Keith Woodford says that the search for new agri-food markets always leads back to China and the ASEAN nations, but there are also lots of opportunities elsewhere

By Keith Woodford*

The proposed 12-nation Trans Pacific Partnership (TPP) is now well and truly dead. The question is where do we go from here?

We are hearing talk from various sources about possibilities for a ‘TPP minus Mr Trump’s USA’. But that too is highly unlikely to happen. Getting Japan, in particular, to agree to something without the USA being involved is wishful thinking. And simply waiting for another four years and hoping the USA might came back into negotiations is also likely to prove wishful. Both major American political parties know that supporting a new version of the TPP is a sure way to lose the next presidential election in 2020.

Personally, I have shed no tears about the failure of the TPP. The only real reason to join was that, with almost everyone else on this side of the world apart from China inside the TPP, the idea of us being left on the outside was unattractive. But the benefits to New Zealand were always overblown by politicians and parts of the bureaucracy. Many of us felt that the facts were arranged by our government and the bureaucracy to suit the desired message.   

A search of export statistics shows how dependant we are on agri-food. Of total goods exported in the 2016 calendar year, more than 29 billion (60%) were agri-food. Add in forestry and fishing, and natural resource-based products total approximately $35 billion (72% of total goods exported). Manufactured non-food goods, including all forms of machinery and electronics, struggle to reach $6 billion. Our only other big foreign exchange earners are tourism ($10 billion) and foreign students ($3.5 billion)

There is the counter view that as an educated society we can export knowledge. But history tells us that whenever we do come up with new ideas outside agri-food then most of those businesses soon shift offshore. Those that do prosper here are typically those that focus on niche products. Somewhat ironically, they are also often related to our agri-food industries. The idea that we can prosper as a high-income country without reliance on agri-food, forestry and other resource-based industries such as tourism is fanciful.

A look at import statistics soon shows how we would be in trouble without a healthy export sector to pay for them. The big-ticket areas in 2016 include machinery, cars, electronics, oil, new planes and pharmaceuticals. Life would indeed be very constraining without these import flows!

Currently, our big four trading partners, in order of export importance, are China, Australia, USA and Japan. If the EU is treated as one market, then it comes in above Japan. If the ASEAN countries are added together then they too come in above Japan.  

It is notable that in regard to bilateral free-trade agreements, it is only China and Australia of our major partners with whom we have free-trade agreements. That is unlikely to change in the near future. That same fact reinforces the key point that vibrant trade arrangements are possible without free-trade agreements. Many of our exports to these countries are already essentially free of tariffs, largely as a result of historical global WTO agreements.

Japan has shown no enthusiasm for a bilateral free-trade agreement with New Zealand – they have bigger issues with which to keep themselves occupied.  In any case, Japan’s population is now in decline, and economic growth there is minimal. Selling more to the Japanese will be hard work.

There are prospects for a free-trade agreement with the EU. Such an agreement is unlikely to have the draconian conditions demanded by the USA on our own New Zealand decision processes relating to pharmaceuticals and services such as education, insurance and banking. But there are limits to how much agri-food we will ever sell to Europe. ‘Yes’ for wine, and ‘yes’ for kiwifruit and even ‘yes’ for out-of-season apples. But ’no’ for large scale exports of dairy, sheep and beef. For those products, European internal politics and food security issues will dominate over free-trade arguments.

Once Britain gets out of Europe there will be prospects of a free-trade agreement. But once again, Britain does not really need our agri-food exports. The days when we were ‘Britain’s farm’ are long since gone.

I often come across media articles talking about the challenges of feeding a hungry world and therefore how we need to produce more food in New Zealand.   Unfortunately, producing more food in New Zealand will do nothing for the hungry people of the world. The food is largely of the wrong type and it will never be economic to produce food in New Zealand for the world’s hungry people.

I hope no-one will think that I am saying that the problems of the world’s hungry people are not important. They are very important. And I have worked and continue to work in areas of the world where this is a huge issue. I am simply saying that we cannot solve those problems by growing food in New Zealand; it has to be within those countries or nearby.

Here in New Zealand, our future lies in growing food for wealthy people in other countries, and using that income to pay for all of those things that we struggle to produce in New Zealand. So we need to focus our thoughts on countries that have growing economies, a growing middle class, and where there are local constraints on good-quality food production.

Such a search always comes back to China and the ASEAN countries such as Indonesia, Malaysia, Thailand and Vietnam. There are also other opportunities, with Mexico particularly interesting.  

Currently Mexico imports a lot of food – it is the biggest export market for the USA dairy industry. Given the developing state of relations with ‘big brother’ USA, we may find a willingness of the Mexicans to engage.

India is another prospect of interest, but no-one should ever under-estimate the challenges of India. Those challenges make dealing with China look very simple in comparison. Nevertheless, for some products such as kiwifruit and perhaps lamb – but almost certainly not dairy or beef– India is worth giving attention to.

South Korea is another opportunity. We do have a free trade agreement with South Korea, and it is one of the more-wealthy countries of Asia.  Indeed, they now beat New Zealand on many statistics including GDP per person, life expectancy, and infant mortality. However, the Koreans have forgotten how to have babies, with the so-called average South Korean woman now only giving birth to 1.25 babies in her lifetime.

