Spring blossoms have emerged as China’s economy tracks towards operating at 80 percent of pre-Coronavirus levels. So what can Kiwi exporters salvage from 2020 as they search for something resembling commercial success? Regular contributor and former Shanghai-based NZTE Trade Commissioner, Damon Paling, shares his thoughts with ExporterToday.
ET: What are the economic pundits predicting for China as it strives to get business back to normal?
DP: Beijing is rolling out a range of economic stimulus measures to jump-start the Chinese economy and confidence levels are slowly being restored. The specifics of these measures are gradually being understood.
Overall, business confidence is rebounding. At a macro-economic level the current school of thought leans towards a U-shape rather than a V-shape recovery. Various reasons are cited including the impact of Covid-19 globally as other countries, including New Zealand, enter social lockdown phases and track towards economic recession.
The broader question being asked is whether or not China experiences a secondary spike in the rate of infections in Q3/Q4. To that end unsettling times still lie ahead with various epidemiological scenarios on the table.
Conversely, a better-case scenario is that household consumption reaches pre-outbreak levels during June and July with economic growth of six percent achieved during the later half of 2020.
ET: What are China’s supply-chains currently looking like?
DP: Export shipments via ocean freight are gradually returning to some degree of normality. However, supply of air cargo space remains constrained and that is unlikely to change for the next couple of months. Air cargo charter options are being explored by agencies such as NZTE. Any delays in Customs clearance and related port disruptions experienced when the outbreak was at its peak ought to be mitigated as full services are resumed.
All of the leading Ports through which New Zealand products are cleared will be eager to support trade as part of the economic recovery. Consumption via e-commerce has flourished and last-mile delivery for online sales ought to also return to prior efficiency levels, albeit with new social distancing rules as health and safety is maintained.
ET: To what extent can we be positive about the outlook for Kiwi exporters to China?
DP: Almost 70 percent of New Zealand’s goods exported to China are food and beverage. Double-digit export growth was enjoyed in 2019 and we remain heroic to Chinese consumers in categories such as dairy, meat, seafood, and horticulture. Overall, one can look for daily life and sales demand to return to something resembling normal. However, the food service channel, comprising hotels, cafes and restaurants, will naturally take longer. This channel includes leading hotpot restaurant chains such as Haidilao and XiabuXiabu, and fast-food outlets such as Yum! Brands, Starbucks, and the like.
The two leading online shopping festivals – 6:18 and 11:11 – will be proof points of an economic bounce back in consumer demand. Kiwi exporters can plan now for strong e-commerce sales performances around these two events.
ET: Based on past performance do you predict any potential export leaders by sector?
DP: Dairy was once again heroic in 2019, led by more than 33 percent growth in milk powder. Except for butter, volumes and prices were generally up across the board. Infant formula, liquid milk and cream, cheese, caseinates and albumins, and even ice cream, all performed well. Needless to say, New Zealand continues to dominate the import segment for dairy product with around 40 percent of the market. Sales of certain dairy products reportedly performed well during the period of Coronavirus. High-end dairy products with preferred protein levels, a2b casein, probiotics, lactoferrin, and even fresh milk (subject to air freight constraints) can continue to perform strongly throughout 2020 thanks to their overwhelming health benefits.
With the summer fruit season approaching the horticultural sector can enjoy another bumper season as annual exports track towards NZD 1 billion FOB. With kiwifruit providing more Vitamin C than oranges they continue to be a roaring success with Chinese consumers in Tier 1 and Tier 2 cities. The gold variety in particular is performing outstandingly well. Apples are also exceptionally well received by upper middle-class families and exports in this category could exceed NZD 150 million in 2020.
Honey exports enjoyed moderate growth in 2019 to reach NZD 68 million FOB and this was dominated by mono-floral mānuka retail packs. New Zealand owns the imported honey sector. Consumer attention to stomach and intestinal health coupled with the inner health/outer beauty correlation suggests that 2020 can still be strong year. The immunity properties of propolis can also be a source of future revenue growth. Coronavirus has spurred additional demand in this category.
