If New Zealand wants to diversify it trade away from China then the ten ASEAN countries will be important markets. However, the commercial realities, particularly for value-add products, will be challenging

If New Zealand wants to diversify it trade away from China then the ten ASEAN countries will be important markets. However, the commercial realities, particularly for value-add products, will be challenging

In recent years, New Zealand has become increasingly dependent on China as its most important market. The key reason, which I wrote about last month, has been the natural alignment of trading interests. New Zealand had what China wanted and vice versa. However, the extent of dependence is now causing unease.

There is irony in that New Zealand’s trade alignment with China was influenced by a perceived need to diversify away from traditional markets. Few people foresaw that the solution might become a new problem.

Now, in once again seeking more diversity, where should the new path lead? 

The notion that the new path, like the old path, must still lead to Asia should not be controversial. Europe and the Americas do not need most New Zealand products. Africa to a large extent cannot afford them. So yes, the main focus has to be Asia.

I have previously written about North-East Asia as a logical place to start that search. Japan, South Korea and Taiwan together comprise approximately 200 million people. They have higher incomes than most parts of Asia. Apart from China, they have been the economic powerhouses of Asia over the last forty years. Also New Zealand already has long-established relationships with these countries.

A big problem with Japan, South Korea and Taiwan is that even before COVID-19 they had plateaued in low-growth mode. Also, they are either already experiencing population decline (Japan) or are about to do so (South Korea and Taiwan).  Accordingly, finding new markets in these already urbanised societies will be challenging.

Closer to New Zealand, there are 10 countries within ASEAN. Travelling roughly from north to south, these countries are the Philippines, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and Brunei. Their combined population is more than 750 million, about half that of China.

The ASEAN countries have their own internal free trade agreement. More importantly, since 2010, New Zealand has had a collective albeit imperfect free-trade agreement with ASEAN.

According to the New Zealand Department of Statistics, New Zealand’s exports to ASEAN countries were $NZ7.6 billion in 2019, up from $NZ6 billion in 2014. The dominant item was dairy at $NZ3 billion followed by ‘travel services’ at 1.2 billion. The other major physical products were fruit and nuts at $NZ322 million and meat at $NZ220 million.

At various times, I have had work assignments in seven of those ASEAN countries. They are indeed very different countries with different histories and different cultures. But they do all lie within the tropics. Consequently, these are countries that will always struggle to produce dairy products, beef and sheep meats. Also, they are not good places to grow kiwifruit, apples, pears and grapes.

Here I focus on the four biggest countries in terms of population. They are Indonesia (273 million people), the Philippines (109 million), Vietnam (97 million) and Thailand (70 million). 

All of these countries were experiencing rapid increases in GDP prior to COVID-19, typically between four percent and seven percent each year, with Thailand the lowest and Vietnam the highest.  However, all four remain as relatively low-income countries with a combined GDP at official exchange rates of around $US2 trillion, with about half of this being generated by Indonesia. On the same exchange-rate basis, New Zealand has a GDP of about $US200 billion while China has a GDP of around $US12 trillion.

The first key message lying within these numbers is that these four ASEAN countries have a combined economy 10 times larger than the New Zealand economy. The second comparison is that their combined economy is about one sixth that of China.

The early-stage of economic development in these countries becomes more apparent when GDP is expressed on a per-capita basis. The Philippines and Vietnam each have a per-capita GDP of less than $US3000, with Indonesia at around $US3600, and Thailand at around $US6500. In comparison, New Zealand sits around $US40,000 and China is around $US8500 of GDP per capita.

These numbers illustrate that the spending power of ASEAN citizens to buy New Zealand products, particularly any that have a value-add component, is very limited. Also, with the exception of Thailand, these countries are a generation behind China in terms of citizen spending power.

In making these comparisons I have purposefully used official exchange rates rather than purchasing power parity. This is because exports have to be paid for in $US at the official exchange rate. If I had been attempting to compare overall living standards, I would have used purchasing power parity, which would have made these developing countries appear somewhat more prosperous.

The other consideration is population growth. That story is of spectacular changes, with perhaps Vietnam the most striking.

