annual report 2017 - agresearch.co.nz statement of comprehensive income 41 consolidated statement of...

Annual Report 2017

G36

Delivering prosperity by transforming agriculture

About AgResearch 02

Chair and Chief Executive’s review 04

Our highlights 06

Celebrating AgResearch scientists 08

The impact of our science 12

Snapshots of success 2016/17 28

Our people – Tō tātou iwi 30

Key performance indicators 34

Performance indicators 36

Financial performance indicators 40

Consolidated financial statements 41

Consolidated statement of comprehensive income 41

Consolidated statement of financial position 42

Consolidated statement of changes in equity 43

Consolidated statement of cash flows 44

Statement of accounting policies 45

Notes to and forming part of the consolidated financial statements 52

1 Revenue 52

2 Operating expenditure 52

3 Other gains/(losses) 53

4 Investments in associates 53

5 Taxation 55

6 Equity 58

7 Property, plant and equipment 58

8 Trade and other receivables 61

9 Trade and other payables 62

10 Biological assets – livestock 62

11 Biological assets – forestry 63

12 Other investments 64

13 Other non-current receivables 65

14 Provisions 65

15 Other non-current liabilities 67

16 Investments in subsidiaries 67

17 Reconciliation of surplus after tax with net cash flow from operating activities 68

18 Heritage assets 68

19 Operating lease arrangements 69

20 Joint operation investments 69

21 Transactions with related parties 70

22 Financial instruments 72

23 Contingencies and commitments 74

24 Capital management 74

25 Fair value measurements recognised in the statement of financial position 75

26 Significant events after balance date 75

Auditor’s report 76

Statutory reporting 78

Core funding report 82

Statement of responsibility 113

Corporate Governance 114

Directory 116

Our vibrant and innovative organisation is truly national in its reach, with staff spread across four campuses and 11 farms in the Waikato, Manawatu, Canterbury, Southland and Otago.

Agriculture is one of New Zealand’s largest export income earners, 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 wider industry.

In New Zealand that prosperity over the next decade and beyond will be driven by the growth in value of exports from our primary sectors. Hence the government’s target to double the real value of exports from the primary sector by 2025 and investment towards achieving irrigation schemes and the Primary Growth Partnership programmes, as two examples.

But that growth needs to be balanced with the need to ensure the quality of our environment and our ability to access and utilise those resources for recreation.

These challenges present a national conundrum. How do we grow the value of our primary sector exports while also meeting the escalating aspirations of our communities for cleaner, more usable lakes and rivers?

AgResearch is tackling this challenge through its research and development in areas of pasture-based animal production systems and agriculture-derived greenhouse gas mitigation and pastoral climate change adaptation.

Our focus extends to agri-food and bio-based products and agri-technologies, and we lead New Zealand’s forage science initiatives with our work on new plant varieties. 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.

Another area we study is land use and land management in relation to environmental impacts and climate change.

For 25 years now, AgResearch has partnered with the pastoral sector to identify and deliver the innovation that is needed to create value for New Zealand.

About us

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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 also 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. Also in development are advanced technology options for animal reproduction and enhancement of animal performance.

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

And we do all this while building on our commitment to deliver solutions focused on the distinctive needs of Māori in the pastoral sector to assist in increasing the performance of Māori-owned farms.

There is no doubt that New Zealand needs science and research to lead the way in finding solutions for the challenges our environment and agricultural development face.

AgResearch is working closely with Government and the wider agricultural sector, and will continue to do so, to ensure all know what New Zealand needs, who will pay for delivering it and how it will be successfully delivered.

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AgResearch scientists are at the forefront of improving pastoral agriculture practices and outcomes for New Zealand. The research institute has a significant leadership role to play to ensure this country’s ongoing prosperity.

The work our scientists are doing in all areas of forage, animal science, environmental and farming systems science and the development of food and bio-based products is creating benefits and opportunities right across the value chain.

This support and innovation for the agricultural sector translates to wider benefit for the New Zealand economy. This is evident in the work AgResearch has been doing over the 2016/17 financial year, both in our world-leading research and our organisational transformation.

A key milestone was reached late in the financial year in one of our most significant programmes, our High Metabolisable Energy Ryegrass project. We were granted the appropriate permits to transplant seedlings into the field in the United States, which will allow us to test this promising technology outside the laboratory.

This project has involved the genetic modification of ryegrass in order for it to store more nutrition and energy. This translates to better, faster forage production, but the greenhouse trials have also delivered other potential benefits that may evolve into important environmental gains. This includes the potential for animals producing less methane when eating this ryegrass, and a reduction in nitrate leaching, as well as the plants being significantly more resistant to drought.

All of this cannot be properly explored in New Zealand under current legislation. However, we and our sector partners are committed to the evaluation of these technologies so New Zealand is not left behind the rest of the world, and the field trials in the United States are an important step in that process.

Our research highlights this year have also seen us deliver a new technology to supply sheep genotype data to Beef+Lamb Genetics, which combines DNA parentage and genomic selection assays using the new Illumina Infinium XT-96 array.

The rate of genetic gain in the New Zealand sheep flock accelerated significantly over the last decade due to the Central Progeny Test and Sheep Improvement Limited, largely using tests developed by AgResearch. The new technology should increase that rate, further lifting the $170 million per year of additional value to the New Zealand sheep industry that has been grown through genetic gain since 1995. Other science highlights have been our research identifying a previously unrecognised risk of treating ewes with long-acting anthelmintic drenches, and related research that challenges popular belief that drenching ewes around lambing time consistently provides production and financial benefit.

Our textile scientists have been working with an innovative New Zealand company to design wool filter masks that are now appearing as high-fashion items on the world stage. Our research for New Zealand’s sheep milk industry has led to new dairy sheep genetics being successfully imported into New Zealand to bolster the current stock.

AgResearch’s scientists are not just leading the way with research outcomes. They are also applying important thought leadership to some of the challenges facing the agricultural sector and our communities.

That includes the work our principal scientist Professor Stephen Goldson is leading around evolutionary changes in a common pest – the Argentine stem weevil. Unless addressed, those changes could have serious implications for agriculture and a subsequent impact of hundreds of millions of dollars for the economy.

Chair and Chief Executive’s review

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AgResearch’s scientists are not just leading the way with research outcomes. They are also applying important thought leadership to some of the challenges facing the agricultural sector.

For the past two decades this pest has been controlled by a tiny South American wasp, which Professor Goldson and his team introduced in the 1990s. But its effectiveness has been in decline for several years and researchers have noticed a resurgence in the weevil numbers.With a concern that other pests could also evolve and outflank the bio-controls, AgResearch’s scientists have begun research to get ahead of the issue and deliver solutions before the problem takes hold.

The organisation is also leading a new way of thinking in the dairy farming sector. This financial year has seen a swift conversion of two sheep and beef farms into a modern dairy research facility near Invercargill as part of a collaboration with DairyNZ and the Southern Dairy Development Trust.

The $5m investment by AgResearch was significant in more than monetary terms; it is an indication of the partnership we have with DairyNZ and the wider dairy sector to finding new science solutions that meet the farmer’s productivity and environmental objectives.This new facility was converted and ready for use by the end of the financial year. It gives our scientists based at nearby Invermay a facility to further their environmental work for the dairy sector, and deliver local farmers solutions for issues that are unique to their location.

Our other most significant financial investment is our development of innovation hubs with Lincoln and Massey Universities.

Both projects are on schedule, with early works already underway on the Lincoln site, and the design stages of both buildings nearing the end. The new facilities will both be completed and occupied in 2019, with over 50 AgResearch roles already moved to the new locations as part of our relocation programme.

The financial year ends with a pleasing upswing in our mid-year forecast, thanks to the dedicated efforts of staff to deliver their research contracts while maintaining vigilance in cost-control. This resulted in a net surplus after tax of $4.6m.

Our financial position remains strong with cash reserves of $59m available to fund our campus redevelopment programme and other investment plans. Our equity position at year end is $236.1m.

The end of the year sees another passing of the baton as Sam Robinson moves on from the role of chair and makes way for Jeff Grant. The nine years with Sam at the helm have seen some of this organisation’s boldest changes and AgResearch’s future will be all the richer for his diligence and commitment.

We at AgResearch look forward to the challenges and opportunities the 2017/18 year will bring as we build on our successes in transforming agriculture through world-leading pastoral science.

Sam RobinsonChair, AgResearch

Tom RichardsonChief Executive, AgResearch

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A solid financial performance was achieved despite changes in funding mechanisms, including reductions in Government funding and related co-funding which largely impacted our Farm Systems and Environment projects. Of the $6m-plus funding for the National Science Challenge, Our Land and Water, $3.5m is outsourced. Our prior years’ strategic reviews and implementation led to over $7m of reduced expenses this year and an all of business response to a call for cost reductions which

netted $1.5m in savings to budget. Our balance sheet and cash position to support operations and heading into the Future Footprint build programmes are strong. Our improved operating cash flow reflects the result for the year and changes in timing of cash flows. Some changes in the Future Footprint Programmes reduced the spend for construction and relocation costs. We delayed asset sales to optimise their use for science and the timing of disposals.

Our highlights

98%Increase in operating margin5%

Revenue per employee up by

619Total FTEs:FTEs = Full-time equivalent staff

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followers4,219

media releases336,137

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876Client reports submitted

269 1.17

Scopus-indexed papers

Published: Per scientist:

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Celebrating AgResearch scientists

Jenny Juengel – Fellow of the Royal Society of New Zealand

This prestigious recognition for Jenny Juengel is considered an honour of true international distinction in research and scholarship. Jenny is Principal Scientist with the AgResearch Reproduction Team, based in Invermay. Her research has focused primarily on explaining how genetic mutations in sheep have influenced their reproductive outcomes. A major outcome of her research has been the identification of the oocyte as the major influence on increasing or inhibiting fertility. Her contributions have helped to explain why some species have large litters while others are restricted to only a few offspring.

This has led to the development of five patents in field trials. Her discovery will open up a new conversation about the benefits of genetically modified technologies for the pastoral sector.

Jeanne Jacobs – Fellowship of New Zealand Institute of Agricultural and Horticultural Science

Jeanne is one of only a handful of AgResearch staff to become a Fellow, which acknowledges her work across the development of science and technology in agriculture and horticulture.

Her contribution to this area of science comes to the fore in her potato genome sequencing work – a study that was published in the prestigious journal Nature as the cover feature. Jeanne’s dedication to research, her knowledge and expertise in genetics and genomics, her mediation and leadership skills, and her drive for perfection and delivery of quality science are rightly recognised.

Her work will facilitate the development of markers and implementation of genomic selection in plant breeding programmes, thereby increasing the rate of genetic gain and reducing the time taken to deliver new commercial cultivars to market.

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The work and successes of AgResearch scientists are most usually celebrated collaboratively, as their work is supported by their excellent teams. However, notable national and international accolades require additional acknowledgement.

Sheryl-Anne Newman – Sir Arthur Ward Award, New Zealand Society of Animal Production

At the forefront of developments in the world-leading Sheep Improvement Ltd (SIL) genetic engine since its inception, Sheryl-Anne works closely with scientists from a range of fields and with sheep breeders who use SIL breeding values to improve their flocks and apply genetics research for the betterment of the New Zealand sheep industry. Sheryl-Anne increased the number of traits that can be analysed, improved the accuracy of evaluations and ensured data quality through the development of auditing tools. The sustained

improvement in genetic merit of New Zealand sheep and accelerations in the rate of this improvement are all partly due to this work. Without these gains, today’s New Zealand sheep farms would be a lot less profitable.

John McEwan – Honorary Life Member, New Zealand Society of Animal Production

This award recognises John’s significant service to the science of animal production. John played a key role in establishing a national performance recording database for the New Zealand sheep industry, which eventually

became Sheep Improvement Ltd. Once the SIL genetic engine was running, he established what has become a world-recognised bioinformatics group based on AgResearch’s Invermay campus. John has also made major contributions to genetics and genomics internationally with links to genomic projects and groups in Ireland, United States, Iceland, Norway, France, China, Australia and Brazil. He is a major contributor to the development and use of genotyping-by-sequencing methods which are enabling genomic analysis in many additional plant and animal species, both in New Zealand and abroad.

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Science prize winner

In vivo packaging of triacylycerols enhances Arabidopsis leaf biomass and energy densityPublished in: Plant Physiology.

This year’s Science prize was won by the team working on a technology designed to increase the amount of lipid and therefore energy levels contained in a plant. To achieve this a synthetic gene that generates a protein that coats and protects lipid droplets, cysteine oleosin, was

expressed at the same time as a gene encoding diacylglycerol acyltransferase (DGAT1). This led to an increase in energy density and a reduction in photorespiration in the model species Arabidopsis thaliana via the production and encapsulation of neutral lipids.

This technology saw a 2-, 3-, and 5-fold increases in the fatty acid content of the mature leaves, senescing leaves, and roots, respectively. It has also achieved a 24% increase in the carbon dioxide assimilation rate per unit of leaf area and a 50% increase in leaf biomass.

We consider this technology to be a game changer, and it has already gained a lot of attention from AgResearch’s key partners for forage plants. Once the technology is validated in field trials, this discovery will open up a new conversation about the benefits of genetically modified technologies for the pastoral sector.

Technology prize winner

Strategic winter grazing practices for reducing contaminant losses from grazed winter forage crops. Winning the annual AgResearch technology prize is not necessarily about developing a widget, as this worthy recipient shows. The simple technology is a new system of strategic winter grazing that can deliver significant environmental impacts by reducing surface runoff losses of water contaminants from winter forage crops.

The system recommends recognising and avoiding critical source areas (CSAs) of contaminant loss from landscapes used for winter forage cropping, and modifying grazing direction and break layouts to protect CSAs for as long as possible. Protecting a 10m-wide CSA buffer (equivalent to 2% of the paddock area) for as long as possible has shown to deliver significant environmental benefit.

This high-effect, low-cost technology solution has been embraced and adopted by industry as well as regional councils. Feedback from the farmers indicates this technique is easy to implement, incurs little to no cost, and enables them to demonstrate how their farming operations are adopting better environmental systems.

Internal science awards

Ross Mongahan, Tom Orchiston, Seth Laurenson

Some of the team: Ruth Cookson, Somrutai Winichayakul, Richard Scott and Nick Roberts

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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, as outlined in our Statement of Core Purpose.

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. We strive for the outcomes listed below through the specific impact areas on the right.

The impact of our science

Outcomes

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

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

Ensure that New Zealand’s pastoral sector is able to protect, maintain and grow its global market access

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

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Impacts

Improved dairy on-farm performance

Improved production from home-grown feed

Improved rate of genetic gain in the national herd

Improved animal health and milk quality

Adoption of new farm management practices which improve productivity

Control targets met for nationally monitored diseases

Improved animal welfare

Improved meat and f ibre on-farm performance

Improved productivity of forage

Improved productivity in meat- and fibre-producing animals

Improved animal health status of meat- and fibre-producing animals

Continuous improvement in farm management practices

Improved returns from dairy products

New high-value dairy and food solution products and processes

Improved returns from meat and f ibre products

Meat products and processes which consistently meet the needs of existing and new markets

Improved processing efficiency

Higher value wool products

Improved pan-sector and Māori agribusiness performance

Reduced environmental footprint of pastoral farming operations

Practical policy solutions developed and adopted

Improve on-farm productivity in Māori agribusiness enterprises

New products from Māori agribusiness enterprises

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ProjectThis project looks at ways to enhance the production of genetically modified ryegrass to enable it to grow faster and to store more energy and nutrition. Trials in the greenhouse have shown this high metabolisable energy (HME) ryegrass grows up to 50% faster than control grasses, and contains higher levels of lipids in the leaf. For every 1% increase in lipids, a 5% decrease in methane could be expected, potentially meaning (according to research to date) a reduction of up to 23% in greenhouse gas emissions from the livestock that eat it.

The modelling also suggests the ryegrass will reduce nitrogen levels in animal urine. An unexpected benefit was the discovery that the HME ryegrass has a 9% increase in water use efficiency compared with control grasses in the greenhouse, suggesting drought resistance capability. Field trials of the HME ryegrass are now underway in the United States.

Benefit to New ZealandThe successful development of this HME technology will have wide ranging benefits if it is able to be used in New Zealand. A drought tolerance grass will ensure a reliable feed supply for farmers, and the reduced nitrogen levels in animal urine will positively impact pastures and water races. Higher growth rates of grass and improved nutritional value could significantly boost farm revenues. FundingA grant from the Ministry of Business, Innovation and Employment’s Endeavour Fund, along with funding from AgResearch, DairyNZ and other stakeholders, means an investment of $25 million over five years into the genetically modified forages research.

Our science in actionHigh Metabolisable Energy Ryegrass

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ProjectTwo methods of biocontrol for black beetle are under development, and both have been shown to have a significant initial impact on the beetle population.

The work has looked at the impact of raising the pH of soil, as well as the development of a natural insecticide using naturally occurring bacteria. Raising the soil pH has been achieved by spreading lime on the test fields at a rate of five tonnes a hectare in order to keep the pH at a level of around 6. The initial indications are that the higher the pH levels, the longer it takes for the beetle eggs to hatch.

The second biocontrol utilises the bacterium Yersinia entomophaga (Ye), which, when eaten by the beetle, produces a fatal toxin. Lab testing has shown great promise with this method and initial field trials on a Waikato farm showed a mortality rate of 60-80% for the beetles within a few days.

Benefit to New ZealandBlack beetle (Heteronychus arator) is found in warm areas of the North Island, where root-feeding larvae are capable of severe pasture damage. Some paddocks with black beetle damage fail to recover, rendering farmland unusable. Areas that can be re-seeded need to be clear of livestock for at least six weeks, which incurs additional cost to the farmers. FundingThis research is part of a three-year programme that sprang from an earlier Sustainable Farming Fund project ‘Beating Black Beetle’ and continued with a year-long on-farm innovation grant from DairyNZ. Current research has $480,000 from the Sustainable Farming Fund and is supported by Ballance Agri-Nutrients with $60,000, Graymont with $24,000, and DairyNZ with $120,000. There is also in-kind support from the Waikato Black Beetle Action Group and the above industry co-funders.

Our science in actionBlack Beetle Biocontrol


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ProjectLed by AgResearch and Massey University, this study explored the impacts of pet foods on markers of intestinal health. The study showed that a high-meat diet is easier for dogs to digest, means more nutrients are able to be absorbed, and resulted in higher levels of bacteria associated with protein and fat digestion.

Understanding how bacteria work in the gut is vital because of their links to digestion and diseases such as obesity, as well as their effect on mood and behaviour of pets. Science has previously relied on studies of faecal microbiota in human, mice and rats and assumed the same is true for dogs in terms of what are good and bad bacteria in the gut. This study shows this may not the case and much more needs to be done to understand the digestive system of dogs and the long-term health consequences of feeding them different diets.

Benefit to New ZealandThe study was only the second of its kind in the world, and demonstrates AgResearch’s capability in delivering ground-breaking science. To date there has been limited published research in this area meaning this study is a significant contribution to the international animal nutrition field, and opens opportunities for the pet food industry to explore. FundingThe project received co-funding of $21,500 per year for three years from the New Zealand Premium Petfood Alliance (a collaboration between leading New Zealand Petfood manufacturers Bombay Petfoods, K9 Natural and Ziwi) and $1,754,001(over three years) from the Ministry of Business, Innovation and Employment through the Outcomes for Science Targeted Research Fund. The project started in 2015 and ends in 2018.

Our science in actionPetfood Nutrition Study

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ProjectThe work involved in this project was conducted over 10 years, gaining the support of more than 20 stakeholders, 22 sheep breeders, 47 flocks and more than 10,000 lamb post mortems. The purpose was to help farmers understand the value of identifying causes of neonatal lamb deaths, in order to better manage the survival rates of lambs in instances of multiple births. This is particularly important for farmers who have bred for increased fecundity.

The lamb survival project established that ewes with higher body condition scores in mid-pregnancy had heavier lambs at birth, and that lambs weighing 5.5kg to 6kg at birth were more likely to survive to weaning than lambs born lighter or heavier. The study found that weather conditions during late pregnancy proved more important than conditions during lambing in determining lamb viability and survival through to weaning.

Benefit to New ZealandImproving lamb percentages is one of the biggest contributors to increased profits for New Zealand sheep farms. This long-term research programme identified genetic, maternal and environmental factors that influenced lamb survival and as a result has changed on-farm management and improved lamb survival rates. The lessons learned and new practices adopted on-farm as a result of this research continue to deliver benefits. FundingFinancial assistance and support were provided by Ministry of Agriculture and Fisheries Sustainable Farming Fund and Ovita Ltd.

Our science in actionLamb Survival Project

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ProjectAgResearch scientists have been testing the use of wool in garments to explore what level of fire protection they can provide to those in the armed forces or emergency services. Working alongside co-funder Australian Wool Innovation (AWI) and UK-based New Zealand company Armadillo Merino, the project looked at how wool base-layer (next to skin) garments respond to flame and intense heat, and specifically how absorbed moisture in the wool affects the flammability. For those in the armed forces or emergency services a lot of the main focus is on the outer garments, for obvious reasons, but here we have investigated the additional defence a base-layer garment can offer. The relatively high level of absorbed moisture in wool does appear to provide an advantage.

Benefit to New ZealandThis continued research and development to build and extend the scientific credentials for wool’s natural and unique attributes offers new opportunities for New Zealand wool. FundingThis one-year project was co-funded by AgResearch and AWI with respective financial contributions of $110,000 and $30,000.

Build science collaboration and innovationBurn-Resistant Garments

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ProjectNew relationships forged between AgResearch and key overseas science organisations will provide a host of valuable opportunities for New Zealand across a range of disciplines. The partnership with Uruguay’s National Institute of Agricultural Research (INIA), Catalonia’s Research & Technology & Food & Agriculture (IRTA) and Ireland’s Agriculture and Food Development Authority (Teagasc) will focus on the sustainability of the dairy, beef and sheep sectors.

The partnership with INIA Uruguay has already led to a four year development project for family livestock farmers and will next focus on regional agricultural development issues. The agreements between AgResearch and Teagasc and between AgResearch and Scotland’s Rural College (SRUC) focus on developing the next generation of scientists in New Zealand, Ireland and Scotland. This means co-funding 11 PhD and postdoctoral students who spend time between New Zealand and their home country, and will work in key areas such as greenhouse gas emissions, food safety and parasite control.

In the exciting area of food and bio-product science, AgResearch has signed a Memorandum of Understanding with Chinese organisation the Nutrition and Health Research Institute within the China Oils and Foodstuffs Corporation. Work in development projects in Malaysia, the Pacific and South America provides practical demonstrations of the implementation of new technologies, especially in biological control of plant pests. A partnership project with INIAP, Ecuador, is introducing new biocontrol technologies into fruit production after previously working in highland cropping systems.

Benefit to New ZealandAgreements that share staff and knowledge will provide invaluable learning opportunities for the agricultural science community. The agreement with Chinese collaborators also offers a new pathway into more diverse streams of international funding across much broader areas of food research. Direct involvement in development projects exposes staff to new situations needing practical solutions and delivers a fresh vision to the problems experienced in New Zealand.

FundingStrategic science funding of $300,000 is our contribution toward developing our studentship portfolio and seeding investment to build shared capability and identify collaborative projects of shared interest that will require further funding.

Our international development work has been mostly funded by the Ministry of Foreign Affairs and Trade through a series of partnership programmes with local science providers: Uruguay $4m, Ecuador biocontrol $1.2m, Pacific Biocontrol $0.7m. Further funding has been provided by International Organisations e.g. FAO National Institutes and the private sector, $35,000 funded by NZ-China Food Protection Network for the “Mapping antimicrobial resistance determinants across the NZ and Chinese dairy value chains” project and $24,000 for Dr Lishui Chen’s secondment to the Network.

Build science collaboration and innovationInternational Collaborations


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ProjectImproving animal performance and on-farm productivity for the New Zealand deer industry is the aim of this Hitting Targets project, which is managed through the DEEResearch Ltd joint venture partnership between AgResearch and Deer Industry New Zealand. The project seeks to deliver impact through research in animal genetics, animal health and welfare, environmental and food safety outcomes.

This project also focuses on adoption and practice change. It has clear communication channels in place to deliver best-practice information and other findings to the wider deer industry, which is a $250m sector. Hitting Targets is a key component of the industry’s seven-year Passion-2-Profit programme.

