Exports to the motherland

[This post was first published in the Fairfax NZ Sunday Star Times on 6 April 2014]

 There was a time when New Zealand’s exports went almost exclusively to Britain. Before and during the Second World War, and for many years thereafter, New Zealand was Britain’s farm. It was only in 1973 when Britain joined the EU, which itself had food surpluses, that we had to search for alternative markets.

Now, some forty years later, the only two major products exported to Britain are sheep meat and wine. Britain takes about 20% of New Zealand’s sheep meat exports and is the second most important sheep meat market after China. For wine, Britain also takes about 20% of New Zealand’s exports and is the third most important market after Australia and the USA. Minor export products include apples at about 10% of total apple exports. For wool, about 5% reaches the shores of the UK. Overall, only 3% of New Zealand’s exports are destined for Britain.

A recent visit to the UK gave me an opportunity to look at our products on display in London supermarkets. Time was limited, so I focused on Sainsbury’s and Waitrose stores. Sainsbury’s have about a 17% share of the UK supermarket trade and Waitrose just under 5%. Sainsbury’s also have lots of small supermarkets called Sainsbury’s Local, typically about one quarter the size of a New Zealand supermarket and aimed at the passing trade. In contrast to the mid-level Sainsbury’s, Waitrose are clearly upper end.

In Sainsbury’s Local, people buy the amount of food they can carry with them on either the tube or the red doubled decker buses, or alternatively by foot to their apartments. At central Waitrose stores it is similar except that the shopping experience is more relaxed and refined. There is no obvious New Zealand equivalent to a Waitrose store.

In Sainsbury’s, New Zealand Sauvignon Blanc wine was selling, when converted to New Zealand dollars, at $18 -$24 per bottle. Sauvignon Blanc wines from other countries were generally selling from $11-$18, so there was a clear New Zealand premium.

In the Waitrose store, the cheaper wines were not to be found, and New Zealand wines at $20-$30 were at comparable prices to wines from many other countries. Direct comparisons to New Zealand prices need to take into account that slightly more than half of the British price comprises excise tax and VAT, while in New Zealand the excise tax plus GST is about one third of the retail price.

In Sainsbury’s Local, the only lamb was from New Zealand and loin chops were selling for $30 per kg. This was only slightly less than the price for salmon fillet and prawns, and considerably higher than beef casserole at $19, pork steaks at $16 and pork mince at $12 (all per kg).

In the Waitrose store there was a much broader range of New Zealand lamb, with lamb chops at $34 per kg, rack of lamb at $60, half leg bone in at $26 and lamb mince (20% fat) at $20. All product was chilled, with the final retail preparation undertaken in the UK. Given the season (late March) there was only a limited supply of British lamb and this was selling for a premium over the New Zealand product of about 20%.

In comparison, back in New Zealand a few days later, lamb was priced at less than in Britain with steaks priced at $30 and lamb chops at $25 per kg. This was despite the NZ lamb carrying GST of 15% compared to being zero-rated in Britain.

Also of note was that lamb in New Zealand sells for about 30% more than pork, whereas in Britain lamb is about twice the price of pork. Lamb in Britain has truly become a luxury.

In contrast, fruit and vegetables in Britain are generally cheaper than in New Zealand, with much of these coming at this time of year from Spain and Northern Africa. The apples on display were locally produced, with the orchard of origin clearly stated.

The questions for New Zealand’s agri-food industries are whether more product can be sold to Britain and whether there is scope for better prices. The answer is that the challenges are considerable. Our two main products – wine and sheep meat – are already highly priced relative to other products. Also, consumers are still struggling with the cold winds from the economic contraction that started back in 2008. Currency exchange rates are also against New Zealand compared to previous decades.

New Zealand would indeed be missed if its lamb and wine products were missing from Britain’s supermarket shelves. However, the sad reality is that New Zealand’s market power in Britain is very limited. The good news is that new markets do continue to open up elsewhere. It was last century that Britain was a major economic power.

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About Keith Woodford

Keith Woodford is an independent consultant, based in New Zealand, who works internationally on agri-food systems and rural development projects. He holds honorary positions as Professor of Agri-Food Systems at Lincoln University, New Zealand, and as Senior Research Fellow at the Contemporary China Research Centre at Victoria University, Wellington.
This entry was posted in Agribusiness, The Fairfax SST Articles, Uncategorized. Bookmark the permalink.

One Response to Exports to the motherland

  1. Pingback: Rural round-up | Homepaddock

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