of the year $m 59.9 30.1 55.8

Operating Margin % 5.3% 6.6% 7.1%

Operating Margin per FTE $k 11.4 13.9 14.8

Revenue Growth % (4.7%) (1.5%) 0.9%

Quick Ratio 3.9 2.7 3.5

Interest Coverage 2,674 n/a 1,888

Operating Margin Volatility % 33.3% 26.5% 19.1%

Forecasting Risk % 0.0% (0.3%) (1.4%)

Adjusted Return on Equity % 0.0% (0.5%) 1.9%

Capital Renewal (0.7) 3.2 (2.8)

Equity Ratio % 83.3% 82.9% 82.4%

Indicator definitions

Adjusted Return on Equity: Surplus after tax (excluding fair value movements net of associated tax impact) ÷Average shareholder’s funds excluding asset revaluation reserve, expressed as a percentage.

Group

All other indicators are based on the Treasury prescribed calculations which may differ from normal accounting calculations for that indicator.


Consolidated statement of comprehensive income For the year ended 30 June 2015

Actual Budget Actualin thousands of New Zealand dollars Note 2015 2015 2014

RevenueMinistry of Business, Innovation and Employment

- Core Funding 38,889 38,889 38,889 - Other 21,810 22,609 19,313

Commercial 72,581 77,185 77,923 Farm produce 5,816 6,875 10,792 Other revenue 1 16,283 13,955 13,841 Total operating revenue 155,379 159,513 160,758

Operating expenditure 2 (154,408) (159,200) (160,937)Other gains and (losses) 3 264 97 2,140 Finance costs 4 (3) - (6)Share of surplus/(deficit) of associates 20 (928) (1,130) (924)Surplus/(deficit) before tax 304 (720) 1,031

Tax expense/(tax benefit) 5 417 (28) (974)Net surplus/(deficit) after tax for the year (113) (692) 2,005

Other comprehensive incomeItems that will not be reclassified subsequently to surplus or deficit:Revaluation of properties 6 16,693 - 4,762Impairment of revalued properties 6 (3,585) - (3,742)

13,108 - 1,020

Items that may be reclassified subsequently to surplus or deficit:Revaluation increases/(decreases) from available-for-sale financial assets 6 (546) - (754)

(546) - (754)

Income tax relating to components of other comprehensive income 5 (2,679) - 1,415Other comprehensive income for the year net of tax 9,883 - 1,681

Total comprehensive income for the year net of tax 9,770 (692) 3,686

Net surplus/(deficit) is attributable to:Equity holders of the parent (113) (692) 2,005

Total comprehensive income is attributable to:Equity holders of the parent 9,770 (692) 3,686

The statement of accounting policies and the accompanying notes form an integral part of these financial statements.


Consolidated statement of financial positionAs at 30 June 2015


Current assetsCash and cash equivalents 59,915 30,091 55,838 Trade and other receivables 7 30,091 27,466 32,419 Prepayments 2,321 2,269 1,821 Biological assets - livestock 9 4,254 3,342 4,489 Current tax 5 13 746 - Inventory 1,498 2,529 2,228 Derivative financial instruments - 4 - Non-current assets held for sale 13 - - 960 Total current assets 98,092 66,447 97,755

Non-current assetsInvestments in associates 20 660 620 620 Other investments 21 4,714 3,751 6,098 Property, plant and equipment 12 161,141 177,619 152,214 Biological assets - forestry 10 794 744 744 Other non-current receivables 8 3,966 - 3,778Intangible assets 968 1,640 799Total non-current assets 172,243 184,374 164,253

Total assets 270,335 250,821 262,008

Less:Current liabilitiesTrade and other payables 11 23,634 24,435 27,324 Current tax 5 - - 43 Derivative financial instruments 16 - 27Finance leases - current 4 - - Provisions 15 6,415 6,673 6,600 Total current liabilities 30,069 31,108 33,994

Non-current liabilitiesDeferred tax 5 12,715 10,369 10,736 Finance leases - term 7 - - Other non-current liabilities 28 804 363 - Provisions 15 240 453 399 Total non-current liabilities 13,766 11,185 11,135

Net assets 226,500 208,528 216,879

EquityShare capital 6 47,268 47,268 47,268 Revaluation reserves 6 84,872 56,886 73,622 Retained earnings 6 94,360 104,374 95,989 Total equity 226,500 208,528 216,879

- - - The statement of accounting policies and the accompanying notes form an integral part of these financial statements.

Sam Robinson Michelle AlexanderChair Director28 August 2015 28 August 2015


Consolidated statement of changes in equityFor the year ended 30 June 2015

in thousands of New Zealand dollars NoteShare

capital

Property, plant and

equipment

Available-for-sale

assetRetained earnings

Totalequity

Balance at 1 July 2013 47,268 102,218 1,415 62,292 213,193

Surplus after tax for the year - - - 2,005 2,005 Revaluation of properties 6 - 4,762 - - 4,762 Impairment of revalued properties 6 - (3,742) - - (3,742)Loss from available-for-sale financial assets 6 - - (754) - (754)Income tax relating to components of other comprehensive income 5 - 1,204 211 - 1,415Prior period adjustments transferred to retained earnings through the Statement of Comprehensive Income 6 - 576 10 (586) -Total comprehensive income - 2,800 (533) 1,419 3,686

Transfer of revaluation reserve on sold assets 6 - (32,278) - 32,278 - Balance at 30 June 2014 47,268 72,740 882 95,989 216,879

Loss after tax for the year - - - (113) (113)Revaluation of properties 6 - 16,693 - - 16,693Impairment of revalued properties 6 - (3,585) - - (3,585)Revaluation increases/(decreases) from available-for-sale financial assets 6 - - (546) - (546)Transfer of revaluation reserve on assets held for sale 6 - - (10) 10 - Income tax relating to components of other comprehensive income 5 - (2,835) 156 - (2,679)Prior period adjustments transferred to retained earnings through the Statement of Comprehensive Income 6 - 2,322 - (2,471) (149)Total comprehensive income - 12,595 (400) (2,574) 9,621

Transfer of revaluation reserve on sold assets 6 - (945) 945 - Balance at 30 June 2015 47,268 84,390 482 94,360 226,500


Revaluation reserves


Consolidated statement of cash flowsFor the year ended 30 June 2015


Cash received from operating activitiesReceipts from customers 153,423 157,903 160,590 Interest received 2,354 1,495 549 Dividends received 87 - 116Total cash received from operating activities 155,864 159,398 161,255

Cash disbursed on operating activitiesPayments to employees 72,631 72,232 73,540 Payments to suppliers 69,102 76,424 67,452 Restructuring 1,937 2,151 1,215 Income tax paid 1,173 1,088 2,235 Interest paid 3 - 6Total cash disbursed on operating activities 144,846 151,895 144,448

Net cash flow from operating activities 16 11,018 7,503 16,807

Cash received from investing activitiesDisposal of property, plant and equipment 897 9,737 37,123 Disposal of investments and intangible assets 74 491 27 Total cash received from investing activities 971 10,228 37,150

Cash disbursed on investing activitiesInvestment in property, plant and equipment 6,531 40,448 8,132 Purchase of other investments and intangible assets 448 3,030 501 Partner contribution to research consortiums 976 - 1,300Total cash disbursed on investing activities 7,955 43,478 9,933

Net cash flow from investing activities (6,984) (33,250) 27,217

Total net cash flow 4,034 (25,747) 44,024Cash at beginning of year 55,838 55,838 11,865

Effect of exchange rate changes on the balance of cash held in foreign currencies 43 - (51)Cash at end of year 59,915 30,091 55,838



Statement of accounting policies For the year ended 30 June 2015 REPORTING ENTITY AgResearch Limited (the Company) is a limited liability company incorporated in New Zealand. Operating as a Crown Research Institute, its principal activity is research and development in the pastoral sector of New Zealand. The financial statements have been prepared in accordance with the requirements of the Companies Act 1993, the Financial Reporting Act 2013, the Crown Research Institutes Act 1992 and the Public Finance Act 1989. The Company, its subsidiaries, associates and joint arrangement interests comprise the Group.

STATEMENT OF COMPLIANCE The financial statements have been prepared in accordance with Generally Accepted Accounting Practice in New Zealand (NZ GAAP). They comply with the New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable financial reporting standards as appropriate for profit-orientated entities.

The financial statements were authorised for issue by the Directors on 28 August 2015.

BASIS OF PREPARATION The financial statements have been prepared on the basis of historical cost, except for the revaluation of biological assets, certain non-current assets and financial instruments. Cost is based on the fair value of the consideration given in exchange for assets.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, so that the substance of the underlying transactions or other events is reported.

The accounting policies set out as follows have been applied in preparing the financial statements for the year ended 30 June 2015 and the comparative information presented for the year ended 30 June 2014.

The Group has chosen not to early adopt the following standards and interpretations that were issued but not yet effective as at 30 June 2015:

• NZ IFRS 9 ‘Financial Instruments’ (effective for accounting periods beginning on or after 1 January 2018)• NZ IFRS 15 ‘Revenue from Contracts with Customers’ (effective for accounting periods beginning on or after 1 January 2017)• 2014 Omnibus Amendments to NZ IFRS (effective for accounting periods beginning on or after 1 April 2015)• Amendments to NZ IFRS 11 – ‘Accounting for Acquisitions of Interest in Joint Operations’ (effective for accounting periods

beginning on or after 1 January 2016)• Amendments to NZ IAS 16 and NZ IAS 38 – ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ (effective for

accounting periods beginning on or after 1 January 2016)• Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture (Amendments to NZ IFRS 10 and NZ IAS

28) (effective for accounting periods beginning on or after 1 January 2016)• Annual Improvements to NZ IFRSs 2012-2014 Cycle (effective for accounting periods beginning on or after 1 January 2016)• Disclosure Initiative (Amendments to NZ IAS 1) (effective for accounting periods beginning on or after 1 January 2016)

The Directors anticipate that the above Standards and Interpretations will have no material impact on the financial statements of the Group in the period of initial application.

Critical Accounting Estimates and Judgements The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires the Directors to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in the relevant accounting policy or note.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the periods affected by the revision.

Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies, that have the most significant effect on the amounts recognised in the financial statements, are:

Significant Influence Meat Biologics Consortium, Pastoral Genomics Consortium, Pastoral Greenhouse Gas Consortium and Johne’s Disease Research Consortium are deemed to be associates of the Group although the Group has less than 20% ownership interest in each. The Group has significant influence over these consortia by virtue of its participation in the Board activities of the Consortium, the provision of funding to the Consortium and undertaking by AgResearch Limited of science research for the Consortium.


Joint Operation Grasslands Innovation Limited is deemed to be a joint operation by virtue of the contractual arrangements which specify the parties’ rights to the economic inputs and outputs of the joint arrangement and retention of ownership rights to pre-existing IP contributed by the parties.

Impairment of Assets Before balance date each year, the Directors review investments and other assets for indications of impairment using an asset impairment methodology. In particular, consideration is given to whether there are indications that:

• The market value of the asset has significantly declined;• Significant changes have taken place during the period, or will take place in the near future, in the technological, market,

economic or legal environment in the market to which the asset is dedicated;• Market interest rates or other market rates of return on investments have increased during the period, and those increases are

likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amountmaterially;

• There has been obsolescence or physical damage of the asset;• Significant changes with an adverse effect on the Group have taken place during the period, or are expected to take place in the

near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include theasset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an assetbefore the previously expected date, and reassessing the useful life of an asset;

• From internal reporting, the economic performance of an asset is, or will be, worse than expected; and• Other relevant factors.

Where indication of impairment exists, the recoverable amount is the higher of fair value less costs to sell or value in use. The value in use is based on the net present value of future cash flows where no active market exists.

Impairments made appear in note 2 and note 6.

Revenue Recognition In determining the revenue to be recognised in the year from rendering of services the Directors have exercised their judgement in respect of the percentage of completion of contracts.

In making their judgement, the Directors considered: • whether total contract revenue could be measured reliably;• the probability that economic benefits associated with the contract will flow to the Group;• whether the costs to complete the contract, and the stage of contract completion at balance date, could be reliably measured;

and• whether the costs attributable to the contract could be clearly identified and measured reliably so that the actual costs incurred

could be compared with prior estimates.

Following review of the Group’s contracts in progress at year end, the Directors are satisfied that the revenue recognised in the current year is appropriate, in conjunction with the recognition of an appropriate uninvoiced receivable/revenue in advance.

Non-Current Assets Held for Sale In determining the non-current assets (and disposal groups) to be classified as held for sale the Directors have exercised their judgement in respect to the correct classification for those non-current assets as outlined in the Non-Current Assets Held for Sale accounting policy.

Following review of the Group’s non-current assets, the Directors are satisfied that the criteria outlined in the policy have been met and the classification as “held for sale” in the current year is appropriate.

Campus Land and Buildings Revaluation The property, plant and equipment classes ‘Campus Land and Buildings” were revalued at 30 June 2015 by Darroch Limited (independent valuers), by reference to market evidence of recent transactions for similar properties. The valuations conform to International Valuation Standards. Some assets cannot be valued on a market basis and have been valued using the optimised depreciated replacement cost method.

Fair Value Estimates The fair value of financial assets and financial liabilities must be estimated for recognition and measurement, or for disclosure purposes.

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. The appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of forward exchange contracts is determined using forward exchange market rates at the end of the reporting period.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values.

For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 – fair value measurements are those from quoted prices (unadjusted) in active markets for identical assets or liabilities;• Level 2 – fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are

observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and• Level 3 – fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that

are not based on observable market data (unobservable inputs).


SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies used in the preparation and presentation of the financial statements are as follows:

(A) BASIS OF CONSOLIDATIONThe consolidated financial statements comprise AgResearch Limited (the Company) and entities controlled by the Company and itssubsidiaries. Control is achieved when the Company:

• has power over the investee;• is exposed, or has rights, to variable returns from its involvement with the investee; and• has the ability to use its power to affect its returns.

The directors reassess whether or not the group controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The directors consider all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;• potential voting rights held by the Company, other vote holders or other parties;• rights arising from other contractual arrangements; and• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the

relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the Profit and Loss from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interest. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements.

Subsidiaries Subsidiaries are entities controlled by the Group.

The results of any subsidiaries that become, or cease to be, part of the Group during the year are consolidated from the date that control commenced or until the date that control ceased.

The interest of non-controlling shareholders is stated at the non-controlling interest’s proportion of the fair values of the identifiable assets and liabilities recognised on acquisition together with the non-controlling interests’ share of post-acquisition surpluses.

A list of subsidiaries appears in note 19.

Investments in Associates An associate is an entity over which the Group has the capacity to exercise significant influence through participation in the financial and operating policy decisions of the investee, but does not control or have joint control over those policies.

The Group financial statements incorporate the Group’s interests in associates using the equity method, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with NZ IFRS 5.

Under the equity method, an investment in an associate is initially recognised in the consolidated Statement of Financial Position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate, the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. The goodwill is assessed for impairment as part of the investment. Whenever there is an indication that the goodwill may be impaired any impairment is recognised immediately in the Profit and Loss and is not subsequently reversed.

Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised in the Profit and Loss in the period in which the investment is acquired.

The Group recognises its share of an associate’s post acquisition net profit or loss for the year in its Profit and Loss. The Group’s share of an associate’s profit or loss is adjusted to align the accounting policies of the investee with that of the Group. The Group recognises its share of other post-acquisition movements in reserves in equity. Dividends received from associates are recognised directly against the carrying value of the investment. In the Statement of Financial Position the investment and the reserves are increased by the Group’s share of the post-acquisition retained surplus and other post-acquisition reserves of the associates. In assessing the Group’s share of earnings of associates, the Group’s share of any unrealised surpluses between the Group and investee is eliminated.


The Group discontinues the use of the equity method from the date an investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date in accordance with NZ IAS 39. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

When the Group reduces its ownership interest in an associate but continues to use the equity method, it may reclassify previously recognised gains or losses. It does so, if that gain or loss would be reclassified to the profit or loss on the disposal of the related assets or liabilities. Where it does, the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest is taken to the Profit and Loss.

When a Group entity transacts with an associate of the Group, profits and losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

A list of associates appears in note 20.

Interests in Joint Operations Joint operations are joint arrangements between the Group and another party in which there is a contractual agreement to undertake a specific business project in which the venturers share several liability in respect of costs and liabilities of the project and share in any resulting output. The Group’s share of the assets, liabilities, revenues and expenses of joint operations are incorporated into the Group financial statements on a line by line basis using the proportionate method. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint operation.

A list of joint operations appears in note 22.

(B) COMPARATIVESWhen the presentation or classification of items is changed, comparative amounts are reclassified unless the reclassification isimpracticable. In addition, a Statement of Financial Position is presented as at the beginning of the earliest comparative period, when theGroup has applied an accounting policy retrospectively, makes a retrospective restatement of items, or when it has reclassified items.

(C) REVENUE RECOGNITIONSale of GoodsRevenue from the sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownershipof the goods.

Rendering of Services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract at the end of the reporting period. The stage of completion is the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs.

Royalties Royalty revenue is recognised on an accrual basis in accordance with the substance of the relevant agreement.

Dividend and Interest Revenue Dividend revenue from investments is recognised in the financial period in which the right to receive payment is established. Interest revenue is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(D) GOVERNMENT GRANTSGovernment grants are assistance provided by the Government in the form of transfers of resources to the Group in return for past orfuture compliance with certain conditions relating to the operating activities of the Group. The primary condition is that the Group shouldundertake research activities as defined under the contractual agreement which awards the funding. The Government grant relating to thisfunding is recognised as income in the profit or loss on a systematic basis in the period it is received. Core Funding from the Crowncommenced from 1 July 2011 and is recognised in the Profit and Loss in the year it is received.

(E) INCOME TAXCurrent TaxCurrent tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss forthe period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax forcurrent and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred Tax Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax offsets (for example losses) can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates and joint ventures except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with


these interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the assets and liabilities giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to the income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net tax basis.

Current and Deferred Tax for the Period Current and deferred tax is recognised as an expense or income in the Profit and Loss, except when:

• it relates to items recognised in equity, in which case the deferred tax or current tax is also recognised directly in equity; or• it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of

goodwill or excess.

Foreign Tax Liabilities and Assets Exchange differences on deferred foreign tax liabilities or assets recognised in the Profit and Loss for the period are classified as deferred tax expense or income.

Foreign deferred tax assets that result from operating losses in respect of subsidiaries, associates, joint venture entities or interests in joint venture operations are recognised, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the future.

(F) FOREIGN CURRENCYThe individual financial statements of each Group entity are presented in the currency of the primary economic environment in which theentity operates (its functional currency). For the purpose of the Group’s financial statements, the results and financial position of eachgroup entity are expressed in New Zealand dollars (NZ$), which is the functional currency of the Group and the presentation currency forthe Group’s financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance date, monetary items denominated in foreign currencies are retranslated to the functional currency at the rate prevailing at the end of the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated to the functional currency at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in the Profit and Loss in the period in which they arise except for: • exchange differences which relate to assets under construction for future productive use, which are included in the cost of those

assets when they are regarded as an adjustment to interest costs on foreign currency borrowings;• exchange differences on transactions entered into in order to hedge certain foreign currency risks; and• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither

planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreigncurrency translation reserve and recognised in profit or loss on disposal of the net investment.