Benefit to New ZealandSuccess for this project ensures New Zealand continues to be recognised as hosting a world-leading deer research team, whose findings will be implemented as best practice internationally. FundingThe project has secured $1.3m in funding through the joint venture, with a significant contribution from Landcorp Farming over the past three years.

Build science collaboration and innovationDeer Industry Profitability


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ProjectThe creation of the Southern Dairy Hub just north of Invercargill will provide a collaborative, region-specific science facility to benefit dairy farmers in Otago and Southland. The new dairy farm will allow for farmer-led and local issues to be researched on southern soils, in southern conditions, and deliver innovative, industry-led agricultural research opportunities. Research will compare and test new theories and innovation, including environmental management, wintering options and effluent. Farm systems will also be compared and current programmes, such as the Forage Value Index, will be tested and validated in local conditions to produce local data. This 349-hectare farm will be self-contained for wintering and young stock, allowing for research to be carried out across the whole system. The Southern Dairy Hub is designed to run up to four 200-cow herds, with one to be used as the control to demonstrate top commercial performance. An estimated 640 cows will be milked over the 2017/18 season.

Benefit to New ZealandDairying is a significant industry in Southland and Otago, with the initial forecast for the 2017/18 season estimated to be worth $1.9 billion gross. It is therefore essential that dairy challenges and opportunities are addressed through local research and demonstration. The evolution of geo-specific research will present the Otago and Southland dairying industry with unique opportunities for improving systems and processes, with a view to increasing on-farm production and off-farm opportunities. This will serve not just the Otago and Southland dairying community, but the sector across New Zealand. FundingThe creation of the Southern Dairy Hub is a partnership with DairyNZ and the Southern Dairy Development Trust, with support from Fonterra Co-operative Group Limited. The $5m initial investment AgResearch has made is significant and indicates the value this organisation places on delivering high-quality, specific science for farmers.

Maximise the benefits of hubs, clusters and infrastructure Southern Dairy Hub

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ProjectThis is one of AgResearch’s organisational transformation programmes and the most significant change we have made since the organisation was created 25 years ago. The programme involves co-locating staff doing complementary work and modernising our facilities at our Palmerston North and Lincoln campuses in innovation hubs with other partners. Smaller research centres will be maintained in Hamilton (Ruakura) and Dunedin (Invermay) to focus on regional science issues. As our joint facility building programmes ramp up in the coming financial year, many of our staff will be making relocation decisions. AgResearch will continue to provide the support and financial and practical assistance for all staff considering and executing a move from one AgResearch campus to another.

Benefit to New ZealandBy co-locating relevant science capability, partnering with collaborators and industry in much-needed modern facilities focusing on food sciences, and land-based sustainable productivity, we’ll significantly increase research quality and innovation. We will also increase our ability to attract and grow talent in the land-based sector. This will deliver better research-based solutions to address the critical challenges the sector is facing.

FundingAgResearch is self-funding the Future Footprint Programme through the sale of surplus assets, existing cash reserves and debt. The estimated cost is approximately $140m.

Maximise the benefits of hubs, clusters and infrastructure Future Footprint Programme

Joint Food Science Facility.Palmerston North

Lincoln University and AgResearch Joint Facility.

Lincoln

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Increase our engagement with MāoriAhuwhenua Trophy

AgResearch was a proud Silver Sponsor of the Ahuwhenua Trophy, which held its finals event in Whangarei in May. The iconic awards event is in its 83rd year and has become a symbol of excellence in farming. AgResearch is one of many agricultural organisations that are keen to support and recognise the growth and development of Māori agribusiness.

AgResearch was represented at the dinner awards by Tania Simpson of the AgResearch Board, as well as the Māori Agribusiness team and senior scientists from the Farm Systems and Environment research group.

This year’s Ahuwhenua Young Māori Farmer Award was won by Jordan Biddle, a 21-year-old shepherd from Pihanui Station, south of Wairoa. Mr Biddle was one of the guest speakers at the annual AgResearch Stakeholders Dinner, held during the National Fieldays in Hamilton.

At the dinner Mr Biddle spoke of his interest in farming practices that support Kaitiakitanga, and his role as a shepherd on Pihanui Station.

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ProjectInvolving researchers within AgResearch and across universities both nationally and internationally, this project covers a wide range of areas to increase productivity and profitability for the New Zealand sheep and beef industry. Its aims have been to provide research solutions that help industry to meet the increasing demand for high-value, premium meat products with extended shelf-life in new and existing international markets. Consumers have higher expectations of safety, quality, integrity and traceability of food due to increasing awareness and affluence.

This Meat Futures project is investigating ways to protect and enhance product-life (shelf-life and eating quality) of red meat to satisfy market expectation in the European Union, United States, Middle Eastern and Chinese markets. That involves finding ways to maximise New Zealand meat’s quality attributes, particularly for Asian markets, including addressing the growing demand for halal meat products.

Benefit to New ZealandThis research presents the opportunity for New Zealand’s red meat industry to minimise the impact of increasing non-tariff trade barriers and capitalise on global food trends. FundingThe collaborative expertise involved in this project has attracted increasing levels of co-funding over the past three years. The funding-mix totals $1.26m in the next financial year.

Exploring new marketsMeat Futures

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ProjectAgResearch scientists have worked with fibre innovation company Lanaco in the development of its wool filter technology that is used in pollution masks now being marketed around the world. The market is huge, with consumers in parts of Asia spending billions of dollars on face masks every year. The technology traps harmful substances before the users breathe them in, as well as being easy to breathe through. The active wool fibre structure keeps the filter drier and able to perform for longer. The products launched to date include one mask branded the ‘world’s most breathable urban lifestyle air pollution mask’, and another range launched by Auckland firm Healthy Breath working with leading fashion designer Karen Walker. AgResearch used its specific knowledge to help establish which wool types would work best in the filters. Lanaco will continue to work in partnership with AgResearch for the project’s next stage of development.

Benefit to New ZealandAs AgResearch continues its relationship with Lanaco, it will be supporting the creation of an innovative product that will improve the health of millions of people worldwide. This provides opportunity for New Zealand farmers and economic benefit through increased demand and value of wool for use in this fast-growing and lucrative market. FundingWhile a number of short-term pieces of work date back to 2012 when we did some initial literature reviews for Lanaco, this four-month project stemmed from a $43,000 Lanaco commission with matching core funding from AgResearch.

Exploring new marketsWool Filter Technology

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ProjectAgResearch and its partners have established a range of benefits in a comprehensive research programme. Already a number of pieces of research have been completed, including the finding that shows sheep milk causes solids to pass through the digestive system rapidly, which could mean improved gut comfort, reduced constipation and general improvement for a sluggish gut. A separate study has shown that sheep milk proteins are more readily digested than cow milk proteins, making sheep milk a better source of essential amino acids, and another shows that a major waste stream from sheep cheese – whey – has the potential to be processed into a stable base ingredient for beverages under controlled circumstances. Furthermore, analysis of 500 milk samples collected at different times of year shows that on average, New Zealand sheep milk is higher in proteins, minerals and lipids compared to European sheep milk, particularly in terms of medium-chain triglycerols and the nutritional minerals; calcium, phosphorus and magnesium.

Benefit to New ZealandNew Zealand’s dairy sheep systems are unique to this country, and we have the natural advantages of year-round pasture-based farming. This project will help the dairy sheep industry establish the particular qualities and advantages New Zealand’s systems produce, helping it to grow and prosper. FundingThese projects have been made possible by a $6m funding grant from the Ministry of Business, Innovation and Employment, $43k from Bioresource Processing Alliance and part of our Core-Funded Food Nutrition project. The work is completed across by a breadth of New Zealand expertise including Massey University, Callaghan Innovation, University of Otago and Victoria University.

Exploring new marketsSheep Milk Study

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New Zealand’s dairy sheep systems are unique to this country, and we have the natural advantages of year-round pasture-based farming.

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Snapshots of success 2016/17

While most of the impacts from our research take many years to reach full potential, we previously outlined three specific projects we expected would start to deliver impacts in this financial year.

Automated phenotyping tools for estimating forage dry matter, to plant breeding companies.

The technology has been developed as originally intended and it is demanded by the seed companies. More work is being done to enable plants to be measured in swards as well as single-plant plots and single rows.

Genotyping-by-sequencing commercially available for all major livestock species.

Genotyping using genotype-by-sequencing (GBS) technology has now been validated for all major livestock species (as well as numerous fish and shellfish). At present, while deer samples are being processed using GBS, sheep and cattle genotyping is still being delivered via an alternative platform due to market demand.

Determine the diagnostic predictability of functional irritable bowel syndrome phenotypes as a model for innovative, high-value foods.

Irritable bowel syndrome (IBS) and healthy subjects have been categorised according to demographic data, dietary data, quality of life, psychological assessments, and gastro-intestinal tract (GIT) functional readouts of function and comfort. This will allow confirmation of existing biomarkers of GIT function and comfort, together with qualitative information from the subjects as targets for further characterisation using a systems approach.

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Our peopleTō tātou iwi

Without our people there is no science. Without our science there is no innovation.

Our Values speak volumes about what AgResearch aspires to be, both to our people and our customers. Collaboration, Quality, Customer Focus, Innovation, Thought Leadership and Professionalism – these are the qualities that will support us now and in the future, to drive prosperity by transforming agriculture. Over the past 12 months AgResearch has undertaken an extensive

programme of work to identify its core defining values. We have actively collaborated with our people to ensure that Our Values represent the attributes that are innate to those who will drive the success of our organisation. In our definitions of these values we have woven in Te Reo Māori to reflect our key focus area of Te Ao Māori.

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Whakarangatira – To ennoble and dignify. We are professionals whom you can trust to honour our commitments in a courteous, truthful and respectful manner.

Mātai Whetū – We aim for the stars. We undertake excellent peer-reviewed science, by assembling the right teams, and finding ways to improve the quality of our research and infrastructure.

Mahitahi – Working together. We collaborate inside and outside AgResearch to maximise our shared knowledge and bring greater value to one another, our customers and the wider agri-sector.

Āta – The ultimate care, focus and intent. We are a trusted, world-leading agricultural research institute that is not afraid to challenge the status quo. We seek to inspire our sector and others with innovative ideas that have the potential to transform New Zealand agriculture.

Mātai – Seeing and understanding. We are passionate about science and committed to delivering solutions that make a real difference to New Zealand’s future. We apply our unique insights and expertise to deliver customer and sector centric solutions whilst generating revenue.

Āta Mātai – Researching purposefully and deliberately. We provide innovative solutions that meet society’s needs and address the major challenges facing New Zealand’s pastoral, agri-food and agri-technology sectors.

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This year we have also partnered with our people to identify our Employee Value Proposition (EVP) and define what our employment brand is for both prospective and existing employees.

These projects are known collectively as Our Future and along with Our Values, we have established a critical platform for the People & Culture work that we have commenced this year and that we plan to continue in the year ahead. This work includes:

Leading @ AgResearchOur Leadership Development programme is for our current leaders and our high-potential people. Our talent development project delivers a comprehensive programme including a full assessment of leadership potential and the development of tailored individual development plans. Talent developmentWe are delivering a learning and development programme to support the enhanced capability of all of our people, targeted at addressing specific areas for development and to support growth into potentially more complex roles. Our focus remains on developing meaningful, self-paced, online learning modules and delivering a robust coaching, mentoring and on-the-job training programme.

Talent acquisitionThis work involves designing and executing strategies that will support the successful attraction, selection and retention of key talent across the organisation with a particular focus on our current and projected skill short areas.

Succession planningHere we are identifying our critical roles and recognising potential successors from within, and external, to the organisation and implementing appropriate development or attraction programmes to support that succession.

Culture & engagementThis project is developing initiatives and activities that will help to embed Our Values into our everyday way of doing things and enhancing our levels of engagement across the organisation by developing specific and innovative action plans that will address our identified areas of improvement both at an organisational level and by individual teams.

Back to basicsThe B2B project involves conducting a full review of our existing transactional human resources practices. The goal is to improve and streamline them to make our people practices as customer focused and efficient as possible and easy for our leaders to access, understand and execute.

Measuring impactAs well as focusing our energy on refining and improving our People & Culture processes and practices, our emphasis will be on actively measuring and assessing the impact and practical adoption of these, throughout the organisation. We will achieve this through our employee engagement and culture surveys and other feedback mechanisms.

Developing initiatives and activities that will help to embed Our Values into our everyday way of doing things.

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Change management and organisational preparedness This project is developing initiatives that support our preparedness for quality transformational projects and systems, our transition to the joint facilities and the impending change that this will mean for some of our people in terms of work environment and working philosophy.

Our PSA partnershipWe are continuing to ensure that our partnership with the PSA and its AgResearch membership is professional, collaborative, positive and conducted in good faith.

Careers websiteThis year has seen the development of the new AgResearch Careers website. This is a specific portal to target new staff as part of the organisation’s Talent Acquisition Strategy, which is designed to attract and retain quality talent. This new website will bring together AgResearch science stories, people profiles, and ‘why you should work here’ sections.

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Key performance indicatorsfor 2016/17, at a glance

Strategic Goal ObjectiveKey performance

indicators for FY17 Result for FY17

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Comprehensive understanding of the sector, including key and emerging players and their relationships.

Grow our understanding of the sector and the sector’s recognition of that understanding.

>90% of surveyed stakeholders rate AgResearch’s understanding/ contribution to their strategy as good or better.

83% of surveyed stakeholders rated AgResearch’s understanding/contribution to their strategy as good or better in 2017, down from 90% in 2016.

Surveyed stakeholders noted the ‘loss of a key contact ’ and ‘limited resources’ as reasons for their reduction in rating from 2016. The new structure of the Partnerships and Programmes group was implemented this year, with new sector alignments.

The group is focused on ensuring key AgResearch contacts are allocated to stakeholders to facilitate engagement.

Co-owned strategy with key stakeholders.

Grow commercial revenue throughcloser alignment of stakeholder andAgResearch strategic goals.

>$40m of stakeholder-driven commercial science revenue secured.

Grow international revenue to >$1.7m.

We achieved $36.5m of stakeholder-driven commercial science revenue.

We achieved $1.8m of international revenue.

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Sustainable financial performance to enable achievement of strategic goals.

Achieve financial targets.

Operating Profit budget achieved.

Our Operating Profit is $6.1m compared to a budget of $5.7m.

Net Profit Before Tax budget achieved.

Our Net Profit Before Tax of $6.2m exceeded our budget of ($0.2m).

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Innovative and high performing workforce.

Staff engagement increased.

Engagement Index from the staff survey of >61.2.

In 2017, our Staff Engagement Index was 61.0, up from 59.0 in 2016.

We will all have a safe workplace.

Total Medical Treatment Injuries (MTI) and MTI causing lost time <70 per year.

No serious harm accidents.

From 1 July 2016 to 30 June 2017, the total number of MTI and MTI causing lost time was 38.

We did not have any ‘serious harm’ incidents.

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R&D solutions which meet sector needs and contribute to Impacts and Outcomes identified in our strategy (SCI).

Ensure AgResearch has the research portfolio and capabilities that will meet current and future stakeholderneeds and deliver our strategy.

Complete an Animal Sciences Roadmap.

This Roadmap was completed and will be reviewed by the Board in August 2017.

Implement AgResearch’s 2016 Science Plan.

We have implemented key Science Plan milestones where we consider impacts would be delivered this year. The remainder of the Science Plan is ongoing.

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Strategic Goal ObjectiveKey performance

indicators for FY17 Result for FY17

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Quality, relevant science.

Deliver relevant, high quality, reliable R&D outputs that meet stakeholder needs and deliver to our strategy.

> 1.0 Scopus-indexed papers published per scientist.

1.17 Scopus-indexed papers were published per scientist.

> 1.0 industry-funded reports published per science staff member.

1.07 industry-funded reports were published per science staff member.

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Robust business processes and systems that enable delivery on strategy.

Improve the effectiveness andefficiency of business processes.

Increase productivity to $225k revenue per FTE.

Revenue per FTE was $235.3k.

Enhance AgResearch’s Core Business Process by implementing an end-to-end integrated project management approach.

Implementation of end-to-end integrated project management approach (known as ‘Idea to Impact’) is underway. System development is in progress, and training for managing projects is nearly completed.

Strengthen people development by implementing AgResearch’s Coaching Capability programme throughout the organisation.

Two cohorts have completed the leadership development programme; that activity will continue with a third cohort shortly.

Other initiatives to improve coaching culture include the delivery of two-day coaching and mentoring workshops for all line managers and the identification of coaching resources for high-potential talent.

Infrastructure aligned to strategy.

AgResearch infrastructure is fit for purpose.

Complete detailed design of new facilities at Lincoln and Palmerston North as part of our Future Footprint initiative.

The Build programme for Lincoln facilities is finalised and FY17 design milestones met.

Palmerston North milestones progressing to plan and within budget.

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Performance indicatorsAs at 30 June 2017

AgResearch’s 2016-21 Statement of Corporate Intent (SCI) identified the following non-financial operating indicators against which progress to achieve the SCI operating outcomes are measured.

Years shown are financial years ending in June 2017 or calendar years ending in December 2016. Target figures in [brackets] are from AgResearch’s 2016-21 SCI.

ID Indicator Definition Measure [target]

G.1 End user collaboration Revenue per FTE from commercial sources. $90.0k [$98k]

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 is reported for calendar years.)

(a) 14% [20%]

(b) 39% [29%]

(c) 26% [29%]

(d) 21% [21%]

G.3 Technology & knowledge transfer

Commercial reports per scientist FTE. 2.6 [1.0]

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).


2.6 [2.7]

G.5 Financial indicator Revenue per FTE, based on average FTEs over the year. $235.3k [$225k]

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 of stakeholders who were satisfied with their collaboration or partnership with AgResearch.

(Reported by the biennial 2016 CRI stakeholder survey conducted by MBIE.)

(a) 51% [75%]

(b) 75% [85%]1

1.2 Revenue from stakeholders

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

$44.39m [$47.1m]

2.1 Collection requests Number of requests and enquiries for access to AgResearch’s publicly available collections.

The Margot Forde Germplasm Centre issued 1,373 [3,000] samples from its collection.

2.2 Stakeholder reports Number of client reports submitted by AgResearch staff. 876 [270]

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

The AgResearch group received a total of $10.5m [$8.2m] of royalty revenue.

… and executed 6 [11] licensing and other deals

… of which 67% [36%] were with New Zealand partners.

2.4 Adoption Percentage of relevant end-users who have adopted knowledge and/or technology from AgResearch.

(Reported by the biennial 2016 CRI stakeholder survey conducted by MBIE.)

91% [95%] of stakeholders had adopted knowledge or technology from AgResearch in the past three years.2

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.

(*Five Māori agribusinesses responded to the survey out of the six that were invited.)

80%* [80%]3

3.2 Revenue from Māori stakeholders

Revenue (direct and leveraged) from Māori agribusiness stakeholders.

$393k [$1.01m]

4.1 International linkages (a) Number and (b) percentage of peer-reviewed scientific papers co-authored with an international author.


(c) Number of technologies licensed in from offshore.

AgResearch published 126 [171] Scopus-indexed papers co-authored with at least one international author in the 2016 calendar year.

Papers with international collaborators comprised 47% [51%] of all Scopus-indexed papers published by AgResearch during the calendar year.

0 [1] technologies were licensed in from offshore during the financial year, similar to the zero or one technology licensed each year since 2012.

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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. Items (c) and (d) count IP that was recorded as ‘accepted’ during the financial year in the IPONZ patent, plant variety right and trademark databases).

a) AgResearch published 269 [270] Scopus-indexed papers co-authored with other NZ or international research institutions.

b) This was 86% [80%] of all AgResearch publications.

c) AgResearch produced 0 [1] IP outputs with other organisations during the financial year.

d) … which was 0% [10%] of AgResearch’s 8 IP outputs.

5.1 Publications in peer-reviewed scientific journals

Number of Scopus-indexed scientific papers per scientist FTE.


AgResearch published 269 Scopus-indexed publications in the 2016 calendar year.

AgResearch published 1.17 [1.0] Scopus-indexed papers per scientist FTE during the 2016 calendar year.

6.1 Staff engagement Staff survey result for overall level of staff engagement. The value of the Engagement Index in AgResearch’s staff engagement survey for 2017 was 61.0 [>61.2].

7.1 Total FTEs and % of total FTEs

Excluding casuals and fixed-term employees of less than 6 months duration, by:a) Research Teamsb) Research Supportc) Otherd) Total.

a) 379 (61%) [406 (63%)]

b) 152 (25%) [170 (26%)]

c) 88 (14%) [74 (11%)]

d) 619 [651 (100%)]

7.2 Total FTE and headcount in research teams

Divided into:a) Scientists FTEb) Scientists headcountc) Technicians/Technologists FTEd) Technicians/Technologists Headcount.

a) 230 [236]b) 247 [247]c) 163 [171]d) 196 [189]

Headcount of other staff was 242 and total headcount was 685.

1 AgResearch stakeholders surveyed during the July 2016 CRI stakeholder survey who responded to these two questions; this is the percentage that provided a score between 6 and 10.2 Of the AgResearch stakeholders surveyed during the July 2016 CRI stakeholder survey who responded to this question.3 Of those Māori stakeholders who were surveyed in AgResearch’s customer survey and who provided a rating.

