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

Guy Trafford points out that while we may have been safe during the pandemic, we are now underperforming economically and vulnerable to the economic nationalism the pandemic has spawned

Guy Trafford points out that while we may have been safe during the pandemic, we are now underperforming economically and vulnerable to the economic nationalism the pandemic has spawned

When we, along with much of the Western world, were in some form of COVID-19-driven lock-down last year there was a sense of anticipation that the globe might enter some form of new epoch of cooperation. Unfortunately, as the year progressed the optimism waned, and frustration replaced it as countries adopted more nationalistic policies and any form of international cooperation was thrown out the window.

This has largely been typified around the response of the developed countries attitudes to accessibility to COVID-19 vaccines which while understandable, when a nation has thousands of people still dying from the infection of course the politicians are going to put them first. And, if it is at the expense of countries less able to pay or organise themselves to access the vaccines, then so be it.

However, while this may explain the approach, it does not make it correct.

This nationalistic approach has also permeated international trade.

While New Zealand may be signed up to and pursuing Free Trade Agreements (FTAs’) the reality appears to be that the previous cosmopolitanism / neoliberalism policies (i.e. policies that freed up trade and had blocks of nations being part of the same ‘club’ to their mutual benefit) are rapidly weakening with no sign in the foreseeable future of them being re-established.

The rot really set in when Trump began his “Make America Great Again” programme which while resonating with many in the US did nothing to foster international trade especially his undermining of the WTO and reluctance to join FTAs.

And China, despite all the rhetoric about the FTA we have with it, still picks and chooses what suits it. A couple of recent examples show it to be a fair-weather friend. The illicit growing of kiwifruit in China of varieties stolen from New Zealand, which at last count covered over 5,000 ha, can only operate with the tacit approval of the Chinese government. Likewise, the Chinese government involvement with the subsidising of New Zealand (and no doubt others) timber making it available to Chinese manufacturers to then export cheaply back to us (and others) thereby making it difficult for our manufacturers and mills to compete must also be against the spirit if not the wording of our FTA (and we wonder why our mills cannot compete).

The European Union is also showing serious signs of fracturing with politicians within individual countries adopting more nationalist policies. This will inevitably result in leaders shifting their countries politics to the right which unless there is a shift back will result nations increasingly going their own way.

All this points to a diluting of trade deals which will leave smaller countries like New Zealand vulnerable.

In the short to medium term New Zealand still looks as though economic growth will continue at positive levels. And while GDP measures are not the be-all of measuring the general health of a nation, they are still useful.

Below is a table of the major trading nations globally compiled by the International Monetary Fund (IMF) with our Treasury predictions of how they view New Zealand to be doing. The surprising thing to this observer is how average our predicted growth is when compared to most other nations. This is at time when we have been patting ourselves on the back about how well we have done compared to other countries. For our physical health we certainly have led the way with a few other countries in keeping our citizens safe. The importance of this has been paramount and way outstrips economic performance when gauging the success of a government ability to care for its people.

But perhaps we need to be a little more circumspect when viewing the future economically.

Source: NZ Treasury December 2020

New Zealand’s lag is likely due to the lack of tourists coming through as like them or not tourists have certainly had a huge impact upon the countries economic health. Livestock farmers largely have been able to trade on oblivious to the head wind winds other sectors have endured. Horticulture in the primary sector standing out as one that has felt the impact of the COVID-19 virus with reduced labour allowed into the country.

So looking forward, if international treaties and protocals (such as the WTO) are no longer adhered to and China having an increasingly large influence on trade at the same time as the USA and EU diminish, unless there is another reset (and President Biden does not appear to be the one to do it) international relations and trade may get ‘interesting’.

Apart from our trading ‘partner’ politics, there is still the virus and success or otherwise of vaccines to contend with and of course climate change has got plenty of cards to play along with how we deal with them.

Saleyard Store lamb

Select chart tabs »

The 'NI average' chart will be drawn here.
Loading...
$ per head
The 'SI average' chart will be drawn here.
Loading...
$ per head

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.

