China-Big business with NZ in farm sector.

CHINA-Nationalism nurturing agricultural production

SANDRA FINNIE

17/04/2009 11:50:00 AM

China is considered one of the fastest growing countries in the world.

During the recent Elders wool tour there, this reporter read a publication which said the Chinese government had loaned America trillions and trillions of dollars and was concerned that with the collapse of American financial institutions, they would be unable to repay the loans.

Presentations by general manager of Elders China Tim Leviny, and Jeff Shepherd of New Zealand Trade and Enterprise (NZTE) were enlightening on how segments of the domestic economy worked.

Chinese people have a strong sense of nationalistic pride and a desire to support their own producers.

In fact the government aim is for the country to remain 95 per cent self supporting in this respect. Any surplus food is exported. Currently the population stands at 1.3 billion which makes food production very important..

There has to be enough grain stockpiled annually to feed the nation during a drought and there are a lot of control mechanisms in place to make sure consumers get affordable food. Such stockpiling enables control of grain prices on the markets. The government has many subsidies available to encourage certain types of production.

To succeed in China foreign exporters have to get past the nationalistic mindset and find a point of difference for their products.

For example Elders Fine Foods China imports beef and sheep meat from Australia and aims it at the luxury hotels and restaurants and charge a premium for quality.

Elders has been in China for 20 years and has worked hard to build and maintain its business relationships. Its brands are recognised and trusted by clients.

The average farm is 1.15acres (less than 0.5ha) and is intensively farmed. Farmers don’t own the land but have long-term use of it.

Rural producers lack fridges, so eat their food fresh. They eat very little meat as most of their land is used for crops.

A predicted growth in urban wages in the future will change the consumer habits of Generation Y, who will develop more sophisticated dietary habits. They will want different food to what they eat now and this is where the potential for food exporters lies as higher domestic incomes will expand market potential.

As future demand increases it is likely there will be a need for co-operation between New Zealand and Australia to meet supply requirements for protein exports to China.

The average wage of rural Chinese is 1000 yuan (around NZ$250), compared with urbanites who earn abut 5000 yuan (NZ$1255).

As the recession bites in, it was noted more urbanites were starting to cook at home rather than eat out as they normally would.

China is the second largest producer of poultry in the world. It produces 50 million tonnes of pork a year with output predicted to increase by 15 million tonnes over 13 years. It is the fourth largest producer of beef – current consumption of this will expand by 500 tonnes over 13 years. It is the world’s largest producer of wheat, rice, cotton, and canola.

China has made rapid gains in dairy production and has nine per cent of the global market share. It is the number one importer of dairy cattle with 10,000 head sent there in 2008.

Elders is considering 747s for future transportation of cattle to China to match continued demand.

There are exceptions to small acreages: the tour group visited a beef feedlot with 20,000 head of cattle.

Certainly there are some very large scale operations in China encompassing thousands of hectares and large numbers of livestock. The country’s sheep population numbers 140 million and they are all hand-shorn.

The Chinese government is concerned about environmental issues and has taken steps to force scours to comply with new regulations to improve water quality, or else close down.

Trees were being planted on a vast scale to help clean up the atmosphere.

It was noted that the benefits of the Free Trade Agreement (FTA) with China would likely take 20 years to kick in, because nothing happens quickly.

One area New Zealand can compete in is with its wool imports. New Zealand’s trade with China for wool equates to $192 million which makes it our third largest export item. To January 2009 New Zealand exports to China were up by 56 per cent, wool exports had increased by 27 per cent.

Mr Shepherd said given the current economic climate he did not expect China would be signing any other FTAs soon, which gave New Zealand a better window of opportunity.

"But you still have to know what you’re doing, have the right product and relationships to leverage with China," he said.

NZTE was considering putting offices or resources into what it calls second tier cities around China, which have a population of 10 to 15 million people, and hoped to announce something about this soon.

Mr Shepherd said companies in New Zealand should not be scared about China, but to succeed they should do their homework, know their market, take time, develop good partnerships, be prepared to manage the risks and be competitive and flexible.

NZTE could assist by helping new businesses negotiate tax laws and legal issues once they were established in China.