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Financial performance indicatorsFor the year ended 30 June 2017

Actual 2017 Budget 2017 Actual 2016

Cashflow

- Net cash flow from operating activities $k 20,080 7,988 6,002

- Net cash flow from investing activities $k (18,115) (43,090) (8,805)

- Net cash flow from financing activities $k - - -

- Effect of exchange rate changes $k (9) - (25)

- Total net cash flow $k 1,965 (35,102) (2,803)

- Cash at the beginning of the year $k 57,087 56,211 59,915

- Cash at the end of the year $k 59,043 21,109 57,087

Operating Margin % 8.7% 7.3% 4.7%

Operating Margin per FTE $k 20.4 16.5 10.3

Revenue Growth % 0.6% (1.6%) (5.0%)

Quick Ratio 3.7 2.4 3.8

Interest Coverage 2,528 999 1,137

Operating Margin Volatility % 34.5% 38.6% 40.6%

Forecasting Risk % 0.3% 0.0% 0.0%

Adjusted Return on Equity % 3.6% (0.3%) 0.4%

Capital Renewal 1.8 4.0 0.9

Equity Ratio % 83.7% 84.8% 83.2%

Indicator definitions:

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

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

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Consolidated statement of comprehensive income For the year ended 30 June 2017

Note Actual 2017 Budget 2017 Actual 2016

in thousands of New Zealand dollars

Revenue

Ministry of Business, Innovation and Employment

- Core Funding 38,889 38,889 38,889

- Our Land & Water National Science Challenge 6,495 1,866 836

- Other 21,874 26,193 22,156

Commercial 59,506 61,787 64,779

Farm produce 5,386 5,375 5,189

Other revenue 1 16,116 14,221 15,512

Total operating revenue 148,266 148,331 147,361

Operating expenditure 2 (142,546) (147,661) (149,695)

Other gains/(losses) 3 1,117 - 2,754

Finance costs (5) - (6)

Share of deficit of associates 4 (677) (880) (749)

Surplus/(deficit) before tax 6,155 (210) (335)

Tax expense/(benefit) 5 1,507 181 (992)

Net surplus/(deficit) after tax for the year 4,648 (391) 657

Other comprehensive income

Items that will not be reclassified subsequently to surplus or deficit:

Revaluation of properties 6 4,134 - -

Impairment of revalued properties 6 - - (8)

4,134 - (8)

Items that may be reclassified subsequently to surplus or deficit:

Changes in fair value of available-for-sale financial assets

6 267 - 310

267 - 310

Income tax relating to components of other comprehensive income

5 (317) - (87)

Other comprehensive income for the year net of tax 4,084 - 215

Total comprehensive income for the year net of tax 8,732 (391) 872

Net surplus/(deficit) is attributable to:

Equity holders of the parent 4,648 (391) 657

Total comprehensive income is attributable to:

Equity holders of the parent 8,732 (391) 872

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

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Consolidated statement of financial positionAs at 30 June 2017



Current assets

Cash and cash equivalents 59,043 21,109 57,087

Trade and other receivables 8 29,665 25,554 33,060

Prepayments 2,162 2,323 2,561

Biological assets - livestock 10 4,487 4,306 3,717

Inventory 1,173 1,498 849

Property held for sale 45 - -

Current tax 5 - - 726

Total current assets 96,575 54,790 98,000

Non-current assets

Investments in associates and joint ventures 4 5,607 5,000 484

Other investments 12 7,052 18,070 4,367

Property, plant and equipment 7 167,447 179,890 162,944

Biological assets - forestry 11 727 1,041 1,041

Other non-current receivables 13 4,341 4,341 4,153

Intangible assets 844 2,076 903

Total non-current assets 186,018 210,418 173,892

Total assets 282,593 265,208 271,892

Less:

Current liabilities

Trade and other payables 9 27,835 21,142 26,238

Derivative financial instruments 67 - 41

Finance leases - current 4 - 5

Provisions 14 5,103 5,703 5,472

Current tax 5 1,461 (161) -

Other current liabilities 60 325 83

Total current liabilities 34,530 27,009 31,839

Non-current liabilities

Deferred tax 5 11,240 11,263 11,853

Finance leases - term - - 1

Other non-current liabilities 15 685 696 744

Provisions - non-current 14 34 240 83

Total non-current liabilities 11,959 12,199 12,681

Total liabilities 46,489 39,208 44,520

Net assets 236,104 226,000 227,372

Equity

Share capital 6 47,268 47,268 47,268

Revaluation reserves 6 89,074 77,410 84,995

Retained earnings 6 99,762 101,322 95,109

Total equity 236,104 226,000 227,372


Jeff GrantChair 24 August 2017

Andrew MacfarlaneDirector 24 August 2017

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Consolidated statement of changes in equityFor the year ended 30 June 2017

Note Share capital

Revaluation reserves, property,

plant and equipment

Available-for-sale assets

Retained earnings

Totalequity


Balance at 1 July 2015 47,268 84,390 482 94,360 226,500

Surplus after tax for the year - - - 657 657


6 - (8) 310 - 302

Transfer of revaluation reserve on sold assets 6 - (68) (24) 92 -


5 - - (87) - (87)

Total comprehensive income - (76) 199 749 872

Balance at 30 June 2016 47,268 84,314 681 95,109 227,372

Surplus after tax for the year - - - 4,648 4,648

Revaluation of properties 6 - 4,134 - - 4,134


6 - - 267 - 267

Transfer of revaluation reserve on sold assets 6 - - (5) 5 -


5 - (244) (73) - (317)

Total comprehensive income - 3,890 189 4,653 8,732

Balance at 30 June 2017 47,268 88,204 870 99,762 236,104


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Consolidated statement of cash flowsFor the year ended 30 June 2017



Cash received from operating activities

Receipts from customers 153,949 146,565 145,177

Interest received 2,089 918 2,249

Dividends received 164 - 233

Total cash received from operating activities 156,202 147,483 147,659

Cash disbursed on operating activities

Payments to employees 62,793 64,429 68,410

Payments to suppliers 72,319 71,349 68,670

Restructuring 757 3,162 3,900

Income tax paid 248 555 671

Interest paid 5 - 6

Total cash disbursed on operating activities 136,122 139,495 141,657

Net cash flow from operating activities 17 20,080 7,988 6,002

Cash received from investing activities

Disposal of property, plant & equipment and biological assets

240 8,330 125

Disposal of investments and intangible assets 1,188 1,626 3,314

Total cash received from investing activities 1,428 9,956 3,439

Cash disbursed on investing activities

Investment in property, plant & equipment and biological assets

9,844 29,931 10,789

Purchase of other investments and intangible assets 8,723 22,140 480

Partner contribution to research consortiums 976 975 975

Total cash disbursed on investing activities 19,543 53,046 12,244

Net cash flow from investing activities (18,115) (43,090) (8,805)

Total net cash flow 1,965 (35,102) (2,803)

Cash at beginning of year 57,087 56,211 59,915

Effect of exchange rate changes on the balance of cash held in foreign currencies

(9) - (25)

Cash at end of year 59,043 21,109 57,087


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Statement of accounting policiesFor the year ended 30 June 2017

Reporting entityAgResearch 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 preparedin 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 complianceThe 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 24 August 2017.

Basis of preparationThe 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 2017 and the comparative information presented for the year ended 30 June 2016.

The Group has chosen not to early adopt the following standards and interpretations that were issued but not yet effective as at 30 June 2017:

• NZ IFRS 15 ‘Revenue from Contracts with Customers’ (effective for accounting periods beginning on or after 1 January 2018);

• Disclosure Initiative (Amendments to NZ IAS 7) (effective for accounting periods beginning on or after 1 January 2017);

• Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to NZ IAS 12) (effective for accounting periods beginning on or after 1 January 2017);

• Annual Improvements to NZ IFRSs 2014-2016 Cycle (effective for accounting periods beginning on or after 1 January 2017);

• NZ IFRS 9 ‘Financial Instruments’ (effective for accounting periods beginning on or after 1 January 2018); and

• NZ IFRS 16 ‘Leases’ (effective for accounting periods beginning on or after 1 January 2019).

At the present time, the full effect of implementing the above standards and interpretations has yet to be determined.

Critical accounting estimates and judgementsThe preparation of financial statements conforming 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:

Future Footprint (FFP) related costsVarious costs have been incurred during the year in relation to development projects associated with FFP. The capitalisation of costs relating to these projects is based on the stage of the project (i.e. feasibility and scoping, concept design, detailed design and construction). Further details of Lincoln University AgResearch Joint Facility costs incurred are in note 12.

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Joint operation Grasslands Innovation Limited is considered 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. 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 amount materially;

• 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, which impacts the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before 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 an 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 7.

Farm land and buildings revaluation The property, plant and equipment classes ‘Land - Farm’ and ‘Buildings - Farm’ were revalued at 30 June 2017 by Colliers International, independent valuers, by reference to market evidence of recent transactions for similar properties. The valuations conform to International Valuation Standards. Some assets cannot be revalued on a market basis and these have been valued using the optimised depreciated replacement cost method. These include site improvements such as roads, fences and farm buildings.

Revenue recognition In determining the service revenue to be recognised, 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 applying the Non-Current Assets Held for Sale accounting standard (NZ IFRS 5). Following review of the Group’s non-current assets, the Directors are satisfied that the criteria outlined in the standard have been considered and the classification of assets as ‘held for sale’, or otherwise, in the current year is appropriate.

Fair value estimatesThe fair value of financial assets and financial liabilities must be estimated for recognition, measurement and 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.

Budget figuresThe budget figures are those approved by the Board, noting that the Board approval is of the statement of comprehensive income and capital expenditure budget. The budget has been prepared using the same accounting policies as for these financial statements.

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Changes in accounting policiesAccounting 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 during the period.

Significant accounting policiesThe significant accounting policies used in the preparation and presentation of the financial statements are (where applicable) disclosed in the corresponding note. The remaining significant accounting policies are set out below.

A. Basis of consolidationThe consolidated financial statements comprise AgResearch Limited (the Company) and entities controlled by the Company and its subsidiaries. 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. Total comprehensive income of subsidiaries is attributed to the owners of the Company.

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.

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

C. Government grants Government grants are assistance provided by the Government in the form of transfers of resources to the Group in return for past or future compliance with certain conditions relating to the operating activities of the Group. The primary condition is that the Group should undertake research activities as defined under the contractual agreement which awards the funding. The Government grant relating to this funding is recognised as income in the profit or loss on a systematic basis in the period it is received. Core Funding from the Crown commenced from 1 July 2011 and is recognised in the Profit and Loss in the year it is received.

D. Foreign currency The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the Group’s financial statements, the results and financial position of each group entity are expressed in New Zealand dollars (NZ$), which is the functional currency of the Group and the presentation currency for the 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.

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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 foreign currency translation reserve and recognised in profit or loss on disposal of the net investment.

E. Financial assets Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are initially measured at fair value, plus transaction costs, except for those financial assets classified as ‘at fair value through the Profit and Loss’, which are initially measured 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 investmentsFinancial 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 assetsAvailable-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.

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 investmentsPortfolio investments are individually valued by the Fund Manager using 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 receivablesLoans 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 assetsFinancial 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.

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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 valueFinancial 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.

F. Inventories Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realisable value. The cost of harvested agricultural produce is measured at fair value less estimated point-of-sale costs at the point of harvest.

G. Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

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

Group as lesseeOperating 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.

H. Intangible assetsPurchased intangible assetsPurchased 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 expenditureResearch 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.

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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 assetsAssets 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 assetsRealised gains and losses arising from disposal of intangible assets are recognised in the Profit and Loss in the period in which the transaction occurs.

I. Impairment of assetsAt 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 previous 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.

J. Employee benefitsProvision is made for benefits accruing to employees in respect of wages and salaries, annual leave, retirement leave/gratuities and sick leave 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 planThere 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.

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K. 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.

L. Statement of cashflowsCash and cash equivalentsCash and cash equivalents include cash on hand, cash in banks, demand deposits and other highly liquid investments readily convertible into cash.

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

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

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

M. Insurance contractsThe Group is part of the Accident Compensation Corporation (ACC) Partnership Programme. Under the Partnership Programme the Group 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 a premium 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 the Treasury-issued risk-free future rates as at 31 March 2017.

N. Standards and interpretations effective in the current period In the current year the Group has adopted all mandatory new and amended standards and interpretations applicable to the Group. None of the new and amended standards and interpretations had an impact on these financial statements.

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1. Revenue

Revenue recognition Sale of goods Revenue from the sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of 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.

2017 2016


Other revenue

Interest 2,312 2,471

Dividends 164 233

Royalties 10,461 9,953

Rent 3,179 2,855

16,116 15,512

2. Operating expenditure

Note 2017 2016


Employee related

Salary and wages 61,465 68,984

Defined contribution plans 1,638 1,748

Operational

Amortisation of intangible assets 360 292

Depreciation 7 9,595 9,310

Operating lease expenses 3,025 3,291

Other operating expenses 21,550 22,559

Science 3rd party sub-contracts 23,365 20,653

Site and property expenses 5,806 6,216

Supplies 12,543 13,165

Financial and administration

Auditor's remuneration - for services as auditor 266 277

Bad debts 370 8

Change in provision for doubtful debts (371) (40)

Directors' fees 324 378

Financial and legal expenses 2,550 2,285

Notes to and forming part of the consolidated financial statements For the year ended 30 June 2017

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2. Operating expenditure (continued)

Note 2017 2016


Impairments and write downs/(write backs)

Impairment of investments 221 302

Impairment/(writeback) of available-for-sale financial assets 12 (251) 267

Impairment of ETS units 11 31 -

Impairment of property, plant and equipment 7 59 -

142,546 149,695

3. Other gains/(losses)

Note 2017 2016


Net gain/(loss) from foreign currency exchange (18) (20)

Net gain/(loss) on sale of property, plant and equipment 165 12

Net gain/(loss) on sale of non-current assets held for sale - 50

Net gain/(loss) on sale of investments 275 2,869

Change in fair value of derivative financial instruments (26) (25)

Change in fair value of forestry 11 103 235

Change in fair value of livestock 10 618 (367)

1,117 2,754

4. 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 within 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.

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4. Investments in associates (continued)

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 and 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.

% of ownership interest and voting power

held by the Group

Associate companies Balance date 2017 2016 Principal activity

Clone International Pty Limited 30 June 25 25 Cloning high value horses, cattle and sheep

Velvet Antler Research New Zealand Limited 30 September 50 50

Managing investments in velvet antler research and commercialising the intellectual property

DEEResearch Limited 30 June 50 50

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

Biopolymer Network Limited 30 June 33 33 Research and development of high performance bio based products

Pastoral Greenhouse Gas Research Consortium held via (AgResearch [PPGR Consortia] Limited) 30 June 21 21

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

Farmax Limited 30 June 50 50 Development and distribution of farm management software

Encoate Holdings Limited 30 June 50 50 To research and develop bacteria and probiotics stabilisation technologies

Lincoln Hub Limited 31 December 20 20

Deliver agri-sector research and education opportunities to grow a sustainable agri-sector in New Zealand and internationally

Overseer Limited 30 June 50 50 Operating entity set up to sub-license the Overseer model to end users

Southern Dairy Hub Limited Partnership 31 May 37.5 -

Promotion and development of dairy industry good activities

SDH GP Limited 31 May 37.5 - General partner

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

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

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

Summarised financial information for associates and joint ventures

2017 2016


Share of profit/(loss) from continuing operations (677) (749)

Share of total comprehensive income (677) (749)

Aggregate carrying amount of the Group and Company’s interest in the associate investments 581 484

Aggregate carrying amount of the Group and Company’s interest in Southern Dairy Hub LP 5,026 -

5,607 484

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4. Investments in associates (continued)

Southern Dairy Hub Limited Partnership

During the period AgResearch invested $5 million into the Southern Dairy Hub Limited Partnership of which it holds a 37.55% ownership interest in the joint venture. The Southern Dairy Hub Limited Partnership Agreement requires major operating and funding decisions to be consented to by the three partners (AgResearch, DairyNZ and Southern Dairy Development Trust), giving all partners joint control. The investment is measured using the equity method. The Limited Partnership has a balance date of 31 May and is a property holding LP set up for the purpose of fostering research into dairy farming in the southern South Island.

5. Taxation

Current tax Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current 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 result 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.

2017 2016


Tax expense comprises:

Current tax expense 2,039 33

Adjustments recognised in relation to the current tax of prior years 398 (114)

Deferred tax expense relating to the origination and reversal of temporary differences (930) (911)

Total tax expense/(benefit) 1,507 (992)

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5. Taxation (continued)

2017 2016


The total charge for the year can be reconciled to the accounting profit as follows:

Surplus from continuing operations 6,155 (335)

Income tax expense calculated at 28% (2016: 28%) 1,723 (94)

Effect of revenue that is exempt from tax (79) (1,281)

Foreign surplus/(deficit) not recognised for tax (23) 25

Effect of expenses that are not deductible 76 546

Effect of impairment (reversals)/losses that are not (assessable)/deductible (55) 159

Associates' results reported net of tax 30 (87)

Non assessable capital (gain)/loss (95) 116

1,577 (616)

Adjustments recognised in the current year in relation to the current and deferred tax of prior years (70) (376)

Income tax expense/(benefit) recognised in profit or loss 1,507 (992)

2017 2016


Income tax recognised directly in other comprehensive income

Deferred tax

Arising on income and expenses taken directly to equity:

Property revaluations (244) -

Revaluations of available-for-sale financial assets (73) (87)

Total deferred tax recognised directly in other comprehensive income (317) (87)

2017 2016


Current tax assets and liabilities

Current tax assets

Tax refund receivable 290 573

Benefit of current year tax losses - 227

290 800

Current tax assets

Income tax payable 1,751 74

Net current tax (liability)/asset (1,461) 726

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Openingbalance

Charged tosurplus

Charged toother

comprehensiveincome

Acquisitions/Disposals

Closingbalance


Deferred tax assets/(liabilities) arise from the following:

2017

Temporary differences

Biological assets (405) (16) - - (421)

Property, plant & equipment (14,243) 1,293 (244) - (13,194)

Intangible assets 1,129 95 - - 1,224

Available-for-sale financial assets (265) - (73) - (338)

Provisions 1,591 (124) - - 1,467

(12,193) 1,248 (317) - (11,262)

Unused tax losses and credits

Tax losses 340 (318) - - 22

(11,853) 930 (317) - (11,240)

2016

Temporary differences

Biological assets (329) (76) - - (405)

Property, plant & equipment (15,119) 847 - 29 (14,243)

Intangible assets 1,092 37 - - 1,129

Available-for-sale financial assets (187) - (87) 9 (265)

Provisions 1,828 (237) - - 1,591

(12,715) 571 (87) 38 (12,193)

Unused tax losses and credits

Tax losses - 340 - - 340

(12,715) 911 (87) 38 (11,853)

Before taxamount

Taxexpense

Net oftax amount


Income tax effects relating to each component of other comprehensive income

2017

Revaluation of properties 4,134 (244) 3,890

Available-for-sale financial assets 267 (73) 194

4,401 (317) 4,084

2016

Revaluation of properties (8) - (8)

Available-for-sale financial assets 310 (87) 223

302 (87) 215

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2017 2016


Unrecognised taxable temporary differences associated with investments and interests

Foreign subsidiaries - 295

Imputation credits

Imputation credits available for subsequent reporting periods 995 1,395

The above amounts represent the balance of the imputation credit account as at the end of the reporting period adjusted for:• Imputation credits that will arise from the payment of the amount of the provision for income tax;• 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.

6. Equity

Share capitalCapital consists of 47,268,000 fully paid ordinary shares of $1.00 each (2016: 47,268,000 fully paid ordinary shares).

ReservesThe asset revaluation reserve arises on the revaluation of land, land improvements and buildings. Where revalued assets are sold, the portion of the asset revaluation reserve relating to that asset and which is therefore effectively realised, is transferred directly to retained earnings.

An asset is revalued to the lower of its carrying amount or fair value less costs to sell, when it is classified as available for sale. Any impairment loss or gain on this revaluation is recognised in the Profit and Loss.

7. Property, plant and equipment

The 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.

Fair value measurement 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 (using either market value or optimised depreciated replacement cost), 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. Information about the fair value hierarchy is included in note 25. 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 and Loss, in which case the increase is credited to Profit and 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 and 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.

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7. Property, plant and equipment (continued)

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.

Land & Land Improvements Buildings

Leasehold Improvements

Plant & Equipment Vehicles Total


2017

Balance at beginning of year 73,438 72,380 247 16,719 160 162,944

Additions 313 3,461 10 6,337 5 10,126

Disposals - - - (58) - (58)

Revaluation 3,699 435 - - - 4,134

Impairments (46) (13) - - - (59)

Reclassified as ‘Assets Held for Sale’ - (45) - - - (45)

Depreciation (716) (3,707) (20) (5,076) (76) (9,595)

Balance at end of year 76,688 72,511 237 17,922 89 167,447

Cost or valuation 77,760 82,901 716 93,953 559 255,889

Accumulated depreciation (1,072) (10,390) (479) (76,031) (470) (88,442)


Land & Land Improvements Buildings

Leasehold Improvements

Plant & Equipment Vehicles Total


2016 (Restated)

Balance at beginning of year 71,885 71,953 270 16,826 207 161,141

Additions 2,259 3,962 21 4,918 30 11,190

Disposals - (10) (18) (41) - (69)

Revaluations - (8) - - - (8)

Depreciation (706) (3,517) (26) (4,984) (77) (9,310)


Cost or valuation 76,322 91,753 1,879 88,574 533 259,061

Restatement adjustment (1,878) (11,615) (1,173) 205 25 (14,436)

Restated cost or valuation 74,444 80,138 706 88,779 558 244,625

Accumulated depreciation (2,907) (19,314) (1,475) (72,038) (383) (96,117)

Restatement adjustment 1,901 11,556 1,016 (22) (15) 14,436

Restated accumulated depreciation (1,006) (7,758) (459) (72,060) (398) (81,681)


The 2016 cost and accumulated depreciation has been adjusted by a total of $14.436m across the asset classes above, with nil impact on the net book value. The restatement is due to prior year’s revaluations incorrectly adjusting the asset cost for any gain/loss on revaluation before adjusting the accumulated depreciation to nil, overstating the cost and accumulated depreciation. The restatement also includes adjustments for assets incorrectly classified.

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7. Property, plant and equipment (continued)

A total write down of assets of $733k (2016: $8k) was reflected:

2017 2016


Through the asset revaluation reserve, being a reversal of prior year revaluations 668 8

Through the Profit and Loss account 65 -

733 8

A net revaluation increase of assets of $4,134k (2016: $8k revaluation decrease) consisted of:

2017 2016


Increases through the asset revaluation reserve 4,802 -

Decreases through the asset revaluation reserve, being a reversal of prior year revaluations (668) (8)

4,134 (8)

A net impairment decrease of assets of $59k (2016: nil) consisted of:

2017 2016


Impairment through Profit and Loss (65) -

Impairment reversal through Profit and Loss 6 -

(59) -

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 cost basis, their carrying amount would have been as follows:

2017 2016


Land and land improvements 21,368 21,574

Buildings 48,274 48,897

Fair value measurement of the Group’s land and buildings

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 and impairments.

Farm land and buildings have been revalued in the current period. These valuations were performed by independent valuers Colliers International under the requirements of the International Valuation Standards 2013. Farm land and buildings have been valued using either market value or optimised depreciated replacement cost. For assets where there is an active market for the same or a similar asset, value is determined by one or more of the following:

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

Assets that have a specialised use for the Group have been valued at optimised depreciated replacement cost. These assets include site improvements such as roads and fences as well as farm buildings. Optimised depreciated replacement cost is a method of valuation based on an estimate of the current gross replacement cost of an asset less allowances for physical deterioration, and optimisation for obsolescence and surplus capacity.

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8. Trade and other receivables

2017 2016


Trade receivables 26,661 29,050

Receivables from associates 2,894 4,338

Receivables from other related parties 132 65

Total receivables 29,687 33,453

Less provision for doubtful debts 22 393

Net receivables 29,665 33,060

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

Receivables from related parties past due were $36k (2016: $1,301k).

Terms of trade vary according to individual customer contracts. Trade receivables are assessed for impairment on an individual basis. The only receivables impaired are provided for within doubtful debts. As at 30 June 2017, trade receivables of $3,646k (2016: $1,258k) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of defaults. The Group does not hold any collateral over these balances. The ageing analysis of trade receivables is as follows:

GrossDoubtful

debts Net


2017

Current 21,473 - 21,473

1 to 2 months 1,520 - 1,520

22,993 - 22,993

Past due

2 to 3 months 533 - 533

Over 3 months 3,135 (22) 3,113

3,668 (22) 3,646

Total trade receivables 26,661 (22) 26,639

2016

Current 26,443 - 26,443

1 to 2 months 956 - 956

27,399 - 27,399

Past due

2 to 3 months 1,403 (145) 1,258

Over 3 months 248 (248) -

1,651 (393) 1,258

Total trade receivables 29,050 (393) 28,657

2017 2016


Movement in the provision for doubtful debts

Balance at beginning of year 393 433

Additional provisions made / reversed during the year (1) (32)

Receivables written-off during the year (370) (8)

Balance at end of year 22 393

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9. Trade and other payables

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

2017 2016


Trade payables 17,195 17,775

Goods and services tax (GST) 761 1,353

Income in advance 9,226 6,659

Accrued salaries and wages 653 451

Total payables 27,835 26,238

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 on trade payables.

Financial risk management strategies

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

10. Biological assets – livestock

Livestock are valued at their fair value less estimated point-of-sale costs by reference to the most relevant active market. An allowance is made for a reduction in the value of certain livestock held for research trials. Changes in the valuation of livestock are recognised in the Profit and Loss.

SheepBeef

cattleDairy cattle Deer Total


2017

Reconciliation of changes in the carrying value

Balance at beginning of year 935 911 1,413 458 3,717

Increases due to acquisitions 417 888 696 28 2,029

Decreases due to sales (1,058) (877) (1,315) (148) (3,398)

Net increase due to births, growth and deaths 627 366 334 194 1,521

Changes in fair value less estimated point-of-sale costs 218 194 75 131 618

Balance at end of year 1,139 1,482 1,203 663 4,487

Quantity of livestock at end of year 8,887 1,571 1,038 1,169

2016


Balance at beginning of year 1,238 1,020 1,654 342 4,254

Increases due to acquisitions 443 873 170 11 1,497

Decreases due to sales (1,641) (1,300) (489) (110) (3,540)

Net increase due to births, growth and deaths 874 434 444 121 1,873

Changes in fair value less estimated point-of-sale costs 21 (116) (366) 94 (367)

Balance at end of year 935 911 1,413 458 3,717

Quantity of livestock at end of year 9,190 1,165 1,142 998

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10. Biological assets – livestock (continued)

Livestock valuation method

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.


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

11. Biological assets – forestry

Forests are recorded at their fair value less point-of-sale costs on an annual basis using anticipated harvest 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.

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

2017 2016



Balance at beginning of year 1,041 794

Increases due to capitalised expenditure - 12

Decreases due to harvesting and sale of forestry (417) -

Changes in fair value less estimated point-of-sale costs 103 235

Balance at end of year 727 1,041

Area (ha) of forest at end of year 110 268

The 2016 area (ha) of forest at year end has been restated from 254ha to 268ha due to an error in the prior year.

Forestry valuations

Forestry was valued by Alan Bell & Associates as at 30 June 2017. The value of forestry at 30 June 2017 was $727k (2016: $1,041k). During the year, the Company’s share of forestry held as part of a joint operation with Tainui Group Holdings was sold.

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 mature crops, estimates of future costs and returns; • for young crops, standard investment costs; and • for intermediate crops, a mixture of the above.