(G) FINANCIAL ASSETSInvestments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose termsrequire delivery of the investment within the timeframe established by the market concerned. Investments are initially measured at fairvalue, plus transaction costs, except for those financial assets classified as “at fair value through the Profit and Loss”, which are initiallymeasured at fair value.

Other financial assets are classified into the following specified categories: • financial assets ‘at fair value through the Profit and Loss’,• ‘held to maturity investments’,• ‘available-for-sale’ financial assets’ and• ‘loans and receivables’.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Financial Assets at Fair Value through the Profit and Loss This category has two sub-categories:

• financial assets held for trading; and• those designated at fair value through the Profit and Loss at inception.

A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are categorised as held for trading if they are not designated and effective as a hedging instrument.

Financial assets at fair value through the Profit and Loss are recognised initially at fair value. Gains and losses arising from changes in the fair value are included in the Profit and Loss in the period in which they arise. The net gain or loss recognised incorporates any dividend or interest earned on the financial asset.

Held to Maturity Investments Financial instruments purchased with the intention of being held for the long-term or until maturity are recorded at amortised cost using the effective interest rate method less impairment, with revenue recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or, where appropriate, a shorter period, to the net carrying amount of the financial asset.


Available-for-sale Financial Assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

Certain shares held by the Group are classified as being available-for-sale and are stated at fair value less impairment. Fair value is determined in the manner described in note 21.

Gains or losses arising from changes in fair value are recognised within “other comprehensive income” in the Profit and Loss and accumulated in the available-for-sale revaluation reserve with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised directly to the profit or loss in the Profit and Loss. Where the investment is disposed of or is impaired, the cumulative gain or loss previously recognised in the available-for-sale revaluation reserve is included in profit or loss for the period.

Portfolio Investments Portfolio investments are individually valued by the Fund Manager using the International Private Equity and Venture Capital valuation guidelines. The Group recognises revaluation losses on individual investments as they arise. Revaluation gains that are not a reversal of a previously recognised revaluation loss are not recognised until realised.

Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are stated at amortised cost using the effective interest method less impairment. Interest income is recognised by applying the effective interest rate.

Impairment of Financial Assets Financial assets, other than those accounted for at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the investment have been impacted.

For unlisted shares classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, including redeemable notes classified as available-for-sale and finance lease receivables, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or• default or delinquency in interest or principal payments; or• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off through the Profit and Loss. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the Profit and Loss.

With the exception of available-for-sale equity instruments, if in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the Profit and Loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, impairment losses previously recognised though profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income and accumulated in the available-for-sale reserve.

Assets Carried at Fair Value Financial assets accounted for at fair value through profit or loss are not assessed for impairment as their fair value reflects the credit quality of the instrument and changes in the fair value are recognised in profit or loss.

(H) PAYABLESTrade payables and other accounts payable are recognised when the Group becomes obliged to make future payments resulting from thepurchase of goods and services. Trade and other payables are subsequently measured at amortised cost using the effective interestmethod. This represents their fair value given the short term nature of the liability.

(I) INVENTORIESInventories are valued at the lower of cost, determined on a first in first out basis, and net realisable value. The cost of harvestedagricultural produce is measured at fair value less estimated point-of-sale costs at the point of harvest.


(J) PROPERTY, PLANT AND EQUIPMENTThe Group has the following classes of property, plant and equipment:

• Land - Campus• Land - Farm• Land Improvements• Buildings - Campus• Buildings - Farm• Leasehold Improvements• Vehicles• Plant and Equipment• Capital Work in Progress

Land, land improvements and buildings are measured at fair value. Fair value is determined on the basis of an independent valuation prepared by external valuation experts less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Land, land improvements and buildings are revalued at least every 3 years or whenever there has been a significant movement in the fair value. The fair values are recognised in the financial statements of the Group and are reviewed at the end of each reporting period to ensure that the carrying value of land, land improvements and buildings is not materially different from their fair values.

Any revaluation increase arising on the revaluation of land, land improvements and buildings is accumulated in the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in carrying amount on the revaluation of land, land improvements and buildings is charged as an expense in profit or loss to the extent that it exceeds the balance, if any, held in the asset revaluation reserve relating to a previous revaluation of that asset.

All other assets are recorded at cost less accumulated depreciation and accumulated impairment.

Capital work in progress is recorded at cost.

Depreciation is provided for on a straight line basis on all tangible property, plant and equipment, other than freehold land and capital work in progress, at depreciation rates calculated to allocate the assets’ cost or other revalued amount over their estimated useful lives. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period.

Depreciation on revalued buildings is charged to the Profit and Loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the asset revaluation reserve, net of any related deferred taxes, is transferred directly to retained earnings.

The following estimated useful lives are used in the calculation of depreciation: Land Improvements 5-50 years Buildings (including farms) 5-80 years Leasehold Improvements 3-40 years Vehicles 3-10 years Plant and Equipment

Dairy Plant and Equipment 5-25 years Computer Hardware 3-5 years Other Plant and Equipment 3-15 years

(K) BIOLOGICAL ASSETSLivestockLivestock are valued at their fair value less estimated point-of-sale costs by reference to the most relevant active market. An allowance ismade for diminution in value of certain livestock held for research trials. Changes in the valuation of livestock are recognised in profit orloss for the period. Gains or losses for livestock held throughout the year are recorded as holding gains and losses and are included in thefair value changes recognised in profit or loss.

Forestry Assets Forests are recorded at their fair value less point-of-sale costs on an annual basis using anticipated harvesting timing and yield and an applicable discount rate. Changes in the valuation of forests are accounted for through profit or loss.

Emissions Trading Scheme Forestry land is subject to the provisions of the New Zealand emissions trading scheme (ETS). Should the land be deforested (the land is changed from forestry to some other purpose), a deforestation liability will arise.

Compensation units are recognised based on their market value on the date received. They are recognised as income in the financial statements. Any income from the receipt or sale of these units is not taxable.

The deforestation contingency is not recognised as a liability on the balance sheet as there is no current intention of changing the land use subject to the ETS.

(L) LEASED ASSETSLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to thelessee. There are currently no finance leases within the Group. All other leases are classified as operating leases.

Group as Lessor Operating lease receipts are included in profit or loss in equal instalments over the lease term.

Group as Lessee Operating lease payments are included in profit or loss in equal instalments over the lease term.


Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

(M) INTANGIBLE ASSETS Purchased Intangible Assets Purchased intangible assets such as intellectual property, patents, trademarks and licences are recorded at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged over their estimated useful lives, which varies between 5 and 15 years. The estimated useful life and amortisation method is reviewed at the end of each annual reporting period. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (between 3 and 5 years on a straight line basis). Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Internally-Generated Intangible Assets - Research and Development Expenditure Research expenditure is expensed in the period incurred. The cost of an internally generated intangible asset represents expenditure incurred in the development phase of the asset only. Development expenditure is expensed in the period incurred unless all of the following conditions have been demonstrated:

• the intention to complete the intangible asset and use or sell it; • how the asset created will generate future economic benefits; • the ability to measure reliably the expenditure attributable to the intangible asset during its development; and • the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible

asset. Internally-generated intangible assets that satisfy the asset recognition criteria above, are amortised on a straight line basis over future periods from which benefits are expected to accrue. These future periods are between 5 and 7 years. Computer software development costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding 5 years). Other Intangible Assets Assets with indefinite useful lives are not amortised, but are tested at least annually for impairment. Whenever there is an indication of impairment, the asset is recorded at a revalued amount, being fair value less any accumulated impairment losses. Revaluations are for each intangible asset, not for a class of asset. Disposal of Intangible Assets Realised gains and losses arising from disposal of intangible assets are recognised in the Profit and Loss in the period in which the transaction occurs.

(N) NON-CURRENT ASSETS HELD FOR SALE Non-current assets (and disposal groups) classified as held for sale are recorded at the lower of carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when:

• the sale is highly probable; • the asset (or disposal group) is available for immediate sale in its present condition; and • the sale of the asset (or disposal group) is expected to be completed within one year from the date of classification.

(O) IMPAIRMENT OF ASSETS At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets that are subject to amortisation or depreciation to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Goodwill, intangible assets with indefinite useful life and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. An impairment loss is recognised in the Profit and Loss immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is first treated as a revaluation decrease to the extent of the asset’s previously revaluation.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the Profit and Loss immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation increase. (P) PROVISIONS Provisions are recognised when:

• the Group has a present legal or constructive obligation as a result of past events;


• it is more likely than not that an outflow of resources will be required to settle the obligation; and• the amount has been reliably estimated.

Provisions are not recognised for future operating losses.

All provisions are recorded at the best estimate of the expenditure required to settle the obligation at balance date. Where the effect is material, the expected expenditures are discounted to their present value using pre-tax discount rates.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Onerous Contracts A provision for an onerous contract is recognised where the economic benefits expected to be derived from a contract are less than the unavoidable costs of meeting the Group’s obligation under the contract. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received.

(Q) EMPLOYEE BENEFITSProvision is made for benefits accruing to employees in respect of wages and salaries, annual leave, retirement leave/gratuities and sickleave where it is probable that settlement will be made and they are capable of being measured reliably.

Provision for employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rates as at the reporting date and are recorded as current liabilities.

Provision for employee benefits which are not expected to be settled within 12 months, are measured at the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date and are recorded as non-current liabilities.

Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

Defined Contribution Plan There are a small number of employees that are a part of the Crown Defined Benefit Superannuation Plan. Future benefits are generated by the Crown and the Group has no legal or financial contribution liability for future benefits. The Group’s contributions to the Plan are expensed when incurred.

All employees of the Group can elect to join the KiwiSaver scheme. The only obligation of the Group is to contribute a specified percentage to the KiwiSaver scheme in line with employee contributions as part of payroll costs.

(R) GOODS AND SERVICES TAX (GST)The financial statements are prepared on a GST exclusive basis with the exception of receivables and payables which include GST.

Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks, demand deposits and other highly liquid investments readily convertible into cash.

Operating Activities Operating activities include all transactions and other events that are not investing or financing activities.

Investing Activities Investing activities are those activities relating to the acquisition and disposal of current and non-current investments and any other non-current assets.

Financing Activities Financing activities are those activities relating to changes in the equity and debt structure of the Group.

(S) SEGMENTAL REPORTINGThe Group operates in one segment.

(T) INSURANCE CONTRACTSThe Group is part of the Accident Compensation Commission (ACC) Partnership Programme. Under the Partnership Programme theGroup is liable for all its claim costs for a period of 4 years up to a specified maximum. At the end of the 4 year period, the Group pays apremium to ACC for the value of residual claims, and the liability for ongoing claims from that point passes back to ACC.

The liability for the ACC Partnership Programme is recognised in the ACC provision and measured as the present value of expected future payments to be made in respect of the employee injuries and claims up to the reporting date using actuarial techniques. Consideration is given to expected future wage and salary levels and experience of employee claims and injuries. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(U) BUDGET FIGURESThe budget figures are those approved by the Board. They have been prepared using the same accounting policies as for these financialstatements.

CHANGES IN ACCOUNTING POLICIES Accounting policies are changed only if the change is required by a standard or interpretation or otherwise provides more reliable and more relevant information.

There were no changes in accounting policies.


Notes to and forming part of the consolidated financial statementsFor the year ended 30 June 2015

1 Other revenue

in thousands of New Zealand dollars 2015 2014Other revenueInterest 2,897 738Dividends 99 116Royalties 10,513 10,052Rent 2,774 2,935

16,283 13,841

2 Operating expenditure

in thousands of New Zealand dollars Note 2015 2014Employee related

70,785 72,6311,929 2,028

OperationalAmortisation of intangible assets 246 311Depreciation 12 9,715 9,482Operating lease expenses 3,223 3,438Other operating expenses 23,158 24,612Science 3rd party sub-contracts 20,367 18,839Site and property expenses 6,419 6,732Supplies 13,968 15,391

Financial and administrationAuditors' remuneration - for services as auditors 272 277Bad debts 8 13Change in provision for doubtful debts 74 238Directors' fees 384 348Donations 1 1Financial and legal expenses 2,331 2,297

Impairments and write downsImpairment of investments in associates - 124Impairment of available-for-sale financial assets 21 647 313Impairment of property, plant and equipment 12 881 3,862

154,408 160,937

3 Other gains and (losses)

in thousands of New Zealand dollars Note 2015 2014Net gain/(loss) from foreign currency exchange 155 (120)Net gain/(loss) on sale of property, plant and equipment 65 (43)Net gain/(loss) on sale of non-current assets held for sale (46) 2,807Net gain/(loss) on sale of investments (32) -Change in fair value of derivative financial instruments 11 (72)Change in fair value of forestry 10 69 (44)Change in fair value of livestock 9 (411) 167Change in fair value of non-current assets held for sale - (560)Change in fair value of financial assets or liabilities designated at fair value 453 5

264 2,140

4 Finance costs

in thousands of New Zealand dollars 2015 2014Interest on bank overdrafts and loans 3 6

3 6

5 Taxation

in thousands of New Zealand dollars 2015 2014Tax expense comprises:Current tax expense 1,351 2,044

(234) (915)(700) (2,103)

Total tax expense/(benefit) 417 (974)

Attributable to:Continuing operations 417 (974)

Salary and wagesDefined contribution plans

Adjustments recognised in relation to the current tax of prior yearsDeferred tax expense relating to the origination and reversal of temporary differences


in thousands of New Zealand dollars 2015 2014The total charge for the year can be reconciled to the accounting profit as follows:Surplus from continuing operations 304 1,031Income tax expense calculated at 28% (2014: 28%) 85 289

(179) (293)Foreign surplus/(deficit) not recognised for tax 2 2

272 349229 121

Associates' results reported net of tax 5 (25)(119) (400)

295 43

122 (1,017)Income tax expense/(benefit) recognised in profit or loss 417 (974)

Income tax recognised directly in other comprehensive incomeDeferred tax

(2,835) 1,204156 211

Total deferred tax recognised directly in other comprehensive income (2,679) 1,415

Current tax assets and liabilitiesCurrent tax assets

576 534228 272804 806

Current tax liabilities791 849

Net current tax liability 13 (43)

Opening Charged to Charged to Closingbalance surplus other balance

comprehensivein thousands of New Zealand dollars incomeDeferred tax assets/(liabilities) arise from the following:2015Temporary differencesBiological assets (295) (34) - (329)Property, plant & equipment (13,122) 838 (2,835) (15,119)Intangible assets 1,235 (143) - 1,092Available-for-sale financial assets (314) (29) 156 (187)Provisions 1,758 70 - 1,828

(10,738) 702 (2,679) (12,715)Unused tax losses and creditsTax losses 2 (2) - -

(10,736) 700 (2,679) (12,715)2014Temporary differencesBiological assets (574) 279 - (295)Property, plant & equipment (15,247) 921 1,204 (13,122)Intangible assets 1,106 129 - 1,235 Available-for-sale financial assets (1,133) 608 211 (314)Provisions 1,554 204 - 1,758

(14,294) 2,141 1,415 (10,738)Unused tax losses and creditsTax losses 40 (38) - 2

(14,254) 2,103 1,415 (10,736)

Before tax Tax Net ofin thousands of New Zealand dollars amount expense tax amountIncome tax effects relating to each component of other comprehensive income2015Revaluation of properties 13,108 (2,835) 10,273Available-for-sale financial assets (546) 156 (390)

12,562 (2,679) 9,883

Benefit of current year tax losses

Income tax payable

Adjustments recognised in the current year in relation to the current and deferred tax of prior years

Non assessable capital gain

Impairment losses that are not deductibleEffect of expenses that are not deductible

Effect of revenue that is exempt from tax

Arising on income and expenses taken directly to equity:Property revaluationsRevaluations of available-for-sale financial assets

Tax refund receivable


Before tax Tax Net ofin thousands of New Zealand dollars amount expense tax amount2014Revaluation of properties 1,020 1,204 2,224Available-for-sale financial assets (754) 211 (543)

266 1,415 1,681

in thousands of New Zealand dollars 2015 2014

685 685

Imputation credits1,510 1,314

6 EquityShare capital

Reserves

in thousands of New Zealand dollars2015Balance at beginning of year 95,989 72,740 882 169,611Surplus/(deficit) attributable to equity holders of the parent (113) - - (113)Revaluation increases/(decreases) - 16,693 (546) 16,147Impairment losses - (3,585) - (3,585)

(2,471) 2,322 - (149)Transfer of revaluation reserve on sold assets 945 (945) - -Transfer of revaluation reserve on assets held for sale 10 - (10) -Transfer to deferred tax - (2,835) 156 (2,679)Balance at end of year 94,360 84,390 482 179,2322014Balance at beginning of year 62,292 102,218 1,415 165,925Surplus attributable to equity holders of the parent 2,005 - - 2,005Revaluation increases/(decreases) - 4,762 (754) 4,008Impairment losses - (3,742) - (3,742)

(586) 576 10 -Transfer of revaluation reserve on sold assets 32,278 (32,278) -Transfer to deferred tax - 1,204 211 1,415Balance at end of year 95,989 72,740 882 169,611

Unrecognised taxable temporary differences associated with investments and interests

Total

Prior period adjustments transferred to retained earnings through the Statement of Comprehensive Income *

** During the period a reconciliation of the asset revaluation reserve was performed on an asset by asset basis. As a result of the reconciliation performed it was identified that a number of assets had negative balances against them within the reserves and a number of previous revaluation movements had not been correctly associated with identifiable assets. This related to a historical position dating back a number of years. Given the amount related to reserves, the amount has been taken directly to retained earnings to correct the position. There has also been an immaterial amount of $149k adjusted through impairment accounts as a result of the reconciliations performed.

Foreign subsidiaries

Property, plant and

equipmentRetained earnings

Revaluation Reserves

Available-for-sale asset

* As part of the transfer of amounts from the asset revaluation reserve to retained earnings on the sale of property, a reconciliation of the deferred tax liabilitywithin the reserve was undertaken. As a result of that review an adjustment has been made to correct prior year balances. As the adjustment relates to thedeferred tax represented in prior years, the adjustment has been taken from the reserve directly to retained earnings in the current period.

- Imputation debits that will arise from the payment of dividends recognised as a liability at the reporting date; and- Imputation credits that will arise from the receipt of dividends recognised as receivables at the reporting date.

Prior period adjustments transferred to retained earnings through the Statement of Comprehensive Income**

Capital consists of 47,268,000 fully paid ordinary shares of $1.00 each (2014: 47,268,000 fully paid ordinary shares).

The above amounts represent the balance of the imputation credit account as at the end of the reporting period adjusted for:

Imputation credits available for subsequent reporting periods

The asset revaluation reserve arises on the revaluation of land and buildings. Where revalued land or buildings are sold, the portion of the asset revaluationreserve that relates to that asset, and is effectively realised, is transferred directly to retained earnings.

The available-for-sale revaluation reserve arises on the revaluation of available-for-sale financial assets. Where a revalued financial asset is sold, the portion ofthe reserve that relates to that financial asset, and is effectively realised, is recognised in the profit or loss. Where a revalued available-for-sale financial assetis impaired, the portion of the reserve that relates to that financial asset is recognised in the profit or loss.

