sign uplog in
Want to go ad-free? Find out how, here.

Guy Trafford wonders what the future will look like for our economy and the rural economy specifically. He sees a long wait and a quite different mix of customers who can buy what we have

Guy Trafford wonders what the future will look like for our economy and the rural economy specifically. He sees a long wait and a quite different mix of customers who can buy what we have

With a little more time on my hands I have been doing some crystal ball gazing at who our future trading partners are likely to be, and what we have that they may want.

As has been highlighted several times China is going to be our go-to partner for the foreseeable future. I should add at this stage we can write-off tourism for at least 18 months. The policy of elimination rather than control will mean that tourism or any unimportant international travel will be off the cards for some time.

New Zealand may clear the virus out in a reasonable time frame (we hope) but most of our trading partners are not as blessed with our isolation and what, at the moment, seems to be timely responses. So, it is unlikely that any international tourists will be able to come until there is a vaccine and probably only visitors who can prove they have been vaccinated or have anti-bodies will be able to cross into New Zealand. With approximately NZ$12 bln that did come from this sector annually, there is going to be a lot of catching up from other sectors to try and replace this.

China

Currently (2019) over NZ$11 bln in goods were exported to China, our largest trading partner, making up nearly 29% of total exports. The bulk of this is made up of dairy products followed by meats, timber and mostly other raw primary products. So, while very important, China by itself is not going to bale us out of the current recession (or will it be a depression?).

Australia

The next largest export destination is Australia, however, the mix of products going to Australia are quite different to what goes into China and with the exception of aluminium oxide and wheat (4.7% and 2.7% respectively) are mostly in the added value range. These include a wide range of products from wines to chocolate and make up approximately 9.6% of export dollars. As such Australia is a very important market for many New Zealand companies that have a large percentage of the work force. While Australia seem to be making more critical policies now to control the virus spread, they were slow out of the blocks and so it is likely it will take longer to get under control. This may mean they are not going to be in a strong position to take the same volumes of the discretionary products they have been purchasing in the past and no doubt, like New Zealand, the consumers will be getting the message to support local.

What I’m saying in a long winded fashion is that I don’t think we can put too much hope into the Australian market for a year or two.

USA

Behind Australia our next largest export market is the USA. Traditionally a large percentage of what has gone there from New Zealand has been grinding beef to bolster their hamburgers with some lean meat. Lately much of this has been diverted into China although beef, dairy products and wine still make up the bulk of what is exported to the US.

Their situation looks even worse than Australia’s and what they take looks similar to what is going into China, how much more China can absorb is going to be critical going forward.

Others

It may be the next tier of nations we export to are going to be critical to providing the overseas funds we will be needing. On the positive side some of these are countries that seem to be managing their response to Covid-19 better than many other nations. Notably these are South Korea, Singapore, Hong Kong and arguably Japan. Japan is a bit of an outlier here as while they seemed to have kept a cap on the outbreak questions are now being asked about whether much of this was political rhetoric aimed at reassuring the world the Olympics would still be able to go ahead. Now that they have been officially postponed the infection rate has had a rapid rise and it remains to be seen how they come through this.

The promising thing regarding all the previously mentioned nations are that they are not in a position (with the possible exception of Japan) to meet their own food demands. Japan has provided large subsidies to their domestic producers and conversely large tariff to keep exports out whether they can afford to maintain this approach is another thing to watch in the future.

The other main countries New Zealand exports to are the UK and Germany. The UK is looking like it is going to be a cot case for some time and while they have traditionally been a major destination (as have some other countries within the EU) for New Zealand lamb China, again, has achieved far more importance here and likely to be in a stronger position to pay more. Unfortunately, I cannot see any of these markets making up the slack the lack of tourists coming into New Zealand creates so a couple of leaner years are ahead. The primary sector of all exporters may maintain the bulk of their lifestyles; most other sectors are going to go through a lean period.

What history tells us

The last major drop off in exports was during the 2008/09 financial crisis. Exports dropped from NZ$31.7 bln down to NZ$25.9 bln, a close to -NZ$6 bln reduction. Much of this would also have been tourism. The recovery, for New Zealand, was relatively quick and exports were back upto NZ$31.4 bln by 2010. This time the drop is likely to be considerably more and take considerably longer to recover from.