Additional inputs to the value arrived at are:

• anticipated harvest timing and yield; • a 9% real discount rate on pre-tax cash flows; • an assumed 3% compounding rate on standard costs; and • current market prices and long term trends in log prices. Log prices used are based on current market prices and 12-quarter

rolling average prices published by the Ministry for Primary Industries.

Details of the fair value hierarchy are included in note 25.

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11. Biological assets – forestry (continued)

Emissions units

No ETS units were acquired or disposed of during the year (2016: Nil). During the year 31,142 units were revalued to $3.14, to match the price at which the Company has an obligation to sell units attached to a previous land sale transaction. All remaining units on hand are carried at their original cost of $4.15 per unit.


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 to decline significantly in the foreseeable future. It has therefore not taken any measures to manage the risks of a decline in timber prices.

Land value and contingency

In the event that the forest areas are harvested, a deforestation liability equivalent to the decrease in carbon will be incurred. This liability is not recognised on the balance sheet as there is no current intention of changing the land use subject to the ETS.

12. Other investments

2017 2016


Fonterra Co-operative Group Limited 3,003 2,743

BioPacific Ventures 10 993

Lincoln University AgResearch Joint Facility 3,031 -

Other investments 1,008 631

Total 7,052 4,367

Valuation of other investments

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

• Fonterra shares are valued using the quoted market price on the NZX market.• Livestock Improvement shares are valued using the quoted market price on the NZAX market.• Silver Fern Farms shares are valued using the quoted market price on the NZX unlisted market. • Other investments are unlisted equities or co-operatives whose share prices are set by the individual entities.

Disposals

The BioPacific Ventures investment fund disposed of its investment in New Zealand King Salmon during the year. During the year 1,178 Fonterra shares were sold to comply with the compliance standard for Fonterra Co-operative shares. The compliance standard is assessed each year based on the previous 3 years average milk production. (2016: BioPacific Ventures investment fund disposed of its investment in New Zealand Pharmaceuticals Holdings Limited. 12,790 Fonterra shares were disposed of to comply with the compliance standard for Fonterra Co-operative shares).

Impairment of other investments

During the year, the impairment of other investments in prior years were reversed as follows:

2017 2016


BioPacific Ventures Fund (249) 245

Other (2) 22

Total (251) 267

Lincoln University AgResearch Joint Facility

Shortly following the reporting period, the Company entered into a development agreement with Lincoln University to share the costs of building a common facility which will be held in a Limited Partnership, owned by the two entities. At balance date the Limited Partnership was not established. Other investments include, the share of costs incurred to date ($3,031k) which are to be transferred to the Limited Partnership upon its incorporation and which will form part of the Company’s equity in that Partnership.

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13. Other non-current receivables

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

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

2017 2016


Amount receivable under sale & purchase agreement 4,700 4,700

Less discount to net present value (359) (547)

Present value of non-current receivable 4,341 4,153

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 and has 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 through default by the purchaser, title to the property will be retained until settlement of the amount due.

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%. There has been no material change during the period to the underlying assumptions used in calculating the discount rate applied.

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 income recognised in the year ended 30 June 2017 is $188k (2016: $188k). The interest income to be recognised in future periods is:

2017 2016


In the first year 188 188

Beyond 1 year 171 359

14. 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.

All provisions except for long-term employee entitlements are expected to be paid within the following financial year.

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14. Provisions (continued)

RestructuringEmployee

entitlements ACC Total


2017

Balance at beginning of year 421 4,841 293 5,555

Provisions made during the year 355 5,818 411 6,584

Provisions used during the year (503) (5,785) (198) (6,486)

Provisions reversed during the year (108) (174) (234) (516)

Balance at end of year 165 4,700 272 5,137

Represented by:

Current liabilities 165 4,666 272 5,103

Non-current liabilities - 34 - 34

Total provisions 165 4,700 272 5,137

2016

Balance at beginning of year 435 5,743 477 6,655

Provisions made during the year 337 6,073 246 6,656

Provisions used during the year (334) (6,794) (430) (7,558)

Provisions reversed during the year (17) (181) - (198)

Balance at end of year 421 4,841 293 5,555

Represented by:

Current liabilities 421 4,758 293 5,472

Non-current liabilities - 83 - 83

Total provisions 421 4,841 293 5,555

Restructuring provision

The restructuring provision represents the direct costs of restructuring and includes termination benefits.

Employee entitlements

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

ACC partnership programme

Liability valuation

An independent actuarial valuer (AON New Zealand) has calculated the Group’s liability as at 30 June 2017. The valuer has attested satisfaction as to the nature, sufficiency and accuracy of the data used to determine the outstanding liability.

For the claim year ended 2017 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 a limit of $224k. Pre-valuation date claim inflation has been taken as 50% of movements in the CPI and 50% of the movements in the Average Weekly Earnings (AWE) Index. Post-valuation date claim inflation rates are Treasury-issued future rates as at 31 March 2017. The discount rates are Treasury-issued risk-free future rates as at 31 March 2017.

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 the financial statements.

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 individual employee.

Objectives for managing risks

The Group manages its exposure arising from the programme by promoting a safe and healthy working environment, which involves:

• implementing and monitoring health and safety policies;• induction training on health and safety;• actively managing workplace injuries to ensure employees return to work as soon as practical;• recording and monitoring workplace injuries and near misses to identify risk areas and implementing mitigating actions; and• identification of workplace hazards and implementation of appropriate safety procedures.

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15. Other non-current liabilities

Key money

In 2015, AgResearch Limited sold a building and entered into a sub-lease of the land on which the building is located. The lessee has paid an upfront lump sum as key money in relation to the lease. The key money is being recognised as income over the term of the lease (including renewal periods).

2017 2016


Key money received in advance 744 804

Key money referable to lease in current period (59) (60)

685 744

16. Investments in 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 interests of any non-controlling shareholders are stated in proportion of the fair values of the identifiable assets and liabilities recognised on acquisition plus their share of post-acquisition surpluses.


held by the Group

Subsidiary companies Balance date 2017 2016 Principal activity

Celentis Limited 30 June 100 100 Holding company

Grasslanz Technology Limited 30 June 100 100 Cultivar development and management

AgResearch (USA) Limited 30 June 100 100 Cultivar development and management in the USA

AgResearch (Pastoral Genomics Consortia) Limited 30 June 100 100 Holding company

AgResearch (PPGR Consortia) Limited 30 June 100 100 Holding company

AgResearch (Johne’s Disease Research Consortium) Limited 30 June 100 100 Holding company

Covita Limited 30 June 100 100 Holding company

Phytagro New Zealand Limited 30 June 100 100 Holding company

Phytagro Corp * 31 December - 8 Develop and licence IP in forage crops

Phytagro LLC * 31 December - 80 Develop and licence IP in forage crops

Phytagro Corp * 31 December - 66 Develop and licence IP in forage crops

Grasslanz Technology Limited is a direct subsidiary of Celentis Limited. AgResearch (USA) Limited is a direct subsidiary of Grasslanz Technology Limited. All other subsidiary companies are direct subsidiaries of AgResearch Limited.

* Phytagro Corp and Phytagro LLC were wound up during the year.

All subsidiary companies are incorporated in New Zealand, except Phytagro LLC and Phytagro Corp, which were incorporated in the United States of America.

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17. Reconciliation of surplus after tax with net cash flow from operating activities

2017 2016


Surplus after tax 4,648 657

Non-cash items

Depreciation 9,595 9,310

Intangible assets amortisation and impairment 391 292

Share of deficit of associates 677 749

Change in fair value of forestry (103) (235)

Change in fair value of financial assets or liabilities designated at fair value (45) 593

Asset impairment/write down 59 -

Net (gain)/loss from foreign currency exchange (18) (25)

Change in fair value of derivative financial instruments 26 25

Decrease in deferred tax (928) (949)

Other non-cash items (240) (247)

Movements in working capital

Change in current taxation 2,187 (713)

(Increase)/decrease in inventory (324) 650

(Increase)/decrease in livestock (770) 537

(Increase)/decrease in receivables 3,059 (2,969)

(Increase)/decrease in prepayments 399 (238)

Increase/(decrease) in provisions (418) (1,100)

Increase/(decrease) in payables 2,051 2,587

Items classified as investing activities

Net (gain)/loss on sale of property, plant and equipment (165) (63)

Net (gain)/loss on sale of investments and intangible assets (1) (2,869)

Other repayments reclassified as investing activities - 10

Net cash flow from operating activities 20,080 6,002

18. Heritage assets

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

Asset Description

Margot Forde Germplasm Centre New Zealand’s national genebank of grassland plants and Australia’s genebank for perennial grasses and legumes

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19. Operating lease arrangements

2017 2016


Non-cancellable operating lease payables

Payable no later than 1 year 2,733 2,858

Payable later than 1 year and not longer than 5 years 7,615 8,541

Payable later than 5 years 1,246 2,278

Total non-cancellable operating leases 11,594 13,677

All significant operating lease commitments relate to land and buildings.

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 a restriction in respect of the right to occupy in perpetuity, which only continues if AgResearch Limited is using the land primarily for agricultural purposes and/or research 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 periodic rent reviews to market rates. Refer to note 2 where the operating lease expense for the year is disclosed.

Non-cancellable operating lease receivables

Receivable no later than 1 year 2,720 1,160

Receivable later than 1 year and not longer than 5 years 6,209 7,022

Receivable later than 5 years 1,872 2,486

Total non-cancellable operating leases 10,801 10,668

Operating lease receivables relate to land and buildings owned and leased by AgResearch Limited. The lease terms are between 1 month and 11 years, with one lease having an option to extend for a further five terms, each of 5 years. With one exception, operating leases have normal provisions for periodic rent reviews to market rates. No lessees have an option to purchase the property at the expiry of the lease period.

20. Joint operation investments

Joint operations are joint arrangements between the Group and another party in which there is a contractual agreement to undertake a specific business project and in which the joint parties are severally liable 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.

Details of the Group’s material joint operations at the end of the year are as follows:


held by the Group

Balance date 2017 2016 Principal activity

Grasslands Innovation Limited 30 June 30 30

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

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. Grasslands Innovation Limited is considered 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.

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21. Transactions with related parties

The ultimate shareholder of the Group is the Crown. The Group undertakes many transactions with other Crown entities, state owned enterprises and government departments, which are carried out on a commercial and arm’s length basis. A summary of other related party transactions is detailed below.

Trading transactions with related parties

Sale of services Due from

2017 2016 2017 2016


Research, development and other services

Transactions between AgResearch and related parties:

Subsidiaries 3,797 4,317 1,036 1,106

Associates 10,402 10,234 2,894 2,151

Jointly controlled entities 339 1,015 132 65


Entities of which key management personnel are associated * 8,108 15,180 2,738 4,408

Purchase of services Due to

2017 2016 2017 2016


Research, development and other services


Subsidiaries 116 223 23 81

Associates 1,173 266 - -


Entities of which key management personnel are associated * 9,061 6,552 246 806

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

During the year AgResearch Limited made interest payments of $85k (2016: $203k) to its subsidiaries on intercompany loans. The weighted average interest rate on the loans is 3.22% (2016: 3.84%).

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

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21. Transactions with related parties (continued)

Sale of services Purchase of services Due from (due to)

2017 2016 2017 2016 2017 2016


ANZCO Foods Limited 116 295 91 - 18 32

AsureQuality Limited ** - 26 - 145 - (4)

Ballance Agri-Nutrients Limited 486 - - - 82 -

CSIRO** 7 - 159 175 - (11)

DairyNZ Incorporated and DairyNZ Limited ** - 6,862 - 2,710 - 1,640

Deer Industry New Zealand 9 13 14 13 6 -

Farmax 34 20 35 32 35 23

Firstlight Foods Limited ** - 20 - - - 29

Firstlight Venison (NZ) Limited ** - 7 - - - -

Foundation for Arable Research 383 564 21 3 393 500

Grasslanz Technology Limited 3,797 4,317 116 223 1,013 1,026

Hamilton City Council** - - - 554 - -

Landcare Research New Zealand Limited 835 604 2,251 - 357 202

Lincoln Hub Limited 20 - 200 - - -

Lincoln University 533 1,095 6,144 2,624 (34) (328)

Macfarlane Rural Business Limited - - 5 5 - -

Gravida (National Research Centre for Growth & Development) - 5 - - - -

Overseer Limited 532 423 - 2 373 288

Silver Fern Farms Limited 63 66 8 30 19 15

Tainui Group Holdings Limited - - 17 - - -

TBFree New Zealand Limited 1,293 863 - - 230 190

Zenoch Management Limited ** - - - 36 - -

Total 8,108 15,180 9,061 6,552 2,492 3,602

** Key management personnel are no longer associated with these entities.

The 2016 numbers in the above tables have been restated to correctly disclose all trading transactions with entities of which key management personnel are associated (including subsidiaries and associates).

Equity interest in related parties

Details of the percentage of interests held in related parties are disclosed in notes 4 and 16 to the financial statements.

Key management personnel compensation

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

2017 2016


Salaries and other short term employee benefits 2,275 2,528

2,275 2,528

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22. Financial instruments

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

Financial risk management

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

• credit risk• market risk• liquidity risk

The Group has a treasury policy which it applies to actively manage these risks (refer below).

Credit risk

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

Credit risk is managed through the treasury policy which:

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

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 in the statement of financial position.

Market risk

Currency risk Revenues 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 rates approximating them. Assets and liabilities are converted to New Zealand dollars at the rates of exchange ruling at balance date.

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 foreign exchange contracts.

It is estimated that a 10% decrease in the New Zealand dollar would increase profit and equity by $409k (2016: $148k). It is estimated that a 10% increase in the New Zealand dollar would reduce profit and equity by $335k (2016: $121k).

Cash flow hedges For 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 group-wide basis. Under the treasury policy the purchased cover is up to 95% depending on how far out the anticipated exposure is (to a maximum of 12 months).

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

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.

Interest rate risk

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.

Liquidity risk

Liquidity risk represents the Group’s ability to meet its financial obligations on time. Generally, the Group generates sufficient cash flows from its operating activities to make timely payments. It does however maintain an overdraft facility of $1m to cover any shortfalls. As at 30 June 2017 there were no funds drawn against the facility (2016: $Nil).

Liquidity risk is managed:

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

• through compliance with the treasury policy, which sets a liquidity buffer for unforeseen cash flows;• through monthly review by senior management; and• through regular oversight by the Audit & Risk Committee.

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.

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22. Financial instruments (continued)

Maturity analysis – financial liabilities

On demandLess than 1

year

Between 1 year and 5

years Total


2017

Trade and other payables - 27,835 - 27,835

Derivative financial instruments - 67 - 67

Finance leases 4 - 4

- 27,906 - 27,906

2016

Trade and other payables - 26,238 - 26,238

Derivative financial instruments - 41 - 41

Finance leases 5 1 6

- 26,284 1 26,285

Fair value

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

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

Investments Investments, except for ‘other investments’ which are valued at fair value, are carried at cost. It is not practical to estimate the fair values of unlisted associates.

Derivative financial instruments

Foreign currency contracts are shown at fair value.

Fair value of financial assets and financial liabilities

Note

Loans and

receivablesAvailable -for-sale

Financial liabilities at

amortised costCarrying amount Fair value


2017

Financial assets

Cash and cash equivalents 59,043 - - 59,043 59,043

Trade and other receivables 8 29,665 - - 29,665 29,665

Other non current receivables 13 4,341 - - 4,341 4,341

Other investments 12 - 4,021 - 4,021 4,021

93,049 4,021 - 97,070 97,070

Financial liabilities

Trade and other payables 9 - - 18,609 18,609 18,609

Derivative financial instruments - 67 - 67 67

- 67 18,609 18,676 18,676

2016

Financial assets

Cash and cash equivalents 57,087 - - 57,087 57,087

Trade and other receivables 8 33,060 - - 33,060 33,060

Other non current receivables 13 4,153 - - 4,153 4,153

Other investments 12 - 4,367 - 4,367 4,367

94,300 4,367 - 98,667 98,667

Financial liabilities

Trade and other payables 9 - - 19,579 19,579 19,579

Derivative financial instruments - 41 - 41 41

- 41 19,579 19,620 19,620

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23. Contingencies and commitments

2017 2016


Capital commitments

Asset purchases committed to and contracted for at balance date 6,831 1,315

Funding commitments to research consortiums 1,975 2,900

Lincoln University AgResearch Joint Facility 4,972 -

Total capital commitments 13,778 4,215

Other commitments

As at 30 June 2017, a conditional agreement has been entered into in relation to the Massey Joint Food Science Facility. If development concludes as expected, the contributions will be circa $24m in addition to the already contracted commitments.

Litigation and other contingent liabilities

There are no known significant contingent liabilities or pending litigation.

Contingent assets

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 still to be determined.

24. Capital management

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

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

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

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

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25. Fair value measurements recognised in the statement of financial position

The 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 the degree 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); 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).

Note Level 1 Level 2 Level 3 Total


2017

Available-for-sale financial assets

Other investments* 12 3,042 969 10 4,021

Non-financial assets

Livestock 10 - 4,487 - 4,487

Forestry 11 - 727 - 727

Land and land improvements 7 - 76,688 - 76,688

Buildings 7 - 72,511 - 72,511

Financial liabilities designated at fair value

Derivative financial liabilities - 67 - 67

3,042 155,315 10 158,367

2016

Available-for-sale financial assets

Other investments* 12 2,779 595 993 4,367

Non-financial assets

Livestock 10 - 3,717 - 3,717

Forestry 11 - 1,041 - 1,041

Land and land improvements 7 - 73,415 - 73,415

Buildings 7 - 72,439 - 72,439

Financial liabilities designated at fair value

Derivative financial liabilities - 41 - 41

2,779 151,166 993 154,938

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.

*Other investments consist of Fonterra shares $3,003k (2016: $2,743k), BioPacific Ventures Fund $10k (2016: $993k) and other investments of $1,008k (2016: $631k) as per note 12. Note 12 also includes costs related to the Lincoln University AgResearch Joint Facility, which is stated at cost and therefore not reflected in the above table.

The 2016 comparatives of other investments has been restated to correctly reflect the available for sale assets that are measured by the Level 1 and Level 3 criteria.

26. Significant events after balance date

The Development Agreement for the Lincoln University AgResearch Joint Facility was approved by the AgResearch Board and Lincoln University Council in July 2017. The agreement outlines the way in which the two parties will work together in developing the joint facility and contribute to costs. If the development concludes as expected, AgResearch’s contributions will be circa $80m, which includes $3,031k already spent and $4,972k committed to (refer to note 23).

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Auditor’s report

INDEPENDENT AUDITOR’S REPORT

TO THE READERS OF AGRESEARCH LIMITED AND ITS SUBSIDIARIESFINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

The Auditor-General is the auditor of AgResearch Limited and its subsidiaries (the Group). The Auditor-General has appointed me, Bruno Dente, using the staff and resources of Deloitte Limited, to carry out the audit of the financial statements of the Group consisting of AgResearch Limited and its subsidiaries and other controlled entities, on his behalf.

Opinion

We have audited the financial statements of the Group on pages 40 to 75, that comprise the consolidated statement of financial position as at 30 June 2017, 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 2017; and

- its financial performance and cash flows for the year then ended; and

- comply with generally accepted accounting practice in New Zealand in accordance with New Zealand equivalents to International Financial Reporting Standards.

Our audit was completed on 24 August 2017. This is the date at which our opinion is expressed.

The basis for our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities relating to the financial statements, we comment on other information, and we explain our independence.

Basis for our opinion

We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand). Our responsibilities under those standards are further described in the Responsibilities of the auditor section of our report.

We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of the Board of Directors for the financial statements

The Board of Directors is responsible on behalf of the company for preparing financial statements that are fairly presented and that comply with generally accepted accounting practice in New Zealand.

The Board of Directors is responsible for such internal control as it determines is necessary to enable it to prepare financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Board of Directors is responsible on behalf of the company for assessing the company’s ability to continue as a going concern. The Board of Directors is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless the Board of Directors has to cease operations, or has no realistic alternative but to do so.

The Board of Directors’ responsibilities arise from the Crown Research Institutes Act 1992.

Responsibilities of the Auditor for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit carried out in accordance with the Auditor-General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts or disclosures and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of these financial statements.

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Auditor’s report

We did not evaluate the security and controls over the electronic publication of the financial statements.

As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also:

- We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- We obtain an understanding of internal control relevant to the audit 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 company’s internal control.

- We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

- We conclude on the appropriateness of the use of the going concern basis of accounting by the Board of Directors and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.

- We evaluate the overall presentation, structure and content of the financial statements, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Our responsibilities arise from the Public Audit Act 2001.

Other Information

The Board of Directors is responsible for the other information. The other information comprises the information included on pages 2 to 39 and 78 to 116, but does not include the financial statements, and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Independence

We are independent of the company in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board.

Other than the audit, we have no relationship with, or interests in, the company.

Bruno DentePartnerfor Deloitte LimitedOn behalf of the Auditor-GeneralHamilton, New Zealand

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Statutory reportingFor the year ended 30 June 2017

Directors’ interests

Sam Robinson(Chair – retired 30 June 2017)

Brownrigg Agriculture Hawke’s Bay Regional Investment Company LtdLincoln Hub LtdOpihi LtdTourere Asset Management LtdCo-op Bank (removed during 2016)Silver Fern Farms JV & Associated Companies (representing Shanghai Maling)

Shareholder of Ballance Agri-NutrientsShareholder of Farmlands LtdShareholder of Primary Wool (H/bay co-operative broking business)Shareholder of Rangeland Farms LtdShareholder of Ravensdown Fertiliser Co-opShareholder of Silver Fern FarmsShareholder of Tourere Asset Management Ltd

Jeff Grant(Deputy Chair)

Copper Valley HoldingsD&G HoldingsFinance Now Ltd Lakeland Adventures Wanaka LtdMilford Sound Development AuthorityMt Linton StationNAITOSPRI New ZealandSouthern Institute of TechnologySouthland Shared Services & CEO’s Group

SBS BankTBfree LtdPredator-free 2050 LimitedShareholder of Copper Valley HoldingsShareholder of D&G HoldingsShareholder of Lakeland Adventures Wanaka LtdShareholder of Tower Hill Trust

Michelle Alexander(retired 30 June 2017)

Antares Restaurant Group LtdAntares Restaurant Group Project Company LtdAntares New Zealand Holdings LtdKiwi Pacific Foods Ltd

Tango Holdings New ZealandTango New Zealand LtdShareholder of Tango New Zealand Limited

Andrew Macfarlane ANZCO Foods Ltd (ANZCO Beef)Creighton Properties LtdDeebury Pastoral LtdDeer Industry NZ (Chair)Dumbarton Land Company LtdEdgewater Resort Hotel Ltd & subsidiaries

Fernside Holdings Ltd & subsidiariesKintore Farm LtdLincoln Hospitability LimitedMacfarlane Rural Business LtdNgāi Tahu Farming Lincoln University Councillor

Paul Reynolds Landcare Research LtdOur Land and Water National Science Challenge, ChairEnviro-Mark Solutions Ltd

Wood Engineering Technology (Gisborne) LtdMotu Economic and Public Policy and Research Trust

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 2017.

Dividends No dividends were declared during the year to 30 June 2017.

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 2017 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.

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Directors 2017 2016

Sam Robinson (Chair) 70,774 69,528

Jeff Grant (Deputy Chair) 44,807 35,778

Michelle Alexander 41,497 40,778

Dr Peter Stone 36,405 35,778

Dr Paul Reynolds 36,405 35,778

Andrew Macfarlane 36,405 35,778

Tania Simpson 36,405 35,778

Barry Harris - 44,028

Teresa Ciprian - 35,778

Grasslanz Technology Limited

Robert John Hay (Chair) 15,000 15,000

Directors’ remunerationRemuneration 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’ interests (continued)

Tania Simpson Deep South National Science ChallengeGlobal WomenKōwhai Consulting LtdOceania Group Ltd

Reserve Bank of New ZealandTainui Group HoldingsShareholder of Mighty River Power Ltd

Peter Stone Tropical Landscapes Joint Venture (CSIRO-James Cook University)National Centre for Engineering in Agriculture (University of Southern Queensland)

Shareholder of Nufarm LimitedShareholder of Argo Investments Limited

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Total amount paid $725,881

Number of employees 22

Termination paymentsDuring the year, the Group made the following payments to former employees in respect of termination of their employment with the Group.

