'Startling' success: How land-based industries are saving the economy - NZIER report

Port workers are pictured loading this year's kiwifruit harvest on to a ship for export at the Port of Tauranga. Photo / Alan Gibson

The resilience of New Zealand's primary sector has helped pull the economy through the Covid-19 crisis, says a new report by the NZ Institute of Economic Research (NZIER).

"Our land-based industries have proven themselves to be exceptionally resilient, particularly when it comes to trade," said Chris Nixon, principal economist and lead author of the report.

Export returns for our major food exports have not only stayed firm but exceeded last year's performance.

Collectively, export returns for dairy, meat and horticulture are up by nearly $1 billion year-to-date relative to this time in 2019, Nixon said.

Despite years of focus on shifting food exports up the value chain, New Zealand's reliance on commodity exports had been an advantage in this crisis.

"A mixture of strong demand from Asia (particularly China), flexible supply chains that suit commodity products, and strong institutions that govern food processing have all contributed to New Zealand's strong trading results throughout the Covid-19 pandemic," Nixon said.

Commodity trading went hand in hand with flexible supply chain access.

"Not only are we flexible about what countries we can deal with but we are also flexible about the product range offered," Nixon said.

"This allows us to maximise the returns subject to the Covid-19 restraints and reduces the amount of investment required in the market."

The export performance was "particularly startling" given it had been achieved in the face of growing trade protectionism around the world, Nixon said.

Export

Decades of work by trade officials and the export sector to build trust in the quality and consistency of New Zealand products had paid off.

"There have been hard yards of institution-building that are now shining through in an
era of increasing global interconnectivity," he said.

The rise of China as our major market had also been "fundamental" to our success although it also raised issues around over-reliance on a single market.

"Every country is grappling with the China question: Are we too dependent on bilateral trade with China?" Nixon said.

However, to put that in context, we were nowhere near as reliant on China as we had been on the UK up until it joined the European Economic Community in 1973, he said.

For example, China currently accounts for about 40 per cent of our meat exports but the UK accounted for 80 per cent of meat exports in 1973.

In the past year meat exporters had also been aided by supply issues after the outbreak of African swine fever in China resulted in half the Chinese pig herd being slaughtered.

Meat prices have remained elevated after last year's African Swine Fever outbreak in China. Photo / Warren Buckland

"This increased world prices for exported protein (including sheep meat from
New Zealand) in 2019/20 and prices are still elevated. "

There had also been fair winds for exporters in currency terms.

The competitiveness of New Zealand products having been improved by the "flight to the US dollar".

"In times of crisis the US dollar has been a safe haven for investors and the Covid-19 crisis is no exception," Nixon said.

"Unfortunately, this phenomenon has been brief and the New Zealand dollar is now tracking upwards –potentially a sign of faith in the New Zealand economy."

Transport issues created by Covid-19 had largely been confined to time-sensitive foods that relied on airfreight.

That had a disproportionately large impact on the seafood industry.

Another Covid-related challenge was employment, with closed borders restricting the supply of labour to horticulture and forestry.

Apples, kiwifruit and wine appeared to have survived the current picking season but longer-term challenges remained as long as borders were closed, Nixon said.

Investment in the land-based industries was also a potential long-term problem as economic conditions tightened post-Covid, he said.