Back in 1950 when Vietnam was fighting to evict the French, the population of Vietnam was around 25 million. By the end of what the Vietnamese call the American war in 1975, it had risen to 49 million, with 15% of the population less than five years of age. By 1990 it had risen to 68 million but soon thereafter restrictions were put in place, with the socially correct behaviour being to have a maximum of two children. One of my Vietnamese colleagues on a project was demoted from his position of responsibility for having a third child, but he thought it worthwhile, and did so with purpose.

For a while, Vietnamese birth rates dropped below two children per woman and so the population pyramid is now inverting. However, birth rates are now back to a level close to 2.1. According to United Nations projections, Vietnam’s population should top out at around 110 million by 2050, about 13% more than now.

In contrast, the Philippines has been slower to reduce the birth rate, with this being linked to a population that is predominantly Catholic Christian. I recall working on a project there in the late 1990s when the population was 70 million. However, the women were still having around four children. I figured it was inevitable that even if this rate were rapidly reduced to about 2.1 children, that it was already ‘baked in’ that the population would increase to around 140 million. Currently, it is 109 million. With births per woman still around 2.6, the population will inevitably overshoot that 140 million by 2050.

Indonesia has brought its birth rate down more quickly than the Philippines, but their population is still destined to increase another 20 percent by 2050. In contrast, Thailand has had low birth rates for more than 30 years and it will have a stable but aging population over the next 20 years.

Bringing all of these attributes together, it is apparent that the major ASEAN countries are open to New Zealand for business. Some, like Vietnam, are particularly keen to strengthen their alliances with the West as a counter measure to the long Chinese shadow. However, the stage of economic development in all major ASEAN countries does not compare to China. Hence the opportunities for selling value-add products to wealthy consumers are much more limited.  

The corollary to that conclusion is that the last decade has been remarkable in terms of the opportunities that opened up in China. The search for a comparable opportunity in the next decade outside China must still go on. We have not yet found that opportunity.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. . He can be contacted at kbwoodford@gmail.com. Keith’s previous COVID-19 articles are available here.

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Good and realistic article. And remember we are not the only country seeking new markets particularly for primary produce.

Keith seems to have forgotten about India, where the transformation to urbanisation has still got a long way to run.

Thats where I would focus my attention, exporting high value produce as a starter.

As someone who manages the APAC-MEA region for our business, I agree on the relative lack of growth opportunity in NE Asia vs SE Asia - with the caveat being the substantially lower per-capita discretionary spending means of the latter. However, where does India fit into this diversification narrative? India possesses a large, young, educated and english-speaking population, has leapfrogged most western countries in smartphone adoption, and they even love the same sports that Kiwis do. What are your thoughts here Keith?

I think success depends on the effort you put in and how far you're prepared to go. Take Vietnam for example where Bel has cornered the cheese segment market and the 'Laughing Cow' brand has become inconic. https://medium.com/@rupert.sutton/naked-ambition-and-street-smarts-make-...

And by all accounts, Zespri is still growing in the Vietnam market. Dicretionary income might be relatively lower on the whole but the Vietnamese can spend much money on fruit depending on the occasion. Just don't expect that their behavior to change about bringing kiwifruit into their lives for nutrition.

I aree that dairy is probably the easiest category to make good headway with in Vietnam. Companies going to Vietnam need to recognise that the South (Ho Chi Minh), the Middle (Hue / Da Nang), and the North (Hanoi) all have their distinct market attributes. But all have interesting prospects.

India is next on my list for casting an eye over.

They're also the world's #1 producer of milk so aren't likely to need much of our main export.

I've read that the average dairy cow in India produces 7 litres of milk a day. And that Modi is encouraging a form of organic subsistence farming, where the only fertiliser used comes from the manure of the cow owned by the smallholder.

Executive summary in two lines:

Trade with China "....has been the natural alignment of trading interests."


"The search for a comparable opportunity in the next decade outside China must still go on. We have not yet found that opportunity."

China under the leadership of CCP is such a wonderful, respectful, responsible, hopeful, and happy nation.

Wonder why NZ businesses work hard to disengage when there are millions of opportunities waiting to be explored.

How many key decision makers in NZ's exporting business speak Chinese, know the culture and history?

So much work to do to upskill ...

