Adding value to food pays off for exporters

By LIAM DANN

New Zealand has made a great leap forward in its quest to shake off dependence on commodity exports, a new study says.

The Massey university study, commissioned by New Zealand Trade and Enterprise, says food exporters managed to add value to 53 per cent of their products in 2003 - up 7 per cent on the year before.

Crossing the 50 per cent threshold for the first time was a great achievement for the primary sector, said Peter Bull, NZTE director of food and beverages.

"It's a bit of a magic figure," he said. "It's remarkably encouraging."

Value-added food products generated $7.6 billion of export income in 2003 - $200 million more than in 2002.

Economic commentators have long argued that New Zealand must develop added-value export industries so that the economy can escape the inevitable boom-and-bust cycles of world commodity markets.

The total value of food exports dropped to $14.27 billion last year from $16.09 billion in 2002.

Bull said the fall was almost entirely driven by a drop in returns for commodity prices.

Fixed commodity prices, paid in US dollars, were eroded as the kiwi dollar's value rose last year. Bull said that showed the importance of exporting products that could command premiums and buffer the economy from the effect of the exchange rate.

The Massey study - conducted by Professor Ray Winger - only measures goods which have the value-added work done here.

For that reason, sectors such as dairy recorded relatively low value-added levels.

About 36 per cent exported dairy products were value added compared with 65 per cent of meat products.

But a lot of Fonterra's high value-branded products are manufactured by its international operations in the countries where they are sold.

Bull said that meant the total proportion of value-added goods bringing returns back to the country was likely to be even higher than 53 per cent.

But the study, now in its second year, provided a good barometer.

With the methodology for the study now in place, NZTE planned to keep running it on an annual basis.

In the inaugural study last year, researchers looked at statistics dating back to 2000.

The results for the four years covered showed steady progress - in 2000 just under 45 per cent of food exports were value added.

Bull said the numbers showed the country was headed in the right direction.

"It's clear that there is a whole myriad of firms now focusing on value added."

The big jump this year was partly driven by the flexibility that many big exporters now had to shift production towards value-added products as it suited their business.

Attracting premium prices

* New Zealand food exporters sold more value-added products than they did basic commodities for the first time in 2003.

* A new study has found value-added products accounted for 53 per cent of total food exports in 2003 - up 7 per cent on 2002.

* Value-added products are those that command a premium price because they have particular characteristics after processing or marketing. They include New Zealand chilled lamb, Zespri Gold kiwifruit and wine.

* Commodities are products which are considered much the same regardless of where they originate. They have a price that fluctuates almost entirely on world supply and demand. They include basic milk powder, butter and whole animal carcasses.