Saturday, December 2, 2023

Treasury warns of Chinese exposure

Neal Wallace
Exports to China, driven primarily by food and logs, have risen from $2.7 billion to more than $15 billion in the last decade.
Westpac senior agri economist Nathan Penny predicts total New Zealand production will be 0.5% down on the 2022 season.
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China is New Zealand’s biggest single market for dairy, logs, red meat and edible offal and for every month since July 2017 sales have exceeded what we buy from there.

But there are concerns NZ dairy is too reliant on the Chinese market with Treasury sounding warnings the sector is too exposed.

“A single event in either China or the global dairy sector can lead to a substantial change in export revenues,” it said.

In 2000 NZ’s top 10 dairy export destinations each took between 3% and 7% of total dairy trade with China not even featuring.

The 2008 NZ-China free-trade agreement prompted a sharp rise in demand for the next five years but the subsequent discovery of botulism causing bacteria forced Fonterra to impose a product recall and China a temporary ban on NZ milk powder imports, contributing to a substantial decline in export revenue.

Treasury notes that from 1998 to 2008 annual per head consumption in China rose 12%. In the last decade it has fallen 0.3% but is picked to rise 1.6% in the coming decade. 

“Nevertheless, while continuing to maintain and grow our dairy market share in China, from a risk management perspective it would be prudent to expand exports to other markets in order to lessen the dependence on China.”

Treasury sees potential in some European Union markets but concedes access could be an issue.

The Ministry for Primary Industries 2018-19 Situation and Outlook for Primary Industries notes dairy exports to China rose 21.5% in the past year and account for 31% of total dairy export revenue.

“Of the $1.47 billion increase in dairy exports achieved over the previous year, two-thirds of that revenue increase came from China.”

The discovery of African swine fever and subsequent culling of an estimated half of China’s pigs has distorted global meat markets.

“The strong demand recently from the Chinese market for alternative protein sources, such as NZ beef and lamb is partly due to ASF reducing pork production in China,” Statistics NZ international statistics manager Tehseen Islam said.

The biggest beneficiary is likely to be NZ’s beef processing cuts, which are considered a substitute for pork, while sheep meat is a premium niche product, representing less than 6% of consumption and predominantly eaten when dining out.

Such is global demand driven by China, Beef + Lamb forecasts global sales of red meat in 2019-20 will exceed $4 billion for the first time.

MPI says there is no indication of an imminent recovery in China’s pig population.

“Prior to the outbreak 45% of the world’s pork production occurred in China so this decrease represents 12% to 23% of global pork production and 4% to 8% of global meat and poultry production.

“As a result Chinese domestic prices for all meat and poultry have reached record prices, triggering a strong rise in imports of all animal proteins and a rise in meat prices globally.”

Earlier this year forestry exports discovered the risk of having a single dominant trading partner when a glut of logs and timber in China caused prices to fall 17%.

MPI says total forestry exports last year were $6.9b but are picked to fall to $5.8b next year because of persistently low prices leading to lower harvest volumes and log exports.

Chinese manufacturing is sluggish but construction, which uses NZ logs, is not slowing.

China is the second largest destination for NZ kiwifruit, taking 25% of our exports worth $458 million in the year to June 2018, second only to Europe.

According to Plant and Food Research’s Fresh Facts publication, 2018 sales were up on the $365m a year earlier.

There has been a steep increase in horticultural exports to China which were a modest $100m in 2010 but reached $627m in the year to June 30, 2018, making it our fourth-largest customer behind the United States, Australia and continental Europe.

The main products sold to China are kiwifruit, honey, apples, wine, cherries and frozen peas.

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