The Reserve Bank Governor Graeme Wheeler recently gave a presentation on the significance of the dairy industry to the New Zealand economy. A part of the presentation focused on the importance elf China as an export market for New Zealand’s Primary industry.
China’s economic growth over the past 35 years is unparalleled in modern times. Averaging 10% over the last 3 decades growth has slowed but it still averaging approximately 7.5%. China’s growth has been driven by several factors:
* high domestic investment and savings ratios,
* sizable foreign direct investment,
* the impact of catch up technologies,
* the massive shift of labour from subsistence agriculture to higher productivity roles in urban industrial production,
* on-going market based reforms
* membership of the World Trade Organisation since 2001.
China is New Zealand’s largest export market for every agricultural commodity except beef (where it is our second largest market behind the United States). It purchases a third of New Zealand’s dairy exports (figure 6).
Figure 6: Share of primary exports to China (annual total)
With the rural – urban shift in China incomes will inevitably rise which means consumption of dairy products will increase. Urban consumption of diary is about 3 times that of their rural counterparts.
However China faces several difficult challenges in the years ahead. These include:
a declining labour force and aging population;
* rebalancing the economy towards stronger consumption and higher value added exports; meeting infrastructure demands;
* addressing income inequalities in the central and western regions;
* tackling corruption and environmental issues;
* implementing the ambitious set of reforms announced in the third Plenum; and
* managing the very rapid build-up in local government and corporate debt over the past five years.
India, rather than China, is forecast by the Australian Bureau of Agricultural and Resource Economics and Sciences to be the major new market opportunity for dairy exports in the future. The Bureau projects global demand for dairy products to increase:
2007 – USD7 billion in 2007
2050 – USD85 billion (in 2007 USD).
Projected global demand for dairy imports
By 2050, India’s import demand for dairy products is projected to be USD48 billion – more than three times China’s USD15 billion, given the projected growth in China’s domestic production. World Bank projections suggest that China and India could be the world’s largest and third largest economies at that time. A risk to the New Zealand Dairy Industry is that a strong competitor enters the Chinese market and threatens our market share. In 2013 New Zealand supplied over 70 percent of China’s dairy imports.