The challenge is to actually harvest the benefits. And it is a big challenge.
"More than half of the world, literally, could soon be New Zealand's oyster."
David Green, Managing Director, Institutional ANZ New Zealand
In 2008, we were the first OECD country to sign a comprehensive free trade agreement (FTA) with China. That country has since grown into New Zealand's largest trading partner, a key market for exports such as dairy, forestry, meat, seafood and wool and a major source of migrants, students and tourists to New Zealand.
Similar success stories are playing out with other partners across the region. In the 32 years since New Zealand signed the Closer Economic Relations agreement with Australia, it has entered trade deals with key markets including Thailand, Singapore, Malaysia, Hong Kong and Taiwan.
The latest deal, signed last week with South Korea, holds particular promise for New Zealand farmers – including the proposed elimination of an 89 per cent tariff on butter, 45 per cent on kiwifruit, 40 per cent on beef and 22.5 per cent on sheep meat. Tariffs on infant formula and cheese will also be eliminated.
Including the new Korean deal, New Zealand's bilateral agreements now cover 42 per cent of global GDP, with negotiations under way for access to a further 30 per cent.
Our FTA partners have a combined population of over 1.5 billion, rising to 3.7 billion - over half the world's population - if further negotiations are successful. More than half of the world, literally, could soon be New Zealand's oyster.
If the scale and breadth of opportunities are eye watering, they are also far greater than New Zealand's capacity to fully deliver. It is estimated New Zealand's primary sector can feed between 40 and 60 million people – many times our own population but a small fraction of the consumers within our free trade markets.
The challenge will be to identify the right opportunities and then execute them in a way that delivers maximum benefit for our businesses and economy.
Increasingly, this will require our exporters to target the wealthiest consumers in growing economies. To do this, they will need to build up a strong understanding of individual markets – or sub-markets – and the consumers within them and develop premium products for which affluent consumers are prepared to pay more.
ANZ research has found the wealthiest households in China, for example, spend five times more on dairy and seafood, and twice as much on meat, as those on the lowest incomes. And they will pay more per kilo for quality, such as better cuts of meat, more premium varieties of seafood and branded, packaged or processed food.
A fundamental part of targeting the opportunities will be choosing the market that is the best fit for your business.
World of opportunities
Korea is likely to be particularly fertile ground for New Zealand firms. As the only Australasian bank with a presence there, ANZ knows the opportunities well and is strongly placed to support two-way trade.
Even before the FTA, our economists ranked Korea among the five most attractive Asian markets for New Zealand, with high wealth and income and demand for New Zealand-oriented products, including protein and fat, and a strong dependence on imports.
Independent study has linked New Zealand and Korea as being among the most complementary economies in Asia-Pacific: Korea is a key market for New Zealand exports such as timber, dairy, meat and aluminium; and an important source of imports of oil, motor vehicles, machinery and electronics.
Two-way trade between the countries is already worth about NZ$4 billion per year; there is every indication the new FTA will unleash far greater benefits for both economies. The Korean agreement and New Zealand's other FTAs underpin enormous opportunities to expand exports to growing markets.
The question for individual exporters is whether they can navigate this world of opportunities and lay claim to new territory where they can convert their own possibilities into success.
David Green is ANZ's Managing Director, Institutional New Zealand.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
10 Mar 2015
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