New Zealand exporters struggling to meet Chinese demand for commodities such as milk powder, logs and lamb flaps, should look to market more premium products to an increasingly worldly, wealthy Chinese consumer, according to Shanghai-based economist Mary Boyd.
"Given the importance of agriculture in the domestic economy here and the success that New Zealand has had in promoting agricultural products in China it is really looking at what additional sales can be made and these may not actually come in the form of volume of goods," Boyd told BusinessDesk after a luncheon in Wellington hosted by the New Zealand China Council and the Asia NZ Foundation. "It could be in the form of a 'premiumisation' marketing effort and also extending the range of products that are sold from New Zealand,"
China's emerging middle class has helped drive New Zealand's terms of trade to a 40-year high as the nation gained favourable access to the world's second-largest economy following the 2008 Free Trade Agreement.
China became New Zealand's top trading partner in November last year and annual two-way trade exceeded $20 billion for the first time in May, ahead of the government's 2015 target.
Last year, New Zealand overtook Russia as the biggest exporter of logs to China, shipments of lamb flaps used in Chinese hotpots have risen to a record and dairy farmers boosted production to benefit from record milk prices driven by Chinese demand for milk powder. Analysts have said New Zealand producers are struggling to increase volumes any further to meet "insatiable demand" from China.
The FTA with New Zealand, China's first with a developed country, was "a great accomplishment" and has left the nation well positioned with its access to market, said Boyd, who works for the Intelligence Unit of The Economist and has lived in China for more than 20 years. "The public image (of New Zealand) is a very favourable one. The 'clean green' campaigns have been very effective and certainly in terms of a tourist spot or as a source of clean, green wholesome ingredients, it has been very successful."
However she said New Zealand companies could do more to market top quality products to Chinese consumers, such as premium wines, cheese and honey products and better promote its grass-fed beef to enable it to command a higher price over rival products.
"Are there ways for New Zealand suppliers to be introducing more in the way of value and somehow or another hitting the top end of whatever the product line happens to be," she said. "There is the potential to be adding more in terms of marketing effort. There is scope for value added or a more premium notion of the product."
Boyd said Chinese consumers "are getting wealthier and they are travelling a lot and so their tastes are changing."
"There is an appetite for having a more varied diet, not only in terms of things that they would eat or would experience in restaurants but also that they would be experimenting with in terms of things to have in the home," she said.
For example, she said, demand for imported Scandinavian furniture has been growing in China as consumers are increasingly exposed to global trends from overseas travel and an increased range of local and overseas home décor magazines.
The scale of the country and the strong global competition could overwhelm new companies entering the market, underlying the need for product differentiation and strong brands, she said. With an estimated 1.4 billion people, companies entering China may have to be aware of their production capacity balanced with the need for quality control.
While the Economist Intelligence Unit currently forecasts China's economy will expand 7.3 percent this year, the government will probably bring forward additional investment in areas such as urban renewal and transport infrastructure to ensure it meets its 7.5 percent target, Boyd said.
Next year, she expects growth to slow to a 7 percent pace and growth will probably slow further to about 6 percent by 2018 as the country moves away from the export driven, low-cost, labour intensive manufacturing model that characterised the first 30 years of its economic reform cycle.