DonationsNo donations were paid during the year ended 30 June 2017.

Directors and employees indemnity and insuranceDuring the year, the Company indemnified Directors and certain employees to the fullest extent permissible by law. The Company also has Directors and Officers insurance.

AuditorMr Bruno Dente of Deloitte Limited is the appointed auditor of the Company under contract from the Office of the Auditor-General and under section 21 of the Crown Research Institutes Act 1992.

Group

$100,000 to $109,999 45

$110,000 to $119,999 41

$120,000 to $129,999 29

$130,000 to $139,999 20

$140,000 to $149,999 16

$150,000 to $159,999 12

$160,000 to $169,999 7

$170,000 to $179,999 5

$180,000 to $189,999 4

$190,000 to $199,999 4

$201,000 to $209,999 3

$210,000 to $219,999 3

$220,000 to $229,999 1

$250,000 to $259,999 2

$270,000 to $279,999 1

$350,000 to $359,999 2

$630,000 to $639,999 1

Total 196

Remuneration greater than $100,000During the year ended 30 June 2017, 196 staff received remuneration of or exceeding $100,000 per annum, as shown in table on right.

Remuneration included performance awards, superannuation benefits, vehicle benefits, severance and exit payments.

Remuneration was received by Science (130), Chief Executive’s Office, Shared Services, Communications & Marketing and Finance & Business Performance (58) and subsidiaries (8).

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Core Funding reportAs at 30 June 2017

In 2016/17(FY17) AgResearch received $38.889m (2015/16: $38.889m) from the Ministry of Business, Innovation and Employment (MBIE) as Core Funding. Core Funding is funding that is devolved to a Crown Research Institute (CRI) to support it to achieve its Core Purpose, which it delivers 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.

These projects align with the Outcomes and Impacts defined in the AgResearch Statement of Corporate Intent and outlined on page 12-13.

This section identifies key achievements from Core-funded projects undertaken in the 2016/17 financial year. Many of these projects are aligned, co-invested and connected to AgResearch’s stakeholders and end users. The financial value and details of this co-investment are not reported here.

SSIF platform:National DatabasesAgri-Food ProductionPremium Agri-Foods

Sector groupingDairy On-farm

Animal welfare for market success

Objective This programme will reduce specific areas of animal welfare risk to New Zealand livestock industries, improve compliance, maintain freedom to operate and improve market success. The outcomes from this research will have a long-term impact on the livestock industries, providing guidance and management recommendations for farmers and processors on best practice and highlighting potential areas of welfare risk.

FY17 Key AchievementsA number of research programmes are measuring the impact of management practices on the welfare of farmed livestock in New Zealand.

For example, research has empirically determined that dairy cattle spend significantly less time lying on wet surfaces compared with dry, while they also have an aversion to lying in areas contaminated with faeces. The dairy industry will use this information to promote lying surfaces that maximise lying times and therefore improve animal welfare. Also, a web-based ‘off-paddock calculator’ tool that estimates the useful life-span of an off-paddock pad has been deployed on the DairyNZ website. This calculator is based on models developed by AgResearch.

FY17 Core Funding Investment$1,232,000

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Weed ecology and management in pastures and forage crops

Objective This project will provide the scientific basis for developing long-term cost-effective management of weeds in sheep and beef pastures, dairy pastures and dairy support forage cropping systems in New Zealand. It will achieve this through novel population and bio-economic/farm system modelling and empirical research with a focus on herbaceous weeds, including key groups such as the thistles, grasses and buttercups.

FY17 Key AchievementsWe have established that the fungus Plectosphaerella cucumerina, a newly recorded pathogen of Californian thistle, causes a debilitating disease in the weed when applied to its foliage. This finding indicates that the fungus has potential as a bioherbicide for use against the thistle in temperate pastures and that it should be considered for further study to determine its commercial potential. Genetic variation in Californian thistle collected from around New Zealand may explain the weed’s variable response in past field trials to foliage applications of the bioherbicide fungus Sclerotinia sclerotiorum. It suggests that a multi-strain formulation could be more effective. By developing a population model for Nassella tussock we have shown how population growth increases with disturbance and decreases with increasing grubbing efficacy. At the current average grubbing efficacy in Canterbury hill pastures, population growth does not occur if grubbing is completed by mid-November and there is little pasture disturbance. The model enables many different grubbing efficacy and pasture disturbance

scenarios to be simulated and provides guidance for setting ‘cut-off’ dates for regional pest management programmes aimed at the regional-scale management of this weed. An experiment comparing pasture cultivars for their susceptibility with the new-to-market herbicide flupropanate (Task Force) has been established on two farms in each of Hawke’s Bay, Marlborough and North Canterbury. The experiment will inform decision-making regarding pasture plant cultivar selection for over-sowing into dry hill pastures where Chilean needle grass and/or Nassella tussock have been controlled using the herbicide. Our molecular studies with yellow bristle grass, an invasive weed of New Zealand dairy pastures, indicate that this weed could be a hybrid between the long-naturalised form of the species and a Setaria species introduced and trialled as a potential pasture grass in the 1970s. Confirmation of this finding via molecular studies will indicate that this weed is a poor target for a classical biological control programme (using agents from overseas), and will have wider implications for future introductions of pasture grass species to New Zealand.

We have submitted a growth model for the weed fathen for registration with the Agricultural Production Systems sIMulator (APSIM). This model will interface with existing crop models to determine economic threshold competition levels and advise growers on whether control of this weed is required.


Defining the impact of soil biological constraints to pasture production

Objective Recent work has shown that soil-borne diseases of white clover cost farmers upwards of $600 per Ha per year. As yet, however, we have no comparable costs for ryegrass, and we have not accounted for the role of root disease in lost nutrient use efficiency, nor its contribution towards decreased pasture persistence. Given that many modern forage cultivars are not reaching their field potential, work to understand the extent and cost of below-ground disease burden on potential production is well over due.

The project will:

1. quantify the production-based and economic costs that are attributable to soil-borne diseases of forage pasture plant roots;

2. identify key soil-borne, root-pathogenic organisms from diseased root tissue/soil using classical and DNA-based analysis; and

3. establish the distribution and population size of key pathogens in pastoral soils, and investigate links between pasture development and pathogen levels.

FY17 Key AchievementsWe have quantified the production and economic costs of major pasture species attributable to soil-borne disease across the three main dairying regions of New Zealand. Production losses of 30% and 20% to white clover and ryegrass respectively were measured in soils of Waikato, where the greatest production losses occurred. This translates to a 40% profit loss for farmers. Few soils in Canterbury or Southland had diseases present that caused significant production losses. This result supports the idea that soil-borne diseases are playing an important role in the widespread pasture persistence issues seen in the Waikato region. Initial pathology analyses suggest that a complex of potential pathogens needs to be investigated to determine cause-and-effect relationships that can be targeted for future disease control strategies. We have held discussions with DNZ and Ravensdown staff that have helped us identify the next steps in engaging with industry on this area of work.

FY17 Core Funding Investment$270,000

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Epichloë endophytes for the future farm

Objective This project is completely aligned to Endophyte Innovation (EI), an unincorporated joint venture that invests in research for the discovery and commercialisation of Epichloë endophytes for temperate grasses. Fundamental research underpinning these goals is performed to improve understanding of endophyte transmission and viability, as well as seeking to identify new secondary metabolites and their regulation. The research also seeks to understand the impact of endophytes on plant development, through evaluating the role of the plant shoot apical meristem in coordinating the growth and development of the endophyte during the lifecycle of the host plant.

The overall objective of these interlinked aims is to help develop next generation grass Epichloë endophytes that target insect pests above and below ground, and particularly those pests not controlled by current commercial strains. This project provides options to solve challenges associated with endophyte seed transmission and endophyte viability during seed production and storage. The identification of more effective Epichloë strains will improve pasture productivity and resilience by both reducing insect predation and improving plant access to water and nutrients through healthier root systems.

FY17 Key AchievementsPoor transmission of protective fungal endophytes into ryegrass seed is due to failures in endophyte colonisation of newly developing tillers or inflorescences. Genes expressed in the plant meristem region have been identified as potential candidates that maintain the interaction between Epichloë endophytes (a genus of fungal endophytes) and ryegrass. The genes required for the biosynthesis of a key metabolite involved in insect biocontrol were identified. The transfer of one gene between endophyte strains resulted in the biosynthesis of novel compounds with potentially new activity against insects. The ergot alkaloid pathway was dissected through gene deletion, chemistry analysis and black beetle feeding trials and identified the key intermediate metabolite leading to black beetle feeding deterrence. Over the past 12 months several key scientific papers have been published in international peer-reviewed journals and one PhD student graduated.


AgResearch nationally significant database (Margot Forde Germplasm Centre)

Objective The Margot Forde Germplasm Centre (MFGC) is New Zealand’s national genebank of grassland plants. The primary roles of the MFGC are to obtain plant germplasm (seed), conserve it, replenish it and distribute it for research and product development. It supplies seed to researchers around the world, and 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. Past use of seeds from the collection is estimated to provide an annual added value of $1 billion to pasture production.

FY17 Key Achievements • The MFGC work plans for 2016/17 were all executed

and achieved significant progress. Short-term benefits from its work included providing access to germplasm for the endophyte and forage research projects. We have made longer-term progress in improving the quality of the collection and database and future targeted collections. This will improve access to germplasm from the most exotic locations and to potential genes for resistance and tolerance to biotic and abiotic stress factors and their effect on New Zealand’s agricultural practice. A total of 6,701 new seed accessions were added to the Centre database during 2016/17. This included accessions from collecting missions to Altai mountains in Russia, accessions sourced from institutes outside of New Zealand, and breeding/research/experimental accessions.

This increase in seed numbers broadens the diversity of seed stored in the MFGC, which strengthens the seed database, increases the value of the overall collection and provides potential to assist a wider range of future research.

• A total of 6,111 accessions were sent out to users (5,208 to researchers at AgResearch and 903 to external users). External users included five New Zealand companies and overseas institutions in Australia, Czech Republic, Croatia, Israel and Japan. By distributing seed, the Centre has contributed significantly towards research in New Zealand and abroad over the past year.

• Seeds of 175 accessions were replenished or increased at MFGC over 2016/17.

• Staff were deployed to the East Coast of the North Island to collect naturalised populations of subterranean clover in New Zealand in December and January.

• The core collection of subterranean clover was partially imported from Australia to New Zealand for research projects specifically focused on subterranean clover for New Zealand hill country.

• In total, 66 accessions of the core collection of subterranean clover were grown in Palmerston North with duplicates in Lincoln in FY17 for seed increase in FY18 and seed availability for research purposes in New Zealand.

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Ryegrass fungal endophytes - PhD

Objective This PhD project will expand our existing knowledge of the mechanisms by which ryegrass fungal endophytes affect insects through gaining an understanding of the behavioural and olfactory responses of three major pasture pests (Argentine stem weevil, root aphid and grass grub) to endophyte-infected ryegrass. Host plant selection by insects often involves a response to volatiles given off by a plant.

Understanding the behaviour of insects in relation to the presence of fungal endophytes in grasses will give us greater insight into their deployment for insect pest control and potentially help identify new bioactive compounds that will become an important part of the discovery of new endophytes. This will add to the current AgResearch endophyte programme to improve the effectiveness of endophytes in pest management on New Zealand farms.

FY17 Key AchievementsOlfactometers are glass arenas used to assess olfactory responses of insects to multiple odour sources. We designed and produced an olfactometer to suit the morphological features of the root aphid, Aploneura lentisci. Two experiments assessed olfactory responses of root aphid to endophyte-free perennial ryegrass. Information gathered from these experiments improved our limited knowledge of the behaviour and biology of this important pasture pest.

A second olfactometer was developed and three experiments investigated the effect of endophyte infection on olfactory responses of Argentine stem weevil adults. Results from these experiments indicate that Argentine stem weevil are able to locate their host plants using olfaction, but cannot distinguish between endophyte-infected and endophyte-free plants.

This information provides greater understanding of the behaviour of this insect in relation to fungal endophytes. Three experiments investigated the effect of herbivore-induced plant volatiles, released by insect feeding, on host selection of the Argentine stem weevil. Argentine stem weevil selected damaged ryegrass plants over undamaged plants. These results provide further information on how this important pasture pest selects its host plant.

A third olfactometer was used to assess the effect of endophyte infection in tall fescue and perennial ryegrass on host selection of grass grub larvae. Further experiments are required next year to better understand the behaviour of this insect in relation to endophyte-infection.


The first subset of the world collection of white clover was developed using eco-geographical data and GIS and GPS information, and around 700 accessions were imported into New Zealand for the final core collection development.

• The second batch of New Zealand’s forage collection seed was deployed and deposited at the Svalbard Global Seed Vault (Norway) during the year. The Svalbard Vault is the world’s largest secure seed storage facility, and the deposit provides a valuable back-up of New Zealand’s forage seed and associated agricultural crop diversity. In total, MFGC has now sent and deposited around 1,400 accessions over the last two years.

The Centre’s international profile was raised during the year through its deepening relationship with the Global Crop Diversity Trust. The Director of the Centre was an invited speaker at the Crop Trust’s annual genebank managers’ conference in Australia, and gave a range of interviews about the genebank with media organisations in New Zealand (RNZ and three other radio stations and three newspapers), France (France TV) and the UK (BBC). Also, MFGC Director was voted in and appointed as the Vice Chair of the germplasm phenotyping working group at the prestigious global genebank collaboration initiative DivSeek.


Farm systems roadmap - new capability

Objective This project is focused on increasing the capability and capacity of farm systems expertise in AgResearch by supporting the following appointments (as recommended in the Farm Systems and Environmental Sciences Roadmap):1. farm systems and environmental scientist;2. farm economist; and3. farm systems scientist with hill country and deer

focus.

FY17 Key AchievementsWe have recruited the farm economist position and the post doctoral researcher recruited has begun delivery into a project ‘Economic Valuation for Science Innovations in the New Zealand Pastoral Industry’ as well as other programmes. A conceptual economic model on how to link price premium to farm systems is progressing well and a paper has been submitted to the Journal of New Zealand Grasslands. A new strategy for capability development and recruitment in FY18 has been identified for the other two roles.


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Forages for reduced nitrate leaching

Objective This project supports the DairyNZ-led programme ‘Forages for reduced nitrate leaching’ (FRNL). The research target within this programme is to reduce nitrate leaching losses from dairy, arable, beef/sheep and mixed farm businesses by 20% from current levels by delivering (by 2020) proven, adoptable pasture and forage crop options for end-users in all of these industries. New Zealand’s RS&T and farm management capabilities align around forages. Farmers are proficient at managing pastures and crops, and capable of implementing change in their forage base/crop rotation. Forages offer a realistic path toward meeting the twin challenges of increasing productivity while reducing environmental impact.

Overall, the FRNL programme will provide new scientific knowledge for forage options that reduce animal urinary nitrogen (N) excretion, sustain high levels of production, assimilate more N from soil to reduce leachable nitrate loads, optimise forage crop

phases of arable rotations, and are readily integrated into farming systems. The FRNL programme runs from October 2013 to September 2019. Solutions will be delivered to create nutrient load ‘headroom’ in freshwater catchments, which can then facilitate sustainable economic development in the end-user industries. Based on one example (Hurunui River catchment), we estimate potential regional (Canterbury) gross economic benefit of more than $500 million per annum from dairy alone by 2030, and total national benefit will exceed $2 billion per annum.

FY17 Key AchievementsAchievement: Our results indicate that feeding even moderate amounts of fodder beet in the diet (about 40% of the dry matter intake) changes the diurnal pattern and the fermentation profile obtained from the rumen in lactating cows. When fodder beet was fed to dairy cows at rates commonly seen on farm, the fermentation profile is suggestive of large changes in nutrient flow from the rumen.

High metabolisable energy forage commercialisation

Previously titled ‘Genetically modified (GM) forages’.

Objective One of the most important measures of animal feed quality is the energy value of feed, which is measured by the amount of usable energy (known as metabolisable energy) in a specific weight of feed. The primary goal of this programme is to boost pastoral agriculture sector profitability by developing genetically modified (GM) forage ryegrass cultivars to improve forage production and quality with respect to animal feed. The potential benefit to the New Zealand pastoral industry, if adopted, could be in the range of $2 billion to $5 billion per annum through increased productivity, increased efficiency and reduced environmental impacts. The project to date has developed GM high metabolisable energy (HME) perennial ryegrass lines with doubled levels (from 4% to 8%) of leaf lipids and up to 50% increased growth rates. This research underpins a seven-year science plan outlined in the HME Forage Business Plan 2015.

FY17 Key AchievementsThe first HME ryegrass field trial was completed on the 10 July 2017. Conducted in the United States, this first trial was designed to test all steps of the process

including regulatory approval, seed production, pre-germination in containment, transfer to the field and the various experimental processes needed to assess the efficacy of the HME ryegrass. The trial used a single HME ryegrass event that has a mid-level expression of the HME trait. Increased in-field photosynthesis measurements were consistent with glasshouse measurements. The trial demonstrated that establishment of HME ryegrass was equivalent to control plants and that the environment was suitable for plant growth.

We have three HME lines progressing toward overseas-based field trials in 2018, with activities including trait fixing and seed production. Some of these lines have up to 50% faster growth rates than control lines due to a 20% increase in the rate of photosynthesis. We have also assessed the growth of the ryegrass endophyte in HME ryegrass and found no difference in its growth and seed transmission. Controlled environment testing has shown that HME ryegrass has 9% increased actual water use efficiency compared with control ryegrass.


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Impact: Management practices aimed at reducing nitrogen excretion to the environment require investigation of co-benefits or potential trade-offs with other animal traits. Although indications are fodder beet is potentially a low N leaching crop, these findings, together with our previous work profiling the circulating amino acid concentrations in fodder-beet-fed cows suggest that the use of this feed has important implications for dry cattle. This research is valuable in identifying ways to use fodder beet in a safe way with ruminants. Following our findings, successful proposals have been prepared to assess the use of fodder beet in pregnant sheep (Beef + Lamb New Zealand). Furthermore, our research has provided insights into how fodder beet feeding of lactating cows could impact aspects of milk quality, due to the changes in rumen fermentation profile. We are following up these findings by developing new research proposals.

Achievement: In the past year we have, in collaboration with the Commonwealth Scientific and Research Organisation (CSIRO), Australia, completed the development and testing of an innovative approach to modelling the effects of competition between plants when their root systems are spread across patches in the soil with extreme heterogeneity in soil nitrogen. While the mechanism was developed in one particular simulation model, APSIM, it has the potential to be

adopted by other models requiring competition between plants and has quite a long reach into this area of research.

Impact: Process-based modelling is essential to support the experimental findings for integration into whole-farm systems and across the variety of soils and climates in which the technologies should be used. The results will better enable the modelling of farm systems that include diverse pasture.

Achievement: We have compared nitrogen uptake from urine patches on different pasture species and the implications for N leaching risk. We have compared the effects on N uptake and N leaching risk of dry summer conditions and irrigated pasture.

Impact: Understanding the nitrogen dynamics in urine patches in a range of pasture species is important because the urine patch is the ‘engine’ for nitrogen losses to the environment. The information is being used to improve the APSIM model and OVERSEER® (Nutrients Budget Model) in the next 12 months as a part of a recalibration project. Thus the results have potential to have immediate impact once captured in OVERSEER®.


Forage value

Objective The Forage Value Index is a seven-year (2013-2020) New Zealand initiative led by DairyNZ and the New Zealand Plant Breeding and 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 for selection of the pasture crops that deliver the best productivity (and, in due course, environmental) outcomes.

FY17 Key Achievements • With DairyNZ we completed a collaborative grazed

field experiment at four different sites. The experiment tested the performance of eight ryegrass cultivars grown with or without clover, and with low or high nitrogen fertiliser inputs. The results will be published in a special issue of the New Zealand Journal of Agricultural Research.

• We obtained initial proof of concept for the hypothesis that thicker-leaved clovers would degrade more slowly in the rumen than leaves of normal clover. This is an important result because a slower degradation rate would mean less excess dietary nitrogen is deposited in urine patches, with a consequent reduction in nitrate leaching.


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FY14 Science Prize: Sensing and signalling intercalary growth in Epichloë endophytes

Objective Until recently, the prevailing paradigm of fungal growth has been that vegetative hyphae grow exclusively at the apex. This mode of growth is often cited as a “fundamental aspect of cell biology which sets the fungi

off from other major kingdoms”. However, in the context of grass colonisation by Epichloë fungal symbionts (Ascomycotina, Clavicipitaceae), apical extension of hyphae is incompatible with the mechanism of grass growth that occurs through intercalary (non-tip) cellular

Future farming systems

Objective In this programme, we will work with stakeholders to develop thought leadership and stimulate thinking and discussion about current and future New Zealand farming systems, in order to ensure the future prosperity of New Zealand’s pastoral sector. Specifically, the project will provide farms with research, knowledge and technologies that drive the development of productive, profitable, resilient and sustainable farming systems as they continue to evolve into the future (while facing local, regional, national and global opportunities and threats). Programme research is specifically relevant to Māori, and adopts a ‘grass-roots’ approach to developing research networks with Māori agriculture entities in order to improve productivity and provide capability to farm systems that can operate within both ecological and cultural boundaries.

FY17 Key AchievementsWith Māori farmers we have identified key leverage points to substantially increase farm profitability; the approach has been farming systems based and centred on kaitiakitanga (stewardship). The leverage points identified included increasing feed quality (more legumes), better forecasting of feed supply (pasture growth forecasting, which is critical to enable low chemical input decision making), improved weed management and precision placement of fertiliser for both productive and environmental benefits.

This work contributed to the development of a credible relationship with key East Coast Māori farming enterprises. Further achievements for FY17 were establishing legumes in hill country and demonstrating their success, developing a weed control strategy for Tangihanga, which includes introducing biocontrol agent for thistle control, and developing a decision tool for variegated thistle. These resulted in useful extension material for East Coast farming that had relevance for cultural drivers of farm decision-making. Research also identified new leverage points for ‘breaking production ceiling’ on a high-performing dairy farm; two areas of focus have been bringing new technology to pest management (grass grub with variable rate treatment) and new knowledge on layers of data required for understanding variability in pasture production. This has led to discovery knowledge on infiltration rates in soils under irrigation as well as strengthened relationships with commercial partners. Success of the Innovation Systems approach has informed the Lincoln Hub irrigation bid and AgResearch Digital Agriculture project. It has also led to new relationships with technology companies and discussions for an MBIE programme that includes infiltration rates.


Animal reproduction

Objective This programme represents targeted research into reproductive efficiency (a key driver of profitability) within the New Zealand meat animal and dairy sectors. Its overall objective is to develop precision breeding techniques and management tools to accelerate genetic gain in reproductive performance of livestock, thereby improving the profitability of sheep, beef and dairy sectors.

FY17 Key AchievementsGene-editing has been successfully used in cell-lines from cattle to insert a gene known to result in lighter coat colour, a trait that has the potential to significantly increase heat-tolerance of livestock. The technique has also been used to modify milk composition from cattle by removing production of the allergy-causing whey protein beta-lactoglobulin in the milk. These results

demonstrate the potential value of gene-editing for New Zealand’s livestock sectors. In a collaborative project with DairyNZ and Victoria University, we have made significant advances in understanding the causes of early embryo-loss in dairy cattle. As a result, strategies to improve reproductive success, a major area of concern for the industry, are being developed, including increasing the period post-partum before breeding and also increasing the number of pre-mating heats. In sheep, we have shown that the number of lambs sired by each ram varies between rams but is moderately consistent across years for individual rams. As this finding has no strong associations with other production traits, it indicates that it would be possible to select for improved ram mating success.


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FY16 Science Prize: Defining new pathogens, plant microbe interactions and optimising fungal production

Objective The project will support and help develop the soil biology team as a world leader in biopesticide development and plant microbe interactions. The team has developed key expertise in the area of soil ecology, and has significant expertise in various trophic-level components, from microbial, protozoan, soil invertebrates such as nematodes, to various plant species, specifically ryegrass and clover. In some scenarios fungi have been found to have limited field efficacy due in part to their requirement for moist conditions. The increasing use of irrigation in New Zealand pastoral systems will provide an environment more conducive to the field application of fungi, to effectively and potentially more consistently control insect pests. Our team has identified two key insect-active fungal species, Beaveria brongniartti, which is active against black beetle larva and adults, and Metarhizium anisopliae, which is active against porina caterpillars. Importantly, these isolates form long-term resting structures termed microsclerotia. One component of this work aims to improve fungal production systems and define the triggers for fungal sporulation and microsclerotia development, allowing the cost-effective delivery of robust, persistent fungal formulations to the field - tailored for delivery in irrigation-based systems. A second component of this work will be to use a targeted approach to find new insect-active microbes that will have utility in both New Zealand and global sectors.