If we genuinely do want to develop agri-food markets, then a lack of bilateral trade agreements does not have to be a big constraining factor. The limitation is more in our ability to engage with people of other cultures. That includes shedding some of our own cultural perspectives relating to product attributes that these people want. It also means engaging more closely in business arrangements to get win-win value chains that link all the way from consumers back to production.

For many people in New Zealand, working with Asian businesses in mutually beneficial business arrangements is anathema. Well, that is OK as long as people are also willing to forego having a society which can afford to import all those things we have come to accept as being the basics of a Kiwi life.


*Keith Woodford is an independent consultant who holds honorary positions as Professor of Agri-Food Systems at Lincoln University and Senior Research Fellow at the Contemporary China Research Centre at Victoria University.  His articles are archived at http://keithwoodford.wordpress.com

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12 Comments

Yes, the Asian region is a natural market for NZ agri-goods. But if we want it to last and produce value, we need to see it as a series of premium markets. And educated, wealthy consumers will not long put up with bog-standard product, reckless of its provenance (its production and environmental background), and without any distinguishing aspirational promise.

Yes, agri-business is a crucially important national sector. But it is mired in 20th century thinking. It is set up to serve under-supplied, roughly egalitarian markets, as existed in the 1950s and 60s. Those decades and their characteristics are rather a long time ago, but the model and the thinking appear to presume they can be found or resurrected somewhere in the world. So we look, again and again, for the 'next big thing'. In the meantime, sector debt explodes and production is underpinned by thousands of (roughly) minimum-waged immigrant workers.

One of the key changes, among many since those days is the trend to premium products. This is a structural change arising in a world now over-supplied with productive capacity and product choice (I mean those parts of the world that can afford to buy anything). Additionally, certain social sectors are both more highly educated and considerably wealthier. As a result of these changes, there is a radical divide between commodity goods (filling a need) and premium goods (meeting an aspiration). The first is motivated by price and relatively reckless of such qualities as provenance, authenticity, etc. The second is motivated by life-enhancement (our lives are quite brief) and is highly concerned with such qualities as provenance, authenticity, etc. The two can be divided roughly, of course, between volume and value.

Volume addresses under-supplied markets. Value meets the demands of over-supplied markets. Our entire agri-business strategy and its congruent government support seem to be focused on finding new under-supplied, egalitarian markets. But these have mostly vanished, and those that exist are highly vulnerable. In a world over-supplied with productive capacity, these markets don’t last – either in volume or value. They’re very easy for anyone else to get into.

Until our agri-business sector learns to stand in the 21st century, it will flounder, dragging our environment and future down with it. The real work needs to start here, before there is any value to capture in Asian markets or anywhere else.

workingman,

On the money.I could not have put it better.I will vote for you to be the next CEO of Fonterra.

We have been dumping unnecesary agricultural product where we could for the benefit of the overseas owned
companies, Dalgety, Borthwick, to name a couple.
That has conditioned us to be price takers and that is just to be kind.
The sooner agriculture becomes irrelevant to New Zealand the better, in my opinion.
Lets not look for any more agricultural markets.

Many involved in agriculture would be only to happy to see it become irrelevant to the economy. But as the figures indicate the article show, despite forty years of "change" nothing has changed. there has not been anything jumping up to take over, lots of entrepreneurs have come and gone trying to overcome our commodity syndrome.
So now we're left with primary products supporting the regions and immigration supporting Auckland.

"The sooner agriculture becomes irrelevant to New Zealand the better.."

Yes, once we can eat pixels we will be fine.

ham n eggs,

One way or another,agri business will constitute an important part of our economy for the forseeable future,but we can also eat pixels. Well,not literally,but think of digital animation,which we are pretty good at. The more of that we can sell to the world,the more money we will have to buy food with.
Look at our wine industry;NZ has concentrated its efforts at the premium end of the market and has been very successful. Apples are another good example.

linklater ... from a NZ only perspective what you say is correct.... but unfortunately what NZ does is entirely dependent on the wider global system ... you can only eat pixels as long as someone somewhere is paying for the animation ... with a surplus that they generated through use of ACTUAL resources.
You need to look at what is happening to the key resource, Oil, to know this surplus situation wont hold long.

ham n eggs,

I know that you are interested in energy production. I am currently taking a course in Global Resource Politics from Hanyang University in S. Korea. The median shale oil well can now break even with a price of US$40 per barrel,or even a little lower.
Efficiency of production has improved markedly,with up to 16 wells per pad,while the volume of gas per rig has risen by 300% over the past 4 years. The US is estimated to have over 600 tcf of technically recoverable gas and 58Bn barrels of shale oil.

I think NZ Inc needs to think like a small business. We need to keep our good name in producing excellent product, We should "value add" to all our products, We must diversifiy and innovate. Dont worry about trade deals, If you make a great product people will want it no matter where they are.

Keith - you are right the future does not lie in feeding the worlds hungry; but there will also be no future in feeding the worlds rich.

It will lie in feeding NZ's hungry.

Because even if you assume the financial system & supply chains can limp on for another 10-20 years (i give it 5 max).. pretty soon fertiliser will be a distant memory.
http://news.peak-oil.org/2017/02/subscribe-to-read-financial-times-15/

We should be selling our Water to Harrods....not giving it away free to our poor Asian "Friends"

Marketing is everything...to the rich...who will swallow...just about anything.

http://www.stuff.co.nz/business/89464975/harrods-just-started-selling-lu...