[This post was first published in the Fairfax NZ Sunday Star Times on 13 April 2014]
The latest statistics show that New Zealand exports to China continue to surge. In the 12 months to February 2014, milk powder and beef exports each more than doubled, sheep meat sales increased by 80%, and log sales increased by 65%. Overall, exports to China increased from $7.1 billion to 10.9 billion, comprising 22% of total exports.
This overall percentage figure is not in itself a record. Both before and during the 1960s we were much more dependent than this on Britain, and in 1989 our exports to Japan reached 18% of total exports, before declining to the current figure of less than 6%. Nevertheless, the sheer speed of the increase in exports to China is causing concern both to commentators and the industries themselves.
I see no point in worrying about increasing reliance on China as a market destination. It is a simple reality that trade with China is going to increase a lot further yet. As long as the Chinese continue to pay more than other markets, then that is where the products will go.
Indeed it is Chinese demand that is almost totally the cause of our current buoyant terms of trade. Without China, prices would tumble globally in all markets for all major New Zealand agri-food products, except for wine. Our exchange rate would also crash, and imports such as oil and electronics would become much more expensive. So we need to get used to it. Our future lies with China and to a lesser but still significant extent, the adjacent ASEAN countries.
There are four products that China needs from New Zealand. They are milk powder, sheep meat, beef and logs. The reason we are doing so well with these products has little to do with our own marketing efforts. Primarily, it is because the Chinese have come to New Zealand seeking out the product. The Kiwi companies do much of this business by telephone from their New Zealand offices. They can do it this way because the Chinese have limited alternatives.
However, there is a whole range of other products which require more work to sell. They include apples, kiwifruit, wine, cheese, infant formula, a wide range of skin products, and other health related products. These more difficult products also include consumer-branded dairy products and consumer packs of meat. They are all products for which we have many competitors. And it is where an integrated ‘NZInc’ approach could make a lot of difference.
Back in 2011 I did some work for New Zealand Trade and Enterprise (NZTE) looking at how we might market consumer branded products under an ‘NZInc’ approach. I used the term ‘down-under food baskets’. Fundamental to the idea is that all purchases would be available online. Even then it was very apparent that online selling was going to become a major method of buying food. Some of my Chinese friends had been buying their food that way for several years.
The key idea is that a comprehensive range of food and beverage items would be available, and all would be of guaranteed provenance. To get the necessary range of fruit and vegetables, it may be necessary to draw on our down-under cousins from across the Tasman. However, to get the benefits flowing through to NZInc, the business would be NZ managed.
The key physical requirements are a warehouse and shop-front in each major city, and a logistics system around this. Some parts of the logistic system are already available in China with potential for outsourcing, including online buying platforms and consumer delivery systems. What is not currently in place is the inwards logistic system from New Zealand, and the associated NZInc management.
The key clientele are those Chinese who are prepared to pay for guaranteed provenance. They are actually the same demographic who travel to New Zealand as our largest inwards group of tourists. There are obvious synergies to be gained between the Chinese tourism and food export businesses.
NZTE has recently commercialised its ‘NZFocus’ operations and it is possible to purchase a limited range of food items online in Hong Kong, Shanghai and Guangzhou. Also, and increasingly, some NZ firms are individually selling their products through online platform Taobao. But all of these are just a pale apology for a genuine comprehensive and integrated ‘NZInc’ approach.
To get the system operational requires a partnership between Government and industry. Because each company is focused on its own product, it is essential that Government takes a lead. However, the structure has to be commercial.
My preliminary estimate is that start-up capital of about $40 million would be needed to create the necessary systems and scale of operation. That may sound a lot, but it is a tiny amount compared to the long term benefits. My frustration is that we are not already doing it.