WORDS BY RICHARD RENNIE
Many older farmers today will well recall the anger and frustration expressed by many New Zealanders in the early sixties when the United Kingdom announced its decision to enter the European Economic Community (EEC), a precursor to today’s EU.
It signified a parting of the traditional ways between the “mother country” and its colonial offspring, and with it a slide from about 60% of this country’s export produce sold there to only about a third by the time Britain entered in the early seventies.
Fast forward 30-plus years, and New Zealand’s dependence upon a single major trading partner has well replaced United Kingdom with China, with that country accounting for over 30% of export income in 2022.
The Chinese appetite for sheep meat and milk powder in particular grew almost from the initial signing of the Free Trade Agreement in 2008. It also came at a time when other markets, particularly for lower value meats were looking particularly vulnerable.
It bought higher value earnings for large volumes of traditionally low value cuts like flaps and shanks in the sheep meat trade and has done much to maintain and boost income for sheep farmers in the past 10-12 years after dire declines in profitability.
Delicate diplomatic dance
But since the FTA with China was signed in 2008, global geopolitics have shifted with China’s rise in power causing tensions with United States, and risking having New Zealand fall into dangerous ground between the two.
It’s a risk NZ has stepped delicately and expertly around over the past few years, with tacit acknowledgement in diplomatic circles that should a dreaded standoff occur between USA and China, NZ will inevitably have to take a side.
A year ago, then PM Jacinda Ardern noted China’s increasing assertiveness and willingness to challenge international rules, comments the Chinese promptly said were unhelpful and “regrettable.”
This all makes the past few years of behind-the-scenes diplomatic efforts to secure more free trade agreements all the more timely, as New Zealand has worked to tie down some valuable agreements with emerging developing nations in South-East Asia, and well-developed one-time trade foes, in the European Union.
FTAs help open options
The signing of the NZ-UK FTA renews those traditional ties with the mother country that cut NZ loose all those years ago.
The Ukraine war has sharpened minds throughout Europe about trade relationships for food security, and in for the United Kingdom it is also buoyed by its need to carve new relationships in its new post-EU world.
In the case of developing South-East Asian countries, the emergence of wealthier middle classes seeking quality protein as they shift from a high carbohydrate grains-based diet to a more traditional Western profile presents new opportunities through the free trade agreements that have been forged.
After the Trump presidency scuttled the Trans- Pacific Partnership deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) rose from the ashes, backed by 11 nations including New Zealand and sanctioned in 2018.
It eliminates tariffs between Australia, Canda, Japan, Mexico, Singapore and Vietnam with Brunei, Chile, Peru, and Malaysia also now on board.
Alongside it, in another rash of acronyms, the Regional Comprehensive Economic Partnership (RCEP), was signed in late 2020 and effective from last January.
The RCEP encompasses a third of the world’s population, including seven of New Zealand’s top 10 trade partners.
Asian market widens
Countries include Vietnam, Thailand, Laos Cambodia, Malaysia and Indonesia, alongside traditional trade partners China, Japan, and South Korea.
Between them these agreements hold some exciting potential for New Zealand primary producers wanting to diversify their market portfolio and maintain value for their products.
Veteran trade negotiator Stephen Jacobi says the time is ripe for Kiwi primary produce exporters to consider their opportunities in these markets.
NZ is already enjoying an uptick in trade with Indonesia, with exports to the year ended June 2022 up 21% and totalling $1.63 billion putting the populous island state at ninth in export value.
He says opportunities in markets like Indonesia are not about “China minus”, but more about “China-plus”. They provide exporters with a valuable way to de-risk any undue reliance upon China, whilst still remaining relatively close to home.
For a country that only has the ability to feed 25–30 million people in the world, the population figures for such markets are dizzying. Indonesia alone is a market of over quarter of a billion people.
But the ability to expand the portfolio of tariff free, or lower tariff markets can also help primary exporters balance out the inevitable challenges that go with selling seasonal products, particularly those sourced from livestock.
The traditionally high value markets of the European Union for high value cuts of chilled sheep meat are well recognised and appreciated. The EU and UK account for about 50% of New Zealand’s high value chilled lamb trade, with China accounting for less than one percent.
However, the Chinese market has come to help provide a balancing market as a source for the lower value cuts in frozen form. Such opportunities can also be developed in other South-East Asian markets with the advent of the trade agreements.
As markets like this open up and become wealthier, the FTA between New Zealand and the EU opens up, with an additional 38,000t a year of sheep meat, with zero tariff seven years after signing.
Similarly, the UK FTA moves from allowing 35,000t a year of sheep meat to year four after signing, jumping to 50,000t a year after that with zero tariff by year 16.
Beef is also a winner with the yearly quota jumping from 3300t to 10,000t a year in seven years, with 7% tariff.
At present New Zealand is only exporting about 1200t a year of beef to the EU, but thanks to a well-established chilled lamb trade the infrastructure and skills are well developed to push that further to an aging market seeking quality, low fat, high protein meat cuts suited to smaller households.
MPI director Ray Smith labelled the United Kingdom as an opportunity more exporters needed to recognise, one often dismissed on grounds it was a market that was simply too hard and too distant to deal with, often complicated by its ties to the EU.
He said a good target would be to get the UK to 10% of export value in coming years to “even up the trade ledger a bit.”
At present the UK separate to the EU accounts for only 2% of export trade.
South Korea a sign of markets to come
South Korea provides an example of how New Zealand primary producers are starting to see benefits from FTAs and broaden their portfolio.
Signed back in 2015, the agreement contained progressive rollbacks of some of the world’s most punishing tariffs so that by 2030 all products will be tariff free.
Prior to the FTA, kiwifruit growers faced a whopping 45% tariff that was estimated to cost every grower about $4000 a year. Today the fruit is touching 800,000 trays a year of export sales with a trajectory that could see Zespri being the largest fruit company in South Korea by 2027, surpassing even US giant Dole as sales continue to surge.
South Korea provides a signal to what other developing South-East Asian markets could mean for New Zealand food producers as diets shift and aging demographics kick in.
Last year was the first year in South Korea annual per capita consumption of rice at 53kg was exceeded by meat consumption, at 55kg with protein pushing firmly ahead of carbohydrates in the national diet.
In an aging population where over 65’s are focusing on aging well, dairy is finding its footing as a valuable protein supplement ingredient in drinks and foods.
After totalling $210 million in exports in 2015 today dairy amounts to $350 million, surging 64% in only five years with continuing strong growth prospects in a high value ingredients market.
An opportunity also exists for high quality chilled red meat exports to a market seeking a lean, low-fat option in a market dominated by heavily marbled, grain fed US and Australian beef. Post covid it has been dairy, kiwifruit, and meat that have pushed the market’s export value to $2.8 billion in year ended June 2022.
While China will continue to dominate New Zealand’s primary exports for years to come, New Zealand’s proximity to many other growing Asian markets with free trade provide a good balance to agreements also now in play with their wealthier, established European and UK counterparts.