New Zealand's Marketing Challenge in Asia

New Zealand has a challenge to broaden its Asia markets and agricultural consultant Keith Woodford asks: will New Zealand broaden its Asian perspective, or will China always dominate as a market destination?

Over the last 12 years, we have seen a remarkable increase in exports to China since the Free Trade Agreement was signed in 2008. I recall in that same year, together with a University colleague from Otago University, spending three weeks in China with the CEO and Chair of the Board of a New Zealand meat processing and export company.

Our aim was to introduce the company leaders to relevant Chinese companies, together with exposure to Chinese food-culture, so that this company would better understand the market opportunities.

At that time very little New Zealand meat was being exported to China. The company’s key markets were in Europe, including Britain, and the concern was that they needed more diversity.

The Chairman of the company had a five-year goal that China might be able to take 15 percent of the company’s product at prices equivalent to European prices. It wasn’t so much about wanting to make super-profits, but to reduce risk associated with high dependence on those European markets.

We travelled widely around China in those three weeks, from south to north, and east to west. At the conclusion of the visit, the company was convinced that there was potential to build markets in China. However, any notion that China would become the dominant market, with risk thereby moving from being Europe-dominant to China-dominant, was not even vaguely on the horizon.

It had been 15 years earlier in 1993 while living in Australia that I first led a meat-industry market research trip to China, accompanied by five undergraduate students from University of Queensland. I was a little nervous about letting these students loose, but it was remarkable how well they scrubbed up when given some responsibility.

We did have some excitement early on, when we split into two groups while still in Hong Kong and travelled separately up to Shenzhen on the mainland where we would meet again that night after completing some Hong Kong interviews.

In the meantime, a typhoon struck and Shenzhen was under water. Much of the city was flooded. Eventually, after declining the offer of an entrepreneurial local person who offered a ride on an upturned wardrobe, which for a fee he would push through the waist-deep waters, we managed to hire a boat with an outboard motor to get to our hotel.

Shenzhen in more modern times. Photo: Photo by Robert Bye on Unsplash

It was with relief that we eventually found the rest of our group, as these were the days when mobile phones were a rarity. Reporting back to my University that I had lost three of my students somewhere in China would not have been easy.

On that trip I carried with me a copy of Jung Chang’s recently published book ‘Wild Swans’, which was banned in China at the time, and is possibly still banned now. Wild Swans is the biographical story of three generations of women in a Chinese family. As we travelled by slow train through the Pearl Delta – these were the days before the super-fast trains that now criss-cross China – I asked our interpreter if she would like to read it. Some hours later she returned it to me, with tears in her eyes, saying she could read no more as it brought back such sad memories.

When I first travelled through the Pearl Delta in 1973, I recall Shenzhen as a sleepy fishing village of around 6000 people. By 1993, Shenzhen was a city of several million people, but the Pearl Delta still had broad expanses of rice fields. By 2008, the Pearl Delta was essentially an urban conurbation with around 50 million people.

On that 1993 trip with my Queensland students, we spent considerable shoe leather, visiting wet-markets at dawn and then meeting up with companies later in the day. The key message we brought back to the Australian company sponsoring the research was that we could immediately obtain markets for many thousands of tonnes of offal meats as long as the company could manage the logistics of market entry, but they should for the foreseeable future forget about the so-called prime cuts.

The markets were not ready for that. As for the offals, the Australian meat company responded back to us that the quantities of offal we were talking about were more than the total Australian supply.

I tell those stories here to draw a picture of the dynamic nature and excitement of Chinese markets.  Things change so quickly. As one Kiwi resident in Shanghai said to me more recently, I will come back to New Zealand when I have my first boring day here in China.

As for that New Zealand meat company, with its goal set in 2008 of 15 percent of product going to China within five years, that was easily surpassed.

Then, in 2014 or thereabouts, the Board of the company became sufficiently worried at the remarkable success of their China endeavours that they placed a restriction on the CEO that, on the grounds of risk management, only 35 percent of product could be exported to China.

Soon thereafter the CEO had to go back to the Board and told them that the China markets were sufficiently profitable relative to other markets, especially for mutton forequarters, that the company could not be competitive in the farm-level procurement market under that constraint. And so, the constraint was removed.

To reinforce that message, we are now in a situation some 12 years since that New Zealand company made its first exploratory visit to China, that China is not only New Zealand’s dominant market for sheep products, but also for dairy, beef and timber (See Figure).  Those exports continue to increase each year.

The latest concern, captured recently in commentary to the Wellington Chamber of Commerce on 11 March 2020 by Finance Minister Grant Robertson is that ‘some industries’ had probably become  too reliant on China. 

I have previously suggested that reducing the focus on China is not particularly easy. 

The reality of China is that it has had faster economic growth than elsewhere in Asia and hence that is where most of the opportunities have arisen.

Economic growth combined with urbanisation have been the key drivers.

Trade has also been greatly facilitated by the Free Trade Agreement, and the associated implicit signals thereby sent to Chinese companies that New Zealand was a good country to deal with.  In many ways it has been China that has sought out New Zealand products rather than New Zealand itself developing the markets in China.

New Zealand’s Export Markets ( Source: Ministry for Primary Industries, ‘Situation and Outlook for Primary Industries’, September 2019)

There is a range of reasons why the tide of public opinion in New Zealand has been turning away from China.

COVID-1 has brought those concerns to the surface, first when it seemed that China would be the country to be most devastated by the disease, and then as a focus of international anger as to how the COVID-19 pandemic might have arisen.

The fact that COVID-19 first emerged in China has become a lightning-rod for anger towards China, regardless of the rights and wrongs thereof.

There is an irony in that over the next year or so, and influenced by COVID-19 impacts across the globe, the proportion of New Zealand’s exports that go to China is likely to further increase. I believe this is going to be a source of increasing tension in New Zealand.

Putting aside the issue of politics and risk, both of which are, of course, of major relevance, there is a natural alignment of China and New Zealand in terms of what we can supply and what they want, particularly for animal-based products. With most other parts of Asia, this natural alignment is less strong. This is part of the reason why China has become the dominant market, and why diversification across Asia beings a specific set of challenges.

I started this article by asserting that Asia would be the main focus for New Zealand’s export markets over the coming 30 years. The reasoning behind that statement is simple. Europe and America do not need our food and Africa will struggle to pay the premium prices that we seek. In contrast, Asia has both the need and wealth to pay for those products.

However, there is a broad range of challenges as we broaden our perspective across Asia.

As a starting point, much of Asian wealth is in East Asia. But East Asia has very low birth rates, with the population already in the early stages of a major long-term decline in Japan, and heading that same way over the next thirty years in South Korea, Taiwan, and Hong Kong.  

In contrast, The Philippines is still charting population growth and will continue to do so over that period.   

Regardless of demographics, the days of fast economic growth cross the region are now history.

 - Asia Media Centre