Exporting to China: In it for the long haul

Damon Paling delves into New Zealand’s export achievements in the China market for 2022 and the prospects for 2023.

Through 2022, China comfortably retained its status as New Zealand’s largest trading partner, with bilateral trade in goods and services reaching $40.3 billion, a two percent increase in overall bilateral trade from the prior year.  Exports were worth $21.4 billion, equating to a modest trade surplus. 

China accounted for 15,230 foreign students.  And while the COVID-19 pandemic also impacted on tourism, China still ranked as the 8th largest source of visitor arrivals (16,896) and the 20th largest travel destination for New Zealanders (6,933). These figures are anticipated to rebound strongly throughout 2023. 

Cream of the crop

Whilst the dairy sector continued to dominate overall trade, total exports in this sector decreased by 1.6%, coming in at $8.3 billion. Within this overall decline, some products experienced noteworthy changes. For instance, milk powder exports fell by 29%, coming in at $3.5 billion, and ice cream exports followed suit with a 29% decrease, coming in at only $17 million. However, some dairy products emerged as clear winners. Butter exports surged by 62%, reaching $1.2 billion, liquid milk and cream exports grew by 13%, reaching $1.1 billion, infant formula exports saw a 39% growth reaching $1.1 billion, cheese exports increased by 29% reaching $681 million, caseinates exports grew by 53% reaching $469 million, lactoferrin exports grew by 30% reaching $122 million, and whey exports grew by an impressive 90%, reaching $117 million. 

New Zealand remains the leading supplier of dairy products, holding a 46% market share. The Netherlands, Australia, and France collectively enjoy a 29% market share.  All going to plan consumer demand will drive economic growth in 2023, spurred on by increased urbanisation and confidence at a household level across Tier 1/2/3 cities.  A healthy aging Chinese demographic ought to continue to open new opportunities in the dairy sector.

From the hill country to the hotpot

Meat exports increased by 5.3%, reaching an impressive $4.1 billion. However, a closer examination of the numbers reveals a mixed picture for specific products. Lamb and mutton exports declined by 23% coming in at $1.6 billion, while beef exports surged by 36% reaching $2.1 billion. Animal offal and deer exports also experienced steady growth, reaching $373 million and $43 million, respectively. Despite these gains, New Zealand remains a distant fourth among global meat suppliers, trailing Brazil, the United States, and Argentina, which collectively dominate 55% of the imported meat market.  However, New Zealand retains a differentiated natural grass-fed proposition that is resonating well with Chinese consumers.  On a side note, exports of antisera, a blood serum containing antibodies against specific antigens and other blood fractions grew by 51%, reaching $56 million.

The sweet and sour of fruit and vegetables

Fruit exports enjoyed a positive trend, realising an overall 8% increase by reaching $868 million. However, this was not the case for all fruit sub-categories, as green kiwifruit exports declined by 34% to come in at only $59 million, while gold kiwifruit exports grew by 3.4% reaching $586 million. Apple exports saw a significant increase of 54% reaching $199 million. Cherry exports also grew with modest returns achieved. Pear exports grew off a low base reaching $7 million. Unfortunately, avocado exports only came in at a paltry $1 million, a disappointing result considering that it has been over five years since market access was first secured. New Zealand ranks as the fifth largest supplier of fruit to China, lagging Thailand, Chile, and Vietnam, who collectively account for 55% of the imported fruit market.

While the positive growth trend in fruit exports is encouraging, domestic growing conditions could present supply-side constraints that negatively impact growth in 2023. That said, New Zealand can continue to leverage its strengths in quality, sustainability, and in-market commercial relationships to ensure continued success in this sector.

Vegetable exports have taken a bit of a hit, dropping by 15.6% and coming in at only $39 million. The leguminous group, including peas and beans, were the real movers and shakers of the vegetable trade. Unfortunately, pumpkin exports continued to plummet and only managed to rake in a measly $2 million. New Zealand is ranked as the 10th largest supplier of imported vegetables to China. Thailand, Canada, and Myanmar are snatching up a whopping 78% of the imported vegetable market.

