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09Aug

China’s challenge shifts with time

China is now the big engine driving New Zealand’s export value and volume for the primary sector, with almost three times the trade there than to the United States. New Zealand has been deservedly proud of the Free Trade Agreement (FTA) signed over a decade ago, the first by any country to do so with China. In that time New Zealand’s exports to China have quadrupled, with China our largest trading partner and two-way trade valued at $27 billion last year.

However, the market today is a more competitive, sophisticated one than it was a decade ago, presenting challenges, but also new opportunities for our primary sector. Richard Rennie recently visited the giant Tier 1 cities of Beijing and Shanghai to see where those challenges and opportunities lie.

When looking at China as a potential market, the biggest mistake to make is to think of it as just that, “China”, a bland large description of a country that is largely the same from one side to the other.

As one experienced New Zealand marketer in China said, it’s a mistake easy to make, and similar to thinking that all of “Europe” is the same under that single umbrella description- but most Kiwis would well know the stark differences between its constituent countries, with the likes of the Germans, Italians and French never for a minute considering themselves anything alike.

And so it is to some extent for China. With its vast distances and five distinct regions, there are major variations among all in food, customs, business practices and even how they speak.

It is quite possible for a businessman from the southern province of Guangdong to need a translator when visiting clients in the northern reaches of Heilongjiang– China most certainly is not a uniform China, this is part of its charm, but also its challenge.

The best move then for a fledgling Kiwi exporter is to break this giant country down into regions, or even better into cities- focussing upon a particular city, understanding that market and working into it accordingly.

Long-time Beijing resident and New Zealander David Mahon frequently offers a perspective on China to media, being generous with his time and his opinions on how the two countries are evolving as trade partners.

He urges firms to do their due diligence very thoroughly, ensure they have the scale to cope and gather as much market intelligence as possible before taking the plunge.

“You have to remember this is a market that has almost quadrupled over this time (of FTA). With that comes a lot more competition, and that includes strong competition from within, from Chinese companies themselves.”

This is becoming more apparent in the dairy sector, with state sponsored dairy companies engaged in massive consolidation of farm to factor operations, often owning the farm milk sources.

This helps achieve the government’s goal of shortening the supply chain from cow to consumer, helping maintain tighter quality control standards and meet consumers’ food safety expectations.

The need for China to continue buying quality New Zealand pasture based whole milk powder is unlikely to diminish, with the infant formula market maintaining strong sales, but competition in the chilled and fresh milk market has grown.

This has come not only from Government efforts to boost consumption of milk as a food dense in healthy components.

It has also arisen thanks to the improvement in infrastructure networks around the larger Tier 1 and 2 cities, where it is increasingly possible to a growing network of app based delivery services shortening delivery times to sometimes under an hour from ordering. Chinese consumers are now ordering up to 50% of all purchases, including food, online, well ahead of New Zealand at under 10%.

New Zealand based Theland Farm Groups whose properties include those once owned by Synlait in Canterbury and Crafar Farms in the North Island is now airfreighting 40,000 litres a week to Shanghai, with plans to increase that to 100,000 litres in the coming year.

Fetching a premium and selling for the equivalent of NZ$14 a litre, the company is leveraging off its “cow and acre” claim as a free range, pasture-based source for the milk.

The company made good use of Chinese social media influencers at its launch from New Zealand in 2017, teaming up with online giant Alibaba to televise the launch to millions back in China.

David Mahon says the ability of New Zealanders to work well with Chinese counterparts, and being highly trustworthy are traits that should not be under-estimated in the enormous market. He points to the efforts by Zespri to correct its problems after its import documentation scandal in 2011 that earnt the company a great deal of respect for its transparency and efforts to improve.

Despite the challenges David continues to see opportunities for New Zealand in China. He sees Manuka honey as one with great potential, but also with a need to consolidate its small producers under one umbrella label, lest they start to cannibalise each other for sales.

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