Fran O'Sullivan: Planning pays dividends

Photo / Nicki Harper

Meat exporters introduce high-end brands in to China to create demand in the burgeoning middle class

Meat exporters appear to have finally broken down hidden trade barriers which were a major roadblock when it came to making the most of the free trade deal New Zealand notched up with China in 2008.

China is now New Zealand's second largest destination for export meat, breaking the $1billion mark for the first time this year.

The growth in export volumes is highly promising for the economy, but like with dairy commodities the value of what we're sending is still too low.

The metrics tell the story.

Despite receiving 40 per cent of our sheep meat this past calendar year, China generated only 27 per cent of dollar returns for New Zealand.

For beef exports, China still ranks a distant second to the United States in terms of volume, buying 37,308 tonnes of beef, 10 per cent of all exports.

But those figures paint only part of the picture. Getting a foothold for New Zealand meat in China was just the first step -- now the value game begins.

The total amount of beef and sheep meat New Zealand produces is only a tenth of what China can produce domestically.

New Zealand was never going to be able to compete in the volume game.

The real target is the emerging middle class and increasing demand for higher quality cuts of meat. Most of what we send to China is destined for hot pots; a long-term trend which reflects the type of cuts demanded by Chinese consumers. What Kiwi meat producers are banking on is the forecast that rising incomes will lead the Chinese middle class to increase their demand for more lucrative, branded products.

It's an important factor.

The margins on branded products stand to be made even more lucrative in the near future.

Tariffs for meat into China have been gradually reducing since the free trade agreement was signed in 2008 and are scheduled to be eliminated in 2016.

Stoking local supply now in anticipation of greater returns down the line is essential if the meat sector is to fully leverage the trade agreement.

Silver Fern Farms, one of New Zealand's largest meat exporters, is already getting innovative with its approach to reaching the high-end Chinese middle-class market as consumers make the move from buying meat at markets to online buying.

As an example, Silver Fern Farms have made its retail range of export lamb available for purchase online.

Complementing that has been infomercial spots on Shopping TV, the first of which saw 12.5 tonnes of beef sold in 30 minutes earlier this year. It's a more hands-on approach from Silver Fern Farms as it transitions from a commodity exporter into a player in the high-end retail category.

Earlier this year, the Meat Industry Association of New Zealand sent its most senior delegation to China in an effort to better establish relationships and trust with their domestic counterparts.

The group met a number of industry associations, government and port officials, and trade regulators in what was said to be a successful trip.

The Government is also working to improve its ability to manage growing volumes in China by injecting Ministry of Primary Industry staff into Beijing.

Maintaining a positive relationship with China and the trust Chinese put in our products must continue to be a priority for our meat exporters.

In the past year, we've seen too many bureaucratic errors affect NZ's meat trade with China, but now it is on track, greater professionalism all round will pay dividends.

Fran O'Sullivan is a business columnist for the NZ Herald and Alexander Speirs (right) is a business journalist for Herald Business Reports