FY17 Key AchievementsThis project undertook a dedicated search for new insect pathogens that it could use to refine molecular tools. This advance in turn improved the detection and isolation of insect pathogens, specifically the bacterium Yerisinia entomophaga, which was for the first time re-isolated in New Zealand. The reservoir of Y. entomophaga has been defined, which will significantly help with the bacterium’s registration as a biocontrol agent in New Zealand and overseas.

We passed these improvements on to our counterparts in the United States and the tools can also now be deployed in other countries such as Australia, aiding registration. The project identified two hotspots for the bacterium and sequencing studies have enabled us to determine the genes involved in controlling virulence of 24 different Y. entomophaga strains. Their identification will allow a rapid genome screening to define why some strains have altered virulence properties. Two PhD studies are underway looking at the regulators of Y. entomophaga virulence and secretion. This data, combined with RNA sequencing data, will lead to high-calibre publications and should underpin future Y. entomophaga formulations.


expansion. In a Marsden programme that started in 2010 we set out to characterise the molecular processes underpinning intercalary growth in hyphae during leaf colonisation. Our hypothesis was that intercalary hyphal growth is stimulated by mechanical stretch imposed on hyphae by growth of host tissues. A PhD student was appointed to confirm whether mechanical stretch alone is the trigger for intercalary growth, and to functionally characterise the role of two potential mechano-sensors that may detect membrane perturbations and stimulate growth. As part of this project, a wool fibre stretcher was re-engineered to stretch hyphal filaments in vivo, and this device is being used to confirm whether Epichloë hyphae respond to mechanical stretch alone, and whether the switch to intercalary growth does not require other host factors. While the current student, who began this research is at the end of his PhD studentship, current data is increasingly supporting our hypothesis that mechanical stretch alone is sufficient to sense and stimulate intercalary hyphal extension.

FY17 Key AchievementsThe programme is attempting to answer a fundamental question concerning how fungal symbionts of grasses are able to sense growth of their ryegrass hosts, and respond by growing in synchrony. We have shown previously that mechanical stress caused by expanding host cells is the predominant stimulus for growth in the fungus. This year we have analysed global changes in gene expression in fungal cultures subjected to

mechanical stretch on a custom-designed stretching frame. Gene expression in samples taken, either immediately, or three hours after stretch, shows that fungal tissues do not perceive moderate stretch as a stress; rather they perceive it as a stimulus for cell division, expansion and cell wall synthesis. This challenging and exciting work was recently presented as a poster at the 29th Fungal Genetics Conference in California in March 2017.

The programme is also completing work aimed at identifying the fungal sensors that detect mechanical stretch. The original Science Prize project was the first to demonstrate that fungi are able to grow by intercalary (growth along the length of the filament) extension in grasses. This result contravened the current dogma of fungal growth, which has assumed for decades that fungal growth occurs exclusively at the hyphal tip. These outcomes are highly innovative, both in the procedures used and in the results obtained, and support the original claim that tip growth is not a defining feature of all fungi. We aim to strengthen our contribution in this area by seeking further funding. We have a high-calibre postdoctoral student from the United Kingdom who is interested in joining us to continue the research.


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FY17 Core Funding InvestmentDairy On-farm

Total $15,127,415

FY17 Technology Prize: Influence of pasture patch diversity on invertebrate colonisation

Objective Pastoral farming is vital to the New Zealand’s economy, yet we know surprisingly little about the structure and trophic interactions of plant and invertebrate communities in pasture. It has been suggested that New Zealand’s pastures are simple and lack biotic resistance, allowing pests to reach damaging densities. This is intuitively likely, but we have little supporting data. We hypothesise that increasing plant biodiversity in pasture will enhance invertebrate community complexity and functional biodiversity, promote stability in pasture communities, and in turn increase resilience against pest outbreaks and new invasive species. However, generating meaningful data to prove this is challenging. This project will introduce a patch of established alternative pasture species into a range of typical ryegrass/white clover pastures in Waikato, Canterbury and Otago.

FY17 Key AchievementsA trial to investigate the diversity of invertebrates within increasingly complex pastures has been designed and established at three sites in New Zealand.

We have introduced replicated patches of established alternative pasture species into typical ryegrass/white clover pastures in Waikato, Canterbury and Otago using a technique that has previously been used to investigate the breakdown of organic matter in a range of ecosystems. If this technique is successful in this trial we can initiate studies to identify which invertebrates are associated with alternative pasture species and the impact that a more diverse pasture may have on food webs within the wider pasture ecosystem. If we are able to prove our hypothesis that our patches have an increased abundance of beneficial species (predators, detritivores [organisms that break down organic waste], parasitoids) compared with adjacent pasture, and especially if greater plant diversity facilitates plant persistence, we will have a strong basis on which to design research programmes that will deliver regional recommendations on pest resilient pastures.


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Added value foods

Objective This programme will undertake a number of research initiatives that support the development of new added value foods in New Zealand’s meat and dairy sectors, with a focus on naturality and functionality. This includes gathering new information on opportunities to differentiate New Zealand meats in the premium pet-food market, developing models supporting optimisation of the digestive behaviour of foods, and increasing understanding of the impact of dairy processing on both the functional and physical properties of foods. This understanding will be used to develop foods with improved health benefits and desirable consumer characteristics, and simultaneously raise dairy and meat industry profitability.

FY17 Key Achievements • Excellent progress has been made in refining

methods for fatty acid composition analysis in pasture-fed ruminant meat and transferring these improvements to an external IANZ accredited laboratory. These advances, which include a better understanding of the effects of sample preparation on the resulting data, meet the industry need for accurate, robust, accredited methods for differentiating their meat products on the basis of composition.

• New knowledge on canine diets has been established. Dogs, when given the ability to self-select nutrients, consume diets containing a protein:fat:carbohydrate ratio of 45:51:4 (% metabolisable energy), which is a different ratio from standard kibbled diets

(carbohydrate levels of 30-60%). This may offer the opportunity for New Zealand pet food manufacturers to better tailor their products to the canine diet, particularly those manufacturing ‘natural’ pet foods.

• The programme has continued to expand our understanding of how food processing affects the properties of dairy products. A comparison of common processing conditions demonstrated how heat and homogenisation pressure interact to affect the microstructure and molecular composition of milk. This includes how different classes of lipids partition between the cream and skim phase of milk, as well as the susceptibility of proteins to oxidative modifications. Both studies highlight the opportunities for developing differentiated products through tailored processing.

• An improved method to investigate the microstructure of yoghurt using confocal laser scanning microscopy has been developed and optimised. This method allows us to observe the internal structure of the yoghurt without disturbing the gel network of the product and so it minimises artefacts to the results. The knowledge generated will form a basis to support nutritional benefits for dairy producers and opportunities for new dairy product development based in the differentiated physical properties of the milk materials.


Sector groupingDairy Off-farm

Human microbiome - seed project

Objective The aim of the human microbiome seed project is to build on our competency in digestive health by sourcing a high-level specialist in microbiome research and establishing a new research and development programme in that field. The research will be distinct from, but complementary to various research projects and programmes funded by AgResearch Core Funding (e.g. Added Value Foods Naturality, Red Meat Combifoods, Food Nutrition) and MBIE (Petfoods, FIET and the High-Value Nutrition National Science Challenge), and in alignment with major international microbiome initiatives. The research specifically aims to determine cause and effect of food-health relationships by defining the underlying role of the microbiome in these relationships.

FY17 Key AchievementsAn expert in the human microbiome (the collective genomes of the microbes, including bacteria and fungi, that live inside and on the human body) was appointed to strategically support the AgResearch portfolio of food and health research. To date, expert knowledge has been applied to data analysis of microbiota composition of the OPTIMUM cohort of ageing consumers and to better design the microbial analysis of faecal samples of women with or without osteoporosis. A presentation to the food industry with specific stakeholders generated interest in how microbiome research helps us to better understand the food-health relationships.


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Food nutrition programme

Objective This programme will carry out research that is distinct from, but complementary to 1) the six-year MBIE-funded Intestinal Barrier Function project (Objective 2) in collaboration with (and gated by) Fonterra (C10X1003; mapped to National Science Challenge High-Value Nutrition, NSC HVN); and/or 2) the 10-year NSC HVN (Objectives 1 to 8). It specifically aims to determine cause and effect of food-health relationships by defining the underlying biomarkers and mechanisms of action of these relationships. It includes developing and validating cell-based and animal models of human gastrointestinal tract (GIT) function, identifying biomarkers of exposure or responses, and evaluating the effects of food ingredients on GIT function and the flow-on effects to the brain.

In achieving these aims, the programme will contribute to the knowledge base, tools and technologies that will increase the capacity of the High-Value Nutrition National Science Challenge and New Zealand food companies to support the development of novel ingredients and food products for the infant and aged markets. The benefits 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 and products. As a result, New Zealand food exporters will gain a greater competitive advantage through validated claims of quality and/or health.

FY17 Key Achievements • Human functional gut disorders often occur

together with stress, anxiety and depression. A key achievement for this year was a published study that provided novel insights into how stress-induced variation in gut transit relates to changes in the gut microbial community and lipid metabolites in plasma. This novelty of the results was noted by the science community and the publication was selected by the highly regarded journal for an online video presentation.

• We established a direct counting method to measure the amount of bovine milk-derived miRNA using nCounter technology. This data indicates that we can measure 179 miRNA at a time, which is considerably more than is feasible using real-time PCR or sequencing technologies and more cost effective. This will allow us to directly quantify the amount of bovine miRNA in milk samples, which is a key step in subsequent experimental validation of their function. Furthermore, in silico analyses indicate that it will be possible to use this method for caprine and ovine

milk-derived miRNA. These findings are important because they provide new knowledge of relatively unknown components in milks that could potentially affect health.

• Novel methods to characterise human biological samples to establish responses to foods were developed and validated. In particular, a mass spectrometry method to identify metabolites in human faecal samples has been established and a database created to assist with metabolite identification in human cohort. Similarly, a mass spectrometry method was established to identify peptides to host and food proteins in human faecal samples. These new methods have, respectively, significant potential for clinical intervention studies in humans, including the studies currently conducted as part of the High-Value Nutrition National Science Challenge.

• Research on fermented foods for health is successfully connecting the food structure of fermented milks with peptide profile and determining their physiological attributes and inferred health benefits. Isolation of bacterial cultures from New Zealand non-bovine milks paves the way for controlled fermentation and selection for food texture and investigation of gut motility receptor modulation and future evaluation of fermented foods in clinical intervention in humans. This research is part of a collaboration from Teagasc (Ireland) through the Joint Programming Initiative, which includes two PhD students spending three years in total at AgResearch, one on a Walsh PhD Scholarship. This collaboration has generated results that support the concept of fermented foods to modulate gut motility in vitro, an important aspect of a healthy gut.

• A new collaboration was developed with key staff in the Centre for Brain Research at the University of Auckland. This will strengthen our capabilities in gut-brain axis research by giving us access to additional in vitro models of the brain, as well as equipment and expertise available through the Centre for Brain Research and the Brain Research Centre of Research Excellence. Already this collaboration has enabled us to secure industry co-funding to support the study of the effects of dairy-based food ingredients on brain health, particularly for those industry partners who are concerned about the consumer perception of animal studies.


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Visionary meat scientist - seed project

Objective This project specifically gives effect to the recommendations of the Food Sciences Roadmap that was completed in 2015. The roadmap identified some key areas that need addressing, such as recruiting a visionary meat scientist, and building strategic international links through collaboration and through short-term secondments of leaders in fields that will enhance AgResearch’s reputation and value proposition as a leading meat/food science research provider both domestically and internationally.

The key objectives of the project are to: • increase thought leadership in food sciences; • rebuild national capability for the future; • develop a strong partnered approach with Massey

University’s Riddet Institute; • offer industry new opportunities such as innovative

ingredients and products; and • develop key partnerships with other leading

international groups and institutions and build a strategy around the complementary programmes to ensure success.

FY17 Key Achievements • AgResearch has made significant progress in

developing a research strategy including: recruiting talent, up-to-date capability mapping, existing and new project mapping, collaborator capability mapping, stakeholder priorities and interests,

business development, advertising for brand awareness and reflection.

• A senior meat scientist was recruited to join the Food Assurance & Meat Quality team in 2016/17 to provide thought leadership to our programme and to support the evaluation of the impact of on-farm and off-farm factors on the quality of meat from different sources and integration of knowledge along the meat value chain.

• Workshops involving strategic discussions about our meat science programme and opportunities for collaboration were conducted at AgResearch-Ruakura and Grasslands.

• We have made collaborative efforts to develop opportunities for joint projects with Teagasc (Ireland), CSIRO (Australia), Instituto de Investigaciones Agropecuarias (Uruguay) and Scottish Rural University College.

• AgResearch has engaged Dr Peter Purslow (National University of Central Buenos Aires, Argentina), a highly respected meat scientist internationally, as a collaborator with our research team.


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

Objective This project will develop mathematical models to better understand the complex interaction between fermentable carbohydrates, commensal bacteria (bacteria that are part of the normal flora in the mouth) and colonic cells in the human body.

The mathematical models developed in the project will: • predict the change in the large intestinal commensal

bacteria populations and the metabolites produced by the commensal bacteria as a result of perturbations in diet;

• describe the effects of diet and bacterial metabolites on the large intestinal mucus;

• describe the active and passive uptake of bacterial metabolites by the large intestinal cells; and

• predict the levels of bacterial metabolites that enter the bloodstream.

The development of these mathematical models will provide an inexpensive tool for predicting the functionality of food products and a means to formulate hypothesis to be tested though preclinical experimentation prior to human validation.

FY17 Key AchievementsThe research describing the effects of perturbations in diet on the proportions of bacteria in the gut and their metabolites through the use of mathematics has generated significant interest. It has achieved the following results: • We have new insights into the metabolic pathway of

the butyrate (a short-chain fatty acid that is an energy source for the cells of the large intestine) producing commensal (beneficial) gut bacteria Eubacterium hallii and Anaerostipes caccae;

• We have established new understanding of co-culture growth dynamics between cross-feeding bacteria (e.g. when the end-product of one bacterium is the food source for another). Specifically, we have shown that the growth kinetics are based on substrate availability and preference, rather than the presence of other bacteria, and can be accurately predicted using growth parameters determined from monoculture studies. This reduces the number of experiments needed to accurately predict multi-culture dynamics.

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• Modelling simulations between cross-feeding bacteria have shown that the evolution of the gut bacterial ecosystem is influenced by the human host to ensure that beneficial metabolites are produced by the bacteria, rather than by the presence or absence of competing bacteria. This research was carried out with international researchers from the University of Aberdeen.

• A mathematical model built based on six functional groups of bacteria shows that the function of the bacteria is far more important to understanding the gut microbial ecosystem than knowing the specific strains.

• Funded by the Zonta Club of Wellington Women in Science Award obtained in FY16, the project leader Amyvan Wey Lovatt presented her research at University of California, Davis (UC Davis) and Impossible Foods, which has resulted in new collaborations. Data has been obtained from UC Davis in order to test whether the developed mathematical model is sufficiently robust to predict changes in the infant gut microbial system based on differences in diet and the introduction of a competitive probiotic.


FY17 Core Funding InvestmentDairy Off-farm

Total $3,873,588

Sector groupingMeat & Fibre On-farm

Driving livestock production through nutrition

This newly formed programme combines four complementary projects that ran separately prior to 2015/16, namely: ‘Driving NZ Dairy Beef Production – Role of Early Life Nutrition’, ‘Dairy Cattle Nutrition’, Ruminant Nutrition – Growing capability’, and ‘Future Rumen’.

Objective This project represents a targeted effort to grow AgResearch’s capability in ruminant nutrition. It aims to deliver new knowledge that demonstrates the potential for nutrition to influence ruminant livestock production outcomes that are relevant to industry requirements. Animal nutrition is one of the most potent environmental signals that influences animal performance throughout the whole life cycle (from embryo to adult). Furthermore, nutrition is not only critical for achieving production targets; it is also one of the most easily manipulated inputs on-farm and is thus a prime target for intervention strategies to enhance production efficiency, product quality, animal health and environmental impact.

The key objectives of this programme of work are to:1. grow AgResearch’s capability in ruminant nutrition

(including nutritional physiology and microbiology disciplines), as well as its thought leadership with the agricultural sector and international scientific reputation;

2. deliver new knowledge that demonstrates the potential for nutrition to influence ruminant livestock performance outcomes relevant to our industry requirements;

3. grow industry partnerships to deliver science outcomes to the livestock sector; and

4. through demonstrating the value that our capabilities bring to industry, generate new sources of revenue for H2/H3 research through government sources with industry co-funding where possible, and commercial sources (targeting H1) to help sustain the nutrition, physiology and microbiology capability within AgResearch.

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Bringing the best of genetic evaluation to the New Zealand agricultural industry

Objective This project will provide scientific leadership in applied quantitative genetics that will strengthen and diversify AgResearch’s future vision for development of impacts in the genetics and genomics space, by identifying and delivering strategic research and development opportunities in alignment with stakeholder needs and AgResearch’s Statement of Corporate Intent. The key capability and novel technologies developed in the project will ultimately support genetic gain in New Zealand’s livestock herds and flocks, thereby improving animal productivity and profitability in the beef, dairy, sheep and deer industries. Aspects of this project are specifically relevant to Māori.

FY17 Key AchievementsGenotyping-by-sequencing (GBS) technology has been developed and implemented in multiple species including goats, cattle and deer, leading to commercial revenue streams as industry has adopted it. Results were presented at the Plant and Animal Genome

Conference in San Diego. GT-seq has been investigated and developed in salmon. We have also developed and implemented a statistical model to estimate genomic breeding values for dairy sheep. Results were presented at the 2017 Sheep Milking Conference and will be adopted by Beef + Lamb New Zealand Genetics (B+LNZ Genetics) for national delivery of breeding values. Development of a dairy sheep SIL module has enhanced relationships with B+LNZ Genetics and resulted in commercial genotyping contracts. AgResearch scientists from the project team have been invited to be part of a strategic development team with Landcorp and Focus genetics to develop the Spring Sheep dairy breeding scheme. We successfully engaged international dairy sheep breeders to ascertain breed proportions and Awassi breed standards from New Zealand were added to our resource.


FY17 Key AchievementsResearch has determined that failure of passive transfer of immunity in dairy calves is strongly influenced by the time of collection from calving areas, with those calves collected earlier having a significantly greater incidence of diarrhoea and reduced weight gain. It is recommended, therefore, that improved access to colostrum during the first few days post-calving will be an important factor in animal productivity.

Fodder beet has quickly become a major forage crop in winter for livestock farmers. Our research has demonstrated that, while the crop is an extremely valuable source of nutrition for animals, the low levels of protein had negative consequences for both ewe and lamb performance. Ewes were lower in live weight and body condition score as a result of increased fat and muscle mobilisation. Lambs were born smaller and lighter, and had reduced survivability. Improved feeding and management of young livestock is increasingly recognised by industry as an important

contributor to profitability, lifetime performance, animal welfare, and reducing environmental impacts. We have demonstrated that early-life nutrition can influence lifetime productivity in dairy-beef heifers. Its benefits include programming tissue development to enhance product quality (marbling), and reducing the time to slaughter thereby reducing production costs and in turn reducing the intensity of environmental emissions. Samples from the rumen contents of pasture-grazed New Zealand sheep have been obtained to contribute to understanding of rumen microbial gene function in an AgResearch-led US Department of Energy Joint Genome Institute Community Science Programme ‘Defining gene function in rumen microbes’. This will generate an understanding of composition and function of the gastrointestinal microbial communities in calves, and their potential to be programmed through early-life nutritional interventions.


FY17 Science Prize: Gene function in rumen microbes

Objective This project will investigate the function of key genes in rumen microbes, with a particular focus on those genes encoding the breakdown of lignocellulose, the metabolism of substrates through to volatile fatty acids, and the final steps leading to the formation of methane. This work will improve our understanding of digestive processes in the rumen and will lead to new ways of enhancing the productivity of ruminants and reduce their environmental footprint.

FY17 Key AchievementsThe AgResearch Science prize project ‘Defining gene function in rumen microbes’ was successful in gaining the support of the US Department of Energy’s Joint Genome Institute for an aligned Community Sequencing Program project. This will use metaomics

techniques to investigate rumen function, including the metabolism of substrates to either ‘wanted’ volatile fatty acids or ‘unwanted’ methane. The programme will generate a comprehensive global set of reference genomes from sheep on pasture, beef cattle on pasture, beef cattle on a finishing diet and dairy cows on a production diet. This project addresses the important issue of assigning activities to the many genes within the rumen microbiome without known functions. Defining the functions of these genes will increase our understanding of ruminal digestive processes and improve our ability to discover new technologies for enhancing lignocellulose breakdown and reducing methane formation.


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FY17 Core Funding InvestmentMeat & Fibre On-farm

Total $3,988,726

Animal health

This newly formed programme combines two complementary projects that ran separately prior to 2015/16, namely: ‘Vaccine Pipeline’ and ‘Parasitology Programme’.

Objective This programme will develop technology designed to produce resilient farms that have low chemical inputs and superior animal welfare, specifically targeting internal livestock parasites (including resistant parasites). The project explores two complex interlinked research themes that are key to solving parasite problems: better parasite control through management solutions, and development of effective parasite vaccines. Internal parasites in livestock currently cost New Zealand farmers $700 million per annum in lost production and treatment costs, which demonstrates the necessity and significance of this research.

FY17 Key AchievementsWe conducted a field study documenting the transfer of long-acting anthelmintics from treated ewes to their lambs via milk. Initial results show very high levels of drug in the bloodstream of lambs as young as two days old. This may have important implications for the development of anthelmintic resistance.

We are developing a number of animal health vaccines. A vaccine to control ovine pneumonia has been tested in the field, with results encouraging enough for our commercial partner (MSD Animal Health) to seek agricultural compounds and veterinary medicines registration to enable future commercialisation. The science team are currently testing whether the addition of other bacterial species in the vaccine will further enhance efficacy. No recombinant protein vaccine has ever been developed against the highly pathogenic worm species Haemonchus contortus (barbers pole worm), despite it being the major pathogen of sheep production in most sheep-producing regions. However, a prototype vaccine recently developed by AgResearch scientists shows significant efficacy against the parasite infection. Studies are continuing to refine the vaccine and to develop a potential commercialisation strategy.


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Hitting targets for deer industry profitability (HITDIP)

Previous names for this programme were ‘A profitable future for the New Zealand deer industry’ and ‘Venison supply systems project [VSSP]’.

Objective This programme will deliver the underpinning science and technology to assist the New Zealand deer industry in achieving its medium- and long-term targets of improved productivity, profitability and sustainability. The programme’s research themes include 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 overall programme is managed by DEEResearch Limited, a joint venture with Deer Industry New Zealand, with board representation from producers, processors and other research providers.

FY17 Key Achievements • A biodegradable ruminal anthelmintic (anti-

parasitic) mini-bolus has been developed for deer, which delivers a five-day, low-dose release pattern. Having completed field trials of its efficacy, we are in discussions with a potential commercial partner to further develop and market the mini-bolus as a registered animal health product labelled for use in deer. This is desperately required by the NZ deer industry to allow anthelmintic use close to time of slaughter at 9-11 months of age for venison-producing animals.

• The Deer Progeny Test (DPT) is approaching completion in 2018. The most significant outcome to date has been that we have demonstrated carcass loin size is highly variable and heritable, can be accurately measured in vivo by ultrasound eye-muscle scanning (EMAUS), and is positively correlated with carcass yield, mass of other high-valued muscles and venison quality traits (e.g. tenderness, pH). EMAUS is now incorporated into a meat module within New Zealand’s national deer recording database, DEERSelect. This provides the venison industry an opportunity to focus on traits that directly influence product quality and value.

• We investigated an alleged link between over-wintering of pregnant red deer hinds on swede crops and fetal wastage (loss). Our study demonstrated that while the crops appeared to have toxic levels of glucosinolates (a group of secondary plant metabolite found in many pungent plants such as swedes), there was no evidence that hinds were adversely affected (e.g. measures of liver damage). While most of the swede crops had adequate crude protein levels, one crop was only 8% crude protein and was associated with a decline in levels of blood urea nitrogen, indicating a nutritional deficiency in late pregnancy. While finding no effects on fetal wastage, the study has demonstrated swedes are associated with some risk factors for hind performance. This information will contribute to better nutritional management of deer.