32 Comments

11
up

New Zealanders have been told the best thing was to not defend their best interests, and it would work out. But that denied just how nasty the world is, and has always been.
Best example is the gold kiwifruit.
Dozens of towns have 'sister city' relationships, and mayors and staff have gone off juncketing and banqueting.
And pretentious cetemonies are held at national level.
But when they decide they want to steal the IP, they do it openly and laugh at us.
Time for New Zraland to get real, see the world as it really is. We need some hard arse economic nationalism.

Some thing is happening in our tertiary and research institutions- lots of high level palaver, business travel for the senior execs, then the giving away of IP and ownership - rationalising that the cash is needed.
Yes, quick, let’s get back to exporting our jobs and putting up all our assets for sale.

Javier Blas: The World for Sale
Rnz this morning https://www.rnz.co.nz/national/programmes/saturday/audio/2018790177/javi...

.

The government could have easily increased MIQ capability and set aside capacity to bring in students and workers. Zero ambition, zero accountability.

Guy,
I don't think your characterisation of either the kiwifruit or timber exports situation to China is correct.
The Chinese Govt acknowledges that Zespri has PVR rights and Zespri can pursue these rights through the civil system. There are however certain practical issues in terms of finding which kiwifruit plantings spread across China are actually Sungold. And that is not something for the Chinese Govt to try and do. It is a civil matter and hence it is something Zespri would have to do. Also, given that the Chinese and NZ seasons complement rather than compete, Zespri would struggle to get big monetary compensation from the thousands of small growers. It would almost certainly end up as a lose-lose. NZ also needs to acknowledge that China is NZ's biggest kiwifruit market and this outcome is remarkable and worth protecting. Also, that China could have got a lot more nasty about the customs duty duplicity involving Zespri kiwifruit some years back.
As for the timber, most of NZ's exports to China (once again our biggest export market for timber) are for formwork (infrastructure boxing). To use an old saying, we need to be very careful not to cut off the nose to spite the face.
NZ has big decisions as to how it manages the China relationship. NZ depends on China a lot more than China depends on NZ. And the NZ Government knows this.
KeithW

I heard a kiwifruit grower recently state that they are concerned that China will take gold kiwifruit to Sth America where they have large land holdings, grow it there and compete with Zespri for the Chinese market at the same time as NZ is selling in to it.
Effectively that is what they are doing with cherries. We are seeing Chilean cherries on the Chinese market getting bigger in size every year - closer to matching NZ average sizes. Which is to be expected, as improvements in growing systems are made. If they start growing kiwifruit in Sth America the same should be expected.

Casual Observer
Kiwifruit do grow well in Chile. But I don't think China has large landholdings in Chile.
The Chilean horticulture industry is well developed and their husbandry knowledge is likely to match New Zealand.
I have done a little work in Chile but not specifically in horticulture.
PVR would be easier to police in Chile than in China, in part because it would be relatively easy to find the orchards. And even if they were sold to China it would be easier to police at the 'choke point' which is as they leave the port. Much harder in China where there will be many thousands of growers and the kiwifruit go from the orchards in all directions.
As for cherries, I doubt whether we have any PVR rights but I am happy to be corrected on that.
KeithW

You’re right re large portion of logs goes into form work but we till need to re think our purpose and bring back manufacturing into our nation.

Remember that only a very small proportion of NZ timber is pruned. Of the logs exported to China, only about 8% as of 2015 was going into uses for which appearance was relevant. I doubt if that has increased at all in the six years since then.
KeithW

Keith, the high export prices set the domestic market for all grades... including non-ever-green-contracted pulp volumes.
Ask CHH in northland what they had to contend with... also export grading is quite a bit ‘looser’ than domestic and therefore easier to serve... if it wasn’t for logistics and the benevolence (political long-run game being played) by some of the large TIMO’s then even some CNI mills would be had it as well.

You see a future where NZ can be successful and wealth spread more widely under our current economic model of only “Agriculture/Horticulture”? Even these are not sustainable and rely on cheap imported labour!

keithwoodford. You last paragraph is concerning. Perhaps it's not good business to dobusiness with people who's approach is to use power to screw you over.
ie. Those who have abandoned supplying supermarkets. Potentially big customets but not worth it in the end.

