The case for a look east trading Policy: Eldrede Kahiya suggests that Latin America will be an important alternative export destination for New Zealand.

AuthorKahiya, Eldrede

New Zealand is one of the biggest beneficiaries of the unprecedented growth in South-east Asia over the last 50 years. Between 1970 and 2016, Singapore's GDP grew 150-fold, Indonesia's 95 times and Malaysia's 74 times. (1) With this growth has come lucrative opportunities to serve a burgeoning segment of middle class consumers. To ensure such opportunities are there for the taking, New Zealand negotiated free trade agreements as a way of creating market access for exporters. Key deals encompassed the ASEAN-Australia-New Zealand free trade agreement in 2012 and bilateral free trade agreements with Singapore (2001), Thailand (2005), China (2008), Malaysia (2010) and South Korea (2015). The impact has been immediate: post-free trade agreement, exports to China grew by 1400 per cent, reaching $15 billion in 2017, while Indonesia, Malaysia and Singapore are just a tick above $1 billion. Food and beverages (milk, butter, cheese, beef, lamb, wine) account for the bulk of these exports.

There is some disquiet about an eventual economic slowdown in South-east Asia. While a widespread economic downturn is not looming, there are indications that the current trajectory of growth will last another decade before tapering off. It is imperative for New Zealand to wean itself off the dependency on this growth or, at the very least, future-proof its export initiatives against an eventual slowdown. This comes against the backdrop of 'peak cow'--the notion that dairy intensification has reached its apex and that further intensification creates diminishing returns. Broadly, it denotes the perspective that New Zealand can no longer make any sustainable gains from agricultural production without instigating adverse effects. (2) Its tenets go beyond the 6.5 million cows and embrace much of agricultural production. (3) Projections by the Ministry for Primary Industries provide anecdotal evidence for the potential ramifications of 'peak cow' and an economic slowdown in Asia. The growth of several primary sector exports (for example, butter and cream, milk powder, kiwifruit, beef and veal, lamb and mutton and wine) will flatten over the next five to ten years.

The timing could not have been worse as New Zealand has announced a series of ambitious national export strategies. Starting with 'Building Export Markets' (2012), the government proposed an audacious export strategy aimed at lifting exports to 40 per cent of GDP by 2025. The plan demands a sustained annual growth rate of 5-7 per cent. Based on nominal values, exports should double from $65 to $130 billion to meet this goal. Indications are that New Zealand has fallen off-pace by as much as $10 billion. (4) 'Building Export Markets' has morphed into 'Trade Agenda 2030', and currently there is a drive towards fostering a more balanced 'Trade for All Agenda'. Regardless of the specific shape the trade policy takes, the need to grow exports remains paramount. The task is set to become more pressing as growth in Asia tapers off and the export value New Zealand extracts from primary sector production plateaus. If not food and beverages to Asia, then what?

Four combinations

To assess the growth options for New Zealand exports, one should consider market- or product-led approaches. Four such combinations exist:

(a) getting more from current products in current markets;

(b) introducing new products to current markets,

(c) targeting new markets with current products, and

(d) selling new products to new markets.

For illustration, current products denote food and beverages, while new products represent other sectors. Likewise, current markets signify South-east Asia and new markets denote other regions of the world. In light...

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