There’s a well know saying, it goes something like this. If a little dog continues to snap at a big dog’s heels, eventually the big dog will turn round and bite the little dog. It’s good to see the USA teaching the CCP/PLA a lesson in good behaviour, long may it continue.

Must admit, I did love President Trump’s recent tweet: “Some wacko in China just released a statement blaming everybody other than China for the Virus which has now killed hundreds of thousands of people. Please explain to this dope that it was the “incompetence of China”, and nothing else, that did this mass Worldwide killing!”

The CCP/PLA has still a lot to learn, but they’re getting there!

Two wrongs do not make it right. Two deluded Leaders who have by ineptitude and deceit of how to handle things have killed off many, many citizens around the World and in their own countries.

The world should be working together to stamp out problems...including these two stalwarts of the greatest problems leading the world today. A United Nations ability to function, is clearly not able to bring divided Nations together after the War to end all Wars..

Now the war of words is "Paramount to Failure".

Must be a Film in there somewhere....if we can live and let live and coordinate a true story, it would be a Prime TV spot, or a magical way to make Millions, nay Billions aware of the true Nature of viral problems we have to put up with with the so-called "Greatest Nations on this Planet Earth".
It is the Leaders who are wrong....All of em. United we could stand....divided, we will always .......Fail....(yet again).

Agree entirely with your comment that NZers are far behind their Chinese trade counterparts in linguistic abilities.

China as a "wonderful" nation is purely subjective. I am often in awe/wonder at the pace of development in China with each subsequent visit, though appalled by the air/water pollution. On a personal level, I have met some wonderful people in China.

China as a "respectful, responsible" nation is dubious under any reasonable scrutiny. China has objectively little respect for intellectual property or legitimate international rulings (think South China Sea and the contentious "nine-dash line") as two examples.

China as a "hopeful and happy" nation seems for the most part in line with sentiment of friends of live there. Ethnic minorities probably feel quite differently.

The North Koreans look happy too. God help them if they don't smile and clap when the cameras are around. Poor people. See how happy anyone in China is who criticises the CCP. Its a dictatorship. Nobody is truly happy.

That's right Wumao Drone. It's so happy and wonderful that it amazes me why so many Chinese citizens want to live somewhere else, thus leaving for more prosperous and freer countries in their droves. Madness! And the fact that the CCP had to introduce restrictions to prevent Chinese citizens from moving massive amounts of money from out of the country. Insane! What could possibly be wrong.....?

China under the leadership of CCP is riddled with lies like a disease that has manifested into a full-blown pandemic.
Read this MORE LIES EXPOSED........

Great article on stepping away from China. Thank you!!

My vote goes with India, that will really rattle the CCP!!!

CCP can import from anywhere else, where NZ cannot do without CCP.
We should kick China away only after we have alternative markets.
Until then, stay low.

"NZ cannot do without CCP".......... Are you serious?

The article assumes that we have to keep growing and growing and growing...
Maybe we could, and should, reset to a lower growth paradigm.
In that scenario, it matters less if ASEAN countries don't make up for any trade lost with China.

Note - I think it is a mistake to 'bin' China. Despite some of their atrocious behavior, I think the west needs to work on maintaining a relatively fruitful relationship. For geo-political reasons more so than economic.

At the moment, things are moving in the direction of the west's relationship with Japan from the mid 1930s...

If NZ wants to reset to a lower economic growth trajectory then there has to be a serious discussion about NZ's population policy which essentially means its immigration policy.

Keith, I agree about the need for a serious discussion about NZ's population policy, but would it include the Labour government-assisted lifestyle of multiple human reproduction by the solo-mothers of large fatherless families? Limited to one or two ethnic groups, I would add.

Regardless, the reproductive rate of NZ women is well below replacement at around 1.8.

Life as a solo mother on a benefit is no bed of roses - it's poverty and drudgery. We need to make sure every young woman gets a good enough education that she has career options that are more attractive.

Keith I always enjoy your articles. The emphasis of pivoting away from China can't be made strongly enough if you ask me, but I suspect many in the sector won't be as motivated as you'd like them to be. Talking drought...I was listening to some dreadfully distressed drought stricken farmers on RNZ's rural report recently and while I felt great empathy for those affected it seems I have been listening to distressed, drought stricken farmers my entire life, I am GenX so that gives you an idea of my age bracket. Agriculture has made enormous sums out of trade with China, Yet, theres never been a comprehensive nationwide water storage system established so farmers and growers can get on through the dry spells. Its that sort of evidence that really concerns me as it appears the sector isn't investing in its own future.