• We validated a new CT scanning ‘fixed-point’ methodology for deer to predict detailed muscling traits, as well as evaluating a new ‘spiral scanning’ system. The new ‘fixed-points’ proved to be less predictive than the previously-used ‘fixed-points’. However the ‘spiral scanning’ technique was shown to be the overall predictor of the traits of interest. The ‘spiral scan’ would provide more accurate prediction of carcass yield from CT scanning and is an automated process, thus making it a more attractive ‘gold standard’ for genetic selection of venison traits.

• Studies are continuing on the applications of genotyping-by-sequencing for the New Zealand deer industry. Already the stud breeding sector of the deer industry has adopted new DNA parentage, breed-typing and inbreeding assessment tools based on initial studies. Recent progress has been made towards developing genomic breeding values for deer, including full GBS genotyping of more than 2500 highly phenotyped individuals, key sires and breed standards.


Sector GroupingMeat & Fibre Off-Farm

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

Objective Proteins in red meat and co-products are a rich resource that can be used in a wide range of foods beyond traditional dishes. The Combifoods project is a platform for technologies and industry engagement to support the creation and export of added-value, innovative meat-based ingredients for consumption by humans and companion animals (pets). The aim is to optimise nutritional composition of food, as well as physiological and processing benefits.

FY17 Key Achievements • Outputs included two new manuscripts submitted,

10 presentations, posters or trade publications, and two external reports. Our creativity and credibility are backed up with publications and outreach.

• The programme mentored two PhD candidates (a first year on predicting consumer related food attributes from molecular data; a second year on crosslinking in food proteins), two students and four interns (projects on using meat derivatives in non-traditional food categories). Students and their universities multiply the reach and impact of the programme.

• Novel food products containing red meat or derivatives have been developed and tested every year during the programme. Six of these prototypes (nine experiments) were summarised in an invited review paper on meat-based foods for older consumers. High-profile promotion serves our goals of making the nutrition of meat available in a wider range of product categories, and helping the meat industry stretch its established business model.

• In new work on our most recent example of food innovation, Meat Lovers Chocolate, we used KiwiNet funding to study accelerated shelf-life measurement techniques. Another KiwiNet project used amino acid analysis to quantify opportunities with goat skins. Meaningful dialogue with our partner companies keeps us aligned with manufacturing priorities.

• We evaluated the effects of the most popular restaurant accompaniments on the in vitro digestibility of meat in whole meals and how that changed with the age of the source animal and the type of muscle and cut. Understanding physiological responses to ingredients is a key to product differentiation and optimal combinatorial formulation of new toddler and geriatric foods.

• The protein content of low-value ‘off-cut’ carcass products can be re-tasked as a food ingredient by hydrolysing it into mixtures of smaller peptides. We developed new algorithms that can predict useful properties of these, such as bioactivity, taste-stimulating molecules and flavour attributes. Advances in our proprietary HERBERT data-mining software will also lead to lower-cost alternatives to conventional analytical assays and improved descriptions of ingredients for marketing of hydrolysate products.


Food provenance and assurance

Objective This project covers research from ‘fork-back-to-farm’ aimed at ensuring that New Zealand’s exports are safe, of superior quality, ethically produced, have defendable provenance and produced in ways that are attractive to consumers and are consistent with the ‘New Zealand Brand’. This includes food safety, increased consumer confidence, animal welfare, opportunities to create value through New Zealand provenance and protecting country of origin. New Zealand food companies are expected to gain the key benefits of the research, in the form of reduced compliance costs and greater market access.

FY17 Key Achievements • Raw milk is potentially a high-risk product for

food-borne illness. We have identified this work has identified an increase in the number of aerobic spore formers during the winter and spring seasons compared with summer. Further investigation showed that Bacillus and Clostridium species detected from raw milk harboured toxin genes and some Bacillus species were also found to produce milk spoilage enzymes such as lipases and proteases. This research will provide information to Ministry for Primary Industries (MPI) about the epidemiology of

spore-forming bacteria in dairy farms as well as the diversity of spoilage bacteria for dairy processors. A research paper on the diversity of spore forming bacteria in farm dairy effluent has been published in an international journal.

• Bobby veal is considered to be a high-risk product for market access into the United States. This study has improved the understanding of potential reservoirs and transmission pathways of ‘Top 7’ STEC E. coli serogroups associated with natural contamination of livestock entering a slaughter plant. (Note: ‘Top 7’ STEC are the seven STEC identified by the United States as adulterants in beef products under US Federal Meat Inspection Act). High-risk factors include transmission via birds and flies. Findings will assist in targeting on-farm mitigation interventions to reduce pre-harvest prevalence and contribute to the ongoing risk assessment of STEC 7 contamination of bobby veal.

• We defined (and published) a novel, high-through-put culture-independent sequencing method for establishing E. coli community structure and diversity from calf faecal material. While individual animals may harbour more than 50 separate E. coli strains,

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NZ beef and lamb: value from quality

Objective This long running programme aims to develop and implement scientific approaches to enhance New Zealand’s reputation as a producer of safe and ethical premium-quality red meat products, thereby increasing productivity and profitability in the sheep and beef industries. Adoption of new knowledge and technologies developed in this programme will add value to and differentiate New Zealand meat products and contribute to increased earnings through reduced wastage along the logistics chain.

FY17 Key Achievements • Using phenotypic data we have identified the

biochemical pathways used by spoilage bacteria to proliferate and produce the unpalatable end-products that result in spoilage. These studies provide insights into why spoilage occurs and allows us to target intervention and/or management strategies to prevent the sporadic failures that prevent otherwise acceptable long shelf-life product being sold.

• Key criteria for cattle and sheep halal industrial slaughter have been established. These will be used to train slaughtermen and potentially reduce the number of slaughtered animals being rejected during halal meat production for export.

• Studies have identified the chemical changes associated with bacterial growth during long (more than 11 weeks) chilled storage that occur inside vacuum-packed lamb meat. Results demonstrate the feasibility of using sensors to non-invasively detect the stage of bacterial growth that will affect negatively the organoleptic (taste) properties of the product (microbial shelf-life). Based on these findings, it will be possible to develop a screening system that can reduce the risk of retail-ready products with compromised quality reaching consumers.

• Not all bacteria of the same type carry toxin genes and are pathogenic or pose a food safety risk. Using the Hyperspectral Imager we were able to discriminate between E. coli strain O26 with and without the virulence genes, stx and eae. These groups were further discriminated by on-farm source – faecal or soil. This work has given us a better understanding of how the metabolite differences between these organisms may be used to provide a rapid screening test for the discrimination of pathogenic and non-pathogenic bacterial isolates.


Integrated wool science

Objective This programme will deliver a comprehensive mix of longer-term fundamental and shorter-term applied science 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. These objectives are strongly aligned to meet the strategic needs for established and emerging non-traditional uses within the wool value chain as identified in the recent roadmap of Textile and Bio-based products. These objectives, while not interdependent, are linked and will generate outputs that can feed into other objectives and are aimed at helping to promote the expected transition

to a greater emphasis and co-funding opportunities within the new uses sector. Ultimately this will lead to increased export earnings and improved economic sustainability for the New Zealand wool industry, from grower to late-stage processor.

Objectives with a focus on new uses for wool and understanding fibre production will be aligned to the MPI partnership ‘New Uses For Wool’ and mapped to the National Science Challenge Science for Technological Innovation, which will develop capability within teams and position us as a ‘go-to’ collaborator in the area of novel manufacturing from protein sources.

communities are dominated by fewer than 10 strains alongside a large pool of subdominant strains present at low abundances. This method will be useful for characterising the diversity and population structure of E. coli in experimental studies designed to assess the impact of interventions to reduce pathogens on meat.

• Work to develop non-invasive spectroscopic testing systems that can verify a product’s unique characteristics (i.e. provenance and integrity) has progressed well. For example, we have successfully predicted some functional attributes of dairy powders, as well as differentiating between milk powder derived from goat and from that of bovine

milk, differentiating between infant formula manufactured from different processing plants and authenticating different meat species (lamb vs pork and beef), storage conditions (chilled vs frozen-thawed) and provenance (New Zealand against another country). This work has led to three posters presented in international conferences. One of them was awarded the best poster in the 2016 International Dairy Federation World Dairy Summit in Rotterdam and has attracted significant interest of researchers working with spray-dried food.


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FY17 Key Achievements • A human volunteer study demonstrated a significant

positive effect of a new, detergent-free, 2-step cleansing and nourishing system containing wool particles (in a cleanser) and intermediate filament protein (in a nourishing mask) on skin barrier function of wounded skin.

• We devised a brand new test method and used it to assess impact of different fabrics on skin damage during exposure to a source of ignition. This skin simulant method confirmed that there is a risk that undergarments comprised of non-flame-resistant synthetic fibres will melt away, drip and adhere to the skin, both worsening any burn injury and further exposing the wearer’s skin. This trial strongly suggested that synthetic-base layers that are currently standard issue for police and military personnel in the United Kingdom put them at risk of more severe burn injuries than if they were wearing wool garments.

• A series of new fine-wool fabrics was engineered to tackle the issue of the requirement for bulky, multi-layer systems for premature babies (in neonatal units). When tested for thermal resistance one of these fabrics was equivalent to two-thirds of the typical five-layer system. This fabric will be further refined and incorporated into a trial at Christchurch hospital in 2018.

• A new durable fluorocarbon-free stain-resist process has been developed for wool carpets. The process

is built on a fundamental study of the chemical and physical interactions between common household stains and wool fibres treated with various finishes. Some of the key findings were published in a renowned journal. Stain-resistance has been identified by the industry as the key issue facing wool carpets and rugs. The developed treatment is a significant advance towards exceeding the stain-resistance shown by wool’s synthetic fibre competitors.

• We became the first to determine the efficacy of nanoparticles to control wool-consuming insects on carpets (and subsequently published these findings). The nanoparticles deliver significant control of the two main pest species internationally: the Australian carpet beetle and the webbing clothes moth. This approach to protecting wool products offers a solution to the insects’ increasing resistance to conventional insecticides and could be employed by processors of New Zealand wool around the world.

• Hollow ceramic fibres were prepared from templates of wool. The method we developed uses wool’s strong affinity for metals, and its thermal decomposition to prepare highly structured materials.


Tuberculosis vaccine development

Objective It is extremely difficult to diagnose bovine tuberculosis (bTB) in cattle that are infected with the pathogen Mycobacterium bovis. A key factor in this difficulty is the scarcity of the Mycobacterium bovis organisms or their biological markers in the blood or tissues of infected individuals, and therefore those individuals do not exhibit any signs of infection nor mount a measurable immune response. For this reason current technologies used to detect bTB have significant limitations, in that a subset of animals infected with bTB cannot be identified through either routine surveillance or the most current specific and sensitive diagnostic methods. These cattle are often capable of transmitting the disease, infecting the population, without themselves appearing to be sick.

Immunomagnetic capture technology (ICT) offers a means of concentrating pathogens using antigen-specific antibodies. Paramagnetic beads are coated with these antibodies and bind to antigens present on the surface of microbial cells. The concentration process is created by a magnet placed on the side of the test tube which attracts the beads, thus capturing the cells and

facilitating the concentration of bead-attached cells. In this project, ICT will be developed and characterised for its ability to enhance detection and identification of Mycobacterium bovis in tissues and blood of cattle infected with bovine tuberculosis.

FY17 Key AchievementsThe accurate diagnosis of Mycobacterium bovis, the causative organism of bovine tuberculosis, is critical to controlling the disease. Our research is developing a highly sensitive and specific immunomagnetic capture assay system, that will enable the detection of infected animals which do not respond to currently-used skin tests so remain undiagnosed. The ability of this approach to detect the presence of the pathogen in blood is being evaluated as a potential new diagnostic tool for helping eliminate TB from cattle in New Zealand.


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Animal biology model development

Objective This project will take the first step towards creating a predictive model of fat metabolism in ruminant animals. The purpose is to provide information that will contribute to both more efficient farm production practices and increased meat product value. The longer-term aim of this initiative is to develop an ‘animal-centric systems model’, which will inform farm management decisions to maximise on-farm profitability within environmental and feed constraints and produce high-value products. This project will also target a) an integrated science approach across the value chain within AgResearch, b) internal and external research network/collaboration building, c) industry awareness, interest and input, and d) preliminary data and stakeholder support for a future larger MBIE Research Programme proposal, and e) become an example of capability and systems integration, to be expanded in the future to other nutrients, such as protein and fibre. The project will draw on AgResearch’s value chain expertise from on-farm production to off-farm product quality.

FY17 Key Achievements • AgResearch’s collective expertise, from off-farm

product quality to on-farm production, was brought together in a ‘Plate to Pasture’ approach to identify untapped areas of research that will facilitate the

production of high-value premium meat product in New Zealand farm systems. An understanding of the underlying biological mechanisms by which forage is converted to muscle in the growing lamb, and how this process can be manipulated, was proposed in a new MBIE Endeavour Fund proposal stemming from this project. This knowledge provides an important step to enable the New Zealand red meat sector to more rapidly and sustainably make on-farm changes in response to new market signals for high-value meat products.

• We developed a high-level representation of how fats and lipids are metabolised in ruminant animals, and how these are deposited in the muscle, thus affecting meat quality. A strategy for building a mathematical model of the growing lamb was also developed, which included a survey of previously developed, relevant models and how they could be used. This knowledge represents an important foundation from which a model of the animal system can be built to predict fat-related characteristics of meat from animals raised in a range of forage-based farming systems.


FY17 Core Funding InvestmentMeat & Fibre Off-farm

Total $7,049,250

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International science collaborations

Objective The AgResearch Business Model included an aim to have a more flexible and scalable resourcing model to enable us to deliver impacts and outcomes for the agricultural sector and New Zealand against the backdrop of continued revenue volatility, along with sustainable financial performance (known as the Resourcing Model). The Resourcing Model recognised that one key strategic driver to achieving the required flexibility and scalability was collaborations, in particular international collaborations, as a way of acquiring new intellectual property and access capabilities. In 2015, AgResearch’s Chief Executive and Research Director visited four international agricultural research institutes to explore details for formal organisation-to-organisation collaborations, and these have subsequently resulted in a Memorandum of Understanding (MOU) with each organisation. This Core Funding investment is used to support activities that deliver on the objectives set out in the MOUs for each of those four collaborations.

FY17 Key AchievementsSix out of the seven PhD Walsh fellowships through Teagasc have been filled, and students have commenced work across a range of topics. Three PhD students with Scotland’s Rural College (SRUC) have also started with one more identified from July 2017. In addition, staff

have visited SRUC to look at building up collaborations in hill farm systems to align with AgResearch’s hill country strategy. We have a postdoctoral student with UC Davis in the animal space and a secondment from AgResearch in the food space. A very successful workshop at UC Davis to exchange knowledge on milk and health was held with science and industry that identified areas of collaboration. Collaborative project plans are under development and investment mechanisms being identified. The strategic Partnership with INIA, Teagasc, IRTA and AgResearch held a workshop that developed a research plan. Participants have undertaken an inventory of work all four institues are conducting in five themes and are formalising proposals. INIA set aside $500K US dollars to start off the projects. The MOU with CSIRO was finalised and three workshops were held, one with Adoption and Practice Change, and two with farm systems. Staff exchanges have occurred and joint proposals developed along with joint papers accepted for conferences. A Heads of Agreement was also signed with Corpoica (Colombia) and five themes identified, with personnel from each organisation developing plans.


Climate change and the pastoral sector: impacts and adaptation

Objective The primary aim of this project is to provide forewarning of the impacts of climate change on soil, plant and animal interactions in pastoral agriculture and to develop adaptations that will enable agriculture to ameliorate or take advantage of the changing environment. This activity includes future-proofing key technologies (e.g. nitrogen fixation and biological control systems) so they remain effective under climate change. A further goal is to provide the information necessary for decision-makers at farm, regional and national levels to make informed choices in areas where the timescale and the nature of the activity may be influenced by climate change.

FY17 Key Achievements • Data from our Free Air Carbon dioxide Enrichment

(FACE) experiment are being used in five current international co-operative studies that are part of global research on climate change. The studies include meta-analyses (where datasets are combined

to draw more general conclusions) and validation and parameterisation of models being used to look at climate change impacts and mitigation of greenhouse gases. The provision of these data (and the interpretation of the analyses) enables New Zealand to make a notable contribution to the international effort to manage climate change.

• We have demonstrated a negative effect of elevated atmospheric carbon dioxide on nitrogen fixation and are now taking steps to find plant adaptations that might avoid this potentially damaging effect of climate change. Genetic analysis of different legume populations is underway which includes legumes collected from a natural carbon dioxide spring in Northland that have adapted to the elevated carbon dioxide levels.


Sector groupingAgricultural Policy & Māori Agribusiness

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OVERSEER® science and capability

Objective 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, the Ministry for Primary Industries (MPI) and AgResearch.

The objectives of OVERSEER® Core Funding are to improve the development of new science being incorporated into OVERSEER® and to continue to support business-as-usual activities. The three projects for FY17 were: (a) research into nitrogen mineralisation release in pasture to fodder crop rotations, (b) on going model development, maintenance, testing, and strategic advice, and (c) supplementing field measurements of nitrogen (N) leaching at a high-rainfall site in the Bay of Plenty.

Most FY17 Core Funding will be used in the OVERSEER® owner work programme for business-as-usual activities carried out by AgResearch OVERSEER® staff. Business-as-usual activities include maintenance services of issues logged into the JIRA system within the model, testing services and providing strategic and science advice to the OVERSEER® owners as required. This represents AgResearch’s funding contribution as one of the OVERSEER® owners.

FY17 Key Achievements • Key underlying issues contributing to the higher than

expected nitrogen (N) leaching losses being predicted by OVERSEER® ’s crop model were identified using a literature review and workshop with OVERSEER® Ltd. and Plant & Food Research. In addition, OVERSEER® crop model evaluation identified a large accumulation of soil mineral nitrogen in fodder crop blocks before crop grazing which contributed to higher than expected nitrogen leaching losses being predicted by the model.

• We undertook extensive field measurements from

10 winter forage crops around New Zealand in June to understand how much soil mineral N is present before grazing (from N mineralisation) and after grazing (from urine). The data will be used to validate the model which will ultimately improve the OVERSEER® crop nitrogen model.

• The crop model project demonstrated good collaboration with OVERSEER® Ltd, Plant & Food Research, and Pastoral 21 to align multiple industry objectives, which will ultimately improve predictions of nitrogen leaching losses from crops. New funding from OVERSEER® Ltd was secured to continue this work in July-August 2017.

• The OVERSEER® work programme, has met KPI’s throughout the year. A highlight was the completion of four core Technical Manual chapters: Characteristics of Crops, Animal Intake and Excreta, Effluent Management, and Distribution of Farm Data to Block Scale. This represents a major step towards increasing the transparency of OVERSEER® and in this way helping it become a trusted tool.

• Nitrogen leaching measurements were taken from a high-rainfall site near Rotorua, which has provided new validation data for OVERSEER® from outside the range of the calibration dataset. This type of validation data is particularly important for improving OVERSEER® N leaching estimates.


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Factors affecting phosphorus leaching and relevance for OVERSEER®

Objective The goal of this project is to provide a better understanding of a potentially significant knowledge gap with respect to phosphorus loss to groundwater. This research is important given that nitrogen and phosphorus are key nutrients for New Zealand’s pastoral agriculture. They have also been recognised as key contaminants of concern for water bodies in New Zealand since at least the 1970s. Despite the importance of both nitrogen and phosphorus leaching, it has been recognised that for a number of reasons research has focused more on nitrogen than phosphorus.

The immediate goal of this project, therefore, is to improve scientific understanding of phosphorus loss to groundwater, and to subsequently communicate the science to end-users and stakeholders for them to apply it and incorporate it into catchment – and farm-scale models and/or decision support tools such as the OVERSEER® Nutrient Budgets® model.

FY17 Key Achievements • Data from this study has shown that the amount of

phosphorus lost by leaching was affected by soil type, irrigation and the source of phosphorus. For example, 10 times more total phosphorus was lost from a stony soil irrigated with farm dairy effluent

over a 12-year period than a finer textured soil not irrigated with effluent.

• Other experiments we did on a different stony soil support these findings. They also found that greater amounts of phosphorus are lost from soils amended with organic sources of phosphorus (cow dung or dairy effluent) than soils with phosphorus fertiliser.

• We also found evidence to suggest that phosphorus movement through the vadose zone (the unsaturated zone below the soil and above the groundwater) may be greater from the application of dairy effluent or dung compared with that from phosphorus fertiliser.

• As a result, groundwater samples collected over 10 years from a long-term dairy farm site irrigated with farm dairy effluent are being analysed. The purpose is to find out how much of the phosphorus in drainage may be moving deeper through the vadose zone and getting into groundwater.

• These studies indicate the source of phosphorus can affect the amount of movement and has implications for how we manage phosphorus loss to water.


Better border biosecurity

Objective The Better Border Biosecurity (B3) programme aims to be a world-leading provider of border biosecurity research, knowledge and tools that will have wide applicability in New Zealand and internationally. It is a voluntary collaboration between science partners including AgResearch, Plant & Food Research and Scion.

The programme delivers science-based solutions to improve border biosecurity for plant pests, thereby supporting and protecting the international competitiveness of New Zealand’s export industries and protecting its unique terrestrial ecosystems. B3 develops new knowledge, tools and approaches to ensure that harmful organisms are excluded before, at and immediately after New Zealand’s national border and that these will be available to, and implemented by key end-users and stakeholders.

Further, by 2017, the major disease, weed and pest species of threat to New Zealand will be better known, their risk quantified and optimal points for intervention defined both off-shore and at the New Zealand border. Novel and constantly upgradable analytical and modelling systems will be available for defining levels of risk posed by the various threats and models will be available for assessing their likely impacts should they establish. This will enable significantly improved prioritisation of biosecurity responses to potential incursions.

FY17 Key Achievements • Researchers have focussed strongly on the

B3 strategy ‘refresh’. They have spent time on understanding end-users priorities going forward, aligning work to Biosecurity 2025, and the Bioheritage National Science Challenge objectives, drafting research concepts, and finally making full proposals for research starting on 1 July 2017.

• A climate suitability model, Climenz, has been developed which is being used by the Ministry for Primary Industries (MPI) as a convenient tool for risk assessment, to quickly generate NZ climate suitability maps. It is accessed from the B3 website: http://b3.net.nz/climenz. The model and map for myrtle rust have been used by the MPI incursion investigator and response team.

• Engagement with DairyNZ has taken place via discussion and two workshops, and research towards identifying potential weed and pest threats to New Zealand pasture. This goal of this activity is to produce a high priority weed and pest list to be used by DairyNZ as they work towards a Government-Industry Agreement. Reports have been produced for DairyNZ outlining progress on the compilation of these weed and pest lists. The insect pest report notes that among the insect species not present in New Zealand that would likely feed on ryegrass or clover received risk scores which would indicate they are worthy of consideration for additional phases of risk assessment such as examining their potential New Zealand distributions and impacts in New Zealand.

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• AgResearch staff were diverted from planned projects to help collect a South Island alpine plant bug that was previously known from several Central Otago Ranges. The alpine bug was needed for host range testing with a potential biological control agent for brown marmorated stink bug (BMSB), because it is the most closely related native insect to BMSB. Despite intensive collecting over the summer at four alpine sites in known localities for the bug, it was not found this summer.

• AgResearch designed surveillance surveys for the MPI pest and diseases investigations, including myrtle rust in Taranaki. In addition, AgResearch’s work on quantifying and optimising New Zealand’s fruit fly surveillance system has been signed off by MPI. This is now forming the basis for a review by an international panel of experts, commissioned by the New Zealand Fruit Fly Council, the first such group to be formed under the Government Industry Agreement.

• B3’s well-cited research on biosecurity risks in transported soil (e.g. in soil contaminating sea-containers or adhering to airline passengers’ shoes) clearly showed that transported soil can vector diverse organisms such as nematodes, weed seeds and microbes. This research directly led to

a greater vigilance of biosecurity risks arising from transport links between mainland New Zealand and the Chatham Islands (co-funded by Environment Canterbury) and B3 is currently in discussion with Antarctica New Zealand about the implications of this research for biosecurity in Antarctica.

