A new analysis assesses the economic and trade relationship NZ has with the US, how it has developed, and how it is going up-market and hi-tech - in important pockets, at least

The New Zealand-US Council commissioned Sense Partners to provide an independent overview of the bilateral economic relationship between New Zealand and the United States. The report is here. The following are the key points from that report.

Key points

Our data analysis and case studies demonstrate the breadth of commercial links between New Zealand and the US

• The bilateral trade relationship has grown steadily over the past 15 years, averaging over 5% annual growth. Pre-COVID, bilateral trade was over NZ$21 billion.
• The US remains a vital trading partner for New Zealand, ranking 3rd for goods exports and imports, and – since COVID’s arrival in early 2020 – New Zealand’s largest services market.
• The US’s share of New Zealand’s goods exports and imports has stabilised at around 10% since the late 2000s.
• The share of New Zealand’s services exports is over 22%.

New Zealand’s export profile is becoming more diversified: services trade has become more important

• Our qualitative and quantitative analysis tells a story of a modernising trade and investment relationship that is changing over time in response to market dynamics and shifts in consumer preferences.
• Services trade has become increasingly important, and (pre-COVID) accounted for almost 46% of New Zealand’s total exports to the US.
• Bilateral services trade grew by an average of 8% from 2007 to 2019. By 2019, New Zealand exports of services to the US were NZ$1.36 billion more than its agricultural exports.
• While tourism has traditionally been an important part of the services relationship, there is considerable momentum and scale outside of travel too.
• New Zealand’s exports of computer-related services have doubled over the past four years and now account for around 25% of services exports to the US, for example.

Traditional pastoral goods exports are changing in nature…

• A range of meat and dairy products continue to feature prominently in New Zealand’s largest goods exports to the US. But their composition is changing. Pet food is now a larger New Zealand export to the US than butter or boneless fresh/chilled lamb, for example.
• Dairy exports are also now highly diversified across a range of high-value specialised dairy products, such as milk protein concentrates, whey protein concentrates, casein and caseinates. Exports to the US also represents a key volume to value story. In 2006 the volume of New Zealand dairy exports to the US peaked at around 193kMT, valued at US$663m. In 2020, the value of New Zealand exports to the US was US$544m, but with a volume of only 95kMT.
• US dairy exports to New Zealand have also grown significantly over recent years for products such as lactose and milk permeate, reflecting increasingly integrated global value chains (US dairy exports were valued at approximately NZ$102m in 2020).
• The focus has shifted towards sustainability, investment, collaboration around ingredients and supplying downstream markets such as the sports and active, medical paediatric, foodservice and organic sectors.

…and being supplemented with horticultural products

• Wine – primarily Marlborough Sauvignon Blanc – is now the second largest primary goods export (NZ$625 million in 2020, with average growth of over 10% per year since 2010). Around 17% of this by value is bottled in market and sold under US brands, rather than arriving as a final retail product.
• Kiwifruit (17% average growth since 2010) and Mānuka honey (31% average growth) exports have also grown strongly.
• Frozen mussels (NZ$65 million) have overtaken frozen fish exports (NZ$29 million) as the most important seafood export to the US in the past five years.

Innovative, hi-tech manufactured goods and services are supporting US firms’ productivity

• New Zealand may not perhaps be thought of as an advanced manufacturing and services hub, but the data and case studies in this report demonstrate that pockets of expertise have developed in a wide range of niche areas.
• Some are innovative spin-offs from New Zealand’s traditional agricultural strengths, such as fruit sorting and packaging machinery going into US packhouses, and electric farm bikes. For example, New Zealand’s exports of packaging, grading, sorting and shrink-wrapping equipment to the US were NZ$64 million in 2020, larger than its apple exports (NZ$59 million).
• These capital goods are forming important, efficiency-enhancing cogs in US primary producers’ supply chains. • Others relate to New Zealand’s burgeoning, private-sector led ‘New Space’ sector, including aviation technology (e.g. unmanned air taxis). These space-related goods and services are supported by an enabling regulatory system that seeks to make New Zealand attractive as a test-bed for collaborative ventures between New Zealand and the US. • Electromagnets and electrical static convertors between them accounted for NZ$122 million of New Zealand exports to the US in 2020, a similar value to its exports of Anhydrous Milk Fats, for example.

New Zealand exporters are responding to US consumer demands for quality healthcare, medical and lifestyle products

• At NZ$260 million in 2020, sleep apnoea machines now account for a larger share of New Zealand’s exports to the US than timber or casein.
• Beauty products (especially skincare) and nutraceuticals are displaying strong growth too (28% per year since 2010, albeit from a low base), often based on unique New Zealand ingredients and traditional knowledge.
• Antisera and other blood fractions (a by-product from cows) are exported from New Zealand to the US and used to support pharmaceutical and medical research. This NZ$50 million export industry, based on US investment in rural Manawatu, did not exist just five years ago.
• The wider agriculture sector also makes a valuable contribution to healthcare and health outcomes, often in unanticipated ways. The COVID-19 pandemic saw a rapid surge in demand for hydrolysates, a whey protein used to make easy-to-absorb protein beverages. These are used in healthcare to provide nutrition to intubated patients, with large quantities shipped to the US.

Our case studies highlight the value of relationships and cooperation

• New Zealand has some advantages in conducting research and development, particularly in areas related to agriculture. While the pool of talent in places like the US is deeper, there is also much greater competition. New Zealand universities are recognised globally and produce a consistent stream of well-qualified domestic workers. With less competition for that talent, the cost is also lower.
• With high quality regulatory settings, various mutual recognition agreements, lower cost labour, and ease of travel between New Zealand and other countries (outside of pandemics), the case studies in this report highlight that New Zealand is a good option for R&D activities. In addition, government support for R&D was rated highly by some case study participants, with regulatory agility a big positive in the aerospace sector.
• Industries that draw on skills from or related to agriculture find it relatively easy to get the needed talent locally. This extends to skills which have long been a core part of tertiary curriculums and qualifications in New Zealand, such as engineering.
• For newer industries, particularly gaming, finding that talent domestically is much more challenging. Game development qualifications are still a new offering in tertiary education and still do not extend to some core skills, like game design. As a result, there is no pool of senior local talent to draw on, and finding those skills overseas is made challenging by immigration barriers.
• Relationships were a consistent theme throughout our case studies. Those doing business in the US stressed the importance of meeting in-person, making frequent journeys to the US, and having a presence within the US market.
• Our agriculture sector is focused on high quality, premium products. Given our remoteness and small scale, we cannot compete on the scale of US and other producers. This means there is less direct competition with US producers, and more scope for cooperation.
• Examples of cooperation include dairy, with Fonterra partnering with US based producers to produce high quality whey and protein products using Fonterra IP. Kiwifruit is another example, with a focus on growing overall consumer demand rather than competing against US producers.

The overall picture from our research is a mature relationship with pockets of dynamism that is poised to evolve to the benefit of both countries.

The full report is here.