Charting the seas of success

Seafood exports bucked the trend of pandemic-induced disruptions in global trade, with a 16% increase in total value reaching an impressive $710 million. Live rock lobster remained the dominant species, which grew 14% reaching $375 million. Frozen fish exports grew 30% reaching $147 million and squid exports grew 30% reaching $76 million. Surprisingly, mussel exports declined 34% to come in at only $26 million. Prices generally held firm across all species. Despite ranking only as the 10th largest supplier of seafood, New Zealand’s ability to navigate the complex and ever-changing global seafood trade highlights the country’s expertise in this sector. On balance, this is a remarkable outcome, particularly given the severe pandemic restrictions that were imposed across several cities, most notably Shanghai. Ecuador, Russia, and Vietnam collectively captured 43% of the imported seafood market.

A fleece squeeze

Despite being an iconic industry, wool exports have been facing challenges in recent years. The latest figures showed a 1.1% decline in exports to China, coming in at $156 million, a far cry from the peak of $459 million in 2015. Australia, on the other hand, continues to dominate the imported wool market in China, leaving New Zealand trailing in fifth place. Some of the decline long-term can be attributed to factors such as changing global economic conditions and manufacturing value-chains.

Logging off

Forestry exports experienced a 6% decrease to come in at $3.6 billion, with the trade being primarily dominated by untreated logs. New Zealand ranked as the 6th placed supplier of forestry products to China, with other countries such as Brazil, Russia, Indonesia, and the United States taking the lead in the imported market. Recent wild weather in New Zealand has now placed the spotlight on navigating climate change and rolling out sustainable forestry practices at home.

The Great Wall of wellbeing

While the bees were busy tending to the trees, the export numbers for honey to China have unfortunately taken a hit, decreasing by a staggering 34% and settling at a troubling $59 million. This is quite a sharp drop from the impressive $95 million that we saw in 2020, which was largely attributed to the Covid-19 immunity wellbeing boom. Mānuka honey continues to reign supreme, making up a whopping 88% of the total honey exports.  Most of the honey exported was mono-floral, with only a minority being multi-floral.

Despite being the largest supplier of honey to China, accounting for a massive 80% of the imported honey market, there’s still cause for concern. The compound annual growth rate for the mānuka honey category has been disappointingly low for several years now, and this begs further investigation. With post-Covid health being touted as the new wealth, one has to wonder if consumers are looking to adjacent categories for their wellbeing solutions. It’s crucial that we delve deeper into the consumer mindset and see what we can do to meet their evolving needs. Let’s strive to adapt and innovate, so we can keep up with the changing trends and continue to make a mark in the highly competitive wellbeing market.

On a similar note, the export numbers for beauty and personal care products have also taken a bit of a dip, decreasing by 28% and coming in at only $31 million. However, there’s a shining star in this dim situation, with oral care products bucking the trend and growing by a whopping 64%, raking in $6.2 million. Japan, France, and South Korea continue to dominate China’s beauty and personal care imports with a combined 63% market share. It’s a bit of a déjà vu moment, as despite almost 15 years of effort, New Zealand’s beauty and personal care offerings just don’t seem to have struck a chord with Chinese consumers’ personal preferences. Perhaps we should take it as a challenge to step up our game and come up with new and exciting ways to woo the Chinese market with our fantastic beauty and personal care products.

On a positive note, miscellaneous food preparations, such as health supplements, health care foods, functional foods, snacks and the like grew by 8.5% reaching $173 million. New Zealand ranked a surprising 10th largest supplier of imported food preparations to China, with the United States, Australia, Germany, and Japan dominating the imported market.  A route to market of only cross-border e-commerce may impede growth for certain subcategories within food preparations. Registration for General Trade, new product development, and engagement of highly motivated in-market partners, could serve as a catalyst for further revenue growth.