- Imputation credits that will arise from the payment of the amount of the provision for income tax;


7 Trade and other receivablesin thousands of New Zealand dollars 2015 2014Trade receivables 28,489 28,458Receivables from associates 1,521 3,173Receivables from other related parties 514 1,147Total receivables 30,524 32,778Less provision for doubtful debts 433 359Net receivables 30,091 32,419

in thousands of New Zealand dollars GrossDoubtful

Debts Net2015Current 26,818 - 26,8181 to 2 months 914 - 914

27,732 - 27,732Past due2 to 3 months 598 (274) 324Over 3 months 159 (159) -

757 (433) 324

Total trade receivables 28,489 (433) 28,056

2014Current 26,632 - 26,6321 to 2 months 826 - 826

27,458 - 27,458Past due2 to 3 months 575 - 575Over 3 months 425 (359) 66

1,000 (359) 641

Total trade receivables 28,458 (359) 28,099

in thousands of New Zealand dollars 2015 2014Movement in the provision for doubtful debtsBalance at beginning of year 359 121Additional provisions made during the year 82 251Receivables written-off during the year (8) (13)Balance at end of year 433 359

8 Other non-current receivables

in thousands of New Zealand dollars 2015 2014Amount receivable under Sale & Purchase Agreement 4,700 4,700Less discount to net present value (734) (922)Present value of non-current receivable 3,966 3,778

in thousands of New Zealand dollars 2015 2014In the first year 188 188Beyond 1 year 546 734

734 922

Under the sale and purchase agreement the parties have agreed to defer settlement of Property B until May 2019. The non-current receivable represents thepresent value of the sale price of Property B, as set out below:

Receivables from related parties past due were $74,525 (2014: $Nil).

Under the terms of the sale and purchase agreement the purchaser has acquired possession of the property through a lease subject to a peppercorn rent andhas full rights to, and obligations for, the economic benefits and liabilities flowing from use of the land. To minimise the risk of loss to the Company throughdefault by the purchaser, title to the property will be retained until settlement of the amount due.

Under NZ IAS 18 Revenue, the discount will be taken to the profit and loss and recognised as interest income over the period of deferral. The interest incomerecognised in the year ended 30 June 2015 is $187,500 (2014: $15,625). The interest income to be recognised in future periods is:

The fair value of trade and other receivables is approximately equal to their carrying value.

Terms of trade vary according to individual customer contracts. Trade receivables are assessed for impairment on an individual basis. The only receivablesimpaired are provided for within doubtful debts. As at 30 June 2015, trade receivables of $324k (2014: $641k) were past due but not impaired. These relate toa number of independent customers for whom there is no recent history of defaults. The Group does not hold any collateral over these balances. The aginganalysis of trade receivables is as follows:

The purchase price of Property B has been discounted to net present value using the treasury discount rate applicable at 30 June 2014, being 4.55%. Therehas been no material change during the period to the underlying assumptions used in calculating the discount rate applied.

During the year ended 30 June 2014 the Company entered into an agreement for the sale of land, buildings and other property, plant and equipment at its FlockHouse site. With the exception of one parcel of land (and associated improvements) - referred to as Property B - delivery of, and payment for, those assetsalso occurred during that year.


9 Biological assets - livestock

in thousands of New Zealand dollars SheepBeef

cattleDairycattle Deer Total

2015Reconciliation of changes in the carrying valueBalance at beginning of year 1,358 1,094 1,739 298 4,489Increases due to acquisitions 584 869 98 3 1,554Decreases due to sales (1,451) (1,403) (378) (90) (3,322)Net increase due to births, growth and deaths 971 430 439 104 1,944Changes in fair value less estimated point-of-sale costs (224) 30 (244) 27 (411)Balance at end of year 1,238 1,020 1,654 342 4,254

Quantity of livestock at end of year 12,837 1,468 1,143 1,039

2014Reconciliation of changes in the carrying valueBalance at beginning of year 1,159 713 3,491 340 5,703Increases due to acquisitions 368 987 52 1 1,408Decreases due to sales (1,068) (1,090) (2,743) (150) (5,051)Net increase due to births, growth and deaths 791 554 784 133 2,262Changes in fair value less estimated point-of-sale costs 108 (70) 155 (26) 167Balance at end of year 1,358 1,094 1,739 298 4,489

Quantity of livestock at end of year 13,074 1,922 1,006 900

Livestock valuation method

Financial risk management strategies

10 Biological assets - forestry

in thousands of New Zealand dollars 2015 2014Reconciliation of changes in the carrying value

744 1,737- 61

Decreases due to harvesting and sale of forestry (19) (1,010)Changes in fair value less estimated point-of-sale costs 69 (44)Balance at end of year 794 744

Area (ha) of forest at end of year 254 259

Forestry valuations

• anticipated harvest timing and yield;• a 10% real discount rate on pre-tax cash flows;• an assumed 3% compounding rate on standard costs; and

prices published by the Ministry of Primary Industries.

Balance at beginning of yearIncreases due to capitalised expenditure

• for intermediate crops, a mixture of the above.

Livestock was valued by PGG Wrightson Limited by reference to market evidence of recent transactions for similar livestock, taking into account the age,breed, type, condition, and location of the animals.

Details of the fair value hierarchy is included in note 26.

• current market prices and long term trends in log prices. Log prices used are based on current market prices and 12 quarter rolling average

The Group is exposed to financial risks arising from damage from climatic changes, diseases and other natural forces. The Group has processes in placeaimed at monitoring and mitigating those risks, including pest and disease monitoring and management strategies.

Forestry was valued by Alan Bell and Associates as at 30 June 2015. The value of forestry at 30 June 2015 was $794,037 (2014: $743,973). Forestry includesthe Company's share of forestry held as part of a joint operation with Tainui.

Additional inputs to the value arrived at are:

The Group has radiata pine tree crops at Whatawhata, Ballantrae, Invermay and Woolford.

• for mature crops, estimates of future costs and returns;

The methodology used is "stand-based" in line with forestry management practices and harvesting. Where transactions have occurred for similar tree crops,value is based on those transactions. Where there have been no such transactions, value is based on:

• for young crops, standard investment costs; and


Emissions units

No tax is payable on the receipt or sale of these units.


Land value and contingency

11 Trade and other payablesin thousands of New Zealand dollars 2015 2014Trade payables 16,001 16,104Payables to associates 12 1Goods and services tax (GST) 1,622 1,797Income in advance 5,794 7,340Accrued salaries and wages 205 2,082Total payables 23,634 27,324


12 Property, plant and equipment

in thousands of New Zealand dollars2015Balance at beginning of year 66,073 69,358 476 16,103 204 152,214Additions 242 885 - 5,561 68 6,756Disposals (8) (283) - (50) - (341)Revaluations 6,026 7,082 - - - 13,108Impairments 156 (1,032) - (5) - (881)Depreciation (627) (3,998) (49) (4,966) (75) (9,715)Balance at end of year 71,862 72,012 427 16,643 197 161,141

Cost or valuation 74,117 87,813 1,999 84,369 503 248,801Accumulated depreciation (2,255) (15,801) (1,572) (67,726) (306) (87,660)Balance at end of year 71,862 72,012 427 16,643 197 161,141

in thousands of New Zealand dollars2014Balance at beginning of year 80,354 78,803 1,051 14,459 208 174,875Additions 526 896 87 6,898 96 8,503Disposals (17,020) (1,375) - (419) (26) (18,840)Revaluations 3,381 (2,361) - - - 1,020Impairments (518) (2,757) (584) (3) - (3,862)Depreciation (650) (3,848) (78) (4,832) (74) (9,482)Balance at end of year 66,073 69,358 476 16,103 204 152,214

Cost or valuation 67,875 80,468 1,999 79,764 435 230,541Accumulated depreciation (1,802) (11,110) (1,523) (63,661) (231) (78,327)Balance at end of year 66,073 69,358 476 16,103 204 152,214

Fair value measurement of the Group's land and buildings

• direct comparison;• income; and• cost approach.

Leasehold Improvements

Plant & Equipment Vehicles Total

Buildings

Land & Land Improvements

Under the Emissions Trading Scheme (ETS) no units have been received during the year (2014: 51,220 units) or surrendered (2014: 19,590 units).

Campus land and buildings have been revalued in the current period. These valuations were performed by independent valuers Darroch Limited under the requirements of the International Valuation Standards 2013 and NZ IAS 16 Property, Plant and Equipment.

Campus land and buildings have been valued using either market value or optimised depreciated replacement cost. For assets where there is an active marketfor the same or a similar asset, value is determined by one or more of the following:

Land & Land Improvements

The fair value of payables is approximately equal to their carrying value as all amounts are expected to be settled within 90 days. No interest is charged ontrade payables.

Plant & Equipment

The Group is exposed to financial risks arising from changes in timber prices. The Group is a long-term forestry investor and does not expect timber prices todecline significantly in the foreseeable future. It has therefore not taken any measures to manage the risks of a decline in timber prices.

Buildings

The budget for property, plant and equipment shown in the statement of financial position did not reflect any revaluations.

Units have not been revalued during the period and those on hand at 30 June 2015 are recorded as an intangible asset using the 2014 estimated market valueof $4.15 per unit as there was no anticipation of a material value change.

In the event that the forest areas are harvested, a deforestation liability equivalent to the decrease in carbon will be incurred.

The Group’s land and buildings are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent depreciation andimpairments.

Leasehold Improvements TotalVehicles

The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.


in thousands of New Zealand dollars 2015 2014Through the asset revaluation reserve, being a reversal of prior year revaluations 3,585 3,742Through the profit and loss account 881 3,862

4,466 7,604

in thousands of New Zealand dollars 2015 2014Land and land improvements 19,785 22,247Buildings 47,052 50,872

13 Non-current assets held for sale

in thousands of New Zealand dollars 2015 2014Non-current assets held for sale include:Land and land improvements - 5Buildings - 886Plant and equipment, vehicles and software - 69

- 960

14 Heritage assets

Asset DescriptionMargot Forde Germplasm Centre

15 Provisions

in thousands of New Zealand dollars2015Balance at beginning of year 25 786 5,667 521 6,999Provisions made during the year - 1,388 6,979 349 8,716Provisions used during the year - (1,739) (6,802) (32) (8,573)Provisions reversed during the year (25) - (101) (361) (487)Balance at end of year - 435 5,743 477 6,655Represented by:Current liabilities - 435 5,503 477 6,415Non-current liabilities - - 240 - 240Total provisions - 435 5,743 477 6,655

2014Balance at beginning of year - 891 5,813 514 7,218Provisions made during the year 25 786 6,217 424 7,452Provisions used during the year - (833) (6,314) (417) (7,564)Provisions reversed during the year - (58) (49) - (107)Balance at end of year 25 786 5,667 521 6,999Represented by:Current liabilities 25 786 5,268 521 6,600Non-current liabilities - - 399 - 399Total provisions 25 786 5,667 521 6,999

New Zealand's national genebank of grassland plants and Australia's genebank for perennialgrasses and legumes

Revaluations upwards as a result of independent valuations obtained for the 2015 financial year are $16,692,967 (2014: farm land and buildings $4,790,754).

Employee entitlements represents annual leave, alternative days leave, sick leave, long service leave and performance pay.

The total impairment of $4,466,134 (2014: $7,604,140) was reflected:

All provisions except for long term employee entitlements are expected to be paid within the following financial year. The provisions made are based on the bestcurrent estimate of the outflows required to settle these obligations.

ACC TotalRestructuring

Heritage assets are those assets that are held for the duration of their physical lives because of their unique cultural, historical, geographical, scientific and orenvironmental attributes. The Group has identified a germplasm collection as a heritage asset. The nature of this heritage asset, and its significance to thescience the Group undertakes, makes it necessary to disclose it. The Directors believe there is no practical basis upon which to reliably measure the value ofthis collection. Details of the collection are outlined below:

As at 30 June 2015, the Group has no non-current assets which have been classified as held for sale.

Had the Group's land and buildings (other than land and buildings classified as held for sale or included in a disposal group) been measured on a historical costbasis, their carrying amount would have been as follows:

The restructuring provision represents the direct costs of restructuring which is not associated with the ongoing activities of the Group and includes terminationbenefits.

Onerous Contract

Employee Entitle-ments

Information about the fair value hierarchy is included in note 26.


ACC partnership programmeLiability valuation

Objectives for managing risks

16 Reconciliation of surplus after tax with net cash flow from operating activitiesin thousands of New Zealand dollars 2015 2014Surplus after tax (113) 2,005

Non-cash itemsDepreciation 9,715 9,482Intangible assets amortisation and impairment 246 311Equity accounted loss 928 924Investment write down and revaluation 647 437Change in fair value of forestry (69) 44Change in fair value of non-current assets held for sale - 560Change in fair value of financial assets or liabilities designated at fair value (453) (5)Asset impairment/write down 881 3,862Net (gain)/loss from foreign currency exchange (43) 51Change in fair value of derivative financial instruments (11) 72Decrease in deferred tax (730) (2,103)Other non-cash items 680 (101)

Movements in working capitalChange in current taxation (56) (1,122)(Increase)/decrease in inventory 730 1,016(Increase)/decrease in livestock 235 1,214(Increase)/decrease in receivables 2,609 (960)(Increase)/decrease in prepayments (502) 41Increase/(decrease) in provisions (159) (118)Increase/(decrease) in payables (3,711) 4,263

Items classified as investing activitiesNet gain/(loss) on sale of property, plant and equipment (19) (2,764)Net gain/(loss) on sale of investments and intangible assets 32 -

(9) (457)Other repayments reclassified as investing activities 190 155Net cash flow from operating activities 11,018 16,807

17 Contingencies and commitmentsin thousands of New Zealand dollars 2015 2014Capital commitmentsAsset purchases committed to and contracted for at balance date 1,300 616Funding commitments to research consortiums 3,825 1,550Total capital commitments 5,125 2,166

Other commitments

Litigation and other contingent liabilities

There are no known other contingent liabilities or pending litigation.

• induction training on health and safety;

The value of the liability is not material for the Group's financial statements. Therefore, any changes in assumptions will not have a material impact on thefinancial statements.

An independent actuarial valuer (AON New Zealand) has calculated the Group's liability as at 30 June 2015. The valuer has attested satisfaction as to thenature, sufficiency and accuracy of the data used to determine the outstanding liability.

The Group is not exposed to any significant concentrations of insurance risk as work related injuries are generally the result of an isolated event to an individualemployee.

During the year the Board approved, in principle and subject to a number of conditions (including the procurement of an appropriate property), the investment of $5 million into a joint arrangement with Dairy NZ and Southland Dairy Development Trust. The investment is to purchase property and develop a dairy hub (SDH) to address dairying issues particular to the Southern region.

The Group is involved in settlements with employees. The liability the Group may incur is estimated at $10,000 (2014: $30,000).

For the claim year ended 2015 the Group has chosen a stop loss limit of 175% of risk which means that the Group will only carry the total cost of claims up to alimit of $145,930. Pre-valuation date claim inflation has been taken as 50% of movements in the CPI and 50% of the movements in the Average WeeklyEarnings (AWE) Index. Post-valuation date claim inflation has been taken as 2.1% per annum. A discount rate of 3% has been used.

• identification of work place hazards and implementation of appropriate safety procedures.

• actively managing work place injuries to ensure employees return to work as soon as practical;

Increase/(decrease) in property, plant & equipment, intangible assets & investment accruals

The Group continues to shift its capabilities with reference to our strategic initiatives and revenue outlook. As a result it is expected that a number ofredundancies will arise. The estimated cost of meeting these redundancies in the 2016 financial year is $4 to $5 million.

The Group manages its exposure arising from the programme by promoting a safe and healthy working environment by: • implementing and monitoring health and safety policies;

• recording and monitoring work place injuries and near misses to identify risk areas and implementing mitigating actions; and


Contingent assets

18 Operating lease arrangementsin thousands of New Zealand dollars 2015 2014Non-cancellable operating lease payables Payable no later than 1 year 3,226 3,172Payable later than 1 year and not longer than 5 years 2,855 5,743Total non-cancellable operating leases 6,081 8,915

Non-cancellable operating lease receivablesReceivable no later than 1 year 1,553 1,408Receivable later than 1 year and not longer than 5 years 3,082 3,233Receivable later than 5 years 712 1,055Total non-cancellable operating leases 5,347 5,696

19 Investments in subsidiaries

Subsidiary companies Balance date 2015 2014Celentis Limited 30 June 100 100

Grasslanz Technology Limited 30 June 100 100AgResearch (USA) Limited 30 June 100 100

AgResearch (Pastoral Genomics Consortia) Limited 30 June 100 100AgResearch (Meat Biologics Consortia) Limited 30 June 100 100AgResearch (PPGR Consortia) Limited 30 June 100 100AgResearch (Johne's Disease Research Consortium) Limited 30 June 100 100Covita Limited 30 June 100 100Phytagro New Zealand Limited 30 June 100 100

Phytagro Corp ** 31 December 8 8Phytagro LLC ** 31 December 80 80

Phytagro Corp ** 31 December 66 66Phytagro Inc ** 31 December 80 80

Develop and licence IP in forage crops

Develop and licence IP in forage cropsHolding company

Develop and licence IP in forage crops

Not trading

The land lease with Tainui Group Holdings Limited is in perpetuity but with rights of renewal that are executable by AgResearch Limited. The lease has arestriction in respect of the right to occupy in perpetuity, which only continues if AgResearch Limited is using the land primarily for agricultural purposes and/orresearch and development purposes.

Building leases are for at least 10 years or have rights of renewal which are, in aggregate, for at least that period. All leases have normal provisions for periodicrent reviews to market rates.

Refer to note 2 where the operating lease expense for the year is disclosed.

Currently there is a claim with the Company's insurer in respect of damage as a result of the Christchurch earthquake which has been accepted by the insurer.The quantum of the claim is currently being determined, but the insurance proceeds are estimated to be in the range of $0.8 to $1.0 million.

Grasslanz Technology Limited is a direct subsidiary of Celentis Limited. AgResearch (USA) Limited is a direct subsidiary of Grasslanz Technology Limited.Phytagro LLC is a direct subsidiary of Phytagro New Zealand Limited. Phytagro Corp is a direct subsidiary of Phytagro LLC. All other subsidiary companies aredirect subsidiaries of AgResearch Limited.

Holding company

All significant operating lease commitments relate to land and buildings.

% of ownership interest and voting power held by the

Group

All subsidiary companies are incorporated in New Zealand, except Phytagro LLC, Phytagro Corp and Phytagro Inc which are incorporated in the United Statesof America.

Cultivar development and management

Holding company

Holding company

Holding company

Cultivar development and management in the USAHolding company

Principal activity

** Phytagro LLC, Phytagro Corp and Phytagro Inc's balance dates are different from the Group's due to being incorporated in the United States of America.These entities form part of the group consolidated financial accounts and are compiled using their June 2015 management financial accounts.

Operating lease receivables relate to land and buildings owned and leased by AgResearch Limited. The lease terms are between 1 month and 6 years, withone lease having an option to extend for a further five terms, each of 5 years. With one exception (refer to note 8), operating leases have normal provisions forperiodic rent reviews to market rates. No lessees have an option to purchase the property at the expiry of the lease period.