Recession or Depression?

At the moment, the ‘talk’ has been on a global recession and it is worth looking at what the difference between a recession and depression is.

For recessions the definition is relatively clear, two or more quarters with negative growth.

The definition for depression is less clear however the consensus is a prolonged period of negative growth. I can recall reading some years back that 10 negative quarters was a measure, so two and a half years. Given that the last depression went from 1929 to WW2, it certainly met both measures.

This current recession we are moving into may go into two years but hopefully after then we are on the road to recovery. Governments are certainly wiser in their approach now and realise that massive stimulation of the economy is necessary to not only protect their citizens from poverty but to also provide the kick-starts required for the economy.

At the moment, one quarter into the corvid-19 era both the S&P/ASX 200 and the S&P/NZX 50 portfolio completed their worst monthly and quarterly declines this century, sliding 21% and 17% respectively in March. Unfortunately, the next quarter may be worse.

A final lighter definition regarding recession and depression is: “Recession is when your neighbour loses their job, depression is when you lose your job”.

Unfortunately for many this is going to become a reality. Our best hope is for a vaccine to be developed and out into the global community sooner rather than later.

Dairy prices

Select chart tabs »

The 'GDT TWI index' chart will be drawn here.
Loading...
The 'GDT TWI index % change' chart will be drawn here.
Loading...
The 'GDT volumes sold' chart will be drawn here.
Loading...
The ' GDT AMF' chart will be drawn here.
Loading...
The 'GDT Butter' chart will be drawn here.
Loading...
The 'GDT Cheddar' chart will be drawn here.
Loading...
The ' GDT SMP' chart will be drawn here.
Loading...
The ' GDT WMP' chart will be drawn here.
Loading...
The 'USDA Butter' chart will be drawn here.
Loading...
The 'USDA SMP' chart will be drawn here.
Loading...
The ' USDA WMP' chart will be drawn here.
Loading...
The 'USDA Cheddar' chart will be drawn here.
Loading...

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

26 Comments

Here is the future. It is disgrace that this business was not allowed to come up with a isolation work plan and carry on. Is this government hell bent on destroying business and making all and sundry feed off the big state teat? Headless chickens who don't know what to do so imposed a 4 week lockdown.

"Bauer Media Group has announced its intention to close its publishing business in New Zealand.

Bauer Media NZ publishes entertainment, lifestyle and current affairs titles including the New Zealand Listener, Woman's Day, New Zealand Woman's Weekly, North and South and Next, along with a digital network."
https://www.stuff.co.nz/business/120754944/publisher-of-metro-womans-day...

An utter disgrace. My guilty pleasure is the TV Guide, but that can’t publish according to a govt edict, announced by the PM! The sobering thing is that by and large, the Govt was a bunch of muppets in January. Now those muppets are in charge when the country faces a crisis unprecedented in 75 years. Govt of national unity please. There’s more to this than teddy bears.

The disgrace here is in the attitudes of people such as yourself. How about you choose the people that will die so as you can carry on reading your precious TV Guide.

10
up

Utter BS. A media company can work under an isolation system as can many, many other industries without exposing the wider populatation to excess harm. It happens already for many risky jobs - just ask Worksafe. How are Taiwan, Singapore S Korea etc still operating sucessfully without a lockdown? The suicide rate also needs to be published daily along side the C19 death rate - one small NI town had six last weekend.

Isolate the >60 years, and immuno at risk, then get on working.

Our mental health, suicide stats weren't exactly great leading into this - so status quo wasn't working either. People trying to service high debt, not wanting to lose jobs as they wouldn't be able to pay the mortgage. I guess you could say that might be amplified now, but equally if we have reset on asset prices and people don't have such high mortgages, that could ease the burden for new entrants into the likes of the property market.

It is not a guess - unemployment is a very bad outcome for suicide rates and general health. There is plenty of data out there.

If businesses can come up with isolation plans they should be able to get on with it rather than handing on billions in debt to children. Business can already be trashed by Worksafe and directors imprisoned if they don't follow procedure so the there is plenty of stick in the system without a lockdown. 23k in the UK and 80K in the US died of the flu in the 17/18 winter - countries can cope as demonstrated by Taiwan etc.

