NZ Inc is seeing explosive growth in emerging markets, with New Zealand sheepmeat exports to China more than doubling in the past twelve months, Minister of Trade Tim Groser has told the Wellington Chamber of Commerce this morning in a cheerleading speech for New Zealand exports.
He says that a lot of work has already been done by Fonterra, government officials and politicians, in the wake of the whey protein issue – where traces of botulism bacteria were found in consignments of the product entering China. While there is still a lot of work to be done to restore confidence in the market and others observing the situation, the trade relationship with China is still intact and he’s optimistic that New Zealand will fully recover.
“The NZ/China relationship remains in very good shape – nothing has changed since the extraordinarily positive visit of the Prime Minister, accompanied by the huge NZ delegation in March. But the questions their Ministers have are exactly the questions NZ Ministers have. The purpose of the Ministerial enquiry is to find the answers to those common questions.”
The Minister says there is a whole range of discussions underway – technical, political and commercial – addressing related but quite distinct aspects of the problem: “Some of which (the administrative mistakes over meat certification to China, for example) have absolutely nothing to do with food safety, but which are part of the mix.”
“This has been a sharp lesson in risk management but we do not need to wait for any enquiry to know that NZ Inc – not just Government agencies but companies and other actors – needs to lift our game in the emerging markets that our economic future.”
New Zealand is seeing explosive growth and some, though certainly not all, of those problems arise directly from that explosive growth, notes Groser.
“Our sheepmeat exports to China, for example, expanded in the last 12 months from under $250 million to over $550 million. Already China has moved from our fourth market to overtaking Europe as our largest market and it has taken one year to do it. There is nothing in our trading history like that.”
As New Zealand enters the second decade of the 21st Century, “it is already clear that it is a very new order of things,” he said.
The Export Double goal set for export growth by 2025 requires New Zealand to grow exports of goods and services between 6.5-7.5 percent on average a year for the next 12 years. “That’s tough but we have done it before over a comparable period. In the 11 years 1990 to 2011, we averaged annual nominal export growth of 7.6 percent – the top end of the range we need today to meet our 2025 target.”
Recent headwinds for growth include the Global Financial Crisis (the worst recession in 70 years) and exchange rates that have been high fundamentally because interest rates in the giant developed countries are near zero. However, New Zealand has been doing very well internationally by comparative terms and there are now positive signs of improvement in the US and Europe and Groser said : “My own intuition is that it is highly probably we will see relief on both fronts over the next 10 years or so.”
You ain’t seen nothing yet
All the key long-term structural international trends are moving in New Zealand’s direction, creating the conditions for an enhanced export performance, he noted. While in the past New Zealand’s trade had focused on the predominantly Anglo-Saxon world, “because that was where most of the people with the discretionary income to buy our high quality products lived,” it’s very different today.
“And, you ain’t seen nothing yet. Today, there is an estimated 500 million middle class in the emerging economies and this is projected to multiply by a factor of six to some 3.2 billion by 2030 – a mere decade and a half away.”
The most important of those emerging economies is China. There has been international commentary – “a wealth of pessimism” – on its slowing growth rate, he commented. “The Chinese economy today is about US$7 trillion. Ten years ago, it was half that – US$3.5 trillion. Seven percent of US$7 trillion is US$490 billion additional income each year. Ten percent growth on the back of a US$3.5 trillion economy delivered a growth increment of US$350 billion ten years ago – a far smaller increment. I am forever amazed that this never seems to emerge in the welter of professional analysis around this matter.
“Let me be more precise,” he continued. “In 2000, research indicates four percent of Chinese households were ‘middle income’ (defined as between US$9,000 and US$34,000 per annum). This figure is expected to be 75 percent of households in ten years time. Buckle your trading seat belts. recall the explosion of our sheepmeat exports in the last 12 months. This is a massive opportunity.”
Not only are income levels in the economies going to drive New Zealand export growth, but recently free trade agreement (FTA) platforms, including the most recent deal signed with Taiwan, have been put in place to allow New Zealand far better access to the consumers in those markets.
He pointed to the ‘massive protectionism in Europe’ that “squeezed us out of their market,” and constrained development.
To Groser, this suggests that it is entirely plausible to believe we can increase export performance over the next 12 years to 2025. “This country, historically, has been throttled by protectionism over our main food and beverage exports. That is no longer a factor.”
Mining the data
Food and beverage exports are “well ahead of the play” in terms of targets. “In the last 15 years, our food and beverage exports grew at a compounded annual rate of 8.3 percent per annum.”
Mining deeper into the export data another, better export gem emerges, said Groser. “It is about transition – transition away from lower value, more ‘commoditised’ agriculture products to higher value and more sophisticated products.
“The evidence for this exists on multiple levels. Even within a ‘pure’ agricultural commodity export sector such as sheepmeat, there has been a massive shift away from bulk frozen carcases towards cuts. In 1970, 90 percent of our sheepmeat exports were frozen carcases. Today the figure is more like three percent,” he said, also noting the rise of processed food exports over the decade from 2001 including nutraceuticals and pet-food from $420 million to $1.7 billion. “That is seriously fast growth.”
There’s a similar trend for nutraceuticals and innovative foods, “foods as health” – “numerous ‘export gems’ performing unbelievably well in our traditional area of strength, food and beverages.”
Move away from agriculture?
Addressing the argument about diversifying away from agriculture, Groser said that it’s not a choice between ‘agriculture’ and ‘manufacturing’ or ‘services,’ “it’s about the choice between resources in the traded sector (exports) and the non-traded sector.”
Government is trying to shift resources to the traded sector by 10 percentage points in the run-up to 2025.
“This is not a choice between exports” we want all and any exports, be they agriculture or audio-visual.”
The anti-agriculture argument is also wrong because it fails to understand the unbelievably high-tech nature of modern New Zealand primary exports, he said.
“There is still a role for high quality commodities provided it is profitable. But more and more of our primary exports are high technology products. A modern NZ dairy farmer is far more likely to be carrying a smartphone with apps developed by LIC than carrying a spade. And, she may be doing it from her living room with her red gumboots out on the porch. Now wonder Sir Graeme Harrison called New Zealand agriculture ‘NZ’s Silicon Valley'”.
Groser concluded his speech by saying: “Beyond the respectable, but still insufficient aggregate growth figures, there are all manner of what I call ‘export gems’ in agriculture, niche manufacturing and services that we should celebrate. Let us work with success. I fully expect most of these to out-perform the average over the next decade. There is every reason for optimism that we can lift our export game.”