Holding company


20 Investments in associates

Associate companies Balance date 2015 2014

Clone International Pty Limited 30 June 25 25

Ovita Limited* 30 June - 50

Ultrafine Merino Company Limited* 30 June - 20

Velvet Antler Research New Zealand Limited 30 September 50 50

DEEResearch Limited 30 June 50 50

BioPacific Management Limited* 30 June - 50

Biopolymer Network Limited 30 June 33 33

Genetic Engine Holding Company Limited* 30 June - 25

Meat Biologics Consortium (AgResearch [Meat Biologics Consortia] Limited)*

30 June - 16

Pastoral Genomics Consortium (AgResearch [Pastoral Genomics Consortia] Limited)

30 June 9 9

Pastoral Greenhouse Gas Research Consortium (AgResearch [PPGR Consortia] Limited)

30 June 20 19

Johne's Disease Research Consortium (AgResearch [Johne's Disease Research Consortium] Limited)

30 June 12 12

Farmax Limited 30 June 50 50

Encoate Holdings Limited 30 June 50 50

Summarised financial information for individually immaterial associatesin thousands of New Zealand dollars 2015 2014Share of profit/(loss) from continuing operations (928) (924)Share of total comprehensive income (928) (924)Aggregate carrying amount of the Group and Company's interest in the associate investments 660 620

21 Other investmentsin thousands of New Zealand dollars 2015 2014Available-for-sale financial assets 4,714 6,098

Fonterra Co-operative Group Limited 2,469 2,978BioPacific Ventures 1,667 2,395Other investments 578 725

4,714 6,098

Disposals

in thousands of New Zealand dollars 2015 2014BioPacific Ventures Fund 647 313

Managing investments in velvet antler research and commercialising the intellectual property

Not trading - IP holding entity

Principal activity

Breeding sheep which produce high quality fine wool

Development and distribution of farm management software

Managing fund investing into life sciences, biotechnology, medicine, food and agriculture

Cloning high value horses, cattle and sheep

Holding assets related to Genetic Engine software

Not trading

Research and development relevant to deer farming and processing for deer products (except deer velvet)

Impairment of other investments

All of the above associates are accounted for using the equity method in these consolidated financial statements.

Research and development of high performance bio based products

To undertake research into clover genomics and exploit any resulting intellectual property

• Investments held through the BioPacific Ventures investment fund are carried at cost, less any impairment arising from revaluations undertaken

• Fonterra shares are valued using the quoted market price on the NZX market.

• Other investments are unlisted equities or cooperatives whose share prices are set by the individual entities.

Valuation of other investments

To undertake research into greenhouse gases produced by ruminants and exploit any resulting intellectual property

by the Fund Manager.

• Livestock Improvement shares valued using the quoted market price on the NZAX market.

During the year, other investments were impaired relating to:

All associates are private entities and there is no quoted market price available for the investments.

All associates are incorporated in New Zealand except for Clone International Pty Limited which is incorporated in Australia. There are no restrictions on theability of any associate to pay dividends, repay loans or otherwise transfer funds to the investor company.

There were no disposals during the year. (2014: $Nil)

To undertake research on effective methods of reducing Johne's disease in livestock industries

To research and develop bacteria and probiotics stabilisation technologies

*During the year, AgResearch sold its investment in BioPacific Management Limited. Investments in Ovita Limited, Ultrafine Merino Company Limited, Genetic Engine Holding Company Limited and Meat Biologics Consortium were exited following cessation of the business activities of these entities.

% of ownership interest and voting power held by the

Group


22 Joint operation investments

Balance date 2015 2014Grasslands Innovation Limited 30 June 30 30

23 Transactions with related parties

Trading transactions with related parties

in thousands of New Zealand dollars 2015 2014 2015 2014

Transactions between the Company and related parties:Associates * 10,159 11,346 1,521 3,173Jointly controlled entities 1,252 1,147 514 333Other related parties 1,011 724 279 310

Transactions between the Group and related parties:13,242 12,718 4,009 3,545

in thousands of New Zealand dollars 2015 2014 2015 2014

Transactions between the Company and related parties:Associates 45 471 12 1Other related parties 124 - - -

Transactions between the Group and related parties:9,114 7,344 854 535

* Associates

Sale of services

The amounts outstanding are unsecured, on normal trade terms and will be settled in cash. No guarantees have been given or received. No expense hasbeen recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.

Included within Associates is the Pastoral Genomics Consortium for which Dr Michael Dunbier is a director. AgResearch Limited had sales of $4,000,873(2014: $4,135,601) during the year to Pastoral Genomics Consortium. Pastoral Genomics Consortium owed the Group $1,150,000 as at 30 June 2015 (2014:$2,124,625).

Purchase of services Due to

Due from

Entities of which key management personnel are associated **

Principal activity

Details of the Group's material joint operations at the end of the year are as follows:% of ownership interest and

voting power held by the Group

Grasslands Innovation Limited is accounted for using the proportional consolidation method in these consolidated financial statements.

During the year AgResearch Limited made interest payments of $212,327 (2014: $156,632) to its subsidiaries on intercompany loans. The weighted averageinterest rate on the loans is 4.26% (2014: 3.43%).

The ultimate shareholder of the Group is the Crown. The Group undertakes many transactions with other crown entities, state owned enterprises andgovernment departments, which are carried out on a commercial and arms length basis. A summary of the transactions is detailed below.

Research, development and other services

To identify, develop and exploit product opportunities in proprietary forage cultivars and other forage technologies

Entities of which key management personnel are associated **

The 30% interest in Grasslands Innovation Limited is held via Grasslanz Technology Limited, a wholly-owned subsidiary of AgResearch Limited. Grasslands Innovation Limited is incorporated in New Zealand.

Research, development and other services


** Trading transactions with entities of which key management personnel are associated include:

in thousands of New Zealand dollars 2015 2014 2015 2014 2015 2014ANZCO Foods Limited 143 591 14 - 8 70AsureQuality Limited 79 107 410 676 10 16CSIRO 3 29 198 164 - -DairyNZ Incorporated and DairyNZ Limited 7,303 7,591 3,047 2,765 1,444 2,010Deer Industry New Zealand 2 - 13 18 - -Dunbier Trust - - 37 - - -Firstlight Foods Limited 39 6 - - 39 -Firstlight Venison (NZ) Limited 7 6 - - - -Foundation for Arable Research 975 668 - 3 597 447Kowhai Consulting Limited - - 36 - - -Hamilton City Council - - 470 454 (25) -Landcare Research New Zealand Limited 881 893 1,863 1,629 (106) (35)Lincoln Hospitality Limited - - - 5 - -Lincoln University 1,463 1,219 2,916 1,606 698 221Macfarlane Rural Business Limited 13 - 13 21 - -Gravida (National Research Centre for Growth & Development) 6 116 - - - 21Overeer Limited 907 - 30 - 279 -Silver Fern Farms Limited 74 - 23 - 13 -TBFree New Zealand Limited 1,347 1,492 - 3 198 260Tru-Test Limited - - 7 - - -Zenoch Management Limited - - 37 - - -

Equity interest in related parties

Key management personnel compensation

in thousands of New Zealand dollars 2015 2014Salaries and other short term employee benefits 2,372 2,638

2,372 2,638

24 Financial instruments

Financial risk management

Credit risk

Market risk

Currency risk in respect of the Group's transactions is managed in accordance with the Group's treasury policy and includes the use of forward foreignexchange contracts.

The Group has exposure to the following risks from its use of financial instruments:

Currency riskRevenues and expenses in foreign currency are translated to New Zealand dollars at the exchange rates in effect at the time of the transaction, or at ratesapproximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date.

Credit risk is managed through the treasury policy which:

The financial instruments which potentially subject the Group to credit risk are cash, short term deposits, forward rate agreements and accounts receivable.

Details of the percentage of interests held in related parties are disclosed in notes 19 and 20 to the financial statements.

Purchase of services Sale of services

The compensation of the Directors and Executives, being the key management personnel of the Group, comprised:

Due from (due to)

Financial instruments carried in the statement of financial position include cash and cash equivalents, investments, derivative financial instruments, receivablesand trade creditors. The particular recognition methods adopted are disclosed in the accounting policies where relevant.

The Group has no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying value of each financial asset inthe statement of financial position.

There has been no change during the year to the Group's exposure to currency risks or the manner in which it measures the risks.

The Group uses foreign currency forward exchange contracts, within the above treasury policy limits, to manage these exposures.

It is estimated that a 10% decrease in the New Zealand dollar would increase profit and equity by $148,627 (2014: $129,818). It is estimated that a 10%increase in the New Zealand dollar would reduce profit and equity by $121,604 (2014: $106,214).

Cash flow hedgesFor those currency exposures less certain in their timing and extent, such as future sales and purchases, it is the Group's policy to manage the risk on a groupwide basis. Under the treasury policy the purchased cover is between 0% and 95% depending on how far out the anticipated exposure is (to a maximum of 12months).

• credit risk • market risk • liquidity risk

The Group has a treasury policy which it applies to actively manage these risks (refer below). This treasury policy was updated during the current period.

• restricts the counterparties that may be used to A Grade registered banks and the New Zealand Government; and • sets parameters within which short-term investments must be made.

• places restrictions on the level of investment with any one counterparty;


Liquidity risk

Maturity analysis - financial liabilities

in thousands of New Zealand dollars On demandLess than 1

year

Between 1 year and 5

yearsLater than 5

years Total2015Trade and other payables - 23,634 - - 23,634Derivative financial instruments - 16 - - 16Finance leases 4 7 - 11

- 23,654 7 - 23,6612014Trade and other payables - 27,324 - - 27,324Derivative financial instruments - 27 - - 27

- 27,351 - - 27,351

Fair value

Fair value of financial assets and financial liabilities

in thousands of New Zealand dollars Note

Loansand

receivablesDesignated at fair value

Available-for-sale

Financial liabilities at

amortised cost Total Fair value

2015Financial assetsCash and cash equivalents 59,915 - - - 59,915 59,915Trade and other receivables 7 30,091 - - - 30,091 30,091Other non current receivables 8 3,966 - - - 3,966 3,966Other investments 21 - - 4,714 - 4,714 4,714

93,972 - 4,714 - 98,686 98,686Financial liabilitiesTrade and other payables 11 - - - 17,840 17,840 17,840Derivative financial instruments - - 16 - 16 16

- - 16 17,840 17,856 17,8562014Financial assetsCash and cash equivalents 55,838 - - - 55,838 55,838Trade and other receivables 7 32,419 - - - 32,419 32,419Other non current receivables 8 3,778 - - - 3,778 3,778Other investments 21 - - 6,098 - 6,098 6,098

92,035 - 6,098 - 98,133 98,133Financial liabilitiesTrade and other payables 11 - - - 19,984 19,984 19,984Derivative financial instruments - - 27 - 27 27

- - 27 19,984 20,011 20,011

25 Term loans

26 Fair value measurements recognised in the statement of financial positionThe following table provides an analysis of items that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on thedegree to which the fair value is observable:

Level 1 - fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;Level 2 - fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability,either directly (i.e. as prices) or indirectly (i.e. derived from prices); andLevel 3 - fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observablemarket data (unobservable inputs).

Foreign currency contracts are shown at fair value.

Liquidity risk is managed:

AgResearch Limited has a multi-option credit facility of up to $2 million (2014: $5 million) secured by way of a negative pledge covenant agreement. No amounthas been drawn at 30 June 2015 (2014: $Nil).

• through regular oversight by the Audit & Risk Committee.

InvestmentsInvestments, except for 'other investments' which are valued at fair value, are carried at cost. It is not practical to estimate the fair values of unlistedassociates.

There has been no change during the year to the Group's exposure to liquidity risks or the manner in which it manages and measures the risks.

• through monthly review by senior management; and

The Group has no borrowings and is therefore not exposed to interest rate risk other than in relation to its investments, which are not material.

The carrying amounts of financial assets and financial liabilities recorded at cost in the financial statements approximate their fair value.

• by monitoring cash flow forecasts (both operational and anticipated non-recurring items) and aligning investment decisions with these;

Liquidity risk represents the Group's ability to meet its financial obligations on time. Generally, the Group generates sufficient cash flows from its operatingactivities to make timely payments. It does however maintain committed credit lines to cover any shortfalls. The Group has a multi-option credit facility of up to$2 million (2014: $5 million). As at 30 June 2015 there were no funds drawn against the facility (2014: $Nil).

Interest rate risk

Cash and cash equivalents, trade receivables, other receivables and payables

• through compliance with the treasury policy, which sets a liquidity buffer for unforeseen cash flows;

Derivative financial instruments


in thousands of New Zealand dollars Note Level 1 Level 2 Level 3 Total2015Available-for-sale financial assetsOther investments* 21 2,520 498 3,018

Non financial assetsLivestock 9 - 4,254 - 4,254Forestry 10 - 794 - 794Land and land improvements 12 - 71,862 - 71,862Buildings 12 - 72,012 - 72,012

Financial liabilities designated at fair valueDerivative financial liabilities 16 - - 16

2,536 149,420 - 151,9562014Available-for-sale financial assetsOther investments* 21 3,072 631 - 3,703

Non financial assetsLivestock 9 - 4,489 - 4,489Forestry 10 - 744 - 744Land and land improvements 12 - 66,073 - 66,073Buildings 12 - 69,358 - 69,358

Financial liabilities designated at fair valueDerivative financial liabilities 27 - - 27

3,045 141,295 - 144,340

27 Capital management

• asset revaluation reserve;• available-for-sale asset revaluation reserve; and• retained earnings.

28 Other non current liabilitiesKey Money

in thousands of New Zealand dollars 2015 2014Key money received in advance 839 -Key money referrable to lease in current period (35) -

804 -

29 Significant events after balance dateThere were no significant events after balance date that would have a material effect on the financial statements.

The Group's capital is its equity which is made up of:

The Group is not subject to any externally imposed capital requirements.

The Group's policies in respect of capital management and allocation are reviewed regularly by the Board of Directors.

There were no transfers between any levels during the year.The changing of one or more inputs would not change significantly the fair value of the Level 3 investments.

• share capital;

*Other investments consist of Fonterra shares $2,469k (2014: $2,978k) and other investments $578K (2014: $725) as per note 21. The level classificationdetermined is based on the fair value within these investments.

In the current period AgResearch Limited sold a building and entered into a sub-lease of the land on which the building is located. The leasee has paid anupfront lump sum as key money in relation to the lease. The key money will be recognised as income over the term of the lease (including renewal periods).

There have been no material changes in the Group's management of capital during the year.

The Crown Research Institutes Act 1992 requires AgResearch Limited to maintain its financial viability in order to undertake research for the benefit of NewZealand.


INDEPENDENT AUDITOR’S REPORT TO THE READERS OF AGRESEARCH LIMITED AND GROUP’S

FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015

The Auditor-General is the auditor of AgResearch Limited and its New Zealand domiciled subsidiaries. The Auditor-General has appointed me, Bruno Dente, using the staff and resources of Deloitte, to carry out the audit of the financial statements of the group, consisting of AgResearch Limited and its subsidiaries (collectively referred to as ‘the Group’), on her behalf. Opinion We have audited the financial statements of the Group on pages 21 to 47, that comprise the consolidated statement of financial position as at 30 June 2015, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information. In our opinion, the financial statements of the Group: present fairly, in all material respects:

its financial position as at 30 June 2015; and its financial performance and cash flows for the year then ended; and

comply with generally accepted accounting practice in New Zealand and have been prepared in accordance with New Zealand equivalents to International Financial Reporting Standards.

Our audit was completed on 28 August 2015. This is the date at which our opinion is expressed. The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain our independence. Basis of opinion We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Material misstatements are differences or omissions of amounts and disclosures that, in our judgement, are likely to influence readers’ overall understanding of the financial statements. If we had found material misstatements that were not corrected, we would have referred to them in our opinion. An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the Group’s financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. An audit also involves evaluating: the appropriateness of accounting policies used and whether they have been consistently

applied; the reasonableness of the significant accounting estimates and judgements made by the Board

of Directors; the adequacy of the disclosures in the financial statements; and the overall presentation of the financial statements.


We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements. Also, we did not evaluate the security and controls over the electronic publication of the financial statements. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion. Responsibilities of the Board of Directors The Board of Directors is responsible for the preparation and fair presentation of financial statements for the company that comply with generally accepted accounting practice in New Zealand. The Board of Directors’ responsibilities arise from the Crown Research Institutes Act 1992. The Board of Directors is responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for the publication of the financial statements, whether in printed or electronic form. Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and reporting that opinion to you based on our audit. Our responsibility arises from section 15 of the Public Audit Act 2001. Independence When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the External Reporting Board. Other than the audit, we have no relationship with or interests in the Group. Bruno Dente Deloitte On behalf of the Auditor-General Hamilton, New Zealand


Statutory reporting For the year ended 30 June 2015 To our shareholders and stakeholders The Directors are pleased to report that AgResearch Limited met its obligations in all material aspects under the Crown Research Institutes Act 1992 for the year ended 30 June 2015. Dividends No dividends were declared during the year to 30 June 2015. Directors’ interests The Board received no notices during the year from Directors requesting the use of Company information that would not otherwise have been available to them. There were no share dealings by Directors with the Company. Directors’ interests disclosed during the year to 30 June 2015 are set out in the table below. Interests are directorships unless otherwise stated and do not include trusteeships, directorships or shareholdings in private trusts and small companies with whom no transactions have occurred during the year. These interests have been appropriately recorded within the interest register which is updated regularly.

Sam Robinson Brownrigg Agriculture Shareholder of Rangeland Farms Limited(Chair) Centralines Limited (Chair) Shareholder of Ravensdown Fertiliser Co-op

Hawke's Bay Regional Investment Company Limited Shareholder of Silver Fern FarmsOpihi Limited Shareholder of Tourere Asset Management LimitedShareholder of Ballance Agri-Nutrients Shareholder of Wools of New Zealand Shareholder of Farmlands Limited The Co-operative Bank LimitedShareholder of Primary Wool Tourere Asset management Limited

Barry Harris (Deputy Chair) DairyNZ Incorporated & subsidiaries Employee of Hamilton City CouncilDexcel Holdings Limited Primary Industry Training OrganisationFood Waikato TBfree New Zealand Limited National Animal Identification and Tracing (NAIT) Limited Wel Networks OSPRI New Zealand Limited

Teresa Ciprian ASPEQ Limited Zenoch Management LimitedFirstlight Foods Limited ZespriZenoch Trust

Dr Michael Dunbier Pastoral Genomics Limited (Chair)Pastoral Genomics Consortium (Chair)

Foundation for Arable ResearchHorticulture Research & Innovation (Chair)

Jeff Grant Cooper Valley Holdings Southern Institute of Technology Board memberFinance Now Limited Shared Services Southland (Chair)Milford Sound Development Authority Limited (Chair) Shareholder of Cooper Valley Holdings Mount Linton Station Limited (Chair) Shareholder of Tower Hill TrustNational Animal Identification and Tracing (NAIT) Limited TBfree New Zealand Limited (Chair)OSPRI New Zealand Limited (Chair) Trustee Tower Hill TrustSBS Bank Trustee of Massey-Lincoln and Agricultural Industry Trust

Andrew Macfarlane ANZCO Foods Limited Fernside Holdings Limited & subsidiariesCarradale Farm Limited Kintore Farm LimitedCreighton Properties Limited Lincoln Hospitality LimitedDeebury Pastoral Limited Lincoln University Councillor LimitedDeer Industry New Zealand (Chair) NZIPIMDumbarton Land Company LimitedEdgewater Resort Hotel Limited & subsidiaries

Tania Simpson Deep South National Science Challenge Reserve BankKowhai Consulting Limited Global WomanOceania Group Limited Shareholder of Mighty River Power Limited & subsidiary

Dr Peter Stone National Centre for Engineering in Agriculture (University of Southern Queensland)

Shareholder of Argo Investments Limited

Tropical Landscapes Joint Venture (CSIRO - James Cook University)

Shareholder of Nufarm Limited

Employee of Commonwealth Scientific and Industrial Research Organisation (CSIRO)

Michelle Alexander Antares Restaurant Group Limited Kiwi Pacific Foods LimitedAntares Restaurant Group Project Company Limited Tango Holdings New ZealandAntares New Zealand Holdings Limited Tango New Zealand Limited

Expert review panel for the Foundation of Arable Research (FAR) (Chair)

Reviewer of a Landcare Research Ministry of Business, Innovation & Employment bid


Directors’ remuneration Remuneration and other benefits paid or due and payable to Directors for services as a Director, including membership of Board Committees, during the year were as follows:

Directors 2015 2014

Sam Robinson (Chair) 69,500 70,555

Barry Harris (Deputy Chair) 44,000 45,054

Teresa Ciprian 35,750 36,804

Dr Michael Dunbier 35,750 36,804

Jeff Grant 35,750 2,108

John Loughlin - 34,272

Andrew Macfarlane 35,750 36,804

Tania Simpson 35,750 36,804

Michelle Alexander 40,750 -

Dr Peter Stone 35,750 33,795

Grasslanz Technology Limited

Robert John Hay (Chair) 15,000 15,000 Remuneration greater than $100,000 During the year ended 30 June 2015, 233 staff received remuneration of or exceeding $100,000 per annum as follows:

Remuneration included performance awards, superannuation benefits, vehicle benefits, severance and exit payments. Remuneration above was received by Science (187), Chief Executives’ Office, Shared Services and Finance & Business Performance (40) and subsidiaries (6). Termination payments During the year, the Group made the following payments to former employees in respect of termination of their employment with the Group.