The government was lackadaisical about closing the border, and early testing, now have gone to the other extreme and locked the country down rather than following the examples of the non lock down countries successfully combating C19. Perhaps we whuld just contract Singapore to run our government for 12 months. We import everything else out of Asia why not government also?

Profile said “ Isolate the >60 years, and immuno at risk, then get on working.”

What a load of inane drivel!

Perhaps, if you have the courage of your convictions, you could make yourself a button to wear with “Do not intubate, it’s bad for the economy”. Or is it only other peoples lives you have no interest in?

People can work in isolation and many already do in many industries. They already face jail if they stuff up - long before this strain came along. Do you ever ask yourself how Singapore, Taiwan , S Korea, Sweden etc. are managing without a lockdown? But hey don’t take my word for it.

“The best alternative will probably entail letting those at low risk for serious disease continue to work, keep business and manufacturing operating, and “run” society, while at the same time advising higher-risk individuals to protect themselves through physical distancing and ramping up our health-care capacity as aggressively as possible. With this battle plan, we could gradually build up immunity without destroying the financial structure on which our lives are based.”
https://www.washingtonpost.com/opinions/2020/03/21/facing-covid-19-reali...

“Quarantine belongs back in the Middle Ages. Save your masks for robbing banks. Stay calm and carry on. Let’s not make our attempted cures worse than the disease.”
https://www.theglobeandmail.com/opinion/article-strictly-by-the-numbers-...

“Levitt said. For instance, the Diamond Princess data allowed him to estimate that being exposed to the new coronavirus doubles a person’s risk of dying in the next two months. Most people have an extremely low risk of death in a two-month period, so that risk remains extremely low even when doubled.”
https://www.latimes.com/science/story/2020-03-22/coronavirus-outbreak-no...

“Older people or people with previous health problems should be isolated as much as possible. So no visits to children or grandchildren, no journeys by public transport, if possible no shopping. That is the one rule. The other is: Anyone with symptoms should stay at home immediately, even with the slightest cough.”
Dr Anders Tegnell State Epidemiologist of the Public Health Agency of Sweden

If it’s all the same to you profile I’ll take the advice of my son in law who’s a consultant surgeon in London. He’s been repurposed to ICU and the poor bugger is being absolutely slammed. He is of the opinion that New Zealand is doing a splendid job!

This is globalisation. This is what happens when Governments allow companies built in the country be sold to overseas buyers. What will happen if we can no longer import whiteware? F&P no longer manufacture it here. There are a lot more examples. Bauer's actions however create an opportunity for enterprising Kiwi journos.

100% agree with murray86, this represents a great opportunity for young kiwi entrepreneurs in many area's. Globalisation is being found out and tested to the limit.

ahem .. RE : Bauer and their stable of rags
Very good riddance.

"Governments are certainly wiser in their approach now and realise that massive stimulation of the economy is necessary to not only protect their citizens from poverty but to also provide the kick-starts required for the economy."

'Stimulation of the economy' is a non-sequitur. Economies, as Matt Ridley likes to say, are an emergent phenomenon: they manifest as the aggregate of millions of individual decisions as to what they buy and sell, and from and to whom. 'Stimulation' may well assist individuals to keep consuming most of the essentials of life - food, shelter, transport and security - and to the extent that these need to be supplied, the 'stimulation' indeed flows through.

But for the vast swathe of 'non-essentials', it will be brave indeed to assume that there will be much Demand, and braver still, verging perhaps on Magical Thinking, to aver that the Suppliers will stick around to meet it. Local example: Couplands Bakery - surely classed as 'Essential' - has closed its doors in the South Island. Perhaps not for ever, but business continuation and survival will certainly take some wild swerves over the next few months. And the arbitrariness of the 'essential' definitions are certainly no incentive for businesses who need regulatory certainty before they will invest, carry on, or even re-start......Central fiat is a flighty beast....

Thankgodness, China is our largest trading partner and we need to keep deepening the relationship -- soon there will be articles along this line in near future.

keep safe, everyone.

The virus has gone deep enough, thanks.

