As far as New Zealand’s food exports are concerned, a recent report’s summary is ‘not bad, could do much better’.
Sure, relative to other countries we have good food and beverage exports per capita, but our mix is skewed towards traditional, minimally-processed products. We under-perform in value-added foods.
A just released report by Coriolis, an Auckland-based strategic management consulting and market research firm, carried out for the Ministry of Economic Development says that the mix of value-added products being exported to Australia shows that New Zealand can lift food into a higher category.
The report uses Australia as its exemplar case, as a lesson in moving forward.
The west island is important for kiwi food exporters, especially in new, emergent categories without large firms at a scale comparable to global peers (in the segment). Among the percentages of food categories, comparing Australia to the rest of the world for NZ exports are:
• Soft drinks – Australia 87%: Rest of World 13%
• Avocados – 87%:13%
• Bakery goods – 81%:19%
• Chocolate/confectionary – 76%:24%
• Soups/condiments – 60%:40%
• Frozen French fries – 58%:42%
• Pet food – 48%:52%
• Ice cream – 40%:60%
Coriolis contends that many of these categories represent huge potential opportunities for New Zealand, “if we can crack the case.”
The report selected four categories to demonstrate and analyse in depth.
Chocolate exports are good to Australia, but bad elsewhere. Bakery products have shown a 16% yearly growth in Australia, but only 10% elsewhere. Infant formula exports have grown 17% a year to Australia, but 23% to the rest of the world – WOW, superstar says Coriolis. Frozen French fries exports have grown at 33% a year, and are now worth $45m annually to Australia, but have only grown at 10% for other countries.
The report breaks down these categories, including a market share analysis. In chocolate for example, New Zealand has been losing ground to Germany and others, and worse, are losing ground on the export value per kilo. Germany for example receives $5.17/kg, NZ $2.87/kg.
Among opportunities identified by Coriolis are for NZ to attract other major global chocolate manufacturers to NZ, and for NZ chocolate manufacturers to move upmarket.
In baked goods, NZ exports across the ditch have grown faster than the market itself, though our share of the market declined to 21% from 23% between 2004 and 2009. In total, last year NZ exported $102m of baked goods to Australia.
Coriolis contends there are opportunities to build total NZ core competency/capability in this space, which in turn would lead to comparative advantages as well as food clusters. There is also further development and growth for frozen par-baked butter-dense premium pastries such as frozen croissants and Danish pastries.
In infant formula, NZ has again grown faster than the market, and last year’s $28m exports represents 36% of the market. However, Ireland is number one in Australia in this market, with a 39% market share. Infant formula exports to Australia now represent more than our wool exports!
While NZ could easily export five times as much infant formula, there are challenges around Fonterra’s interest in this market, and in attracting global firms to NZ in order to take advantage of the raw milk resource available in this country. The report also questions how much focus there is on infant formula across all aspects of NZ government, from science through to foreign direct investment in this sector.
Frozen French fries have experienced strong growth, and last year almost $29m were exported to Australia. However market share has fallen to 41% in 2009, compared to 86% in 2004. “The sector is incorrectly perceived as low value added and with apathy and disdain by some, which is out of line with real world results,” the report says. “But French fries add more value per kilo than lamb, comparing the cost of inputs to its retail return.”
The report also questions whether the sector receives sufficient NZ science focus.
Coriolis’ summary of conclusions is:
• NZ has had a nascent processed food industry for a long time – many exporting firms have origins from the 1880s – 1930s
• Processed foods build on our existing competitive advantages, particularly around dairy-derived products
• We don’t need to invent an industry from scratch
• Growth is coming from a range of firms, suggesting that there is some underlying competitive or comparative advantage at work
• Processed foods take low cost NZ ingredients and adds value to them – in NZ rather than overseas. Conceptually we need to stop selling food ingredients to others.
• Processed foods leverages NZ manufacturing capabilities, particularly continuous product and process improvement, efficient small runs and daily real-world innovation. A lot of the ‘IP’ in processed foods is in the manufacturing and packaging process.
• Processed foods are a future industry. By working together, CRI’s can help develop ‘neutraceuticals and functional foods’ and the packaged food companies can turn them into export dollars
• It is an industry that is active and successful in rich countries and not poor.
“There is this idea that we are all doomed; that everything will shortly be made in China,” Coriolis says. “It is not true. Processed foods are made in rich countries like Switzerland, Denmark, Germany and Canada. These are the type of countries we want to be competing with in the future. Not Uruguay, Uzbekistan or the Ukraine.”