Total amount paid Number of Employees $1,739,147 34

Donations No donations were paid during the year ended 30 June 2015. Directors and employees indemnity and insurance During the year, the Company indemnified Directors and certain employees to the fullest extent permissible by law. The Company also has Directors and Officers insurance. Auditor Mr Bruno Dente of Deloitte is the appointed auditor of the Company under contract from the Office of the Controller and Auditor-General and under Section 21 of the Crown Research Institutes Act 1992.

Group

$100,000 to $109,999 46 $110,000 to $119,999 45 $120,000 to $129,999 35 $130,000 to $139,999 28 $140,000 to $149,999 20 $150,000 to $159,999 9 $160,000 to $169,999 16 $170,000 to $179,999 6 $180,000 to $189,999 7 $190,000 to $199,999 5 $200,000 to $209,999 1 $210,000 to $219,999 4 $220,000 to $229,999 1 $230,000 to $239,999 2 $240,000 to $249,999 1 $250,000 to $259,999 1 $270,000 to $279,999 1 $320,000 to $329,999 1 $330,000 to $339,999 1 $340,000 to $349,999 1 $370,000 to $379,999 1 $630,000 to $639,999 1


Core funding report For the year ended 30 June 2015 In 2014/15 AgResearch received $38.889m (2013/14: $38.889m) from the Ministry of Business, Innovation and Employment as Core Funding. Core Funding is funding that is devolved to a crown research institute (CRI) to support achieving its Core Purpose delivered in accordance with its Statement of Corporate Intent and the Core Funding Agreement with the Crown. Activities supported by Core Funding can include:

• undertaking basic and applied research and experimental development of importance to New Zealand; • transferring knowledge and technologies to end-users and stakeholders; • providing policy advice to Government; • maintaining Nationally Important Assets; • responding to emergencies and changing national priorities; and • building stronger national and international collaborations that further the CRI’s Core Purpose.

AgResearch’s Core Purpose is to enhance the value, productivity and profitability of New Zealand’s pastoral, agri-food and agri-technology sector value chains to contribute to economic growth and beneficial environmental and social outcomes for New Zealand. AgResearch fulfils its purpose (as outlined in the Statement of Core Purpose (SCP)) through the provision of research and transfer of technology and knowledge in partnership with key stakeholders, including industry, government and Māori, for the following outcomes:

1. to increase the value of the above industry sectors to the New Zealand economy through the development of high-value pastoral-based products;

2. to position New Zealand as a global leader in the development of environmentally sustainable, safe and ethical pastoral production systems and products;

3. to ensure that New Zealand’s pastoral, agri-food and agri-technology sectors are able to protect, maintain and grow its global market access;

4. to increase the capacity of rural communities and enterprises to adapt to changing farming conditions in ways that balance economic, environment, social and cultural imperatives.

The following table lists key achievements from Core-funded projects undertaken in the 2014/15 financial year:

Project Title Project Update

Dairy on Farm 2014/2015 $13.6m 2013/2014 $14.7m

Organising cow health and production through improved recommendations on nutrition and cow management during the transition period

Effective maintenance of dairy cow health during the “transition” between pregnancy and lactation is a function of nutrition and management. This project seeks to investigate a range of nutrition and management strategies to determine their impact on whole body metabolism and will define management and/or nutrition strategies that optimise immune function, cow health, milk production and reproduction. This will directly increase productivity and profitability in the New Zealand dairy industry. 2014/2015 Key Achievements: Immunocompetence (ability to develop a normal immune response) of dairy cows during the transition period was investigated in relation to body condition score (BCS) and feeding levels during pregnancy. These studies clearly showed that cytokine (molecules that aid cell to cell communication in immune responses and stimulate the movement of cells towards sites of inflammation, infection and trauma) responses are modulated during the week after calving. It was also demonstrated that changes in diet and BCS are the driving forces for immunomodulation (therapeutic interventions aimed at modifying the immune response) in transition cows. These results directly support the hypothesis that optimally conditioned dairy cows might benefit from restricted dietary energy pre-calving, whereas under-conditioned cows should be fed to requirements. Dairy farmers will benefit from these findings through being able to optimise nutrition of pregnant cows, which will ultimately improve cow/calf health and performance, and directly increase profitability within the New Zealand dairy industry.

Research capability in animal physiology (ruminant nutrition)

The primary goal of this project is to expand existing Ruminant Nutrition research to improve animal productivity on pastoral systems. To achieve this, three project goals have been set: 1) development of a strategy to expand animal nutrition research, initially focused on dairy cattle performance; 2) heifer development for pastoral dairy herds; and 3) managing dietary transitions in dairy cattle (i.e. using supplements and sensors). Successfully achieving these objectives will lead to improved feeding management on New Zealand dairy farms, which will directly improve the productivity and profitability of the dairy sector. 2014/2015 Key Achievements: Interaction with external science and extension stakeholders (DairyNZ, Livestock Improvement Corporation [LIC], Universities and commercial companies) was initiated to identify and prioritise dairy cattle nutrition research to improve dairy cattle performance (health, reproduction milk yield and welfare). Scientists form DairyNZ agreed to develop a national strategy for dairy cattle nutrition and for collaborative work. • An internal science landscape was completed, with a view to strengthening dairy cattle nutrition research within AgResearch in order to target dairy animal performance. As a result, a number of themes for future collaborative work among AgResearch teams in the area of dairy animal nutrition and physiology were identified. Three such themes include: 1) Plant–animal interactions (including endophytes, plant breeding); 2) Nutrition, immunology and health of dairy animals (including immune system development in heifers); and 3) Rumen microbiology and nutritional management of dairy cattle (including enzymes, silage inoculants, probiotics).

Strategies to improve reproductive performance in dairy cattle

Milk and milk products are New Zealand’s largest food export and the dairy industry continues to grow. Among the challenges faced by the industry is the well-recognised observation that, as milk production has steadily increased over the last 40 years, the fertility of the lactating dairy cow has decreased. In response to this, the dairy industry has set a target of achieving an average in-calf rate at 6 weeks (from the planned start of mating) of 78% by 2020. The overarching aim of this research programme is to develop strategies to improve reproductive performance in dairy cattle through understanding the underlying causes of the decrease in fertility and to use this knowledge to improve reproductive management. 2014/2015 Key Achievements: • Successfully completed the first year of a two year on-farm project with DairyNZ, to determine the timing of conception failure in dairy cows. Results in NZ dairy cows determined that the majority of embryonic mortality occurs within the first 15 days of gestation. This is significant in that it reduces the focus of the research programme from 35 days to 15 days to identify why pregnancies are failing, in order to meet the aim of improving the 6-week in-calf rate from 65% to 78%, without hormonal intervention. • The oestrus activity (the period of the sexual cycle in which the cow is in heat) data collected showed a positive correlation between increased activity and successful pregnancy rate following artificial insemination (AI). Notably, AI on the first and second oestrus gave suboptimal pregnancy rates, contributing to a decreased 6-week In-calf rate. This finding could be used in designing new reproductive management strategies to optimise reproductive efficiency, and in turn, New Zealand dairy


industry productivity and profitability. • Research demonstrated that transferring half an embryo (at Day 7) into an advanced (Day 9) uterus resulted in the half embryo attaining the same size and development as a whole embryo. In addition, embryo development was advanced when compared to transferring into a Day 7 uterus. This is a simple, cost-effect method to potentially increase pregnancy rates with no additional costs or hormones and could be used for split or biopsy generated embryos in animal breeding programmes to accelerate the rate of genetic gain.

Molecular breeding

The project aims to develop the capability for precision animal breeding through the targeted introduction of desirable and elimination of undesirable sequence variants to improve livestock genetics within a single generation. In addition, the project will develop genetically improved cattle, sheep and goat models demonstrating improved production characteristics or producing novel milks with additional health benefits. This will contribute towards increased productivity and profitability in New Zealand's livestock industries. 2014/2015 Key Achievements: • Using genome editing (a type of genetic engineering in which DNA is inserted, replaced, or removed from a genome using artificially engineered nucleases, or 'molecular scissors') into one-cell bovine embryos, a pre-defined genetic variant could be efficiently introgressed (introgression is the process in which genes from one gene pool are moved to another). This will enable the introduction of beneficial genetic variants or elimination of undesirable genetic variants in elite genotypes and provide a step-change for improving livestock genomes. • A goat model was developed to evaluate a genetic system that was shown (in a mouse model) to cause non-Mendelian inheritance for its functionality in livestock. Mendel's law states that, in the process of breeding, recessive genes will always be masked with dominant ones, and thus the resulting offspring will always inherit the dominant genes (which is not always desirable). It is therefore hugely important that the genetic system is able to produce animal offspring which inherit chosen recessive genes. This can now be applied to produce bulls with the ability to father single sex offspring (with desirable genetic characteristics) for increased productivity in the New Zealand dairy and meat industries, as well as reduced animal welfare burden.

From livestock to pluripotent stem cells and back again -- a new direction for producing high-value animals for agriculture and biomedicine

The aim of this project is to identify high genetic value bovine embryos, and convert these into embryonic pluripotent stem cells (ePSCs) from which animals can be produced. This will directly increase the intensity of selection and the multiplication of high-value animals, to accelerate the rate of genetic gain in the New Zealand dairy industry compared to conventional methods of selection. The impact of improved genetic gain will be improved animal productivity, which will directly increase the profitability of the New Zealand dairy industry. 2014/2015 Key Achievements: • As a result of the first proof-of-principle industry trial on embryo genomic selection, two bulls have entered a progeny testing scheme (a process for testing the value for selective breeding of an individual's genetic characteristics by looking at the progeny [descendants] produced by different matings). This demonstrates the potential of embryo genomic selection to contribute towards accelerating the rate of genetic gain. • Using bovine embryos and embryo-derived stem cells as sequential chemical screening platforms, the project identified JAK-STAT signals as crucial for establishing molecular pluripotency. JAK-STAT is a signalling pathway which transmits information from chemical signals outside the cell, through the cell membrane, and into gene promoters on the DNA in the cell nucleus, which causes DNA transcription and activity in the cell. This finding helps to define culture conditions required to derive authentic pluripotent stem cells in cattle. • Bovine in vitro fertilised (IVF) embryos were converted into isogenic (having the same or closely similar genotypes) embryonic stem cell cultures which were then reprogrammed into cloned embryos. This effectively recycles high-value IVF embryos into embryonic cell-derived clones, multiplying their genetics for production of high-value animals.

Sheep dairy industry – genetics

This small project was a 'one-off' investments during 2014/15. The objective of the project was to assess the current state of dairy sheep genetics, both in New Zealand and globally, and to subsequently provide recommendations on a strategy for genetic improvement within the industry. These recommendations will benefit the New Zealand sheep dairy industry by enabling improved breeding decisions, which will improve animal health and productivity, and in turn increase industry profitability. The research carried out in the project involved Māori trusts and agri-business enterprises, among other industry stakeholders. 2014/2015 Key Achievements: • This project was an extremely successful scoping exercise for dairy sheep genetics. There has been successful engagement on many levels with key stakeholders in the industry including academics, consultants, agribusinesses, Māori trusts and individual producers. It is envisioned that these established connections will be leveraged to begin development of a national breeding tool, which will enable better genetic selection of livestock, and therefore improved sheep dairy industry productivity and profitability. • A scoping document was produced providing key background information on the New Zealand dairy sheep industry together with recommendations for further AgResearch investment and engagement. A clear need was identified for a project using AgResearch expertise and capability to deliver increased revenue to the dairy sheep industry through a national genetic improvement scheme. This project would be strategically aligned with existing genomics research and the current dairy sheep project with the Ministry of Business, Innovation and Employment (MBIE). • Existing genomic (genetics) developments and data from international projects were used to analyse a subset of the existing New Zealand sheep flock and to explore breed structure, in order to provide producers and livestock breeders with important information to inform future (improved) breeding decisions.

Trophectoderm lineage determination in cattle (FY15 AgResearch Science Prize)

The aim of this project is to reveal new information regarding the genetic mechanisms in cattle embryo development, with a focus on understanding why and when embryo mortality occurs. Understanding the complex mechanisms that drive this development will generate new knowledge and can be applied to reduce embryo loss during cattle pregnancies. This will directly lead to improved animal health and productivity, which will in turn raise productivity and profitability in New Zealand's dairy and cattle industries. 2014/2015 Key Achievements: • During this first year of the project, an important research collaboration was established between Dr. Peter Pfeffer, Victoria University and the AgResearch Animal Reproduction team. A joint project was formed that will focus on the exploring the mechanisms involved in bovine embryo perigastrulation stage (one of the critical developmental events and a stage where approximately 10% of bovine embryos arrest and fail to develop further). The knowledge generated from this collaboration will be directly applied to the DairyNZ/MBIE partnership “Pillars of an sustainable and responsible dairy system,” and will benefit industry and farmer end-users alike.

AgPest (previously titled 'Pestweb')

AgPest (formerly Pestweb) is a website that was conceived and designed by AgResearch insect pest and weed scientists to provide relevant, up-to-date and independent information to farmers and agribusiness consultants (including Māori agribusiness) on the identification and control of pastoral weeds and pests. It provides a decision support system that will ultimately help to reduce expenditure on weed and pest management. Continued development is required to embed the website as the 'one-stop' extension tool to deliver pest and weed science to New Zealand stakeholders. 2014/2015 Key Achievements: • AgPest continued to provide the New Zealand pastoral industry with independent information on the control, biology and management of over 80 key pasture weeds and pests. Over the past year, five new weed and pest pages were added to the website and over 70 pest alerts were disseminated in collaboration with Beef+Lamb NZ. In this way, AgPest has ensured that farmers continue to be provided with up-to-date, independent information in a timely manner to assist in the rapid control of pests, leading to greater pasture productivity and profit.


Weed ecology and management in pastures and forage crops (previously titled 'Undermining weeds')

The primary aim of this research programme is to improve understanding of the population dynamics and impacts of weeds in New Zealand pasture and forage cropping systems, in order to provide major stakeholders and end-users in the New Zealand pastoral agricultural sector with a sound scientific basis for sustainable weed management. 2014/2015 Key Achievements: • Development of a matrix model of the perennial weed, Californian thistle, resulted in a better understanding of how defoliation affects population growth of this weed in a pasture. This will enable New Zealand pastoral farmers to boptimise their management of the weed, resulting in lower control costs and greater production benefits. • Research demonstrated, through the development of a bio-economic model of nassella tussock (a pasture weed), how different strategies to remove plants from populations of this weed in dry hill pastures (through control operations) affect the population growth and economics of controlling the weed. This will help pastoral farmers design a long-term cost-effective regional management programme for nassella tussock. • Research demonstrated, through the development of a bio-economic model of Chilean needle grass in Canterbury, the large influence that the assumed rate of the invasion has on the outcome of a cost: benefit analysis for a regional control programme. The model has been used as a basis for a Web App for the economic evaluation of regional weed management programmes which will become part of a ‘tool box’ for regional council decision-makers to assist them in meeting the requirements of the Biosecurity Act. This will let regional councils conduct their cost: benefit analyses in the nationally consistent manner specified in the National Policy Direction for Regional Pest Management Plans and make regional weed management more cost-effective. • The leaf-scale retention models developed within this programme, and in conjunction with Queensland University of Technology, were implemented within a research version of AGDISP. AGDISP is a publically available, free, spray application simulation software package used by a number of international regulatory authorities. Including the process-driven retention models implemented within AGDISP Research will realise improved predictions of spray retention compared to experimental results, with better outcomes for regulatory authorities that rely on AGDISP models to develop best practice guidelines for ground and aerial application of a range of pesticides.

Animal welfare for market success

The primary aim of this project is to respond to emerging animal welfare issues in New Zealand, by applying rigorous science-based approaches to assure market access and demonstrate a national commitment to animal welfare. 2014/2015 Key Achievements: • A multi-year research programme (in collaboration with DairyNZ) began to deliver best practice management options for dairy cows off-paddock. This work directly supported contributions to a DairyNZ publication: 'Good practice guide for dairy housing in New Zealand.' Dairy farmers will benefit from being provided with information about good practice options for off-paddock management of their livestock. • A nationwide survey of dairy farmers found that approximately one-quarter used an off-paddock facility and the most commonly identified negative impacts of using these off-paddock systems are mastitis and lameness. This survey's results will inform the programme's research focus in 2015/16, to provide information and recommendations on good practice around New Zealand off-paddock systems (which in turn safeguards the welfare of the cows) to up to 2,900 NZ dairy farmers. • Use of cryosurgery as an alternative method of preventing horn growth in dairy calves showed promising results and will continue to be refined in 2015/16 along with assessing the animal welfare aspects of the procedure. This will assist dairy farmers to meet public expectations around management of painful husbandry procedures. Use of pain relief is not currently common on dairy farms due to issues such as cost and practicality. Alternatives to drug injections and anaesthesia will help address this and improve public perception of the New Zealand dairy industry. • Studying the behaviour of dairy calves using automated milk feeding technology showed promise for detecting sick calves. The results will assist dairy farmers to utilise this technology to assure the welfare of their young stock. Losses to disease during the calf rearing stage are estimated to cost the New Zealand dairy industry as much as NZ$50 million per year. Early and accurate detection of sick calves will reduce this cost.

Forage value The Forage Value Index (FVI) is a seven year (2013-2020) New Zealand initiative led by DairyNZ and the New Zealand Plant Breeding Research Association (NZPBRA). The vision for this programme is to develop a collaborative, world-best forage evaluation system, linked directly to future genetic gain targets agreed by the key stakeholders. Specifically, research in the programme will strengthen the scientific base of the existing forage value index, and will identify and facilitate achievement of forage genetic gain targets that will move the industry forward in both productivity and environmental sustainability. Dairy farmers, and the New Zealand economy in general, will benefit through improved rates of genetic gain in economically-important pasture plant traits, allied to easy-to-use decision tools to select the pasture cultivars that deliver the best productivity (and, in due course, environmental) outcomes. 2014/2015 Key Achievements: • Completed Simple Sequence Repeats (SSR) marker analysis of the populations from National Forage Variety Trials (NFVT) persistence trial sites in the Waikato, for a number of forage cultivars (Bronsyn SE, Alto AR37 and One50 AR37) and their equivalent reference cultivars. Preliminary analysis of the SSR data indicates genetic differentiation between reference cultivar and field populations; this finding is a fundamental step forwards in understanding the genetic basis for variation in persistence of ryegrasses in pastures. It will contribute towards achieving improved growth and productivity in New Zealand pastures through light manipulation of plant reproduction.