The sparkle fizzled out of beverages

Despite the growing popularity of craft beer and wine globally, New Zealand’s beverage exports have struggled to find their footing in the Chinese market. In 2022, beverage exports saw a significant decline of 18% coming in at only $52 million, with wine, water, and juice exports being hit.  For context, the imported beverage market fell by a modest 11%. Despite years of efforts to promote the value proposition of New Zealand wine, it seems to have limited broad spread appeal amongst Chinese consumers. In addition, the controversial issue of water ownership and commercial exploitation has made it challenging to scale up exports of New Zealand’s pristine water to international markets, including China.   

Perhaps the export of beer hops, with their unique range of flavours and aromas, for use in limited edition craft beer brewing within China, may offer a more commercially viable option than bottled craft beer exports. As the beverage market continues to evolve, exploring innovative and sustainable solutions for tapping into the Chinese market may well be the key to success.

A fido and fluffy feast

Pet food exports enjoyed a 27% increase, reaching a total value of $129 million. Dominated by cat food – which grew 33% reaching $86 million – and dog food – which grew 21% reaching $41 million – these sub-categories saw gains in both quantity and price, reflecting the growing demand for high-quality pet food. New Zealand has emerged as the 4th largest supplier of imported pet food, behind the United States, Canada, and Thailand. This was a feat made possible through the efforts of the Ministry of Primary Industries, New Zealand Trade & Enterprise, and the hard work of pet food exporters in building brand and engaging pet owners.

With China’s pet food import market growing at around 15%, New Zealand’s pet food industry is well-positioned to benefit from this trend. As pet owners in China increasingly prioritise nutrition and quality for their furry friends, New Zealand’s delicious and nutritious pet food products are sure to continue satisfying the palates of beloved cats and dogs across the country.

The final stampede

The export numbers for live animals have seen a positive uptick, increasing by 14% and reaching a total of $381 million. However, animal advocates will soon have reason to rejoice, as the export of livestock by sea to all markets will come to an end on 30 April 2023.  It remains to be seen if small volumes of sheep or goats will still be airfreighted to China. Regardless, New Zealand will be ceding its position as the second-largest supplier of live animals to China. The likes of Australia, Uruguay, and Chile may be poised to pick up the slack. However, might any newly elected government in October 2023 overturn the ban here? If so, debate will be rife on how best to balance animal welfare and sustainable mutually beneficial trade.

Resilience

China remains New Zealand’s leading export destination for dairy, meat, seafood, fruit, wool, forestry, and pet food.  Beverages, beauty and personal care, vegetables, mānuka honey, and miscellaneous food enjoy greater international market diversification. New Zealand and China retain a strong trade relationship built on mutual respect and in December 2022 political and business leaders from both nations marked 50-years of diplomatic relations. The April 2022 upgrade of the original 2008 bilateral Free Trade Agreement underscored the commitment of both parties. Whilst there have been some tensions and challenges the two countries will hopefully continue to navigate the relationship in a way that advances their respective interests. Chinese investment into the dairy and meat sectors ought to provide assurances for continued market access. 

Economic outlook

The Chinese People’s Political Consultative Conference (CPPCC) and 13th National People’s Congress (NPC) during the recently concluded ‘Two Sessions’ meeting in the Great Hall of the People in Beijing signed off on a 5% GDP target. In the long term, China’s economy is expected to continue to grow at a moderate pace, driven by factors such as urbanisation, an expanding middle class, and an increase in domestic consumption. However, there are also some potential headwinds. For example, for the first time since the 1960s, China’s population is shrinking. The state pension system will struggle to handle the unbalanced ratio of older adults to a declining working population. Whilst Beijing is managing State-led investment and cleaning up the bloated real estate sector with a falling working population, declining birth rates, and declining family numbers, structural reform is going to be key.

Damon Paling is now an Auckland-based NZTE Beachheads Advisor for China. Email [email protected]