Finding new markets for NZ exports is challenging. Here, Keith Woodford looks at the Southern Asian countries of India, Bangladesh and Pakistan, and further west to Iran

Finding new markets for NZ exports is challenging. Here, Keith Woodford looks at the Southern Asian countries of India, Bangladesh and Pakistan, and further west to Iran

In recent weeks I have been exploring opportunities for market diversification, given increasing concerns that New Zealand has become too dependant on China. I started by looking at China itself, with the key finding being that growth of two-way trade between New Zealand and China is a consequence of natural alignment for each other’s products, also facilitated by the 2008 Free Trade Agreement between the countries.

Next, I focused on other North-East Asian markets and specifically on Japan, South Korea and Taiwan. The challenges with all of those include that their populations are either declining or about to decline. Also, their economic growth had either stalled or nearly stalled even before COVID-19 came along. That means that new trade requires elbowing out existing products rather than meeting new economic demand from consumers.

I then turned to the ASEAN countries of South East Asia, which are geographically our nearest Asian neighbours. Many of them continued to show strong economic growth, at least until COVID-19 arrived, but they have per capita incomes much lower than China.

There are opportunities in ASEAN, but there are also lots of constraints. I see Vietnam as a particular opportunity with an emerging middle class, but alas, its per capita GDP of US$2700 at market exchange rates (IMF, 2019) is still only 27% that of China (US$10,100) and only 7% that of New Zealand (US$40,600).

It is important to remember that countries importing goods from New Zealand have to purchase them at market-exchange rates. Purchasing power comparisons for developing countries are very different using these market exchange rates compared to internal purchasing power parity (PPP) calculations used to assess living standards. New Zealand goods are very expensive for anyone living off a Third World salary!

In this article, I look further to the west to what is sometimes referred to as the Asian sub-continent comprising India, Bangladesh and Pakistan, and also further west again to the great enigma of Iran.

The reason I include Iran is that it has great natural resources of oil and gas, together with a considerable and well-educated middle class. Also, there is considerable alignment with what New Zealand produces and what Iran wants. However, with President Trump at the helm, and the unilateral sanction policy conducted by the USA, the current risks are great for any NZ company going there. The bottom line is that the USA controls the international finance system and it uses this system to blacklist those who trade with Iran. More of that later.

Whenever I get into discussions with people about the need to diversify away from China, then India is typically seen as the new promised land. If only it were that easy.

Within the next ten years, India will become the world’s most populous country.  Its current population is approaching 1.4 billion, with 35% urban, and a median age of 28. Its population is expected to increase to about 1.6 billion by 2050 using UN projections, with the population bulge by then being in the 35-50 age group.

Until COVID-19 came along, India was experiencing high economic growth, but right now it is in a COVID meltdown, with industrial production less than half pre-COVID and with COVID infection levels exponentiating.

For many years, New Zealand has sought a free trade agreement with India but the negotiations have never got far.  Even when Indian politicians offer encouraging perspectives, the reality of the Indian bureaucracy and political system has meant that things never advance beyond there.

One of New Zealand’s problems is that India is the largest global producer of milk, probably more than seven times larger than New Zealand, although no-one knows for sure just how much milk India produces. Regardless of the precise number, the politics of India are such that there is no way they will open themselves to dairy competition from New Zealand.

India, being a Hindu country, is also not interested in our beef. As for lamb, India has always found a range of non-tariff barriers to prevent that trade from flourishing.  Some horticultural products like kiwifruit face less barriers, but the cool-store facilities and logistics for perishable products are rudimentary.  

Exports to India have typically been around NZ$1.7 billion per annum in recent years. This comprises about 2% of New Zealand’s exports. However, most of this is in so-called travel services, with much of it education-related. There is a smallish trade in wood and an even smaller trade in nuts and fruit. Overall exports of goods are less than 1% of New Zealand’s physical exports.

As for New Zealand’s exports to Bangladesh, there are dairy exports, typically of several hundred million dollars per year, but little else. In the case of Pakistan, dairy is once again the dominant item, but total exports of all products have never exceeded NZ$100 million in any recent year.

A key issue for South Asia is that per capita incomes in India, also Bangladesh and Pakistan, are very low when expressed at market exchange rates (see Table). Accordingly, a middle-class lifestyle based on locally produced goods is much easier than a middle-class lifestyle that depends on imported goods.  

Some Market Statistics for South Asia and Iran

Country Population
(million)
GDP per capita
(USD, IMF 2019)
(market exchange rates)
NZ export destinations 2019,
goods and services
(NZD, millions)
New Zealand 5 40,600 83,820
(all countries)
China 1,440 10,100 18,030
India 1,380 2,170 1,650
Bangladesh 165 1,905 382
Pakistan 221 1,388 85
Iran 84 5,738 114

Given these harsh realities, there are very limited opportunities in the three countries of South Asia for expanding trade in either the short or medium term. The short term is going to be dominated by COVID-19 issues and the medium term will be dominated by low spending power.

The one country that needs separate consideration is Iran. Iran is not usually considered as part of South Asia, but it also doesn’t fit neatly into the Middle East. Iran has been particularly hard hit by COVID-19, but it also has better epidemic control systems than in South Asia, and is further through its epidemic.  However, economic sanctions have greatly impacted all aspects of Iranian society.

