It took more than fifteen rounds of negotiations, but a free trade agreement (FTA) between New Zealand and China finally came into force in October 2008. New Zealand was heralded a pioneer, being the first developed country to sign an FTA with China.
Since 2008, trade between China and New Zealand has flourished, and China has begun to account for a growing proportion of total New Zealand exports. Between 2007 and 2014, total New Zealand exports to China increased by over 400% or NZ$8 billion. On the flipside, Chinese imports into New Zealand grew by 55% between 2007 and 2014, reaching NZ$8.7 billion in 2014. China has grown in prominence, becoming a leading trade partner for New Zealand. In 2007, China accounted for a mere 6% of all New Zealand exports; this has grown to 21% in 2014.
Dairy: A success story
The real success story of the China-New Zealand FTA has been the New Zealand dairy sector. New Zealand dairy export value sales grew by over 1000% between 2007 and 2014 to reach NZ$4.3 billion in 2014. Indeed, dairy accounted for 44% of all New Zealand exports to China2 in 2014, up from 20% in 2007.
Whilst there has been growth in all dairy categories, milk powder remains the most heavily traded dairy export from New Zealand to China. Milk powder accounted for roughly 85% of all dairy exports in 2014; however, exports of cheese, butter and fresh milk, whilst still relatively niche, are growing in prominence. Growing demand for Western fast food in China has driven Fonterra Cooperative Group Ltd’s diversification into mozzarella within the country, targeting fast food operators like Pizza Hut and Domino’s. Likewise, several New Zealand companies have begun to supply fresh milk to China. Green Valley Dairy currently supplies fresh milk to six companies, including Oravida and Agribusiness New Zealand, who in turn export up to 10 tonnes of fresh milk a week to China. Not even the botulism scare in 2013, or the 1080 threat in 2015, were enough to put a long-term dent in exports to China. In addition to the growth in exports, the FTA has also resulted in increased bilateral investment in the agricultural sector. The FTA has made it easier for New Zealand and Chinese companies to build or purchase farms in either country. Fonterra has made several farm investments in China, starting with its Tangshan Farm in 2007. Fast forward to 2015, Fonterra now possesses farming hubs in Yutian County, Hebei Province and Ying County, Shanxi Province. Moreover, Fonterra recently entered into a strategic alliance with Abbott Nutrition International, a large player in China’s infant formula and nutrition market, with plans to create a new farm hub in China.
Similarly, there has also been Chinese investment in the New Zealand dairy sector, including the high-profile acquisition of the former Crafar family farms in 2012 by Shanghai Pengxin Group. Nonetheless, Chinese investment in New Zealand has been met with disapproval in some quarters. New Zealand real estate firms have reported growing interest from Chinese buyers for residential property in Auckland and during early 2015 this trend triggered fierce debate about foreign investment in New Zealand.
Looking forward: What’s in store for the future?
The future looks bright for the New Zealand dairy industry with trade agreements currently in place with China, Malaysia, Thailand, Singapore and other ASEAN countries. Looking forward, New Zealand dairy companies are expected to move away from a focus on commodities / ingredients towards value-added goods such as infant formula and sports nutrition. Key growth opportunities include fortified / functional products, as well as those products that offer ethical / environmental credentials. While China has rapidly become a major trading partner, it is likely that the New Zealand government will be looking to the TPP to open up opportunities in Japan, Canada and the United States, with the hopes of spreading its export dependence across several countries.
To learn more, download Euromonitor international’s white paper: “An Introduction to Regional FTAs in Australasian Markets: Business Perspectives from India and China”.