Keith Woodford says that ‘NZ Inc food baskets from down under’ are the multi-billion dollar opportunity for us in China. He calls for a comprehensive public/private partnership

Keith Woodford says that ‘NZ Inc food baskets from down under’ are the multi-billion dollar opportunity for us in China. He calls for a comprehensive public/private partnership

By Keith Woodford*

On Monday 9 November I spoke at the China Business Summit.   Held in Auckland, it was attended by more than 250 New Zealand and Chinese business people, plus some government officials.

I was part of a session titled ‘Maximising our position in China’s global supply chains: where are the opportunities’.  The session was chaired by David Green, Managing Director of ANZ Institutional. The other panel members were Dean Hamilton, CEO of Silver Fern Farms, and Chris Hopkins, CEO of Scott Technology. We each gave an opening address followed by questions.

My opening address ‘as planned’ is below. I say ‘as planned’ because in reality I ad-libbed it rather than reading it. But the message remained the same.

I first went to China in 1973 as a young man, with training in science and economics.   It was a life changing experience.

One of the key things I learned, and am still learning, is that New Zealand-based experiences are not a good grounding on which to assess Chinese situations. In China, we are all learners. Anyone who claims to be an expert is a fraud.

One of the greatest challenges I have had over the last ten years, when travelling in China with Western newcomers, is to communicate to those newcomers that the China they were seeing before them was only the China of that day.  Not recognising the full extent of ongoing change has been one of the key causes of failures for some New Zealand businesses in China.

Most people going to China do not understand that there are many ‘Chinas’. The West is different to the East, and the North is different to the South. The ‘Chinas’ of Beijing, Shanghai and Guangzhou are very different ‘Chinas’ to those of Yunnan, or Sichuan or Qinghai.

I regard myself as fortunate that I have experienced many of these ‘Chinas’, but after 42 years I still experience something new each time I am there.

Chinese consumers have different behaviours than Western consumers. Mis-understand that at your peril!

Trying to get access into Chinese supermarkets without a very strong Chinese partner is not going to work. Inevitably, that partner will be the one to capture most of the benefits (and do so for him or herself). This is because it is that partner who is making the difference and holds the power.

The biggest challenge for most NZ firms going to China is that they lack sufficient scale. We have one large food company. Everyone else is small by world standards. The only way around that is to work together within a ‘NZ Inc’ framework.

The notion that a product coming from New Zealand can sell itself on the basis of its origin alone is false. It is just the start.

The way forward for NZ agri-food in China is through integrated online marketing of products through a dedicated NZ agri-food portal. This can link into one or all of the large Chinese consumer online portals.

Chinese consumers have to be able to go to one online site and buy all of their guaranteed ‘food from down under’ from that site. It all goes into one online cart and is delivered to their home within 24 hours.

The future of food purchasing in Chinese cities is clearly through online sales direct to consumers. China is different to New Zealand!

Many NZ firms claim that they ‘get the online thing’. But most of them don’t. As a result, they will get lost in the online jungle.

The key purchasing demographic is the same demographic group that travels to NZ for tourism. Currently this key demographic is about 26 million people, of whom about 90 percent live in the greater Beijing, Shanghai or Pearl Delta regions.  But that is the China of today. In five years time the numbers and locations will have greatly expanded.

Social media are fundamental to communication within the key demographic group. The tourism and food industries should be working together.

Getting the ‘NZ Inc food baskets from down under’ under way would ideally be facilitated by Government and would involve a Government/private partnership. The rationale for such an approach is that setting up the logistics, the management, and the product integrity systems is a big task.  There has to be a warehouse and inventory management system in each of the major Chinese cities that the project plans to service. 

‘NZ Inc food baskets from down under’ is the multi-billion dollar opportunity. And those multi-billion dollars are for each and every year.

The alternative to a comprehensive Government/private partnership is for groups from within industry to grow organically, and we are seeing some elements of that now. This might have to be the fall back approach, but let us be very clear, what is currently happening is only  a pale shadow of what could otherwise be achieved.

Perhaps we can use this conference as a call to action. We do have to move from talk to walk. My own role, as an industry ‘prac-ademic’, is essentially facilitative. Can New Zealand firms work much closer together to get our wonderful NZ products to Chinese consumers?

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Keith Woodford is Honorary Professor of Agri-Food Systems at Lincoln University. He combines this with project and consulting work in agri-food systems. His archived writings are available at http://keithwoodford.wordpress.com

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Just an interesting figure for today -- 11.11.2015.