If Iran had free access to world markets for its oil and gas, then it would experience rapid economic growth. It already has a significant well-educated middle class, proportionately much bigger than in its South Asian neighbours.

There was a time in the 1980s when New Zealand exported 25% of its lamb to Iran. There is also natural alignment for dairy products. However, nothing can change in relation to trade with Iran unless there is a change of government in the US, and with the US then signing-up again to the 2015 multilateral accord in relation to Iran. Ironically, it was the US that played the lead role in this agreement under the Obama administration, which President Trump then abrogated unilaterally.  

In the meantime, the combination of sanctions combined with American superpower status, together with control of the international finance world, makes trade with Iran too difficult. Our banks are now too scared to transfer funds to and from Iran because of US blacklisting.

Putting all of the above into perspective, there are no easy markets for New Zealand either in South Asia or to the immediate west in Iran. The search for diversity needs to continue elsewhere.


*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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13 Comments

I wonder where elsewhere is ?

wd

Iran is an interesting nation with a great history - if you like wars with your markets. I passed through there when the Shah was being dumped & the Ayatollah was just taking control. It was pretty exciting from what I remember but also quite scary in places, & Iran has quite a few of those places. You're right about its potential Keith, especially for a country like NZ & it would be great if we could trade with them, just on a lamb for oil basis. [Why do we need money?] One of the things I did notice was that the business people (the educated) were very friendly & we slept on the hard marble floors in local restaurants on more than one occasion. I recall the black market rate for hard USD$ was almost double, immediately post revolution, which came in handy. In fact, a surgeon I saw in London many years ago was an Iranian & very civil (if somewhat expensive) he was too. It may not be common knowledge, but there is also a large Christian population in Iran who are largely allowed to live peacefully alongside their majority muslim neighbours, still today, and you can't say that about a lot of other similar nations.

Russia is a good, albeit inconsistent, option for some trade but seems we are not allowed to take advantage of opportunities there that might hurt EU/US suppliers.
Not that they do us any favours.

Mark.L,
I was in Russia on an assignment in 2018 and found it fascinating. I am confident there are trade opportunities for NZ there, but politics has got in the way. It was NZ who essentially walked away from the free trade negotiations with Russia. In contrast, China and Russia will continue to strengthen their trade-based relationships, based on their respective self-interests, with both taking care not to criticise each others internal affairs.
KeithW

"trade opportunities for NZ there, but politics has got in the way. It was NZ who essentially walked away from the free trade negotiations with Russia."
No doubt at the USAs behest. I seem to recall Winnie was in favour of trade with Russia a year or two ago.

Keith re Japan, South Korea and Taiwan - given the huge size of these markets does it actually matter that their birth rates and populations are declining? Given their relative success in dealing with Covid-19, shouldn’t we be thinking more about a pivot towards these and other similarly placed countries?

kiwiana2,
The challenge is not only that they have either zero or negative population growth, but also that their economic growth was very low even before COVID. That means that new sales have to elbow out other products.
NZ is very active in all of these markets but has found it difficult to increase product sales in recent years.
NZ exports to Japan were about $4.5 billion last year, Korea was $2.3 billion
That places Japan in 4th place behind China, Australia and USA.
Kiwifruit has been very successful in Japan.
But right now Japan is in very deep recession.
Here is the article I wrote specifically on these countries a few weeks back.
https://keithwoodford.wordpress.com/2020/05/06/north-east-asian-markets-...
KeithW

Keith...There is no better time than now to capture more of the asian markets with the point of difference we have. There's a valid argument our travel bubble could extend to Taiwan initially, and I'm sure the Taiwanese would be interested in travel.

We may have a smart enough CE at the helm of Air New Zealand to convince the government this is the right think to do, and alot of tourist operators would agree. A venture like this could open up the door to alot more trade between the countries, and I'd be one of the first on the plane to explore it.

You might find Australia might come on board with a bubble earlier, but probably too late for the ski fields down south.

Good Samaritan,
My own view is that now is not the time to think of bubbles, with the possible exception of Pacific Islands, and that on the proviso that the Pacific Islands are not part of any other bubbles. We do already have significant trade with Taiwan - I visited there way back in 1992 on an assignment, actually funded by the Australian Government, looking at some specific trade opportunities. The situation between Taiwan and China is complex, but China has no problems with us trading with Taiwan - as they themselves do in a big way - as long as we play by the political rules. The Taiwanese are themselves very big investors in China.
KeithW

'A key issue for South Asia is that per capita incomes in India, also Bangladesh and Pakistan, are very low when expressed at market exchange rates (see Table). Accordingly, a middle-class lifestyle based on locally produced goods is much easier than a middle-class lifestyle that depends on imported goods.'

NZ would do better sticking to locally produced goods too!!

Nzdeb13,
Actually India does import a lot of goods, with China the number 1 source of origin. But they don't import much food.
They have potential to produce more of those manufactured goods themselves, whereas we lack the cost structures associated with third world wages together with a lack of scale.
KeithW

According to Pulitzer prize-winning US journalist Chris Hedges (see numerous interviews on You tube) Israel is the only country in the world that can directly influence USA foreign policy. One wonders how much US anti-Iranian sentiment is due to Israel (and Saudi Arabia of course).
It seems like Iran would be the perfect trading partner. Trump's America is becoming more dysfunctional by the day.

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