Agribusiness and Trade: The opportunities of scale

David Boyle, chief executive of Primary Collaboration New Zealand. Photo / Supplied

Irrespective of the time it is taking the Chinese economy to fully reboot in the wake of the Covid pandemic, the sheer scale of market opportunities in China is too great for New Zealand firms to ignore.

Close to 50 per cent of such firms trading with China plan to increase their Chinese investment footprint over the next three years.

That is one of the key findings from a survey of New Zealand companies trading with China.

The inaugural Business Outlook survey by the New Zealand Business Roundtable in China (NZBRIC) will be formally released in Shanghai later today.

From preliminary results released at last month’s China Business Summit — and at an earlier Shanghai function for the Prime Minister’s China mission — the trend is clear.

Nearly 95 per cent of the New Zealand companies surveyed feel that the scale of the opportunity in China is important to their future prosperity,” says David Boyle who is chief executive of Primary Collaboration New Zealand.

“Growth is a major motivator for why we’re trading,” says Boyle. “The second major motivator, of course, is market profitability.

“I don’t think it’s any secret that some of the best prices and the best margins for New Zealand companies can be achieved in China.

“That is testimony in no small part to the quality of the products and services that we’re selling in China.”

The strength of channel partner relationships and the ability to use local manufacturing also figured.

The roundtable set out to gauge the Chinese business environment from representatives of New Zealand companies trading with China. How did they feel coming out of Covid-19? And what was the temperature around the bilateral relationship between New Zealand and China?

The survey found geopolitics was the second biggest investment risk, second to growing domestic competition. Not surprising, given the lengthy trade war between the United States and China.

But the survey underscored firms were looking to the New Zealand Government to maintain a cordial working relationship with China.

The firms offset geopolitical risk against the ability to access such an enormous market. Other perceived risks included regulatory change, and the regulatory environment.

Some 46 per cent of the companies surveyed were food and beverage companies; professional services comprised 18 per cent.

“Unsurprisingly, given who we were surveying, 73 per cent of those companies were exporting from New Zealand to China,” explained Boyle. “There are vital two-way trade components. Two of our biggest importers also featured, The Warehouse Group and Mainfreight.

About a quarter of the New Zealand companies surveyed have 20-40 per cent of their revenues from China.

“I don’t think I’m giving away any secrets, if I mention that Zespri and Fonterra, two of our biggest companies, are in that group,” Boyle told the China Business Summit.

Zespri kiwifruit. Photo / Supplied

He adds 81 per cent of the companies have China in their sights as one of their top three trading destinations, or working in a bilateral relationship: “Now that’s really quite significant and it still speaks to the competency that New Zealand business has in China.”

The lengthy Covid pandemic accelerated the move to online platforms in China.

“Competing in China now means embracing e-commerce.

“The transformation and buying habits in China has been phenomenal in the last three years because so much of Chinese consumerism was conducted or converted over to online, and that was significant,” says Boyle.

“The second thing is about localisation. This is a very important part of the changing landscape of China. And the third area is expansion into the second, third, and fourth tier cities.”

Boyle believes companies need to dig deep into changing tastes. “If we get there, then we’re going to continue to be successful.

“There’s so much that China has changed in the last year and in the previous three years, that staying very intimate with the Chinese consumption tastes is really, really important to the success of our companies.

But it is not all rosy.

The survey disclosed that a majority of New Zealand companies surveyed have seen evidence of China’s Covid-19 economic rebound in their financial results. but a significant proportion, 44 per cent have not, and only 9 per cent of companies have seen growth or recovery rates above 20 per cent year-on-year.

Rising labour and input costs also figure as challenges — not simply increasing competition from Chinese companies (see graphic). This is impinging on profitability.

Some 21 per cent of survey respondents relied on China for 80-100 per cent of their global revenues in 2022, and an extra 15 per cent relied on China to contribute 60-80 per cent of 2022 revenue.

Many companies more reliant on China were small- to medium-sized enterprises.

Boyle explained to news media that in China, health, nutrition, well-being and protein became a focus for consumers during lockdowns but gave local brands the chance to grab market share off foreign competitors. “Local suppliers were able to adapt way faster than foreign exporters and we saw competitive rivalry rising very quickly from local suppliers.”

Supply chain issues added to these opportunities as it started to get more difficult for foreign goods to be brought into the country.

“If you didn’t have control of your supply chain somebody else was taking your space on the shelf, or they were able to grab market share,” he told reporters.

Irrespective of all these challenges, 35 per cent say China will remain the top priority in their organisation’s global investment plans with a further 46 per cent saying it will be one of the top three.

Importantly, more than 60 per cent expect their company’s total investment in China to increase over the next three years; just under 25 per cent per cent say the increased investment will be significant — more than 20 per cent.

Dynamic, innovative: Major China insights

1 China is big, dynamic, fast changing and innovative, and presents many opportunities to grow.

● There is a consumer commitment to health and a Government commitment to sustainability, with both a vibrant youth culture and the emergence of the biggest elder population in the world.

● We need to understand the nuances of all these different niches, markets and trends.

● And this is a China (and a New Zealand) that is hungry to re-engage and to reconnect. This reconnection requires relationships among people, long term, and is dependable on face-to-face dealings.

2 Overall, there is a strong realisation of how well NZ Inc, public and private can work together. When we go offshore together, we unite around a common cause.

● Within this we have strength in diversity. Diversity of people, sectors, cultures and approaches.

● We realise and appreciate the strength of the diplomatic platform that has been built up over previous and current generations and governments.

3 The clarion call is that we grow with China, not just sell to China. We are not just trading, we are partnering and sharing for mutual benefit. This has delivered a lot so far.

China Opportunities: With big scale comes big opportunities

1 This is not just one opportunity, but many:

● Young vibrant Chinese consumers demanding new experiences, an aging population that needs to be fed and entertained.

● The Chinese Government drives some of these opportunities. We can map ourselves to “Healthy China by 2030″, and “Net Zero by 2060″, etc.

2 We have some superpowers that we can bring to bear on these opportunities:

● Brand NZ is strong. But it could be stronger. We need to lean into storytelling and narrative at all levels. We need to bring our nuance and our niche-facing company brands (PikPok, Rocketwerkz, Les Mills) within the overall halo of the country brand. Provenance by itself will not deliver. We are still under-invested in this area.

● We have good synergy across our sectors, with lots of opportunity for collaboration and cross-fertilisation. Tech, Gaming, Fitness and services innovation can rub off on Food and Beverage, which can teach others how to scale etc. How might we systemise this collaboration?

● We have an essence about us that is good to deal with. Pono (integrity), Tiaki (Care) is who we are. This underpins our relationships and provides a platform to drive further reach.

● We have a strong public/private/New Zealand/China platform which is carefully balanced and calibrated, and will continue to need attention and investment over time.

Les Mills CEO Clive Ormerod formed these insights from the Prime Minister’s mission to China in June 2023.

NZBRIC

The New Zealand Business Roundtable in China (NZBRIC) was formed in August 2018 by a group of like-minded businesses to promote New Zealand’s business interests. It’s been described as a “defacto Chamber of Commerce”.

The foundation members are Fonterra, Zespri, Silver Fern Farms, the Warehouse Group and Primary Collaboration New Zealand. Corporate members include: Synlait, The Beauty Lab , Red Seal. UMS, Achernvr, Richoard, MitoQ, Grin Natural and Tatua.

MFAT and NZTE are also aligned.