Every year 11th of November is called 'Single's Festival' also a massive shopping festival.

Tmall made a revenue of $30 bn RMB ($6 bn NZD) in 1 hr and 20 mins.

$6 bn NZD is a little higher than NZ's total read meat export in a year.

Evidently the Professor wishes this scheme to be taken seriously, to be considered as a professionally conceived business proposal. So let’s do this.

His first point is that it ‘would ideally be facilitated by Government and would involve a Government/private partnership’. Could this be because the government has any particular business acumen? Has any entrepreneurial or business acumen at all? Should be an active business participant in competitive commercial sectors? Unlikely.

So government participation, put plainly, comes down to financial contribution and support. It amounts to a taxpayer subsidy for a number of food companies. (It might be remarked that those in the Professor’s sector, dairying, are already recipients of formidable environmental subsidy, so this would be merely extension of existing support.)

But this is a multi-billion dollar opportunity, so let’s press on. It involves many tens of millions of people having 24/7 online availability and supply of a proposed range of New Zealand food products.

Reliable 24/7 product availability, we know, is required in all credible online trading. However, as the Professor recognises, New Zealand has only ‘one large food company’, Fonterra. (It might fairly be asked, if this is what they look like, whether the country could support another of this style. But that’s another question.)

Recognising the scale opportunity, it appears the Professor fails to understand the essential scale requirements. The fact is, we do not have a multiplicity of companies able to ensure 24/7 availability of food products for many tens of millions of consumers. (We have one, presumably chomping at the bit for such an opportunity.)

We do, however, have a fast growing number of high value, environmentally- or agriculturally-related brands and companies, producing relatively small volumes of premium products. These are 21st century models of value – in environmental care, product quality, and financial returns to owners, in team salaries and wages, and supplier revenue. The dairy industry – dependent of thousands of minimum-waged immigrant workers, a minimum of environmental responsibility, and earnings via capital gain on land sale – provides no such contemporary or future-facing model.

These premium New Zealand brands and products are sought out by discriminating consumers in China and around the globe. (In an auto industry analogy, they are Aston-Martins to Fonterra’s Trekkas.) They are not in the business of massive 24/7 volumes and availability for many tens of millions of consumers. And nor can – or should – they be.

So, in a brief proposal review, this comes down to another attempt at taxpayer ‘rescue’ for the dairy industry – the word most often employed with regard to Fonterra's business strategy in China.

China’s wagging tail dogs global markets

http://www.ft.com/intl/cms/s/0/e0e16f64-870f-11e5-90de-f44762bf9896.html...

http://www.bloomberg.com/news/articles/2015-11-11/china-s-shanshui-cemen..."Chinese companies are starting to default on their debt

A huge Chinese cement manufacturer will default on a 2 billion yuan ($314 million, £207 million) domestic bond on Thursday, as cracks begin to show in the country's mountain of corporate debt.

China Shanshui Cement Group's move to renege on its Chinese debt "will also constitute an event of default" on its 500-million-dollar-denominated bonds due in 2020, according to a report from Bloomberg.

The company is at least the sixth Chinese company to fail to pay back domestic creditors this year, Bloomberg said."

Where would the 6.5% GDP growth predicted by the PRC, for 2016, come from?

It comes from the minds of the desperate speculator ie la la land make believe not wanting to accept the growth for ever model has stopped working.

examples of the intent:

http://www.bankspeninsulafarms.com/

http://www.coastalspringlamb.co.nz/

specific examples of china commerce feedback
BAL
http://hfgapps.hubb.com/asxtools/Charts.aspx?asxCode=bal&compare=comp_in...

BKL
http://hfgapps.hubb.com/asxtools/Charts.aspx?asxCode=bkl&compare=comp_in...

ONC
http://www.asx.com.au/asxpdf/20151106/pdf/432sygxcl4hs41.pdf

Swisse
It was the brainchild of organic baker Kevin Ring, who started selling pollen tablets from his St Kilda naturopathics shop back in 1972. Ring's hand-made vitamin tablets, inspired by a trip to Switzerland in the late 1960s, were soon doing better than the bread, and a little shop under the Suisse brand was opened in Melbourne's suburbs in the early 1970s. Later changed to Swisse for legal reasons, that little shop blossomed into the country's biggest wellness company, and has just been sold to overseas buyers for an astonishing $1.67 billion.