Good balancing commentary as ever! Is it true that our timber is used for low grade work because it degrades en route and is no good for anything else by the time it gets to China? I also heard someone in the industry say that the price paid by Chinese companies for logs makes the primary treatment of the timber here unviable (so we have lost nearly all our sawmills). And that this artificially high price was the result of Chinese Govt paying for the transport of logs and subsidising energy costs - i.e. massive market distortion.

We will have to grow some timber treatment capacity back quickly - China has a target to be fibre self-sufficient by 2035.

Jfoe,
No, our timber does not degrade significantly on route. Remember that hardly any of it is pruned. We are sending them bog standard raw product.
I am not aware of any evidence that the Chinese Govt pays for transport or subsidises energy costs. China is far from self sufficient for its energy needs so they don't squander energy. But wages in China are a great deal less than in NZ and that will influence processing costs. It will always be very hard for NZ to have a cost competitive advantage for processed timber on international markets.
Yes, I think it may be feasible for China to have forest fibre self-sufficiency by 2035 as they have had massive forestry projects for a long time, Also, much of their national infrastructure development will be complete by then with the population having stabilised and the urbanisation also tailing right off. But I don't have the data to be confident that they will reach this 2035 self sufficiency.
KeithW

I’ve been told the need to meet central government set GDP targets for Chinese regions is main driver of procurement which isn’t necessary based on sound market signals - e.g. roads/rail to nowhere
The power of the command economy with its high debt levels and shadow banking is a force which the little old capitalist in NZ cannot compete with.

I don't believe China will be self sufficient any time soon or ever. A lot of planting is to stop erosion or desertification. Exporting logs is becoming an advantage as Russia stops all log exports next year. China will never rely solely on Russia. There is a high portion of timber cut and re exported.

For a real problem I've just read the latest beef and lamb forecast - if you want to see a looming, here now problem its very stark. Wool - pray and hope basically. Lamb - mutton worth the same and supply from Australia cranking up. Beef - massive supply and cheaper from S America on the way. Average profit before drawings, tax debt capital repayment and any reinvestment $124,000 -basically a wage at best after all of the above. On top of that lamb exports are worth 20% less to China than other markets.

Jack Lumber,
I agree that a lot of the Chinese forestry, particularly in the North West, is for environmental reasons. It is hard to get a good estimate of future production forestry.
The reason that lamb exports to China are worth less than other markets is a reflection of the particular cuts and the extent of processing. It is not a like for like comparison. If exporters thought they could make more money by supplying more product to other markets they would do so.
KeithW

I don't disagree re lamb my point is we spend a lot of time discussing markets etc when the real issue is ignored- there's simply not enough profit in the system for a large portion of hill country farms and no sign of any improvement. Doing the same old thing seems to be leading into a big hole and from my observation is the cause of distress in the sector. I don't have the answer but anything returning such poor returns will change in time as something else takes over.

Jack,
I think we are agreed that there will be and should be more forestry on the hard hill country. For me, the big questions relate to the relative focus to be placed on production versus permanent forests, and making sure we don't screw the scrum through inappropriate institutional policies.
KeithW

I agree but what worries me is the proportion of hill country farmers who are struggling is growing. Trees are going to be a given on a lot of land - we won't be able to plant more than around 25 to 30k of new forest a year due to seed and labour. Planting anymore of either type will be hard. As I've said before it's not hard to ID the poor land that should be in permanent cover of some type but the current land owners here are the most resistant to change. I know the 2 carbon farming companies and they can't get land here ( in fact they can't get land anywhere now as the price has risen so much). Other forest companies are more interested in timber and carbon. The timber return from better land is way higher than the farm return without carbon at all.
As you and I have noted increasing environmental rules and controls (read higher costs) are also forcing timber forests onto better land. The economics of lower risk combined with lower production costs and higher growth will drive this even harder. We have 2 blocks of land bought in the last 4 months. It would be classed as good farmland. Both on the market for 6 months to 1 year - not one farmer offer. Good returns on timber alone carbon is icing to top. I personally believe the forestry and carbon scare is hiding a much larger problem which no one wants to acknowledge or confront.