The 4th Estate,
Too big an issue for me to deal within a comment except to say that drought resilience can be (and to some extent is being ) dealt with both through plant breeding for increased water use efficiency and by stored water systems. Also, in the South Island pivot irrigators are much more water efficient than either surface irrigtion systems or gun irrigators. It is an ongoing journey but nature does sometimes still deal a tough hand.

"it appears the sector isn't investing in its own future." Replace 'isn't' with 'is prevented from' wrt water. Three relatively intractable issues stand in the way (dam the flow??) of stored-water projects:

  1. The RMA/EPA and other environmental constraints. Certainly needed but is not fit-for-purpose for wider-scale projects: there tends to be a noisy minority with lawfare to back it up, and it's easier to bow out than fight 'em. So much for 'Vision'.
  2. There is very significant engineering, geo-tech and other professional input required, to work up any proposal into something that can be classed as Technically Feasible. All of that needs many millions, and the risk is sky-high. Unless Gubmint gets in behind it, no private consortium will touch it. Consider how (or whether....) the Clutha and Waitaki hydro schemes would have fared in today's environment...(pipe Tekapo to Pukaki to Ohau, alter all downstream catchment hydrology substantially, all for a few Gigawatt-hours? Fugeddaboudit....)
  3. Maori claims to water in general. This has been kicked into the too-hard weeds but like the Taniwha, will rise again for any new proposal. It's far too hot a kumara to catch even at national politics level, so good luck with a group of locals.....

So don't try the 'not investing in own future' shtick here. It's just practically impossible in today's fraught and identity-politics-riddled - er - Climate.

"Few people foresaw that the solution might become a new problem" - Really, or just some people not wanting to see.
"Europe and the Americas do not need most New Zealand products." - Maybe we have outdated products. Food production that has hardly changed. NZ needs science and technology, that's what the world wants.
"Philippines, Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia and Brunei". - Business needs stable economies, these are not really top of list, just like China is not. Hence the problems we are in now.

Europe and North America are very protective of their ag industries and even if we get a FTA with the EU, it is highly likely it won't include ag - especially not dairy. NZ produces around 3% of global dairy production (8th largest milk producer in the world), yet we are the world's largest dairy exporter. Fonterra sells in to 138 markets around the world. If we disappeared we wouldn't even cause a ripple in the global dairy trade.

Can anybody tell me where this obsession with cooking in oil came from? I am intolerant of these oils and although
I cook in butter at home, the situation prevents me from dining at restaurants or buying pre-cooked meals from the supermarket. And I'm not the only person in this situation, I know of several others.
And don't tell me it's healthier because my 96-year-old mother has been eating food cooked in butter all her life.

Marketing. Look into the roots of the acronym CANOLA and the rest will become crystal clear.

The author makes the assumption that only countries with growing affluence consumer bases make good target markets. The USA and Europe dont need our products? Succesful businesses create their own opportunities in any market. I doubt Xero for example would have grown globally if they took this view.

Software is literally arranging electrons: they can be moved anywhere at c. So it's relatively easy to penetrate another market with (as in Xero's case), good if simple Web-based accounting products that quite literally ate the lunches of the Intuits and other slower-to-innovate client-application-based products.

Absolutely no comparison to physical food goods with long, hard-to-arrange distribution chains, use-by dates and exactly similar local entrenched competition. Category error......

Yes, you nailed the difference.
Things change when you move between categories.

"We have not yet found that opportunity."
And my point is that we will never find "THAT" opportunity if we have any sense. We need to be looking for a whole range on opportunities that add together to something significant. If we find a single opportunity that can replace China, we will be just as vulnerable with it as we are now with China. We need a whole range of markets, including China, each of which we are not overly dependent upon. Similarly we need to diversify our range of product and move them further up the value scale.
NZ has a tendency to want the single aha solution that will solve every thing. It is a bit lazy and naive. We have to work harder than that at becoming a lot less dependent on any one market or product.