Prime Movers report: Challenges of keeping in top league

By GLENN SMITH

Taiwanese, like many people around the world, view New Zealand as an unspoiled Shangri-La. Flip that around and - for our agricultural exporters anyway - Taiwan beckons as a paradise of another sort.

Taiwan has an enormous appetite for imported foods - meats and milk, and fruit and fish - and New Zealand is perceived as a top-tier supplier.

"This is a health-conscious market, aware of nutritional values and the benefits to well-being of quality food," said Irvine Paulin, director of the New Zealand Trade Development Centre in Taipei.

"Per capita income in Taiwan is similar to New Zealand - roughly US$13,000 ($23,787) - but they pay lower taxes," he added. "You could say the average Taiwanese is better off than the average New Zealander.

"Add to this the fact that Taiwan's land area equals that of Canterbury in the South Island, but it has many times the population - 22 million."

Taiwan, needless to say, is a net food importer. An affluent citizenry and a scarcity of land have turned it away from a policy of agricultural self-sufficiency to a reliance on imports. That trend accelerated last year when Taiwan was admitted to the WTO on January 1, and began knocking down tariffs and quota restrictions.

Nearly all New Zealand foodstuffs sold to Taiwan, with the notable exception of milk powder which was hit by a price drop on the international commodity market, enjoyed immediate gains in import value.

Meats jumped 23.8 per cent to $128.1 million last year, while fruit and vegetables grew by 12 per cent to $71.8 million and fish by 5.3 per cent to $19.3 million.

Tommy Yeh, manager of the Taiwan branch of the Asian New Zealand Meat Company, advised against basing future expectations on these gains.

"You can't judge [the impact of] Taiwan's entry into the WTO from the results of a single year," he said. "Still, our read on the market is an increase in growth for imported meats at present. This year it will be single digit, and the chances for the next few years are the same."

Yeh believes the main benefit of lower tariffs was in helping offset the sharp rise of the New Zealand dollar - 25 per cent against the American dollar last year.

"The price of New Zealand beef on the retail shelf has been steady," said Yeh.

Import tariffs on beef dropped last year from NT$22.1/kg ($1.16) to NT$20/kg ($1.05) for special-quality beef, and from NT$27/kg ($1.42) to NT$24/kg ($1.26) for most other beef cuts. Both tariffs will drop to NT$10/kg (53c) by next year.

Tariffs on sheepmeat, in contrast, saw no change. It is still subject to duty at NT$11.3/kg (60c) or 15 per cent of cost, insurance and freight, whichever is higher.

Even so, in a seeming contradiction of economic principles, the growth of imports of New Zealand lamb and mutton outpaced that of beef.

Mutton totalled $20.4 million and lamb $14.6 million, growing 44.4 per cent and 33.2 per cent respectively, more than double the 17.1 per cent increase to $90.8 million achieved by beef.

Elsewhere, away from farmlands, New Zealand's fresh produce experienced mixed results. Taiwan's import of vegetables fell 43.1 per cent to $6 million, while that of fruit registered growth.

Kiwifruit, unaffected by WTO-wrought changes, saw business as usual, and imports grew a respectable 4.9 per cent to $36.6 million.

But the growth in orchard products came from apples and pears, which leapt ahead by 98.2 per cent to $17.4 million.

Fuelling the growth of apple imports was a more generous quota - 12,000 tonnes last year versus the pre-WTO standard 8000 tonnes, according to Jonathan Tse, manager of Apex Taiwan, an independent marketing consultant with clients including Enza, Freshco and others.

"The preferred apple is the Fuji because of its high sweetness and the density of its flesh," said Tse. "They are nice and firm, and a good keeper. This is important because there is no refrigeration. The fruit is kept at ambient temperature throughout the distribution chain."

Taiwan has perhaps the world's highest per capita consumption of fruit, and apples are far and away the largest import category in the country.

But to sell to Taiwan, one must be aware of local customs. In Taiwan, fruit is not just a healthy snack. It is also used daily in religious offerings on family altars, during twice-monthly bai-bais by business owners, and during festivals such as the Chinese lunar new year and Tombsweeping Day.

"The fruit is being presented to the gods, so its cosmetic appearance is very important," explained Tse.

Timing delivery of fruit for these days is also an absolute must.

"Our exporters sometimes wonder why there is such a rush on a container," said Tse, "but an arrival difference of a few days or a week can make a big difference in price."

The only downside in an otherwise banner year for apple imports was what Tse called a "double whammy".

"The quota came off just as the Enza monopoly ended in New Zealand," he said. "This has brought in small players and they crashed the price because they bought too high."

Despite the dramatic growth for most food and beverage imports from New Zealand ($435 million), the category actually registered an 8.2 per cent drop in total value last year.

Virtually all the decline came from a single product, milk powders, which suffered a 33 per cent fall in value to $145 million.

Why?

The culprit was the international commodity market, according to Gordon Lee, general manager of New Tai Milk Products, one of three Fonterra joint ventures in Taiwan.

"Milk powder prices peaked at more than US$2000/tonne in March 2001, and then fell to a low of US$1300/tonne in June and July of last year," said Lee. "This, combined with the appreciation of the New Zealand dollar, gave us two negatives in one year. Current prices are back up to US$1800, fortunately."

NTMP imports bulk milk powders used as ingredients by food processing companies, while two other companies, NZMP Far East and New Young Dairy Products, handle Fonterra's canned milk powders for consumers and other products.

Speaking of his own customers, which include Uni-President, Weichuan, King Kar and other Taiwanese food conglomerates, Lee said: "They are still buying from us, but the best we can hope for is the status quo."

New Zealand milk powders have a long history in Taiwan, but it is a mature market. Ingredient sales will grow 2 to 3 per cent per annum for the near future.

"The challenge for us is to grow though diversification," said Lee. NTMP did just that last year, increasing sales volume by 12 per cent, ironically through the sale of non-dairy creamers for ready-to-drink coffees and teas.

The prospect for consumer-side sales is even worse, because of changing demographics. Loyal users - the elderly who grew up before the availability of fresh milk - are dying off, and a low birth rate isn't producing new users of infant formula.

To importers of New Zealand dairy products, Taiwan's entry into the WTO offered little relief.

Tariffs on milk powders are being scaled back to 10 per cent next year, from 15 per cent in 1999. There were no quotas because Taiwan's dairy herd is too small to produce enough fresh milk, let alone milk powders. A ban on liquid milk imports was lifted, but distance will make fresh milk sales impractical, and UHT milk has low consumer acceptance.

Taiwan and its people may be changing, but come what may, Taiwanese perceptions of New Zealand and its products aren't.

"We've done vast amounts of food research and New Zealand always comes out on top," said Jim Sailor, managing director of Taylor Nelson Sofres Taiwan, a market research company. "What comes through is a clean and unpolluted image. New Zealand is about purity, and it's a very strong perception."

"Here, people worry about the quality of food from China or even the United States and Japan," he continued, "but New Zealand represents raw food close to the source. Japan might be seen as good at product innovation, and America at marketing, but for the animal itself or anything close to the animal, New Zealand is way ahead."

Facts:

New Zealand exports to Taiwan: $714 million in 2002

Top 10 exports: Milk powders: $145 million

Beef: $90.8 million

Wood: $57.4 million

Kiwifruit: $36.6 million

Electrical machinery: $34 million

Wood pulp: $33.2 million

Sheepmeat: $35 million

Butter: $30.1 million

Cheese: $28.1 million

Seafood: $19.3 million