The lamb market in the UK has crashed - perhaps ended would be more appropriate, as live markets for prime lamb have actually stopped due to a lack of demand. It is the end of the season over there, so there will be a relatively slow build up of surplus going forward. There is also a growing clamour for local produce, but this may be the production industry pushing it, rather than the general public accepting it. I realise the UK is a small part of the market, but with similar likely to happening across the EU it all adds to China's bargaining position!

Big question I have: who are New Zealands biggest competitors for China exports ?

I would guess mostly northern hemisphere, Europe etc.

I would then guess that while in 2019 China made up about 30% of our export earnings, there may be massive potential for China to take up any slack seen in our other export markets. I.e 50-60% to China over next few years and overall only a small drop in total exports.

Tourism is dead for a year or so that I can't argue with - but if NZ comes out a head of most of Europe and US and if China also continues to come out well then NZ might have the China international tourist market to themselves for a while once NZ opens for business again.

10
up

I just hope tourism never gets back to the same numbers ever again. Actually I want that for agriculture too, quality over quantity. We do not need any sector to grow exponentially least of all dairy.

Mass conversions to dairy are not going to happen with environmental constraints and lack of capital.

However, it's probably time to rethink the daft policy of turning large swaths of productive grazing land into forest - marginal land is fine.

Shutting down tourism is a net (economic) loss, but preventing New Zealanders from taking holidays overseas will mitigate some of it.

Red cows fully agree.
Tourism post the Wuhan virus has to forget about the Freecamping Set

Look at this article on 2nd hand Van's piling up in Akl. All with a "pristine unused toilet"

China needs our food and is a major market but Guy, don't peddle the idea that we should put most of our eggs in the Chinese basket. It became quite clear when China self isolated that many of our export earners, including tourism were hopelessly exposed to Chinese trade. Entire industries such as crayfish instantly lost 90% of their market when China closed its borders. We need to diversify our markets so we're more resilient to exogenous shocks. Much of our primary produce is commodities. To take one example, whole milk powder is sold in global *global* dairy auctions. If China doesn't take our milk powder because they bought someone else's, then we can sell our milk powder to the people who didn't get the stuff China bought.

So you suggest turning down sales to China once they hit a certain level ? Not going to happen, you can't and shouldn't control markets like this despite how much labour want to/try.

Diversification is ok once in a position of having that choice, but beggars can't be choosers.

I'm not saying we turn them down but we are now at a crossroads - do we further our dependence on the Chinese market or do we spend as much energy exploring other alternatives? Its our dependence on China that has caused volatility in the past and now the chooks are really coming home to roost as a result of the virus. We've been in a "position" of having the choice of being diverse and we squandered it big time. Better late than never IMO

No I'm not suggesting that. What I'm suggesting is we encourage primary producers to diversify their markets, and for the government to get us better market access in other places. This means more and better trade agreements, which take ages.

I say cut China of from us completely. I feel sick that we are feeding a nation that are slowly but surely going to take us over completely. Let them look after them selves. I am a SFF supplier begrudgingly and never liked the fact they went with the CCP. I need to find a supplier who dose not send product to them, hell I'll happily take a discount if it means not feeding the CCP ! Will do my best not to purchase anything thats CCP made although it will be difficult... I feel WW3 is close:-(.....

We have had recessions before - the problem is most people forget them. There will be a clean out and some will fail. Some will grow and do well out of this. Markets - we used to supply all into the UK in a very narrow base of products. This has shifted to Asia and others and over time become more of a services economy as all wealthier nations do - Primary products as % of GDP are falling and my guess would be that in time this will continue to fall - Im not bagging primary products (Im in the primary industry) its a fact of life. the products will go where the demand is. We are so small in the world and get smaller every day as a % just based on numbers and growth worldwide. If we look at the trends and position ourselves we will be in a good spot. Most important we need to give customers want they want - Safe, healthy, reliable and sustainable goods and services - this wont be doing exactly what we have in the past but involve change for everyone. As I say in our industry the biggest impediment to improved economic returns is the industry itself. No one industry is the backbone of NZ - we all are in all sectors. People need actually stop being so insular about their industry. I've found over the years when people rage against some change or questioning you know you have hit a sore point - they know its not working but its scary to admit and try and see a future doing it differently. In time it does change and the ones who accept this look back and laugh in the end.