China still burns brightly for NZ agribusiness

Hayden Dillon, Crowe Horwath“China is far from finished as a key driver of growth for the New Zealand agribusiness sector,” says Hayden Dillon, head of corporate agribusiness for Crowe Horwath.

Despite recent negative market commentary coming out of China, Dillon, who recently toured our largest trading partner with the BNZ’s Port to Plate tour, was optimistic for the future of New Zealand agribusiness, while acknowledging the challenges that go with doing business in China.

“China is large, complex and changing faster than we can possibly understand. There is no simple headline or strategy to sum up this market, but there is also no doubt it is still the most valuable opportunity to New Zealand agribusiness,” said Dillon.

In reference to reported drops in Chinese import numbers, Dillon points out it’s important to read between the lines and focus on the key numbers for New Zealand exporters.

“While Chinese imports did drop year-on-year to August 2015 by 13.8 percent, food imports grew by up to 25 percent. This might be bad news for the likes of Prada, Audi and other luxury brands, but the story for New Zealand, which is exporting food and food technology, is very strong,” said Dillon.

Dillon does not see this trend of rising food imports changing anytime soon. “It’s about feeding the dragon. China has a rapidly growing population with rising incomes and is far from reaching its satisfaction point in regards to food demand,” he says.

The changing diets in China were explained to Dillon and his tour party of New Zealand agribusiness specialists by the Agricultural Development Bank of China. The Bank indicated growing demand for edible oil, meat and dairy will continue to increase, while rice consumption per capita will decrease.

Dillon notes that China is also beginning to see demand increase for what it calls ‘green’ products, which are essentially organic or highly certified food. This could provide further niche opportunities for New Zealand businesses.

Dillon believes the real risk is not the short-term macro headlines coming out of China, but the risk that New Zealand does not position itself to ensure it is part of the equation beyond meeting China’s immediate food demands.

“The opportunities in China are almost limitless. Our products continue to be sought as being safe, but that will not last. The challenges are the complexities of China, which mean that our simple approach of producing and shipping a commodity to the port will simply not suffice once China starts addressing the immediate demand shortfalls through growth in its industrial farming practices,” says Dillon.

A desire to manage the productivity and quality of the supply chain has seen the Chinese government supporting the development of large-scale farms with over 15,000 cows.

“China produces half the world’s apples, so they know about industrial farming,” Dillon says.

Dillon points to Fonterra investing in producing supply locally in China, using New Zealand expertise and farming technology as a smart strategic move given the above mentioned trends.

He also believes that to ensure future success, New Zealand agribusiness companies need to get their head around the development of successful brands in China.

“The consumers are far savvier than we give them credit for – they do not trust lightly, and will do their homework on the traceability and social feedback before buying,” says Dillon.

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