Agribusiness and Trade: 'Imaginary alliances' do our trade no good

Despite Chinese competition from NZ SunGold vines, Zespri can secure its brand's endurance when it builds its own presence in the Chinese industry. Photo / Supplied

There are always good arguments for trade diversification, but for a small, narrow economy like New Zealand's, the first concern is its own stability and commonwealth, not imaginary alliances with those who have little to offer but flattery and coercion to join their strategic endeavours.

China has become the New Zealand dairy industry's domestic market as we produce far more than we could ever consume at home, and we have good access. We have been told for years by the government that free trade agreements with India, and the US were on the way, but they haven't emerged. Even when they are completed, the terms are unlikely to be competitive with what we have with China.

Some New Zealand firms will diversify to other markets through growth over time, but currently, there is a conflict between the good logic of wanting greater diversification and the practicality of many firms doing so, having built up long-standing relationships of trust and value in China.

Despite strategic setbacks in the past, Fonterra is now a highly successful company in China, selling over $4 billion of products and ingredients in 2021.

Zespri is holding its rare position as a rare premium fruit brand in an otherwise commoditised market.

Despite Chinese competition from stolen New Zealand SunGold vines. Zespri can best counter this competition and secure its brand's endurance when it builds its own presence in the Chinese industry.

The company is currently constrained by some from the industry in New Zealand who fear, mistakenly, that if Zespri were to work with orchardists in China their proprietary technology and know-how would be lost.

Chinese farmers have been growing fruit successfully for thousands of years. Many have already developed quality SunGold orchards by combining deep horticultural experience with plentiful online resources describing New Zealand's best kiwifruit growing practices.

New Zealand kiwifruit growers would be better to partner with Chinese orchardists such as those in Sichuan to create and protect value for Zespri together.

New Zealand enjoys strong market niches, mostly in food and nutritional products, while there is promising growth in services and technology. But companies need to do more to protect and expand their markets. New Zealand companies must also be careful not to underestimate the sophistication of the Chinese consumer and the dynamism of the local competition. New Zealand companies have largely failed to utilise the growing community of educated, experienced Chinese New Zealanders to guide them in China and help them to understand China in New Zealand boardrooms.

Exporters selling to China without investing in and forming strong local partnerships risk losing their position in the case of a political disagreement between Wellington and Beijing.

Despite seven years of Washington placing tariffs on Chinese goods, and China retaliating in kind, American companies and products in China have not been targeted by Beijing.

The prime reason is that so many US firms are invested in China, employing local people and exporting goods from China-based factories.

Another more benign reason for New Zealand exporters to invest in China is that increasingly patriotic Chinese consumers favour those who not only sell to but also demonstrate their respect and participation in the Chinese domestic market. Les Mills China's Shanghai-based team, despite the service sector stalling due to Covid lockdowns in recent months, have managed to do this in the local fitness sector.

Chinese consumers have confidence in New Zealand's food and product safety, recently enhanced by the manner in which the country managed Covid. Once, consumers considered Switzerland as the most reliable foreign country; that place is now held by New Zealand.

It has not been lost on Chinese consumers that New Zealand differs from other Western nations in that it judges China less harshly, despite the anomaly of being a party to the Five Eyes alliance. Consumers sense that New Zealand has not aligned itself with the US and its allies in trying to contain China.

It may not appear to reflect a fundamental change in policy, but New Zealand needs to be careful to ensure that perceptions in the region, not just in Beijing, reflect its true intentions. New Zealand is no nation's suzerain, not the US or China's.

• David Mahon is Executive Chairman of Mahon China Investment Management.