From December issue of NZ Manufacturer www.nzmanufacturer.co.nz The Year That Was

-Sean Doherty

2025 was a brutal year for most New Zealand manufacturers, with many focused on staying afloat rather than growing. Rising costs for electricity, gas, labour, and raw materials squeezed margins across almost every subsector.

Official data shows manufacturing employment fell by 2.6% meaning around 6,300 jobs were lost in just 12 months. The pain was felt from the factory floor to senior leaders, with many firms freezing hiring, cutting shifts, or closing lines to survive.

Primary processing feeling the strain

New Zealand’s traditional strengths in meat, timber, and dairy processing were not enough to shield the manufacturing sector from mounting cost pressures. Even large, historically resilient processors were forced to seek offshore funding and recapitalisation to keep plants running.

These moves reflect a deeper reality: high input costs and intense international competition are eroding the ability of local processors to reinvest in plant, technology, and people at the pace required to stay globally competitive.

Construction-linked manufacturing hit hard

Manufacturers tied to the domestic building and construction sector took the a big hit in 2025. As the pipeline of new housing and commercial projects shrank, demand for building-related products dropped sharply.

Several major timber mills closed, leading to hundreds of job losses. While high electricity and operating costs were part of the story, the real challenge was a combination of a weaker local construction pipeline and new international competitors, which made large, capital-intensive investments in New Zealand mills increasingly hard to justify.

Ownership changes: selling to survive

The need for capital and stability drove some of the most significant ownership changes the sector has seen in decades. Farmer-shareholders at Alliance Group voted to sell a 65% majority stake to Ireland’s Dawn Meats for $270 million, ending 77 years as a fully farmer-owned co-operative.

Fonterra is also reshaping itself, moving to divest its major consumer brands, including Anchor and Mainland. The planned sale of these brands and associated foodservice and ingredients businesses to French dairy giant Lactalis, reportedly worth $4.22 billion, signals a major strategic shift towards a tighter focus on ingredients.

Similar capital-raising moves by Synlait Milk and Bostock Brothers in 2024 show this is now a clear trend, not a one-off.

Bright spots: exports, tech, and digital

Amid the gloom, there were genuine bright spots that point to where future growth may come from. Food and beverage exports performed strongly in 2025, helped by a weaker New Zealand dollar and solid global prices for red meat.

High-tech manufacturing has now firmly established itself as New Zealand’s third-largest export earner. Sectors such as aerospace (for example, Rocket Lab) and HealthTech (including Fisher & Paykel Healthcare) are stepping into the gap left by slower-growing traditional manufacturing.

The last Callaghan Innovation survey showed 80% of manufacturers report they are now familiar with, or actively deploying, Industry 4.0 tools such as automation, AI, and data analytics, an encouraging sign that the sector is serious about lifting productivity and competitiveness.

What needs to change in 2026

For 2026 to mark a shift from survival to sustainable growth, three things need to happen: more investment, smarter policy, and targeted support.

Lower interest rates and the Government’s Investment Boost Scheme create a window for manufacturers to invest in efficiency-boosting technology and modern equipment while capital is more affordable.

Science and innovation policy also need to move faster. Advanced manufacturing should sit at the heart of any new national science and technology institutions, not on the periphery.

While the primary sector still absorbs a large share of government R&D spending, advanced manufacturing offers some of the highest potential for export growth, quality jobs, and spillover benefits to the wider economy.

Where Budget 26/27 can make a difference

For policy to really shift the dial, Budget 26/27 will need to back manufacturing in a more deliberate way. Two key areas stand out:

• Workforce development:Dedicated co-funding for training in Lean Manufacturing and digital skills so manufacturers can maximise the benefit from the new technology being installed.
• Technology adoption:New tools beyond traditional R&D tax credits, such as a Productivity Growth Grant, to de-risk investment in advanced technologies that are not yet widely adopted in New Zealand.

If 2025 was about surviving, 2026 needs to be about positioning: using investment to build a more productive, technology-enabled, and globally competitive New Zealand manufacturing base.