Pharmaceutical related exports to China and Hong Kong have experienced a slight decline over the past couple of years. One would like to think that the export of medicaments and vitamins could be increased against a backdrop of heightened demand for immunity and respiratory supplements. The cross-border e-commerce channel has stabilized and the ‘daigou’ market has evolved. Demand from Chinese consumers ought to be as strong as it has ever been.
That said, competition from brands originating from South Korea, Japan, Germany and Australia will be as fierce as ever. Similarly, Japan, South Korea and France dominate the market for imported beauty and personal care products.
Lastly, a range of economic factors such as a burgenoning upper middle class, has driven a boom in pet ownership and the demand for high-quality retail ready petfood. Rumours arose in January linking pets to transmission of the Coronavirus. Thankfully those were quickly dispelled. Through to the end of 2020 it is possible for retail ready cat and dog food/biscuit exports to surpase NZD 65 million FOB.
ET: Do you see any potential laggards by sector?
DP: Meat exports had grown appreciably during 2019 in volume and value thanks in part to the African Swine Fever. China’s swine population is now reportedly recovering and food service channels may be slower to resume pre-Coronavirus levels of operation. Exports of beef and lamb will do well to exceed 2019 values/volumes. That said, animal offal and value-added chilled meat are sub-sectors that can continue to enjoy steady growth. Chinese consumers are meat lovers and subject to export capacity and market access increasing quantities of chilled meat can be sold B2C online and offline.
Seafood exports are dominated by live lobsters that are airfreighted and largely consumed in the food service channel. Any new rules for seafood wholesale market operations need to be understood. Fewer banquets and weddings are expected. Any rebound in Q3/Q4 is unlikely to offset the losses of Q1/Q2. The lobster industry will do well to sell more than NZD 200 million FOB in 2020. Frozen fish, squid and mussels ought to conintue to enjoy steady demand.
China continues to be a comparatively weak market for New Zealand wine, beer, cider, and spirit producers with exports tracking at around NZD 34 million FOB through December 2019. Water, a controversial topic, is the sole source of sustained growth and exports could reach NZD 40 million FOB in 2020. With online sales flourishing the 10-litre “water in a box” is a hero SKU for in-home consumption.
Exports of forestry products in 2019 – largely untreated logs and wood pulp – were flat at NZD $3.3 billion and negative growth is expected in 2020.
ET: And what is happening in China’s non-F&B sectors, such as the services sector?
DP: The outlook for the services sector is very interesting and divergent. Will a reopening of gyms see more people than ever before engaging in routine physical activity as part of an overall consciousness towards health and wellbeing? Or will cleanliness of gyms and close contact with others prove to be a headwind? Does in-home exercise further develop as a market? When will people be comfortable to return to cinemas? Or do people continue to dial-up their consumption of online gaming in the comfort and safety of their own living rooms? Only time will tell when it comes to understanding these new post-Coronavirus consumption behaviors.
ET: When travel restrictions to and from China do eventually ease, how do you see the year finishing?
DP: A best-case scenario is that we can look forward to the possible rescheduling of events that were postponed from Q1, such as the Beijing Pet Fair and Chengdu Tang Jiu Hui. Assuming they proceed as planned, trade shows such as Pet Fair Asia, Asia Fruit Logistica, Qingdao International Seafood Show, and the China International Import Expo, present as great opportunities for engagement with business partners and end consumers. New Zealand Week, typically held in November, is also a wonderful opportunity to thank partners and showcase food and beverage products.
Remember; He Tangata, He Tangata, He Tangata! WeChat calls and Zoom are all well and good. Eventually it will be time to make up lost time with in-market teams, business partners, and end-consumers. We will all revel in the freedom of no longer being home bound and will make up for lost time to connect socially with colleagues and friends. Double-check that those contingency supplies of facemasks, thermometers, and related antiseptic cleaning products have been procured to standard and are retained in your China office. The countless business trips that were cancelled and associated events postponed will hopefully all be in the past. You’ll be able to travel safely under new social distancing and quarantine guidance.
Damon Paling is now an Auckland-based NZTE Beachheads Advisor for China.