• B3 provided research support for the Department of Conservation’s eradication campaign against great white butterfly, starting from when the campaign began in November 2012. Its diverse research spanned areas such as mathematical modelling, genetics, development of lures and biological control. The eradication programme was successful, and the Department of Conservation and MPI formally declared great white butterfly eradicated from New Zealand in November 2016. This was the first-ever time a butterfly has been eradicated anywhere in the world and the achievement was even publicised in New Scientist magazine.

• Outputs from FY17 include seven peer-reviewed publications, 12 conference presentations and six client reports.


Resilient rural communities

Objective The primary aim of this programme is to build on and extend the capacity and experience that resides in rural communities by exploring, creating and implementing local, contextually appropriate strategies to build resilient land-based enterprises that support the growth of strong, resilient rural communities necessary for sustained regional growth into the future. 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 and social/cultural imperatives and will enable them to prosper in an environment of limits, market volatility and uncertainty. The programme is directly aligned to the National Science Challenge (OLW).

FY17 Key Achievements1. Last year, we developed and tested a Resilience

Framework which identifies five dimensions of Rural Resilience- social, cultural, economic, environmental and organisational- at different spatial levels, farm, individual and community- the Framework has been used this year to carry out an audit of the dimensions of resilience covered in the OLW National Science Challenge. It has also been used in the OLW Temperature Agriculture (TempAg) research project to facilitate strategic discussions about local policy with rural communities and it is going to be used in a high school to inform discussion in senior geography classes.

2. We identified new resilience indicators and resilience thresholds that contribute to two pieces of international work on resilience indicators: TempAg and TSARA (Targets for Sustainable and Resilient Agriculture). In the TempAg research we also developed and tested a new methodology that examined whether indicators used to measure resilience exhibit thresholds or break points such that they reliably indicate resilience or decline for a community or region. The initial findings from this piece of work indicate that the method is potentially useful.

3. This year we completed the initial testing of the Kaitiaki -Land-use Decision Making Framework with one Māori entity. The Kaitiaki Framework was co-developed last year with a Māori entity. The implementation of the Kaitiaki Framework on farm was videoed and the video has subsequently been shown to several other Māori entities who are also interested in using this Māori values based approach to land use decision-making. AgResearch’s Māori Agri-business team has also used the Kaitiaki Framework as the basis for discussion about potential new work for AgResearch with several other Māori entities.


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Adoption and practice change project

Objective AgResearch initiated 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 Impact Statements presented in the 2013-2018 Statement of Corporate Intent. A key focus for AgResearch is to increase uptake by the pastoral sector of new knowledge and technologies through a greater focus on adoption and practice change. This project is about building capability and capacity, as well as developing tools and processes, in order to enhance adoption and practice change and bring about the cultural shift needed to increase uptake of research. This will be achieved through taking an innovation systems approach, and working alongside our stakeholders throughout the life of the programme. It involves a change of culture within AgResearch so that the design and conduct of research involves building in adoption and practice change considerations from the beginning.

FY17 Key AchievementsMany of AgResearch’s science project teams are now using programme logics and/or evaluation plans to plan for and evaluate impact. During FY17 programme logics and/or evaluation plans have been developed in participatory workshops including: 13 workshops for larger Core (now SSIF) projects; 8+ workshops as part of the Animals Roadmap; and as part of the proposal planning process for approximately 10 of the submitted MBIE Endeavour Fund proposals. In addition, AgResearch ran programme logic or impact planning workshops with external stakeholder groups including DairyNZ-led Reproductive Fertility programme; P21 programme planning, MPI’s Sustainable Land Management and Climate Change Research review programmes, amongst others.

Four AgResearch scientists were trained and mentored as ‘Monitoring and Evaluation Champions’, and went on to facilitate programme logic and evaluation

workshops with science teams outside of their own, as part of proposal development and/or evaluation planning. The Champions programme has built capacity and capability in impact planning and monitoring and evaluation across the science groups in AgResearch and has helped to embed monitoring and evaluation at the project level as part of the cultural change within AgResearch.

The Beyond Results website (www.beyondresults.co.nz) is being used and promoted both within AgResearch and externally, and as a way of showcasing the work being done on adoption and practice change. New resources that have been developed and shared include: the Principles of Success, updated templates, and the ‘how to’ guide “Building Co-innovation into Your Research Proposal”. Many of these resources have been translated into Spanish and have supported AgResearch’s Ministry of Foreign Affairs and Trade project in Colombia, Uruguay and Peru.

AgResearch has developed capability in Social Network Analysis (SNA) and used this approach to map out network linkages in Wool research. SNA is a useful tool, and we now have increased understanding of the limitations as well as opportunities to mapping impact areas. There is evidence of culture change within AgResearch around awareness, knowledge and attitudes towards adoption and practice change and impact. An email survey amongst science staff showed, against the baseline survey in November 2014, that they had a marked increase in: • familiarity with the tools developed through the

adoption and practice change project, and their use of programme logic and impact planning tool;

• the importance they placed on achieving long-term impact with their research, and on using monitoring and evaluation tools to achieve this impact.


Sustainable land use

Objective The SLURI and LUCI collaborative research programmes have made important contributions to the science knowledge, modelling and policy relevant to the management of plants, soils and water. In this 12-month programme, we will establish new workstreams that facilitate ongoing collaboration with the SLURI and LUCI partner organisations (PFR and LCR) as well as new collaborators and provide a pathway to impact for existing science information that is not currently in the public domain.

This programme of work aligns closely with delivering to Our Land and Water National Science Challenge and Richard McDowell, Chief Scientist of the National Science Challenge has recognised strong alignment of the proposed workstreams with the OL&W initiative. The programme also includes strategy development

that will inform future science needs and funding opportunities, largely in the area of land suitability, future farming systems and plants for the environment.

FY17 Key Achievements • Irrigating to hill slopes introduces a number of

complexities that are otherwise not present when irrigating flat land. These include variable soil depth and a greater propensity for water to move laterally in surface and subsurface flow pathways. Soil-water dynamics were measured under a centre-pivot irrigation system on rolling downlands in North Otago. During irrigation events, up to 8% of the applied water exited the catchment as overland flow. Runoff occurred rapidly during the irrigation event as a result of saturation excess conditions that developed at the base of the catchment. Modelling of the soil–water dynamics suggests the

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onset of overland flow occurred prior to the soil profile reaching a point of saturation, indicating the presence of preferential flow. However, this was not apparent in response to rainfall. A combination of irrigation intensity and depth is proposed to have led to localised areas of water saturation within the soil matrix that have resulted in preferential movement of water laterally along the slowly permeable B horizon (subsoil). Water lost in overland flow compromises water use efficiency and has environmental significance as a vector for mobilising contaminants such as nitrogen. This work provides the basis for new research on understanding the complexity of hillslope hydrology to best manage hill slopes.

• Preferential flow can be an important factor in determining nutrient losses in some soils, but none of the current soil models in APSIM can describe the effects that the preferential flow of water can have on solute transport. We have modified existing APSIM soil models by accounting for the differential flow of solutes through macropores and soil matrix. The model developed can be used in future work for reviewing guidelines for irrigation, improving estimates of N leaching from urine patches, and accounting for P leaching losses.

• We have identified areas that were most prone to animal treading damage based on clay content and

water content. This information was used to refine the APSIM model to describe the variations in soil properties due to compaction as well as accounting for reduction in potential plant growth caused by pugging damage. This is important as it will enable us to better predict the impacts of treading damage on other important functions such as water infiltration, greenhouse gas emissions and surface runoff. The updated model allows us to estimate the spatial distribution of risk of damage across a given paddock due to soil type and water flow. By providing the overall impact of lost pasture we can better assess the role of soil treading damage, helps us progress towards managing landscapes better (including matching land use with a given land resilience). Another objective under this project explored how earthworm abundance influences soil services. Different earthworm functional groups had differing impacts on soil services such as leachate volume. This project suggests that landowners should aim to have a minimum of at least 200 earthworms per square metre. Any management practice that increases earthworm abundance above this minimum (to at least 600 earthworms per square metre) will continue to increase the benefit of earthworms to soil services.


Lincoln Hub seed fund - Irrigation, N leaching and AgInform

Objective Overall project funds into projects that support the development of the Lincoln Hub partnerships.This funding will support AgResearch staff to prepare a proposal, client interaction and scientific meetings relevant to a smart irrigation proposal that will be developed for Valley Irrigation (Nebraska). If successful this proposal is expected to be a multi-million dollar investment into the hub. A portion of the funding will also be used to advance AgResearch expertise in the precision management of irrigation. This will include work to be carried out on Rakaia Island Dairies and will be aligned to a parallel project currently funded by AgResearch Core and Ravensdown to boost productivity through precision Ag techniques. Improving our existing capacity in precision irrigation science will enable us to better identify opportunities and support research effort in the Valley proposal.

Another objective of this programme is to support the establishment of a nitrogen (N) leaching trial under dairy sheep (objective 3). This is a co-funded project with MBIE and Waikato Regional Council. Dairy sheep are an emerging industry in New Zealand with huge potential to have a lower environmental footprint, but crucial baseline information on the environmental impact of dairy sheep is required to enable us to state that Dairy Sheep have a lower environmental impact. The N leaching trial will help provide this crucial information.

FY17 Key AchievementsA case-study was undertaken on a farm to identify possible solutions where considerable ponding of water was observed under centre pivot irrigation, despite the farm being equipped with advanced irrigation technologies such as variable rate application (VRI). Soil infiltration rate was shown to be the major barrier to irrigation efficiency. Irrigation NZ (INZ) were closely involved in the project and will promote key metrics, including soil infiltration rate, as part of its irrigation design certificate course for industry. Currently soil properties are rarely considered in current irrigation design despite the ability of VRI technology to vary application depth. Better use of irrigation is required to improve existing trends in declining water quality around New Zealand, future-proof farming against water shortages and possible adverse effects of climate change.

A nitrogen leaching trial was set up on Landcorp’s Spring Sheep dairy farm near Taupo. The trial provides evidence for the N footprint of dairy sheep which forms an important part of the dairy sheep industry’s objective to demonstrate a low environmental footprint. This research is closely linked with, and will continue to be funded by, the MBIE dairy sheep programme.


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Māori agribusiness

Objective Many Māori agribusiness asset owners are looking for trusted advisors and service providers to assist them to identify the business model that will allow them to create successful long-term businesses that align with their cultural paradigm. AgResearch, through its dedicated staff, have experience in establishing such projects with multiple participants.

The specific aim of this project is to encourage co-collaboration between Māori agribusiness entities and collectives and AgResearch through targeting both on-and off-farm projects that address particular needs of those businesses and that demonstrate AgResearch’s unique ability to provide value. The Core Funding will be used to leverage projects with multiple Māori organisations.

FY17 Key Achievements • We became the trusted partner and research

and development provider for multiple Māori agribusiness asset owners.

• We identified and co-developed the decision-making tools required at the strategic and operational levels to lift the performance of their businesses. The SSIF contract has allowed AgResearch to work with Māori agribusinesses to create enduring relationships and help to build successful long term businesses that align with their unique cultural paradigm. This enables the strategic direction of AgResearch to support Māori agribusiness while lifting the economic performance of Māori and NZ Inc at the same time.


Research capability: Māori social scientist linked to Primary Innovation programme

Objective This programme will 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. To test this framework, research principles are to be applied with Māori agribusinesses and their responses to the methods employed are used to refine and improve the framework. Further, this research is intended to inform future work, namely, the introduction of agricultural innovation systems approaches into research with Māori agribusiness. Identifying and addressing barriers to innovation by Māori in New Zealand’s innovation system will ultimately improve the impact and profitability of research investments in these sectors for Iwi/Hapū and non-Māori.

FY17 Key AchievementsA framework integrating Māori and non-Māori research principles for guiding how AgResearch can

work effectively with Māori economic entities. The implementation of KRA begins at the outset of the process of interaction with Māori entities to identify suitable innovation project(s). KRA has been tested and evaluated in AgResearch engagement with Ngāi Tahu Farms and Te Tumu Paeroa, which has demonstrated the value that these Māori entities place on the way of working embodied in KRA. This testing has also identified barriers and opportunities within AgResearch to using KRA as a framework for engagement with Māori entities. By using KRA as a framework for research engagement with Māori entities, AgResearch will increase the impact of our research by realising the innovative capacity of Māori agribusiness. The research outcomes were a draft peer-reviewed publication on He Korero Rangahau Ahuwhenua for submission to an international journal.


FY17 Core Funding InvestmentAgricultural Policy & Māori Agribusiness

Total $7,467,255

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Curiosity Fund

Objective The Curiosity Fund is one of the mechanisms by which AgResearch encourages the seeding of 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 be enabled through other Core Funding. Each year, funding of up to $35,000 for each project each is available. During 2015/16, there was a total of 20 Curiosity projects, two of which received external co-funding from KiwiNet ($15,000 each). The Curiosity Fund is focused towards aligning with the Statement of Corporate Intent and supporting the achievement of its priority impacts.

FY17 Key AchievementsWe conducted 21 Curiosity projects in FY17. Key achievements from three are provided below. • One study showed that heifer preference for perennial

ryegrass is not related to alkaloid type, when initially presented with perennial ryegrass mini-sward.

• Another study mined the Hungate 1000 resource (a catalogue of reference genomes from the rumen microbiome) to identify cultures that might have anti-microbial properties. This study provided the

foundation for a successful ERS-GAS funding bid, which will fund an extension of this project a further three years. Our results bring into question the validity of the commonly held belief that wildtype endophyte, which contains toxic alkaloids such as lolitrem B and ergovaline, always protects ryegrass from overgrazing.

• In the project ‘Who is this Agent X’, an agent responsible for inhibiting the growth of Bacillus species was found to be antimicrobial peptides secreted in the Clostridium enriched media. This study was an important step to understand and investigate what was inhibiting Bacillus species in the conditioned media. This will further aid in devising a reliable methodology in identifying anaerobic bacteria such as Clostridium species from environmental samples as well as food matrices. Once standardised and established, this methodology will be useful to many food industries to isolate and detect spore-forming bacteria more accurately.


Residual groupingRelevance to all sectors

FY17 Core Funding InvestmentRelevance to all sectors

Total $700,000

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Digital farming

Objective Farm systems and their management are projected to radically change over the next 10 years (KPMG 2016; Small, 2016), in part due to the development of new technologies including improved sensor capability, improved data connectivity and computer-based artificial intelligence (AI) decision support and self-learning systems (KPMG 2016; Small 2016; Meat & Livestock Australia 2016; Whitehead 2016).

These systems are already being integrated into cropping systems (e.g. Bayer, Monsanto, Prospera, John Deere), and are now projected to have an increasing impact on pastoral agricultural systems. The application of new technologies in other industries has been disruptive, to the point where existing industry groups have had to radically change their methods of operating. This project is aimed at understanding the extent to which systems already developed in other industries can be applied to grazed systems; the implications of AI-based systems for the type of science AgResearch would provide; and the structure and functioning of the New Zealand pastoral industry.

The overall objectives of this project are to: develop strategic positioning of AgResearch science in the digital sphere; raise awareness within AgResearch of the potential of digital agriculture to provide solutions for pastoral agriculture; and identify and start to build capability around digital agriculture within the Land and Environment Group and the wider AgResearch, to develop thought leadership and stimulate thinking and discussion about the role and the potential of digital systems in grazed pastoral systems.

FY17 Key Achievements • We ran seminars at three campuses for staff to

raise awareness of digitalisation of agriculture and its possible impacts on the agriculture industry and science. This led to detailed discussions with a number of staff, which has informed the development of the proposed research programme for FY18.

• Our work to improve understanding of possible impacts of digital agriculture on AgResearch, and the science AgResearch undertakes, included: • attendance by staff at three conferences on digital

agriculture; • holding meetings with over 15 stakeholders to

better understand the industry position on digital agricultural.

• We provided part funding for a survey of 40 New Zealand leaders in the agriculture industry on their understanding of digital agriculture.

• Developed technology so that animal position via GPS could be determined down to 20 mm accuracy every 30 seconds in real time at the Tokanui dairy farm. Also included altitude, temperature and humidity in measurements. • The data will be used to assess the adequacy

of parameters used in OVERSEER® Nutrient budgets for nutrient transfer and metabolic energy requirements, and to determine optimised sampling densities of GPS data for different applications.

Farm Systemsand Environment

Effects of cow lactation on N leaching

Objective A range of animal related factors can potentially influence the extent of nitrogen (N) leaching from pastures grazed by dairy cows. The main determinant of N leaching is the total cow urinary-N excretion, as well as the urination frequency and rate of N deposited in urine patches. A previous grazing study showed apparent effects of stocking rate on N leaching. Possible mechanisms for this could be differences in urination frequency and urine-N rate from lactating cows relative to non-lactating cows, or stocking rate effects on urine patch spread from surface-soil compaction. This research aims to test these mechanisms.

FY17 Key Achievements • Implications of cow lactation status (lactating versus

non-lactating) were evaluated in a late-autumn grazing study using a novel method to define urine-

nitrogen deposition rate, which is the major driver of nitrogen leaching. Over 300 urine patches per treatment were analysed for nitrogen and data is being statistically analysed. The results from this study will be important in guiding understanding of effects of lactation status and stocking rate on nitrogen leaching potential.

• Implications of cow stocking on surface soil compaction were also evaluated in a small-plot study where differences in compaction were artificially generated. Effects on urine spread and nitrogen use efficiency by pasture are being examined in this study which commenced in June 2017.


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Life cycle analysis

Objective Sewage is a significant contributor of N and P to waterways in New Zealand. This project will produce a simple model applicable to District Councils throughout New Zealand on N and P emissions from current sewage processing and the effects and benefits of recycling via land application. Taupo will be used as a case study, where land application of sewage is currently practised.

FY17 Key Achievements • The sewage generated from eating agricultural

products is a dominant contributor to nutrient losses to waterways relative to other stages of the life cycle including the farm stage. A simple model

has been developed to estimate the rate of nitrogen and phosphorus from sewage, including losses to water, as affected by sewage processing method and implications for land application. Taupo District Council staff provided feedback and the model was revised accordingly.

• Analyses have illustrated the benefit in nutrient recycling and reduced environmental impacts from land application of sewage, as well as in reducing the whole environmental footprint (e.g. by about 20% for nitrogen) across the life cycle of agricultural products.


• This programme of work is being used to improve transdisciplinary research activities in AgResearch by assembling a group of scientists from mathematics and statistics, proteomics, genomics, animal welfare and behaviour, and nutrient management disciplines to oversee the analysis.

• We prepared a paper for publication entitled ’Digital Technology and Agriculture: Foresight for Rural Enterprises and Rural Lives in New Zealand’

• We prepared a report that outlines the implications of Artificial Intelligence-based systems on the type of

science AgResearch would provide, and identifies a possible strategy for developing a digital agriculture programme.

These activities provided opportunities for networking and establishing new relationships. They have also informed the development of the proposed research programme for FY17-18.


Microbial water quality impacts

Objective Faecal microbial losses from pastoral land-use impact on water quality and in particular swimming or “recreational water quality” standards. The objective of this programme is to develop techniques to reduce the faecal microbial losses from farms. These measurements will be incorporated into models to determine the relative contribution of different land-uses and land-managements have on achieving swimming water quality standards.

FY17 Key Achievements • Stakeholder meetings (including relevant government

departments, industry and regional councils) resulted in substantial support for an MBIE proposal around faecal microbial impacts on water quality. After a significant investment of time and effort, a proposal was submitted. Unfortunately the submitted proposal did not secure funding from MBIE.

• Experimental paddock-scale water flow monitoring and measurement equipment was installed on Invermay farm. This equipment will allow for long-term monitoring of four catchments to quantify and trial different mitigation strategies to reduce faecal, nutrient and sediment input from grazed pastures.

• A paper in conjunction with the National Institute of Water and Atmospheric Research Ltd, was submitted to the New Zealand Freshwater Sciences Conference on modelling the Otautau catchment in Southland. The paper raised questions around our understanding of instream sources of microbes.

• A modelling approach to further investigate discharges of farm dairy effluent to streams and their impacts.


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FY17 Core Funding InvestmentFarm Systems and Environment

Total $661,856

AgPest

Objective The core funding will ensure that: 1) at least four new weeds and pests are added to AgPest; 2) the Pest Alert and Text Alert services are reviewed and sent out in a timely manner to warn farmers of insect pest and weed outbreaks and appropriate management responses; and 3) and in collaboration with Beef+LambNZ, AgPest is widely promoted as a farmer-friendly extension tool throughout the pastoral industry – in particular through an initiative to target use by rural professionals.

FY17 Key AchievementsThe AgPest website (www.agpest.co.nz) continues to provide the pastoral industry independent information on the control, biology and impact of key invertebrate

and plant pests. Since September 2016, 17 new weed pages have been created and are live on AgPest (including amaranth, black nightshade and mallows). Email and text alerts have been disseminated to enable farmers to take pre-emptive action and minimise the impact of pests and AgPest has 482 followers on Twitter. There are over 2,000 new visitors plus around 700 returning users viewing the information each month and website traffic is up over 20% on last year. The website statistics indicate that users are spending time on the various pest pages engaging with the content.


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Statement of responsibilityFor the year ending 30 June 2017

AgResearch Limited certifies that:

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

2. The Board of AgResearch Limited accepts responsibility for establishing and maintaining a system of internal control designed to provide 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 2017 fairly reflect the financial position and operations of AgResearch Limited and Group.

Jeff GrantChair 24 August 2017

Andrew MacfarlaneDirector 24 August 2017

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Corporate Governance

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; andmonitoring 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 CrownResearch 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 theBoard. 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 matter learnt that would improve the governance of the Company. TheChair authorises expenditure from this budget.

The Board promotes the highest standards of corporate governance practice and ethical conduct by all directors and employees of AgResearch Limited and its subsidiaries.

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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 6 other Directors. Directors are generally appointed for a three year term and may be reappointed for further terms. Sam Robinson and Michelle Alexander retired from the Board on 30 June 2017.

Directors’ & 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 & risk committee

RemunerationCommittee

Sam Robinson 9 4

Jeff Grant 10 4

Michelle Alexander 7 4

Peter Stone 10 4

Paul Reynolds 9 2

Tania Simpson 10 4

Andrew Macfarlane 8 4

Number of meetings held 10 4 4

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Directory

Executive Team

Dr Tom RichardsonChief Executive

Greg MurisonResearch DirectorActing Partnerships and Programmes Director

Andrew McSweeneyShared Services Director

Sharon CresswellFinance and Business Performance Director

Monique DevereuxCommunications and Marketing Director

Chris KorohekeKaiurungi Ahuwhenua

Andy AndersonNational Manager Health and Safety

Lee GardinerPeople and Culture Director(Joined June 2017)

Board of Directors

Sam RobinsonChair

Michelle AlexanderDirector

Jeff GrantDirector

Andrew MacfarlaneDirector

Dr Paul ReynoldsDirector

Tania SimpsonDirector

Dr Peter StoneDirector

Information

AuditorsDeloitte on behalf of the Auditor-General

BankersWestpac Banking Corporation

SolicitorsBuddle Findlay, Auckland

Patent AttorneyAJ Park, Wellington

J007056

AgResearch is proud to be a Crown Research Institute. Over the past 25 years our science has been helping to create a more prosperous, sustainable and innovative nation — together we will continue to deliver science that works for New Zealand.

AgResearch Limited Corporate Off ice and AgResearch RuakuraRuakura Research Centre10 Bisely Road, Hamilton 3214 Private Bag 3115, Hamilton 3240

Corporate Office T +64 7 856 2836 F +64 7 834 6640

Ruakura T +64 7 856 2836 F +64 7 838 5012

AgResearch Grasslands and Hopkirk Research InstituteGrasslands Research CentreTennent Drive, Palmerston North 4410Private Bag 11008, Palmerston North 4442

Grasslands T +64 6 356 8019 F +64 6 351 8032

Hopkirk T +64 6 351 8600F +64 6 353 7853

AgResearch LincolnLincoln Research Centre1365 Springs Road, Lincoln 7674 Private Bag 4749, Christchurch 8140

T +64 3 321 8800F +64 3 321 8811

AgResearch InvermayInvermay Agricultural Centre176 Puddle Alley, Mosgiel 9092 Private Bag 50034, Mosgiel 9053

T +64 3 489 3809F +64 3 489 3739

www.agresearch.co.nz

annual report 2017 - agresearch.co.nz statement of comprehensive income 41 consolidated statement of...

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