Resolving the molecular basis limiting condensed tannin production in white clover

The aim of this project is to answer fundamental questions relating to the regulation of the Condensed Tannin (CT) pathway in white clover, specifically Trifolium arvense. A greater understanding of these processes will allow the future delivery of new clover varieties with high CT content for use on pastoral farms across New Zealand. 2014/2015 Key Achievements: • Gene expression analysis identified the key genes responsible for the high tannin phenotype (trait) in Trifolium arvense leaves. There are significant benefits to animal health, productivity gains and environmental improvements associated with high tannin forages, therefore this finding will directly contribute towards future development of high tannin white clover forage varieties for New Zealand farmers. This, in turn, will increase the productivity, profitability and sustainability of New Zealand's pastoral and forage industries.

MeriNet This project is a joint AgResearch-Plant and Food Research effort to discover fundamental knowledge about the genetic, molecular and physiological mechanisms controlling plant development and plant persistence. The aim is to provide New Zealand’s biological industries with “leading-edge” knowledge and intellectual property relating to aspects of plant development that have a high potential for economic impact via plant improvement. There is a specific focus on the identification of basic genetic mechanisms underlying plant production and plant architecture, which is required to improve the rate of genetic gain of forages and provide a sustainable increase in feed supplies for pastoral farming in New Zealand. 2014/2015 Key Achievements: • The receptor for the branching hormone in plants has been identified and the molecular mechanisms regulating the environmental regulation of shoot branch outgrowth were examined. This knowledge may be used to alter growth form (the number of shoot branches and fruiting buds) to increase plant production. Increased plant production will in turn have a direct impact on raising profitability in the New Zealand pastoral farming sector. • A gene acting as a negative regulator of steroid signalling in plants has been identified. The protein encoded by this gene controls the plasticity of plant growth in response to environmental fluctuations. This knowledge has the potential to accelerate the rate of genetic gain for beneficial growth characteristics in a wide range of crop, forage and forestry plants.

AgResearch nationally significant database (Margot Forde Germplasm Centre)

The Margot Forde Germplasm Centre (MFGC) is New Zealand's national gene-bank of grassland plants, and also hosts the New Zealand Endangered Species Seed-bank of native species that are endangered in the wild. The primary roles of the MFGC are to obtain germplasm, to conserve it, replenish it and distribute it for research and product development. The Centre provides a facility for storing seeds and associated information from countries across the world. It also provides a platform for


public information sharing, fostering conservation and sustainability and enabling future research and development that meets the new and existing needs of pastoral markets and stakeholders. 2014/2015 Key Achievements: • During FY15, the MFGC processed more than 3,000 accessions and 200 seed requests for national and international researchers. As such, the centre has continued to have a significant impact on, and contribution to, research in New Zealand and abroad. • Updated protocols were developed to confirm the reliability of the workflow at the MFGC. In addition to streamlining activities, these updates ensure ongoing full compliance required by the involvement of the Environmental Protection Agency (EPA) and Ministry for Primary Industries (MPI). Furthermore, the updated protocols will provide quality assurance for future operation of the centre, with respect to forage seed and the related micro-organism import, processing, conservation and research. • Progress has also been made in other long-term improvements to processes relating to the database, collection trip coordination and compliance. Most notably, collection trips to centres of diversity of important forage and endophyte species have been standardised and streamlined. This will have a positive impact on access to the most exotic germplasm, and potential genes for resistance and tolerance to unpredicted changes in climate and its effect on New Zealand’s agricultural practice.

Two aggregated projects (common sector alignment): i) 'AR37: a novel endophyte technology'; and ii) 'Sensing and signalling intercalary growth in epichloë endophytes'

Whilst the research carried out in each of these projects is distinct, both are aimed at contributing toward the profitability of the pastoral agriculture sector by understanding the biological mechanisms of endophytes (micro-organisms living within the tissue of a plant, without causing symptoms of disease) in forage crops. This understanding can then be applied to the development of new and improved endophytes to the New Zealand forage industry, which will enhance the agronomic performance of temperate pasture grasses (such as perennial ryegrass and tall fescue) and domesticated cereal grasses (such as wheat, barley, rye and triticale), respectively. 2014/2015 Key Achievements: • 'AR37: a novel endophyte technology' project: The analysis of data from wheat-endophyte associations differing in compatibility outcomes has resulted in a list of putative genes required for endophyte infection of wheat. This has enabled gene targets for functional studies to be identified and prioritised for gene deletion studies. The knowledge generated from functional studies will be used to select for potentially compatible endophytes from AgResearch's genetically diverse endophyte collection for inoculation studies into wheat. Ultimately this will contribute towards development of endophytes with enhanced agronomic performance, which will raise productivity and profitability in the New Zealand pastoral agricultural sector. • 'Sensing and signalling intercalary growth in epichloë endophytes' project: research confirmed that mechanical stretch stimulates growth in the fungal symbiont, E. festucae. The result will enable stretching experiments to be initiated that will provide further data for publication, and will also be used to identify the genes and pathways required for intercalary growth. Ultimately this will contribute towards development of endophytes with enhanced agronomic performance, which will raise productivity and profitability in the New Zealand pastoral agricultural sector.

Meat & Fibre On-Farm

2014/2015 $3.3m 2013/2014 $2.3m

Clover root weevil biological control in Southern New Zealand

Clover root weevil (CRW) causes severe damage to pastures, which reduces pastoral productivity and increases production costs. The aim of this programme is to deliver a proven effective biological control agent, the Irish parasitoid wasp, quickly and widely to farmers in affected areas of New Zealand in order to eliminate CRW and allow pastures to recover. In the long term, reduced CRW population (as a result of work carried out in this project) will allow productivity and persistence of white clover to return to near pre-CRW infestation levels and improve farming profitability in dairy, sheep and beef sectors across New Zealand. 2014/2015 Key Achievements: • In response to the severe clover root weevil (CRW) outbreak in Southland and parts of Otago, its biocontrol agent, the Irish parasitoid wasp, was released in 250,000 parasitised CRW in Southland, Otago and south Canterbury in the past year. As at June 2015, this programme of accelerated parasitoid releases has resulted in ~900,000 parasitised CRW being distributed to ~6000 sites, the majority of which were located in Otago and Southland. By carrying out the current releases, the Irish wasp will become established more rapidly in southern areas of the South Island. This will result in a shortening of the period over which farm income is significantly reduced due to CRW-inflicted damage to pastures. • A cost benefit analysis (CBA) was undertaken to evaluate how quickly the programme of accelerated releases in Southland and Otago returned a benefit to these regions. For Southland alone, the results showed that the biological control release programme has returned $14.78/hectare (ha) per year or $2.3 million over the total area of 158,017 ha of dairy farming. On sheep and beef farms, the estimated return was $6.86/ha per year or $4.7 million over the total area of 719,854 ha. These results indicate that the ~$650,000 cost of the programme over 2 years has already been returned to the agricultural economy in Otago and Southland via increased clover growth, nitrogen fixation and animal production. This provides stakeholders in the programmer with confidence that the investment in CRW biocontrol research provides a positive return, and will also provide the basis for value propositions in future proposals.

Strategies to improve reproductive performance in sheep

The primary aim of this research programme is to improve reproductive efficiency in the New Zealand sheep industry. This will be accomplished through providing new science-based management solutions - to the sheep industry and farmers - to optimise lamb production over a ewe’s lifetime, with particular focus on the young ewe. A secondary focus is on how nutritional restriction during gestation (pregnancy) affects ovarian development, and ultimately lifetime reproductive efficiency. 2014/2015 Key Achievements: • A key focus during 2014/15 was understanding factors that may affect the reproductive performance of the young ewe (up to 2 years of age), which has the potential to improve productivity of the farm through improving efficiency of hogget lambing and increasing the reproductive potential of the ewes as adults. Lower ovulation rate was determined to be a key limiting factor and thus developing strategies to improve ovulation rate of young animals, particularly hoggets, without inducing high order multiples (i.e. triplets or quadruplets) in the ewes as they reach maturity, has the potential to improve reproductive efficiency and thus productivity of the New Zealand sheep industry. • Research demonstrated that feeding a ewe a restricted diet (60% of normal maintenance allowance for the first 55 days of gestation and then ad-lib for the remainder of gestation) did not negatively affect her lamb’s birth weight or growth, nor did it affect attainment of puberty nor ovulation rate (i.e. number of eggs released at a reproductive cycle) of her female lambs. This information has the potential to inform farmer decision making in times of feeding limitations. • Research demonstrated that Leptin Receptor (LEPR) Single-Nucleotide Polymorphisms (SNPs - DNA sequence variations occurring commonly within a population) appear to have a similar negative association with ovulation rate and number of lambs at scanning as observed in adult ewes. Selection to remove these SNPs from the sheep flock could potentially improve hogget lambing by 10 % and increase the number of farmers undertaking hogget lambing to improve efficiency of lamb meat production.

Vaccine pipeline (Ran as two separate projects prior to 2014/15, namely: 'Haemonchus vaccine' & 'Ovine Pneumonia')

The aim of this project is to develop and deliver effective and sustainable vaccines to control animal diseases that cause significant productivity and profitability losses across New Zealand’s livestock industries. Specifically, the programme will build on recent successes within AgResearch in developing prototype vaccines against ovine pneumonia and the blood-feeding parasite Haemonchus contortus. The vaccine/s developed will reduce the cost for farmers to control infections with Haemonchus contortus, as well as improve animal productivity and hence profitability in New Zealand's livestock industries. 2014/2015 Key Achievements: • A prototype vaccine that protects lambs from the detrimental effects of infections with the nematode parasite Haemonchus contortus was developed. The vaccine is novel and consists of a cocktail of recombinant proteins. This success will enable farmers to protect livestock against this parasite and will be a major step in the future development of a multigeneric vaccine.


Parasitology programme (Ran as three separate projects prior to 2014/15, namely: 'Cattle parasitology,' 'Controlling cattle parasites' & 'Reversal of parasite immunosuppression')

The aim of this programme is to provide a new approach to parasite control in grazing livestock; with a focus on developing a remedy that does not require direct treatment of the animal. This will directly contribute to improved animal health and productivity (and therefore increased profitability in New Zealand's livestock industries), while reducing the direct inputs of chemicals to food animals and improving sustainability through reduced development of anthelmintic drug resistance. 2014/2015 Key Achievements: • A project was completed showing that use of combination drenches, in conjunction with appropriate best-practice management, not only didn’t accelerate the state of drench resistance in sheep worms but in fact tended to improve the efficacy of some drenches. This finding is opposite to what is thought around the world and, importantly, we have produced both a theoretical mechanism and supporting evidence to explain why this happens. • Confirmation of anthelmintic resistance in the cattle parasite Ostertagia ostertagi has been confirmed on more farms throughout the North Island. This is the most pathogenic parasite of cattle and widespread resistance in this species is likely to have significant production consequences for both beef and dairy farmers. This is a priority area for parasite research in future.

Four aggregated projects (common sector alignment): i) 'MoxiMilk'; ii) 'Whole genome sequencing analysis of variability in Orongorongo bovine tuberculosis (TB) isolates'; iii) 'Ultra-fine wool – the generation of Argali sheep embryos'; and iv) 'DNA resource: Jersey x Limousin'

These small projects were 'one-off' investments during 2014/15. Whilst the research carried out in each project was distinct, all were aligned to the Meat & Fibre On-Farm sector. The projects were aimed at improving productivity and profitability in New Zealand's livestock industries, by developing new knowledge which will be used to assist farmers to improve disease control, and livestock breeders to improve genetic selection of animals with desirable attributes, such as meat quality. 2014/2015 Key Achievements: • 'MoxiMilk' project: Completed research to investigate if anthelmintic drugs (parasite control drugs) can be transferred from ewes to suckling lambs via milk, in cases where the ewes were treated prior to lambing. Specifically, the research focused on a high-selling drug product, Moxidectin LA. The knowledge generated in this project will improve the farmers’ ability to control parasitic diseases while at the same time reducing the risk of developing parasites that are resistant to anthelmintics. Reduction in the amount of chemical control of parasites is desirable for maintaining the ‘clean’ image of New Zealand exports from livestock. • 'DNA resource: Jersey x Limousin' project: Extracted DNA on a historical AgResearch beef cattle genetics resource where high-quality phenotypes (observable genetic characteristics), including meat quality, were recorded on a group of 400 offspring from 3 Jersey x Limousin male cattle (sires). This DNA resource will contribute to efforts to determine the genetic mechanisms that control these important - and hard to measure - traits. The resource can now be used in ongoing projects to progress DNA tests that farmers use to select cattle.

Dairy Off Farm 2014/2015 $5.6m 2013/2014 $5.0m

Genetically modified (GM) forages

The purpose of this project is to develop genetically modified (GM) forages which improve forage production and quality, thereby contributing directly towards the profitability of the New Zealand pastoral agriculture sector. Two specific streams of research seek to achieve this goal. Firstly, GM forage ryegrass cultivars will be developed with 10% greater metabolisable energy (MJME) than the current 12 MJME/Kg dry matter and, secondly, warm-effective high sugar ryegrasses will be developed to raise milk solid production, accelerate animal growth and reduce nitrogen leaching. 2014/2015 Key Achievements: • A seven-year business plan for the programme was developed and completed, outlining a pathway to field and animal nutrition trials in future financial years. • The Water Soluble Carbohydrate (WSC) sub-project has led to the successful development of breeding populations with increased water soluble carbohydrates and increased plant biomass. The breeding material is now available for the breeders in the NZ forage industry to develop further. These developments are significant, because increased sugar content and increased biomass should confer a 25% reduction in nitrogen loss in urine, as well as potential enhancement in animal performance. This will directly contribute to improved productivity and profitability in the New Zealand pastoral agriculture sector. • A new technology for increasing grass biomass called Peapod (PPD) has been developed, and a patent was filed in November 2014. PPD will be an effective backup for the High Metabolisable Energy (HME) technology in the unlikely event that the former fails to progress due to technical challenges.

Forages for reduced nitrate leaching (FRNL)

This project, in support of the wider Forages for Reduced Nitrate Leaching programme, covers soil, plant and animal science. The aim is to ultimately reduce nitrate leaching losses from New Zealand dairy, arable, beef/sheep and mixed farm businesses by 20% (by 2020) from current levels by delivering proven, adoptable pasture and forage crop options for end-users in all of these industries. Whilst there is applicability to all end-users in these industries, parts of this programme are specifically relevant to Māori and Māori land. 2014/2015 Key Achievements: • Urine sensor – the project demonstrated a strong linear relationship between the refractive index of urine and its total Nitrogen (N) content. This is important because the relationship is fundamental to the AgResearch-developed urine sensor, allowing real time data of urinary volume and N content when attached to cows. The cow information is valuable because urine is the major source of N loss to water and the atmosphere in grazed systems. The urine sensor provides us with a tool to measure urine N content and investigate methods of reducing it, with potential benefit to the efficiency of the production system. • The project demonstrated that if experiments measure only the cycling of urinary N in the area where urine is directly voided onto the soil, this underestimates the amount of N taken up by the pasture. Thus, for example, lysimeter experiments with confined edges may over-estimate nitrogen leaching and this needs to be taken into account when evaluating the data. Similarly, computer models need to be able to account for this extra uptake outside of the urine patch or they will also overestimate losses. This underestimation of uptake can be as great as 40% because of pasture roots outside of the urine patch being able to access the N in the patch. The aim of this project is to understand these processes better and to be able to model them. AgResearch's ability to model urine patch dynamics is essential for underpinning our farm systems models such as OVERSEER and the DairyNZ 'Whole Farm' Model. • The project found that measuring amino acid concentrations in blood would help determine the fermentation patterns and microbial community structure in the rumen of cows fed 0%, 20%, 40% and 60% of the dry matter intake as fodder beet. This knowledge is key to inform dietary transitions and feeding strategies (e.g. number of allocations of fodder beet within a day, how to manage adaptation period to the diet).

Added value foods (Ran as three separate projects prior to 2014/15, namely: 'High value dairy ingredients for optimised nutrient uptake', 'Super-premium red meat petfoods for export' and 'Providing scientific evidence for the development of novel red meat based foods for the petfood industry.')

The aim of this programme is to undertake a number of research initiatives which support the development of added value foods in New Zealand’s meat and dairy sectors. This includes new information on opportunities to differentiate New Zealand meats in the Wagyu beef and premium pet-food markets, models supporting optimisation of the digestive behaviour of foods, and increased understanding of the impact of dairy processing on both the functional and physical properties of foods, which will lead to the development of foods with improved health benefits and desirable consumer characteristics. 2014/2015 Key Achievements: • A method for objectively measuring beef marbling scores was developed and compared to traditional methods. The development of an objective scoring system is the first step in understanding the impacts of production processes on the quality of New Zealand-specific beef and venison products, supporting the development of meat products which consistently meet the needs of existing and new markets. • Models for predicting and measuring the digestion of proteins and lipids in dairy products were developed. These models were utilised in a study which compared the digestibility of homogenised and un-homogenised milks, leading to the


identification of lipids and proteins whose digestion rate is altered by this common processing step. Understanding of the factors influencing the digestibility supports the development of new high-value dairy and food products and processes with tailored nutritional properties. • A study into the health benefits of New Zealand meat petfoods was completed and presented to industry. Targets were identified which may enable the New Zealand petfood industry to differentiate its products in the international marketplace. This information will support the development of meat products which consistently meet the needs of existing and new markets. • The effect of key steps in dairy processing on the activity of specific bioactive components in milk (lactoferrin, exosomes and the milk fat globule membrane) were investigated. This identified functional changes which may alter the health-supporting properties of milk following processing. By understanding the mechanism by which this occurs, AgResearch scientists can now work with industry to develop new high-value dairy products and processes which retain the natural goodness of dairy.

Food nutrition project (Ran as six separate projects prior to 2014/15, namely: 'New capability: dairy foods & nutrition metabolomics', 'Accelerating AgResearch/Fonterra project [Dairy-based food solutions for improved intestinal barrier function]', 'Postdoctoral fellow for MBIE project [Dairy-based food solutions for improved intestinal barrier function]', 'Nutritional strategies for an ageing population', 'Tracking the nutritional value of foods through processing' and 'Dairy polar lipids.')

