New Zealand commodity prices are likely to feel downward pressure over the year, says ASB senior rural economist Nathan Penny.
This estimate, from the Chinese Ministry for Agriculture, is one example of how the gap between supply and demand for food and other primary products is expected to continue there, Knox says.
China is by far the largest market for New Zealand primary sector products, taking 25% of our exports, he told the Infant Nutrition Council conference ‘Feeding the Future’ held recently in Auckland.
But Knox warns that NZ is facing issues in China in terms of the “airtime” we have with our counterparts.
“When we signed the Free Trade Agreement (FTA) with China in 2008 we were the first country to do so; that was great, we had lots of airtime then. There are now over 150 countries that either have an FTA or are negotiating an FTA with China.
“So our counterparts in [China’s] regulatory agencies are being inundated with other [countries’ demands] to do the same things we’ve done.
“So we have to think about how we use the airtime we have with our counterparts in China in the best possible way. We need to focus on reciprocity – win-win outcomes; you hear it all the time up there.
“It doesn’t mean this product for that product but it does mean we need to find ways of ensuring China gets some benefit out of the relationship and it is not just one way. We do that with a lot of cooperation activities with China and they value our technical expertise and knowledge.”
Trade growth has been significant, particularly since the FTA was signed.
“We expect that growth to continue, albeit not at the same pace and perhaps with a wider diversity of products.”
Chinese consumers continue to increase in wealth and purchasing power.
“The gap between what they can produce domestically and what they consume continues to grow. While we constantly hear a lot of noise about imports damaging domestic production of dairy products in
China, it is clear they will never be able to produce sufficient to meet their demand and that is going to continue.
“So we see significant opportunities for growth in value and range of NZ products into that market and we will continue to work hard to support business and companies to do that.”
There is certainly risk in this market, he says.
“We aim to get as much advance warning of thinking and change as might be in the wind.”
There is a massive shift towards dealing with some of the environmental damage that occurred during the industrial period of China’s growth.
“I think we are going to see a massive shift in emphasis by the Chinese government to lift environmental standards to produce products in a much more sustainable way.”
Organic production is on the rise in China and it is seen as a very important part of the agricultural agenda there.
“We are seeing significant generational change in attitudes toward food purchasing and consumption… an increase in protein consumption, a growing diversity of products.
“The origin, safety and authenticity of food is absolutely critical to Chinese consumers.”
Longer term, the sustainability of the production of that food will also become an issue the Chinese consumers are focused on, he says.
The other big change is the channels used to purchase product. E-commerce is a significant part of the environment in China, which is continuing to deepen and strengthen its regulatory systems.
“The infant formula industry has been at the forefront of that; but it is across the board that China is looking to lift its standards,” he says.
“And not just in relation to safety: product quality, authenticity and truthfulness in labelling are big focuses for them. Domestically there is big emphasis on proven compliance with standards; they have a long way to go, they admit that themselves.”
Knox says in his view the mobile phone is the most important shop for Chinese.
“They use it for almost everything, pay for everything, cash is almost non-existent… half the places don’t even accept credit cards anymore.
“There is a huge appetite for technology. We need to ask ourselves, are we well positioned to respond to that change and what is coming next? I don’t know, but it is going to be technology based.”
Technology is king in the China market and it is something NZ exporters need to think about.