Katherine Rich: Taking advantage of the rise of China

jk2New Zealand’s past, present, and future is in food. Since the first shipment of 842 cases of canned meat left New Zealand for England in 1870, followed 12 years later by the first consignment of 4,909 frozen carcasses, New Zealand’s economic destiny has been tied to primary sector exports.

Those shipments, made possible by Kiwi ingenuity developing workable refrigeration technology, were turning points for farming and the economy. And we didn’t look back.

For most of the 20th century, exports to the United Kingdom grew as we became their market garden. But in 1973 things changed when they began looking closer to home for their food and joined the European Common Market.

The change in our export markets since then has been dramatic. Losing our biggest customer meant we had to find new markets, preferably closer to home. And we did, turning our focus from Europe to Asia, but starting first with our easiest international market, Australia.

In 1950, Australia took just 2.6 per cent of our total exports. It now takes 24 per cent. New Zealand exporters also began having success in other markets close to home – namely Japan and South Korea. In 1950, if we were sending goods into Asia then the quantities were so small they weren’t registering in official statistics. That has changed. Asia, with its rapidly growing middle class, is now demanding more of the quality food and beverage products that New Zealand has proved most adept at producing.

On the back of our temperate climate, our expertise at growing things, and a food safety record second to none, we have proved we can sell ourselves as one of the most trusted safe food brands in the world. And the world is taking us up on it. Japan has now surpassed the UK in taking our food and beverage exports, buying $1.6 billion, compared to the UK’s $1 billion.

But all this is peanuts compared to China. They are the big movers, to the extent that New Zealand’s economic well-being is now interwoven with that of the Chinese economy.

The New Zealand/China trade relationship has grown strongly since diplomatic relations were established 40 years ago.  As the Prime Minister, on his trade mission to China, told a Shanghai audience – in eight hours today, New Zealand sells the total amount it sold to China in 1972! In the year to June 2012, New Zealand exported close to $7 billion worth of goods to China, with the main exports being dairy, meat, seafood and other processed foods. Very soon, China will be New Zealand’s No 1 trade relationship.

As a market, China presents major opportunities to exporting New Zealand food companies, but it is not without its challenges.

Infant formula is one of the standout products, and it is providing significant opportunities for New Zealand companies as Chinese parents, in the wake of recent food safety incidents there, scramble to get their hands on what they regard as a top-quality, safe product. It was this trust of our products that led to a rush on our supermarkets.  The Chinese market for infant formula alone is now said to be worth around $7 billion a year, and that is projected to double by 2016. That leaves plenty of room for the growth of New Zealand’s total formula exports, currently around $520 million.

In this setting it’s easy to see the importance of John Key’s trade delegation which, besides marking 40 years of diplomatic ties, also acknowledged the five years since the signing of the Free Trade Agreement between the two countries. This was possibly the most important trade delegation to ever leave New Zealand shores, bearing in mind both current economic conditions and the need to secure long-term and stable markets into the future.  All markets are important, but to the food industry certainly, China is seen as having unbounded potential. This was an excellent opportunity for companies and organisations to view first-hand the opportunities and make valuable contacts. The work put in beforehand by our Ministry of Foreign Affairs and New Zealand Trade and Enterprise staff is to be applauded, and I know it will pay dividends.

As Economic Development Minister Steven Joyce said recently when launching the Investor’s Guide to the New Zealand Food & Beverage Industry 2013: The New Zealand primary sector “is in the middle of a fundamental transition from feeding Westerners to feeding the Asia-Pacific region.”

The food and beverage industry must take advantage of that.