The aim of this programme is to contribute to the knowledge base and provide tools and technologies that will increase the capacity (of the High Value Nutrition National Science Challenge and NZ food companies) to support the development of novel ingredients/food products for the infant and aged markets. The benefits of this will be two-fold: better health for consumers both in New Zealand and in overseas markets, and increased export earnings by New Zealand food companies through applying the knowledge generated by this research to develop high-value food ingredients or products. The impact will be provided by increasing the competitive advantage of New Zealand food exporters through validated claims of quality and/or health. 2014/15 Key Achievements: • A method for objectively measuring beef marbling scores was developed and compared to traditional methods. The development of an objective scoring system is the first step in understanding the impacts of production processes on the quality of New Zealand-specific beef and venison products, supporting the development of meat products which consistently meet the needs of existing and new markets. • Models for predicting and measuring the digestion of proteins and lipids in dairy products were developed. These models were utilised in a study which compared the digestibility of homogenised and un-homogenised milks, leading to the identification of lipids and proteins whose digestion rate is altered by this common processing step. Understanding of the factors influencing the digestibility supports the development of new high-value dairy and food products and processes with tailored nutritional properties. • A study into the health benefits of New Zealand meat petfoods was completed and presented to industry. Targets were identified which may enable the New Zealand petfood industry to differentiate its products in the international marketplace. This information will support the development of meat products which consistently meet the needs of existing and new markets. • The effect of key steps in dairy processing on the activity of specific bioactive components in milk (lactoferrin, exosomes and the milk fat globule membrane) were investigated. This identified functional changes which may alter the health-supporting properties of milk following processing. By understanding the mechanism by which this occurs, AgResearch scientists can now work with industry to develop new high-value dairy products and processes which retain the natural goodness of dairy.

Modelling the complex interactions between fermentable carbohydrates, commensal bacteria, and intestinal cells

It has been established that diet has a marked effect on the growth of specific strains of bacteria (known as commensal bacteria) within the human large intestine, many of which are essential to human health. However, the relationship between dietary components, the bacterial community in the intestine and host (human) function remains to be fully understood. The goal of this postdoctoral project, therefore, is to better understand this relationship through developing mathematical models of the complex interaction between fermentable carbohydrates from diet, bacteria in the intestine and intestinal cells. 2014/2015 Key Achievements: • A prototype mathematical model of the interactions between fermentable carbohydrates, commensal bacteria, and the intestinal cells of the large intestine was developed. The model can now be used to predict the effect of fermentable carbohydrates on the concentration of colonic short chain fatty acids produced by the commensal bacteria. This information is important for the targeted delivery of nutrients and for understanding how human gastrointestinal tract health is maintained. Ultimately food processors, such as dairy companies, will be able to use this information in the development and manufacture of functional foods which confer intestinal health benefits. These companies will benefit through being able to manufacture differentiated functional food products, which will raise demand and subsequently increase New Zealand food industry profitability. • A model was developed to predict the changes in the proportions of bacteria and their respective metabolites (substances produced during cell metabolism) in the large bowel as a result of changes in diet. This model can now be used for further testing to ultimately aid in development of functional foods (by New Zealand food companies) that target intestinal bacteria and the concentrations of short chain fatty acids produced by the commensal intestinal bacteria. As above, functional food manufacturers will benefit in the form of product differentiation, which will raise food sector profitability.

Three aggregated projects (common sector alignment): i) 'Effects of milk phospholipids on neuromuscular function in aged rats'; ii) 'Influence of protein structures on the in vitro digestion of whey proteins'; and iii) 'Mapping milk protein polymorphism'

These small projects were 'one-off' investments during 2014/15. Whilst the research carried out in each project was distinct, all were aligned to the Dairy Off-Farm sector and they aimed to improve productivity and profitability in the New Zealand dairy industry by supporting the industry to develop food products with tailored health benefits. 2014/2015 Key Achievements: • 'Effects of milk phospholipids on neuromuscular function in aged rats' project: A dietary intervention study in aged rats was completed, using compounds derived from milk. The rats are a model of neuromuscular (muscle) degeneration which is seen in humans during ageing, and the study will therefore provide a basis for future functional assessment of the effects of dietary interventions on neuromuscular function, based on compounds derived from milk. Muscle tissue samples were collected, and analysed for outcomes relevant to muscle structure and function. The findings will enable further engagement with Fonterra in developing scientific evidence for the efficacy of novel, value-added food products targeting the ageing population, with the aim of maintaining mobility and thereby improving quality of life. • 'Mapping milk protein polymorphism' project: Using high throughput High Performance Liquid Chromatography (HPLC) and Liquid Chromatography-Mass Spectrometry (LC-MS) methods, casein and whey protein phenotype variants were determined by HPLC fingerprints and accurate molecular weight measurements. The method will potentially provide information for animal genetic selection to improve milk production, yield and nutritional quality. This, in turn, would increase New Zealand dairy industry productivity and profitability.

Meat & Fibre Off-Farm

2014/2015 $8.1m 2013/2014 $9.5m

Hitting Targets for Deer Industry Profitability (HITDIP) (previously titled 'A profitable future for the New Zealand deer industry' and 'Venison supply systems project [VSSP]')

The aim of this project is to assist the New Zealand deer industry in achieving outcomes of improved productivity, profitability and sustainability by delivering underpinning science and technology. This large project includes - but is not limited to - research into efficient land use, early life nutrition, genetics and genetic selection, genomics, animal health and product traceability within the context of the New Zealand deer industry. The project is managed by DEEResearch Limited, a joint venture with Deer Industry New Zealand (DINZ), with board representation from producers and processors and other research providers. 2014/2015 Key Achievements: • Analysis of the heritability of meat traits from the Deer Progeny Test (DPT) showed significant opportunities for the NZ deer industry to improve carcass value by genetic means. The study has shown that there is an opportunity to implement genetic selection to increase the mass of high-value muscles (e.g. loin) at the expense of low value muscles (e.g. in the shoulder) that could increase industry export returns by $1.1 million per annum over an 8-10 year period. The study also demonstrated opportunities to genetically select higher-valued deer co-products such as tails and hides to increase returns to New Zealand venison producers.


• A paper on 'Whole Farm Systems' modelling has been submitted for publication in a modelling science journal, and a further two papers that used the model to evaluate alternative meat production systems have been submitted to systems science journals. This approach to modelling on-farm productivity is novel, and better accounts for how farm inputs for specific components of the farm system impact the entire farm system and its profitability. In this way it is possible to make more informed investment decisions across a range of multi-species farm systems. The model can also be used to look at industry-wide issues around profitability of current and future production systems, e.g. by assessing the economic impacts of adopting genetic selection for specific traits. • A paper on deer behaviour in high-country systems has been submitted to a farm systems science journal. This study highlighted the consequences of extensive deer systems within our iconic high-country on deer behaviour, resource utilisation of extensive rangelands by deer and impacts of their grazing on ecosystems sustainability. This study will lead to improved management practices to optimise deer performance/profitability while maintaining the quality of the high-country environment, particularly plant biodiversity.

Driving NZ beef production - role of early life nutrition

The objective of this programme is to understand the impact of nutrition in early postnatal life on the growth performance, development of key tissues and/or organ systems, immune function and metabolic development of dairy-beef calves in early life, and the impact on lifetime performance (time to slaughter, meat production/quality). Understanding these factors will lead to recommendations on improved early-life nutrition in dairy-beef calves, which will ultimately improve industry productivity and profitability. 2014/2015 Key Achievements: • By comparing contrasting nutritional regimes during the pre-weaning period, it was demonstrated that the increased growth performance of calves fed high levels of milk is also associated with enhanced immune function, which is important for the health of calves in artificial rearing systems. Improved health and wellbeing of livestock leads to increases in productivity and performance, therefore this finding (together with recommendations on nutrition management for calves) will directly contribute towards raising New Zealand dairy beef industry profitability. • A comparison was made between rearing systems that utilise either meal or only a fibre-based solid feed which demonstrated that the nature of the solid feed can influence the development of the rumen and endocrine system, and hence influence pre-weaning growth, while no long-term detrimental effects were observed. These results will contribute to the development of alternative systems for producers targeting a whole of life grain-free system for beef production (a niche market opportunity for added-value beef). • Comparison of contrasting nutritional regimes pre-weaning and diet quality post-weaning provided valuable insights into the complex interactions between nutrition, immune function, development or key organs (e.g. the gastrointestinal tract) and ultimately the growth performance and health of dairy-beef calves. This knowledge will contribute to the development of calf rearing practices that improve live weight gain and thereby decrease time to slaughter. This will result in direct cost savings for New Zealand dairy beef farmers, thus improving profitability both at farm-level and in the industry as a whole.

Bringing the best of genetic evaluation to the NZ agricultural industry

The purpose of this project is to develop capability in quantitative animal genetics at AgResearch. In 2013/14, a Senior Scientist with expertise in Animal Genomics was strategically recruited, in order to provide scientific leadership in applied quantitative genetics to ensure that AgResearch continues to position itself as a world-leading livestock genetics research unit. Specifically, this leadership will involve consistent delivery of high quality animal genetics research - relevant to New Zealand beef, sheep and industries - as part of multiple collaborative, multi-disciplinary project teams. 2014/2015 Key Achievements: • The Senior Scientist (Dr. Miller) recruited during 2013/14 is now established in New Zealand as an important member of the animal genetics community, with recognition in the beef, sheep and dairy sectors. In the past year Dr. Miller has been invited to present to or participate in seventeen events in New Zealand and Australia with recognition from important industry players such as Beef+Lamb NZ Genetics, DairyNZ, CRV Ambreed, Meat and Livestock Australia, CSIRO and Dairy Australia. • International collaborations: Dr. Miller became a member of the organising committee of the 11th World Congress on Genetics Applied to Livestock Production (WCGALP) which will be held for the first time in New Zealand (Auckland) in February 2018. The WCGALP is held every 4 years and is the most important conference in animal quantitative genetics. Dr. Miller's involvement in this major conference will further raise AgResearch's profile in livestock genetics research, both in New Zealand and internationally. • Imputation accuracy in New Zealand sheep: Imputation is a process where high density genotypes are inferred in animals genotyped using a low density panel. This technique underpins the animal industries' application of genomic selection. Research during 2014/15 - including collaboration with Dr. Ricardo Ventura, Brazil - has benchmarked the accuracy of imputation in the New Zealand recorded sheep flock. This will directly contribute to optimised genomic selection in sheep, which will maximise animal performance and productivity, and therefore contribute to increased sector profitability in the future.

Red meat combifoods: end-to-end management of protein value

Proteins in red meat and co-products are a rich resource that can be captured for wider application in foods beyond traditional dishes. The Combifoods project is a platform for technologies and industry engagement to support the creation and export of added-value, meat-based ingredients by food and petfood manufacturers. The aim is to optimise nutritional composition, desirable organoleptics, and physiological and processing benefits. The project's research focuses on deconstruction of raw materials and is complimentary to conventional meat science work on the structure and qualities of intact meat. 2014/2015 Key Achievements: • Based on experience and methods developed previously in the project, a new contract was secured during 2014/15 with an industry partner, Taranaki Bio Extracts, to quantify the processing functionality of their proprietary bone collagen co-product stream. • The project's ‘consortium’ of small-medium enterprise super-premium petfood manufacturers continued their involvement in pre-competitive research, particularly regarding red meat nutrition and health benefits, and control of processing characteristics. This shows the value and opportunities for creating joint research aims across companies of this scale. • AgResearch Combifoods scientists' expertise in protein science and advocacy for the untapped value of proteins from meat and co-products has raised the potential for meat-based collaborations with nutrition researchers who traditionally work with dairy. This will be beneficial because accelerating the value-add proposition for New Zealand red meat requires that a wide range of scientists are willing to work with it.

NZ beef and lamb: value from quality (VFQ)

Value From Quality (VFQ) aims to enable the New Zealand meat industry to meet increasing demand for high-value premium meat products and also to enhance NZ’s reputation as an efficient producer of safe premium quality red meat and co-products. Adoption of new knowledge and technologies developed in this programme will add value and differentiate New Zealand meat products, and contribute to increased earnings through reduced wastage along the logistics chain. Additionally, it will allow the industry to maintain and access new markets by improving product consistency and shelf-life as well as adding value to commodity and low value products. 2014/2015 Key Achievements: • Results revealed a lower glycolytic potential (a factor which affects meat quality characteristics) in lamb compared to beef and venison that is different from any other published literature to date. The results confirm that this was a major contributor to the different behaviours observed among spoilage bacteria on lamb compared to beef and venison. This will be instrumental in further work to reduce spoilage (and therefore increased shelf life and greater food safety) of fresh lamb mea and will ultimately increase lamb meat's value, which will in turn increase New Zealand red meat industry profitability. • Results indicate that confinement odour is an early indicator of microbial spoilage of meat. This will allow for the early assessment of shelf-life and enable the New Zealand meat industry to formulate strategies to manage products to minimise the incidence of consumers purchasing spoilt or sub-standard red meat. • Results of a Chinese consumer survey confirmed the outcomes of our discussions that overall the Chinese consumer prefers fattier beef than lean, but the interaction between age and gender means there are opportunities for lean beef that could still be realised. A similar survey is now being conducted with Japanese and Korean consumers. Outcomes of these surveys would


enable us develop strategies to increase the utilisation of lean beef in Asia. • A strong collaboration of providers in the Halal space - from technology manufacturers to religious authorities - has been established, which has attracted overseas interest in AgResearch's capability developed during the life of this programme. This is important as it will provide credibility to the research in this space and potential for future collaborative Halal meat research in the programme.

Food provenance and assurance

Food exports form a central pillar of New Zealand’s economy and are critical to the nation’s prosperity. The Food Provenance and Assurance programme has a major role in protecting and enhancing the export value of the pastoral sector and undertakes research along the whole “fork-to-farm” continuum to ensure that New Zealand’s exports are safe, of superior quality, have defendable provenance, are produced in ways that are attractive to consumers and underpin the “New Zealand Brand”. This includes food safety, animal welfare and opportunities to create value through New Zealand products. 2014/2015 Key Achievements: • Results from this year’s programme contributed to New Zealand’s overall understanding of the risks posed by Shiga Toxin-Producing Escherichia coli (STEC - a disease-causing bacterium) and spore-forming bacteria to its agricultural economy and market access to two key markets: the United States and China. • The programme completed the first-ever New Zealand study to focus on the prevalence of the “top 6” STEC at the herd level in farm dairy effluent. The study has provided an improved understanding of the prevalence of the “top 6” STEC associated with natural contamination of livestock entering the slaughter plant, which will inform future risk assessment and intervention strategies both on-farm and at the slaughter plant. • A discussion paper entitled ‘On-farm intervention/pre-harvest control strategies for the reduction of STEC in New Zealand dairy cattle’ was prepared and circulated for feedback to AgResearch staff with expertise in animal welfare, environmental microbiology, nutrient management, farm systems, farm adoption/management and animal nutrition; and to external stakeholders and collaborators with expertise in veterinary and public health, modelling and statistics, government and food export regulation. • A Bayesian network model (a type of probabilistic statistical model) to identify critical control points for the reduction of STEC on-farm was developed by AgResearch internal experts and external stakeholders. This model, together with the discussion document (described above) will provide a framework through which effective on-farm interventions can be identified and evaluated. These outputs also provide a framework through which the impacts of new technologies and future farming practices on food safety and animal welfare can be investigated discussed and considered in the meat and dairy industries. • Consultation with meat and dairy industry partners resulted in the definition of priority areas for food provenance, and counterfeiting was identified as being an issue which is very relevant to these industries. This consultation has supported the development of a science plan that aligns well with stakeholder needs.

Integrated wool science (Ran as two separate projects prior to 2013/14, namely: 'Applied science for wool' and 'Keeping New Zealand wool products at the cutting-edge through enhanced wool quality')

The aim of this programme is to deliver a comprehensive mix of fundamental and applied science across the whole of the wool value chain, in order to facilitate development of novel wool products and wool processing techniques, discover new uses for wool, and ensure sustainability of the New Zealand wool industry. Ultimately this will lead to increased export earnings and improved economic sustainability for the New Zealand wool industry, from grower to late-stage processor. Some aspects of this large wool research programme involve Māori stakeholders. 2014/2015 Key Achievements: • A model was created and adapted into a high-throughput wool fibre analysis tool which uses data on the form and structure of wool fibres (known as morphological phenotypic data) to calculate a particular wool fibre's buckling behaviour. This model is significant in that it will enable several industry applications including reduction of prickle in woollen apparel to make the apparel more comfortable for the wearer. Such developments are of great value to the New Zealand wool industry, as they provide product differentiation and superior quality wool products. • A hydroentangling process (the use of high-speed water jets to bond fibres in a web to produce a coherent fabric structure with the required properties) has produced lightweight wool fabrics. There is the potential for these newly-developed lightweight wool products to enter the market of interlinings (a type of trimming which is placed in between two layers of fabric in apparel), which would result in lighter garments which are more comfortable for the wearer. This is a significant opportunity because the interlinings market is high volume and successful entry of these products into the market would result in increased export earnings from New Zealand wool products. • Research into human foot skin health revealed that skin health is improved when wearing wool socks versus other materials. This information can now be used by project stakeholders, including New Zealand Merino, in their marketing material for woollen socks. Credible scientific evidence to support the health benefits of these socks will add value to the products, increasing revenues and profitability in national and export wool markets. • Developed a non-chlorine based shrink-resist treatment for woven wool products. This will help to improve the eco-rating of wool processing and improve market access.

Two aggregated projects (common sector alignment): i) 'Meat condiments'; and ii) 'Risk assessment of residues in food: the cost: benefit of prevention against mitigation'

These small projects were 'one-off' investments during 2014/15. Whilst the research carried out in each project was distinct, all were aligned to the Meat & Fibre Off-Farm sector. The projects were aimed at increasing the value of New Zealand meat products via improved food safety and product differentiation, in order to meet the needs of new and existing markets. Ultimately the results will contribute towards improving consumer perceptions and demand for New Zealand meat, which in turn will increase sector profitability. Additionally, the 'Meat Condiments' project is specifically relevant to Māori (see below for details). 2014/2015 Key Achievements: • 'Meat Condiments' project: Two AgResearch teams visited Bryce-Hare Whanau Trust and gathered information regarding Kinaki (traditional Māori meat condiments). The information gathered was subsequently used to develop a proposal on 'Functional Kinaki' (condiment) for the Trust and the wider Tuhoe iwi at the Ruatoki Valley to consider. The proposed work has the potential to increase the revenue of the Ruatoki Valley Hapu and the Iwi as a whole through export of high value functional condiments. • 'Risk assessment of residues in food: the cost: benefit of prevention against mitigation' project: A comprehensive literature review was completed into the issue of contaminants and residues in food, which can have serious detrimental impact on New Zealand international market access. While the New Zealand food and safety system has well established programmes to monitor the contamination/food residue problem at national level, there is an imminent risk to the industry due to seasonal changes affecting farms. Overall, the review identified that the most suitable way to deal with the problem is via a systems approach, as there are several sets of information available which can be connected to offer a useful solution to farmers and industry to deal with the risks posed by residues in food.

Across all sectors 2014/2015 $0.9m AgResearch Science Conference

The AgResearch Science Conference is a biennial event. It is strategically significant because it provides a rare opportunity for a large number of AgResearch science staff to come together in a single-location conference aimed at knowledge sharing, collaboration building and scientific excellence. This is especially important given that AgResearch staff are located in four cities across New Zealand (Hamilton, Lincoln, Palmerston North and Mosgiel), and face-to-face staff interactions across these sites are limited due to distance. Each Science Conference follows a different theme, which is informed by 'here and now' issues in the New Zealand pastoral sector. 2014/2015 Key Achievements: • The 2015 Science Conference was held in Palmerston North on the 21st and 22nd of April 2015. These dates were coordinated to coincide with a Science Advisory Panel (SAP) visit. The general theme of the conference was 'Science Vitality,' and it provided a good balance between robust science content, informative presentations and opportunities for engagement. Many links between staff and external parties have been established as a direct result of the conference, which has in turn


enabled the potential for some exciting opportunities for future internal and external collaborations across all AgResearch science groups and teams.