China is the largest pirateer of intellectual property globally. It is rampant in fields that I work with including Biotech and pharma. It is covertly tolerated as access to China provides an excellent income stream based on population size and willingness to pay more than developing countries. It sits mid tier for pricing. The monopolistic Government allows a long term plan AKA belts and roads which results in 20 and 50 year plans. Democracy and no view beyond electoral cycles means the West cant compete. Going forward China is going to have a major impact on our trade as they cut us out of their buying loop. Time to act is past, we’ve already sold out to them. Sad.

China is a signatory to the international patent rules. From memory, they have more patents registered than any other country. But the system will never work perfectly in such a huge country. As you say, 'China provides an excellent income stream'. Currently, we sell them a lot more than they sell us. It is not clear to me how they would 'cut us out of their buying loop'.
KeithW

13
up

What does it mean by “FREE”.
Free to steal your IP
Free to flood your country with cheap product and labour
Free to flood your country with people and buy your land and companies
Free to influence your politicians and universities through generous funding and donations etc
Free trade yes but we should have better protections on our sovereignty.

Reciprocal would be nice. How many Kiwis have achieved Chinese residency, work permits, citizenship, bought chinese property? Just asking for a fair go - we ought to match every countries rules but staying just on the side of virtue.

I know quite a few Kiwis who work and live in China but all that I know retain their NZ citizenship. China (like many countries) does not accept dual citizenship.
KeithW

Philby,
It would be nice to see one example of each of the things that you claim.
KeithW

A UC political scientist has questioned the extent of foreign influence in our political and academic institutions.

This comment is borderline xenophobic and doesn't belong here

Asian ethnicity imports increased by about 350-400K in the span of 5years census (2013-2018) - where all of those to be housing?, handled by Healthcare capacity? Education? - Interesting if interest.co.nz willing to dig more on that. Migrants often being exploited here in NZ, no exception even within Asians community:
https://www.stuff.co.nz/business/124715502/sacked-for-speaking-out-chine...

"Likewise, the Chinese government involvement with the subsidising of New Zealand (and no doubt others) timber making it available to Chinese manufacturers to then export cheaply back to us (and others) thereby making it difficult for our manufacturers and mills to compete must also be against the spirit if not the wording of our FTA (and we wonder why our mills cannot compete)."

Can someone elaborate on this? What does he mean by the Chinese government subsidises NZ timber? Does he mean they help manufacturers and saw mills over there buy our timber cheaper and so put manufacturers and saw mills out of business here?

Does it make timber for houses dearer?

It would be interesting to know where the evidence for this subsidy from the Chinese government for timber is - There are Chinese State owned companies importing logs and lumber but a large proportion of the timber processors are private enterprises in China. Ocean freight ( a big cost) is set by world demand. Only a miniscule proportion comes back here - a country (town) of 5 million is very small beer for the world timber market. The fact is we have 1.3 billion people working to be like 350 million Americans - we have never experienced this before in the world and there are another @2 billion in India and other countries wanting the "American dream" as well.
NZ competes against Russia, Europe, Canada, USA etc etc for access to this market as does milk, meat etc etc - if they get it cheaper elsewhere they will I can assure you.
The current timber "shortage" here is being played out across the world - Australia - massive timber shortages - they lost over 100,000 ha of plantations forest in fires. USA - lumber prices up 200% and no end in site. Its a mixture of supply chain disruption due to Covid, massive stimulus via low interest and lots of credit everywhere leading to huge demand for houses and shortages of logs due to disease (Europe, Canada), Fire (Australia, Canada, USA), Forest being locked up for Conservation, Climate Change (Everywhere), no planting 20 - 25 years ago (NZ - Northland especially) as politicians decided forest could go for dairy farms (Central NI, Canterbury). There are NZ sawmills doing very well at the moment and as with all markets the best will survive and grow. Just like farms - the good will grow and prosper the weaker will be taken over or change as more profitable landuses arrive.

Davo3636,
Given the absence of evidence for these subsidies, the likelihood is that that the subsidies do not exist in any meaningful way. But in relation to China, many people believe what they want to believe.
KeithW

100% agree - Im very cynical about a lot of these claims - Other countries are far more biased and more than happy to provide direct and indirect subsidies internally against outside suppliers.

Thanks Keith.