Read more: http://www.smh.com.au/business/retail/swisse-bought-by-hong-kong-company...
Follow us: @smh on Twitter | sydneymorningherald on Facebook

and (corporate niceties aside, just lick the stamp and pull back some FOz earnings).
If you're wondering where all the baby milk formula in Melbourne had disappeared to, this shop in Box Hill may hold some answers.
On a wet Tuesday afternoon, about a dozen people were frantically buying and packing cans of formula to send overseas, either to family and friends or for a tidy profit.
The shop, Australia SFX Global Express, was doing a roaring trade both selling and then shipping the tins of white gold to several Asian countries including China.
The shop also provided cardboard boxes and even suitcases, and tables stocked with tape and packing peanuts, where customers packed up the tins and handed them back to staff to be posted overseas.
There were hundreds of cans of popular powder milk formula in the shop, some still packed in large boxes. In one corner of the shop were parcels of formula that almost reached the roof

Read more: http://www.theage.com.au/victoria/buy-and-post-the-box-hill-shop-milking...
Follow us: @theage on Twitter | theageAustralia on Facebook

Interesting examples of intent etc, Henry. The fact is the days of vast, industrially clumsy, environmentally savage, oil-based produce are coming to a close in terms of sustainability and value capture.

Global niche is the new global value. Just as in the drinks industry, a few very large large conglomerates will emerge, with increasingly extensive brand and product portfolios, but the individual products and brands will address smaller, well-defined, global customer sectors.

These brands and products will stimulate and satisfy discriminating demands for environmental care, ingredients quality and authenticity, and closely reflect chosen, individual lifestyle values. Any other way of looking at things - if we have any interest in premium product reputation and increasing economic well-being - is simply Neanderthal.

Something like Charlies I guess (owned by Asahi and consumed by "pure and authentic" loving Kiwis). If the brand and product formula is compelling enough, then it can be tested in new waters (Charlies was released in Japanese convenience stores as a premium beverage).

"Chinese consumers have to be able to go to one online site and buy all of their guaranteed ‘food from down under’ from that site. It all goes into one online cart and is delivered to their home within 24 hours."

The fossil fuel use/waste to do this is mind bogglingly awful. Let alone the logistics of collecting and delivering food in small packages within 24hours, I think its nuts.

PS NZ fish actually does sell itself btw.

PPS my wife did a similar thing to you in going to china to teach and live and she keeps telling me and most other ppl they have no idea what china is really like, good to see you laying it out.

It's finite, Andrewj, and more immediately pertinent, global climate agreements will mean much of it never comes to the surface (check the crisis in industry valuations). Price fluctuation can't obscure the vulnerability of food production resting on oil-based production.

If only it where quite that easy, but yes all else being equal with no major issues, sure short term low price. I mean with Iran coming back on line, yes the price is going probably to stay low. However such a low price,

a) ignores the disastrous effects on some oil producers like Mexico and Venezuela who need oil to be x2 what it is today to keep the country going. That suggests a re-run of arab spring but in Central America is possible....nasty.

that is the short term.

b) Conventional oil ie peak oil does indeed look to have occurred in 2005/6. The glut we see today is due to un-conventional US shale oil and a collapse in demand. The former will be short lived, time that we have wasted. We live on a finite planet with a finite oil reserve and whast left much of it is probable un-affordable to extract just in $s alone ignoring the CC aspects that is the medium and long term.

So buying something like a farm that has a 25 year mortgage whos payback relies on BAU when we have at most 5 years of cheap oil ahead of us is not the best idea IMHO as the return on an over-inflated asset just wont be there.

that is the long term.

You forgot Canada, it got to hurt and it got a house debt bubble to deal with.

http://business.financialpost.com/news/economy/canadas-ever-growing-hous...

It's an interesting makup of the 'summit' panel for "Maximising our position in China’s global supply chains:"
Dean Hamilton, CEO of Silver Fern Farms, currently being sold out of New Zealand control.
Chris Hopkins, CEO of Scott Technology, currently being sold out of New Zealand control.
Says it all really about what our position really is.

Yes, fascinating, KH. But it doesn't need to be this way. We can follow the ramblings of those whose leadership contributed to our current impasse, or we can get on and create 21st century New Zealand value. The issue is that the problems - environmental and economic - created by continuing last-century thinking, are an increasing handicap to creating enlarged New Zealand well-being. It is never volume or scale that matters. It is value. Increasing volume does not always increase value. It may radically reverse value.

