By Bernard Hickey
Speaking on the eve of the first official report into Fonterra's botulism scare, Trade Minister Tim Groser has signalled the government may act to support smaller dairy exporters "feeling the pressure" from disruptions to exports in some markets.
He was also speaking as Reuters reported Bangladesh had suspended imports of Fonterra milk powder because of its fears it contained nitrate.
Groser said in a speech to the Wellington Chamber of Commerce this morning the first Minstry of Primary Industries (MPI) report on the botulism scare would released later on Wednesday. An official for MPI said it was due to be released around 4pm.
Groser said discussions he had in Brunei last week with a range of Trade or Commerce Ministers, including China’s, underlined how closely the New Zealand Government’s response was being monitored, but he said New Zealand's relationship with China remained very good. However, some damage had been done in the market place, he said.
"Some companies, particularly those without heavyweight balance sheets, are unquestionably feeling the pressure," Groser said.
"The Government is very conscious of that and we are developing with the smaller commercial players – many of whom would be considered significant NZ companies but for the comparison with Fonterra, the only Fortune 500 company we have – a strategy to deal with their very real problems," he said.
"There is a whole range of discussions underway - technical, political and commercial - addressing related but often 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."
Groser said NZ Inc needed to "lift its game in the emerging markets that are our economic future."
"We are seeing explosive growth, and some, though certainly not all, of the recent problems arise directly from that explosive growth," he said, pointing out New Zealand's sheep meat exports to China had more than doubled to NZ$550 million in the last 12 months.
"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," he said.
"Generally, one could say it is time for NZ inc to drop what I and many other analysts have called a ‘purely transactional approach’ to trade with the emerging economies."
Groser hopeful
New Zealand needed to grow its exports around 6.5% to 7.5% per annum for the next 12 years to meet the Government's goal of lifting the export share of GDP by around 10 percentage points to 40% of GDP by 2025, he said, pointing out it had been done before between 1990 and 2001, although it had happened when global growth was strong and the New Zealand dollar was much lower. It averaged around 60 USc over that period.
Over the five years to 2013 goods exports had grown 4% on average, while services exports grew just 0.6%. At the rate of growth seen over the last decade, New Zealand would be NZ$20 to NZ$25 billion short of the 40% of GDP target, he said, adding this represented about 75% of the way to the long term target.
"So it is far from hopeless, but we are clearly going to have to stretch to increase our collective work rate," he said.
Groser said he was still positive about achieving the target, pointing to the inevitable end of low interest rates in the United States.
"Given that the largest factors weighing against our export drive in the last 5 years have been the worst recession in 70 years and the high, some would say overvalued, exchange rate, my own intuition is that is highly probable we will see relief on both fronts over the next ten years of so," he said.
Middle class boom
Groser said there was now an estimated 500 million middle class consumers in the emerging economies and this was projected to around 3.2 billion by 2030.
"China is by far the most important of these emerging economies. China’s economy is starting its historic shift to a more consumption and service-driven model that will favour household income growth and probably a faster rate of growth of the soft commodities NZ produces so competitively," Groser said.
He said pessimism about China's slowing growth rate was "fundamentally innumerate."
"The Chinese economy today is about US$7 trillion. Ten years ago it was half that - US$3.5 trillion. 7% of US$7 trillion is US$490 billion additional income each year; 10% 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."
Groser said 4% of Chinese households were classified as ‘middle income’ (defined as between US$9,000 and $34,000 per annum) in 2000 and this figure was expected to be 75% in 10 years time.
"Buckle your trading seat belts. Recall the explosion of our sheep meat exports in the last 12 months. This is a massive opportunity," he said, adding New Zealand's Free Trade Agreements with China and others such as Taiwan would help.
"This again suggests to me that it is entirely plausible to believe we can increase our 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."
Bangladeshi block
Reuters reported Bangladesh had suspended imports while Fonterra's powder was tested.
"We decided not to deliver any milk powder from Fonterra without a chemical test as there might be nitrate in the milk powder," said Mahabub Ahamed, secretary of the Ministry of Commerce. "If poisonous nitrate is found, we will ban the milk powder," he told Reuters.
Customs officials were reported as saying they had been instructed to send samples to the Bangladesh Council of Scientific and Industrial Research.
"After the deadly bacteria was found in China we issued a notice making mandatory tests of imported milk, mainly from New Zealand, before marketing in the country," Ahamed said.
Sri Lanka briefly banned Fonterra imports after a court ruling on DCD levels in Fonterra milk powder triggered protests and a suspension of Fonterra activities in the country.
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