Curiosity Fund

The Curiosity Fund is one of the mechanisms by which AgResearch helps seed early stage ideas. Core Funding has been allocated to this fund because it represents an opportunity to research interesting and creative ideas that may not otherwise be enabled through other Core Funding. Each year, funding for projects of up to $35,000 each is available. During 2015/15, there was a total of 23 Curiosity projects, 6 of which were 50% co-funded by KiwiNet ($17,500 each). The Curiosity Fund is focused on alignment with the Statement of Corporate Intent (SCI) and supporting the achievement of the Impacts therein. 2014/2015 Key Achievements: • 'The human brain shield: how can eating dairy products prevent Alzheimer's?' project: Laboratory studies have shown that several dairy-based ingredients have a positive effect on the human Sirtuin1 gene (a protein which is linked to longevity in mammals). This is a positive step towards identifying the mechanisms by which dairy intake positively influences brain function and lowers the risk of developing dementia. • 'Adding value to milk: a product to enhance iron uptake' project: A laboratory-based test to quantify the bioavailability of iron in foods was developed. This test will be a valuable tool in developing foods with enhanced nutrient delivery properties and for understanding the effect of processing on the nutritional quality of foods.

Agricultural Policy & Māori Agribusiness

2014/2015 $7.3m 2013/2014 $7.4m

Climate change and the pastoral sector: impacts and adaptation

The primary aim of this project is to provide forewarning of the impacts of climate change on soil/plant/animal interactions in pastoral agriculture and to develop adaptations that will enable New Zealand agriculture to ameliorate or take advantage of the changing environment. Such adaptational activity includes future-proofing key technologies (e.g. biocontrol) so that they remain effective under projected future Carbon Dioxide (CO2)/moisture conditions. A further goal is to provide the information necessary for decision makers (farm/regional/national scales) to make informed choices in areas where the timescale and nature of the activity mean they may be influenced by climate change. 2014/2015 Key Achievements: • Investment in the New Zealand Free Air Carbon Dioxide Enhancement (FACE) experiment has produced data and expert knowledge on climate impacts that are used nationally and internationally to conduct climate change impact studies and develop adaptations that will enable pastoral agriculture to meet the challenges and opportunities presented by climate change. Future-proofing important technologies is one way this is achieved. Current projects involve scientists from New Zealand, Australia, Europe, Asia, Africa and America. Indications of reduced nitrogen fixation (conversion of atmospheric nitrogen to a usable form of ammonia which is essential for productivity in plants) under elevated CO2 have now been confirmed in a range of white clover and lotus germplasm pastures, which is an undesirable consequence of climate change as it negatively affects pasture productivity. Research and experimentation in 2014/15 has demonstrated that the impact of this is significantly reduced using plant material adapted to CO2. This is an important finding, as it indicates that effort will be required to maintain nitrogen fixation over the next decades.

Life Cycle Assessment (LCA) methodology and application

Life Cycle Assessment (LCA) is a key methodology to evaluate the multiple resource use and environmental effects of agricultural products throughout their life cycle from production to consumption and waste stages. This project develops capability in LCA by examining new and developing environmental indicators and evaluating these methods for their applicability to products produced from New Zealand pastoral farming systems. 2014/2015 Key Achievements: • Capability in Life Cycle Assessment (LCA) has been enhanced through training and development of several researchers. This will enable greater impact and scientific vigour in future project research (on environmental analysis of farm systems and agricultural products throughout the supply chain) carried out with the Ministry for Primary Industries (MPI) and the New Zealand agricultural industry. • A preliminary LCA of dairy intensification using multiple environmental impact categories revealed an increase in most impacts per kilogram of milk. This can be used to identify contributors to environmental impacts and opportunities for reduction of impacts while avoiding trade-offs between different impacts. • Methodology development occurred in the preliminary assessment of multiple environmental impact categories for New Zealand dairying. This led to the project's lead scientist being selected by MPI, Fonterra and Beef+Lamb NZ as a technical expert in liaising with a key new European Commission project on development of methods for Product Environmental Footprinting of milk and red meat products.

Delivering green growth in the New Zealand pastoral sector value chain: industry case studies

The aim of this project is to generate (via industry case studies) the knowledge, technology and opportunities required to enable the NZ pastoral sector to transition to green growth. Green growth is defined as "the NZ pastoral sector contributing to economic growth and enhancing NZ’s provenance". The current case study is being undertaken on the Taupo Beef supply chain. 2014/2015 Key Achievements: • The Green Growth project connected three models: a farm system optimisation model, Life Cycle Analysis, and a Value Chain Model, in order to integrate New Zealand red meat product attributes such as environment and supply chain. Learnings put in context the challenges for farmers (Taupo Beef) focusing on niche markets that promote provenance in order to remain financially viable while farming within environmental limits such as a nitrogen cap. Farmers must adapt their farm systems and supply chain relationships to manage supply and demand of niche markets. For the particular case studied, findings showed the cost of year-round supply from a single farm meant the market premium achieved was not enough to cover the cost of supply and farming under a nitrogen cap, however the information gathered will inform strategies that will have the potential to economically deliver red meat products that meet key attributes of the New Zealand provenance in relevant overseas markets. It will also enable AgResearch to provide industry partners with technologies and practices that have been demonstrated to enhance key attributes of the New Zealand provenance. This will support the industry partners in maintaining and growing access to high-value markets for New Zealand’s pastoral products.

Overseer science and capability (Ran as two separate projects prior to 2014/15, namely: 'Capability and capacity building to support scientific development of the OVERSEER Nutrient Budgets decision support tool' and 'Overseer Questions & Answers [Q&A]')

The OVERSEER® Nutrient Budgets Model (Overseer) is the primary tool used to support good nutrient management practice in New Zealand farming systems and AgResearch has managed its development since the early 1990s. Overseer is jointly owned by the Fertiliser Association of New Zealand (FANZ), the Ministry for Primary Industries (MPI) and AgResearch. The primary goal of this core funded project is to develop the capability and capacity of AgResearch staff to deliver a robust and relevant Overseer model more effectively and thereby benefit sustainable production across all sectors of the New Zealand agricultural industry. 2014/2015 Key Achievements: • Nitrogen immobilisation research: A soil incubation experiment has shown that animal urine addition stimulates nitrogen (N) cycling, and that soils recently converted from forest to grazed pasture show net immobilisation (removal of N) whereas soil under grazed pasture for greater than 25 years show net release of N. These findings represent an advance in understanding of N turnover in grazed pastures. The novel methodology and conceptual model developed in the project has potential to be developed and used in other research programmes to estimate N release. • Overseer Science Projects: A science peer review of the phosphorus (P) loss model was conducted by AgResearch, communicated with the Overseer General Manager and is currently under review by the Overseer owners. The report has significant implications for how Overseer may be used to estimate P loss in regional council policy planning. • Model developments and improvements: Overseer Science and Capability continued to support capability building, fundamental nitrogen research and science-model development in six projects in 2014/15. Major developments included the Overseer Re-Design process in collaboration with the Overseer owners, which re-defined and improved the Overseer software


development workflow processes in response to the increasing demands from stakeholders. Science-related model development consisted of four major projects: fundamental soil nitrogen research, science peer review and sub-model evaluation exercises, all of which provide evidence and represent a commitment to robust science quality assurance in Overseer.

Factors affecting phosphorus leaching and relevance for Overseer

Until recently, leaching loss of phosphorus (P) from soils had been considered insignificant and escaped research interest because of the assumptions that P is relatively tightly bound to soil and does not leach into groundwater. However, recent evidence suggests P enrichment of groundwater is occurring, especially under some intensive land-use activities. Where there is connectivity, P loss to groundwater may negatively impact surface water quality. This project, therefore, aims to 1) enhance understanding of the factors which may affect leaching loss of P from soils and its transport in groundwater; and 2) incorporate this data into the Overseer Nutrients Budget Model, thereby making the model more relevant and robust. 2014/2015 Key Achievements: • Research has demonstrated that P loss from free drainage soils is affected by both urine and farm dairy effluent application (FDE). Results showed that while irrigation intensity had no effect, urine application significantly reduced P loss. Additionally, it has been demonstrated that there is greater P loss from soils irrigated with FDE, as well as significant differences between soil types on the farm. These results highlight the importance of land management decisions that can affect P loss. • Several experiments investigating the rates of movement and attenuation of different sources of P (farm dairy effluent, municipal effluent and inorganic P) in groundwater have been completed. Results indicate that P is moving in a high velocity gravel aquifer - which is similar to many unconfined aquifers across New Zealand - although it is limited to less than 40 metres, and there are differences depending on the on the source of P. In summary, the study shows that in some situations, the contribution of P to surface water through groundwater is limited.

Adoption and practice change project

AgResearch undertook this project in 2013/14 to ensure that it is better equipped to fulfil its Core Purpose, specifically through enhanced delivery of the 18 target Impacts presented in the 2013-2018 Statement of Corporate Intent. By implementing the Adoption and Practice Change (A&PC) Roadmap, AgResearch will ensure that effective adoption and practice change occurs from its research activities, thereby playing a catalysing role in ensuring more effective adoption and practice change across the wider New Zealand pastoral agriculture sector. 2014/2015 Key Achievements: • Developed practical methodologies to apply an innovation systems approach to better understand the barriers and opportunities to adoption and practice change. This will enable more contracts with stakeholders, for example with Horizons Regional Council and the Ministry for Primary Industries (MPI), where an innovation systems approach was used to identify barriers and opportunities to the adoption of farm plans in the Horizons Region. • Tools and processes (developed in 2013/14) for planning, monitoring and evaluation for impact at the project level, have been used within AgResearch for major proposals and funding rounds. This is enabling researchers to plan and monitor for impact from the beginning of the project, and consider the involvement of next and end users throughout the programme, in order to deliver the outcome benefits required in the SCI. • The Beyondresults.co.nz website and associated communication material have been developed to clearly deliver the messages associated with the programme to internal and external audiences. Understanding of adoption and practice change concepts will be enhanced with clear messages and examples that are available to all. • Developed research capability in monitoring and evaluation, innovation systems and adoption and practice change. Additionally, four conference / journal abstracts / papers (related to this project) were accepted for presentation or publication. Via these avenues, AgResearch is gaining credibility in field of monitoring and evaluation and adoption and practice change.

Better border biosecurity (B3)

B3 is the premier science vehicle underpinning New Zealand’s current practice for plant-based border biosecurity. It is a voluntary collaboration between science partners including AgResearch, Plant & Food Research and Scion. The programme delivers science-based solutions (along five Science Themes) to support and protect the international competitiveness of New Zealand's export industries and its unique terrestrial ecosystems. Additionally, research in the programme is specifically relevant to Māori and protection of Māori land. 2014/2015 Key Achievements: • AgResearch provided technical support to the Ministry of Primary Industries (MPI) and Department of Conservation (DOC) during two major eradication programmes: for the great white butterfly in Nelson and the Queensland fruit fly in Auckland. Modelling and geospatial data analysis by AgResearch researchers underpinned many of the operational decisions made during these programmes. Both eradication programmes appear to have been successful, with the last butterfly being observed in December 2014 and the last fruit fly in March 2015. • Completed a proof-of-concept study of the PRONTI (Prioritising risks of non-target invertebrates) model, with AgResearch contributing one of the case studies. PRONTI has been proposed as a more objective method of determining a test species list for biosafety testing at the NZ border for intentional introductions. In the case of the Moroccan biotype of Microctonus aethiopoides (biocontrol agent for Sitona discoideus) the model successfully prioritised a large proportion of the species now known to be attacked in the field by this parasitoid. The Environmental Protection Agency (EPA) now wishes to see PRONTI used in an application for a biological control agent release to determine the extent to which it will assist in decision-making in the future. • Completed the first version of a risk-based tool to quantify and optimise allocation of sampling effort to detect new pests and diseases in forestry. This tool has potential for use in the pastoral sector, should the New Zealand pastoral industries wish to implement a biosecurity surveillance system. • B3 became a member of the International Plant Sentinel Network, which will lead to reciprocal international research in the future.

Resilient communities (previously titled 'Rural futures')

The aim of the Resilient Communities programme is to continue to build capacity through the use of the Exploring Futures Platform and multi-agent simulation model, both of which were developed in the previous Rural Futures project. This will directly contribute towards increasing the capacity of rural communities and enterprises to adapt to changing farming conditions in ways that balance economic, environmental, social and cultural imperatives. New Zealand rural communities will therefore be able to increase their long term resilience and sustainability and to prosper in an environment of limits, market volatility and uncertainty. 2014/2015 Key Achievements: • Use of the Exploring Futures Platform (EFP) process by external stakeholder groups demonstrated its potential to assist groups to explore possible future scenarios for their region, and the possible impacts, consequences and unintended consequences of these futures. The EFP will be a key tool for policy makers to use to inform policy decisions for their region. • Use of the Exploring Futures Platform (EFP) process within AgResearch demonstrated its potential to assist groups to explore the relevance and potential impacts of their science on farming systems of the future (10-20 years out). The EFP will be a key tool for AgResearch staff to use to explore the relevance and potential impact of new technologies on future farming systems. • Libraries of data which represent pastoral farming systems and the appropriate tools to develop these libraries were extended in the RFMAS (multi-agent simulation model). This will enable wider use of the EFP within AgResearch and with external stakeholder groups. It will also enable appropriate validation of the RFMAS model. • Publications, reports and conference presentations were a key focus of the project this year. These publications and presentations will raise awareness of the existence and increase use of the EFP and enable appropriate validation of the RFMAS model. • Data from all outputs were integrated and used to improve the Exploring Futures Platform (EFP) and to enhance and further validate the RFMAS.

Research capability: Māori social scientist linked to

Up to 80% of Māori land in New Zealand has been identified by the government as being unproductive and relationships between Crown Research Institutes (CRIs) and Māori agribusinesses have historically yielded mixed results. The aim of this


Primary Innovation programme

project, therefore, is to co-develop with Māori entities an integrated set of research principles, in the form of a framework (He Korero Rangahau Ahuwhenua; KRA) to guide the formation and maintenance of research relationships between Māori agribusinesses and CRIs. Further, this research is intended to inform future work, namely, the introduction of Agricultural Innovation Systems approaches into research with Māori agribusiness. Through the strengthening of Māori agribusiness/CRI relationships, the project will contribute towards increasing production from Māori agribusiness, which will in turn improve the productivity and profitability of the New Zealand pastoral sector as a whole. 2014/15 Key Achievements: • A framework and kaupapa for research-Māori entity engagement (He Korero Rangahau Ahuwhenua; KRA) was documented and evaluated for an engagement of AgResearch Māori Agribusiness and research staff with Te Tumu Paeroa (The New Māori Trustee). The importance of AgResearch-Māori entity relationships embodying the principles and practices in He Korero Rangahau Ahuwhenua was highlighted in the overall positive scoring against these principles of AgResearch staff involved in the engagement with Te Tumu Paeroa. He Korero Rangahau Ahuwhenua provides a proven framework for supporting the success for AgResearch and Māori of future AgResearch-Māori entity engagement.

Future farming systems

The objective of this project is to take a proactive thought leadership role in future farming systems to ensure the future prosperity of the New Zealand pastoral sector. This will be achieved by developing capability to interrogate future opportunities and threats, and subsequently using this information to guide the design of potential farm systems and linked research programmes. An integrated research-based analytical assessment structure will be generated to aid the development and evaluation of pastoral farming futures. 2014/2015 Key Achievements: • The major achievement of the first year of this programme was the development of a comprehensive set of future farming systems drivers. The development of these drivers was carried out in consultation with industry, stakeholders and farmers, thereby representing a diverse range of end-user viewpoints. This is significant in that it will ensure that future research in the programme is relevant to both current and future industries, which will directly increase its impact for New Zealand. • Consultation with Māori agribusiness sector led to Te Kakenga Ngatahi, a MBIE Vision Matauranga project with The New Māori Trustee Te Tumu Paeroa (TTP). That project will investigate how Māori landowners can achieve greater returns from their land whilst meeting community, culture and inter-generational objectives. It also creates an opportunity to develop further research to support current and emerging farming systems for Māori business. • The use of the ‘framework’, tools that have been identified from the literature and existing research networks has enabled the project team to undertake new and more comprehensive approaches to evaluating future farming systems. This has increased the potential for greater impact for New Zealand industry from AgResearch research activities. • Bayesian network modelling (a type of statistical modelling that represents a set of random variables and their conditional dependencies), training and application - to systems thinking in nitrogen efficiency research - has enabled new approaches to identifying research gaps and opportunities which are systems-based and cross-disciplinary. New approaches to addressing industry challenges will increase impact of research and will contribute towards ensuring the future prosperity of the New Zealand pastoral sector. • Thought leadership, new teams, approaches and tools have enabled project team members to develop a much deeper understanding of the future challenges for farming systems, to begin to develop thought leadership positions and to consider the implications and opportunities for future systems and component research.

The future rumen

The aim of this project is to characterise the microbial community structure of the rumen (the first chamber of a cow's stomach) of dairy animals with differing feed conversion efficiency (FCE). Improved FCE is a major aim of the New Zealand dairy industry as it improves animal health and productivity, and therefore increases industry profitability. The project's research outcomes will generate new knowledge of whether high and low feed conversion efficiency (expressed as residual feed intake) in dairy cattle is linked to rumen microbial community structure or activity. If it is, this would indicate that feed conversion efficiency differences may be a consequence of differences in rumen function. An understanding of its mechanisms may then help enhance feed conversion efficiency. 2014/15 Key Achievements: • Profiling the microbial populations in the rumens of dairy cows and weaner calves with differing residual feed intakes, which is a measure of feed conversion efficiency (FCE) showed that apparent differences in the rumen microbial populations that correlate with FCE may arise by chance. Scrutiny of data from overseas studies suggests that other reports of rumen microbial community correlations with FCE may also be due to chance associations. This suggests that FCE, at least as measured in the two groups of animals used in this study, is not a result of rumen microbial community structure, and that its causes are elsewhere in the animal-rumen system or are the result of differences in rumen microbial gene expression.


Statement of responsibility For the year ended 30 June 2015

AgResearch Limited certifies that:

1. The Board of AgResearch Limited accepts responsibility for the preparation of the annual financial statements and the judgementsused in them;

2. The Board of AgResearch Limited accepts responsibility for establishing and maintaining a system of internal control designed toprovide reasonable assurance as to the integrity and reliability of financial reporting; and

3. In the opinion of the Board of AgResearch Limited, the annual financial statements for the financial year ended 30 June 2015 fairlyreflect the financial position and operations of AgResearch Limited and Group.

Sam Robinson Michelle Alexander Chair Director 28 August 2015 28 August 2015


Directory Executive Team

Information Dr Tom Richardson Chief Executive David Godwin Finance & Business Performance Director Dr Warren McNabb Research Director Andrew McSweeney Shared Services Director Dr Greg Murison Partnership & Programme Director

Auditors Deloitte on behalf of the Auditor-General Bankers Westpac Banking Corporation Solicitors Buddle Findlay, Auckland Patent Attorney James & Wells, Hamilton

Board of Directors Contact details Sam Robinson Chair Barry Harris Deputy Chair Teresa Ciprian Director Jeff Grant Director Dr Michael Dunbier Director Andrew Macfarlane Director Tania Simpson Director Dr Peter Stone Director Michelle Alexander Director

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