Workingman.... What is your background...??? I really like what you write ... alot of what u say makes sense to me...
Is your philosophy the result of your experiences..??

Are u a retired diplomat...??? businessman..??? Guru..??

A working guy with business interests and a family. Both need a long-term view. Thanks Roelof.

I am not sure a 'strategy' based essentially on a cottage industry model ever really generate real 'value' other than for a tiny handful. Certainly not 'value' that can be nationally significant. Dismissing scale marginalises the impact it could have for the wider community.

Cottage industry? No, David, I don't mean this. Many of NZ's premium businesses have scale or scaleability (I shouldn't have mixed the words scale and volume in a sentence previously. I don't dismiss scale, merely the focus on volume). Their individual and cumulative value is immense, professionally, personally and socially. Swazi, Comvita, Icebreaker, etc - haven't time to list. Just across the ditch, why did LVMH - a group that does understand premium products - buy R.M.Williams? Value. It can be scaled, but it will never be mainstreet volume.

Workingman: Associating the proposal with Fonterra or dairy in general is not correct. Fonterra is possibly the one company who can go it alone. It is all the other food companies, most of which have nothing to do with dairy, who need to work together if they are to gain profile.

Steven: You may well consider it.nuts' but home delivery is increasingly how it works in China. And the Chinese are very good at managing that aspect of the logistics. The fossil fuel implications are probably less than for the Chinese supermarket system. One thing to be very clear on: most NZ companies can never find their way through to the Chinese consumers via supermarkets.
Keith Woodford

Briefly, keithwoodford (I need to move), there are various groups supporting premium NZ producers. Fonterra is the only NZ outfit I can imagine able to promise online 24/7 product availability for tens of millions of consumers. Last, the future for premium products isn't in supermarkets.

Keith...
Have I got this right..?

you are advocating :

A Govt..... or public/private funded agency to handle Logistics, distribution and maybe police the standards and quality of " NZ Inc" products that flow thru that "Channel"... into China..

Is that similar to being a modern day version of the Dairy Board...??? ( the good parts of that )..

OR... maybe a Major logistics / distribution company could create that....
Kinda like an online "Farmers Mkt"...???

Personally I think the idea of "brand NZ" is getting tired. Brands define themselves and are not necessarily associated with national identity. OK, there are some exceptions such as NZ Natural, but even iconic brands such as Canterbury had to put much effort in moving away from that perception. I have no doubt that "NZ Online" can do well as a marketplace, but I keep getting these images of silver ferns, wide-angled pans over mountain ranges, happy / healthy looking people....much like you see at most NZTE, Beachheads, pep rallies across Asia (yes I've been to a few and even presented about local consumer culture).

I think Keith's onto something here but I can't envisage what it might be yet. And one of the most important things he said is " Anyone who claims to be an expert is a fraud."

In response to questions above: I think Government has an important facilitation role. But that does not have to mean a long term equity role.

Some people are cautious of any government involvement, but having Government involvement at the outset can be very helpful in China. Also, Chinese consumers will trust NZ Government certification, whereas they do not trust any private firms.

AirNZ is a classic example of how a government/ private partnership can work - without it we would not have a national airline - but there are other partnership models that can be considered.

In relation to 'NZ Inc' , forget any notion of silver ferns or even green pastures providing the path to salvation. What the Chinese consumer wants is food safety and provenance. She or he does not really care whether it comes from New Zealand or Australia or the USA or Europe. The Chinese consumer works on the basis that if it is a premium brand in one or more of those countries, and if that consumer is convinced that the Chinese version is not fake, then that is good enough.

Now the challenge for nearly all NZ companies is that if a company is working in isolation from other companies then it has no way of becoming visible to these Chinese consumers.

If NZ companies can make it happen by working together without any Government facilitation then well and good. But so far they have not really got past the starting line.

As for the notion that it is infeasible to have delivery within 24 hours, that is the way every other company is going in China. So why is it so infeasible for 'NZ Inc'?
Keith Woodford

Brand New Zealland is just part of our insecurities in my opinion
Our history was founded on structures such as Dalgetys, Borthwicks , Alliance etc and we tend to cling to them
Silly us...
I wanted to quote the wine estates who beat the odds marketing in europe but their ownership structure isnt simple either......but the brands work.
While looking for some new recipies for mussels i noted how many mentioned green lip mussels...from new zealand..
How many billion dollar companies did we need to make our name in that market?
Just saying...