New Zealand’s exports are largely oriented towards countries within the Asia-Pacific region. A decade ago, Australia was the top destination for our goods exports, followed by China. By 2021, however, nearly a third of our merchandise were destined for China.
The share to Australia (as a percentage of total exports) dropped significantly over the last 10 years. Between 2011 and 2021, the composition of the top 10 export destinations has changed very little. India and Malaysia each imported around two percent of our goods in 2011, their shares have now dropped and those of Singapore and Thailand increased to enter the top 10. Interestingly, the European Union (EU) did not feature in this list, neither did any individual EU countries.
It’s not just the share of exports to Australia that has fallen over the past decade, we are now also exporting fewer goods, in absolute terms to Australia, and even the United Kingdom (UK). On the other hand, the value of goods shipped to China and the United States (US) has increased substantially over this period.
In 2011, the export destinations for New Zealand’s top goods were much more diverse, with large meat and dairy exports to Germany, Algeria, Russia, and Egypt. This again, points to a trend of increasing concentration of exports to the Asia-Pacific region.
Primary Sector Dominates Exports
In the year to September 2021, New Zealand exported $61.5 billion worth of goods. The primary sector dominates New Zealand’s merchandise exports, particularly animal products such as dairy and meat, a trend that has remained largely unchanged over the past decade.
Anywhere between 70 to 95 percent of the output from these sectors is exported.
The only categories from 2011 that did not appear in 2021 were raw aluminium and sawn or chipped wood exports. Unsurprisingly, China featured in the top three destinations for all our biggest exports in 2021, with the exception of wine.
The value of total trade since 2011 (not adjusted for inflation) has grown by 23.94 percent in the last decade. Some of the industries that have seen the largest increase in exports (by value) during this time were rough wood, meat of bovine animals, kiwifruit, non-concentrated milk, and medical appliances.
Moreover, rough wood and kiwifruit exports now make up a substantially bigger share of our national sales than they did 10 years ago. The share of butter and other dairy spreads fell slightly during this time.
As COVID-19 disrupted economic activity across the world, global trade was heavily impacted. Demand for goods such as durables and construction materials fell off a cliff. The mobility restrictions affected both the global demand and supply of goods.
In New Zealand, export receipts remained buoyant during 2020, but dipped during the years ended March and April 2021. The one commodity group that did see a significant drop in export receipts in 2020 was forestry products. This was a result of reduced demand for the outputs from this industry, mainly because of disruptions within the building and construction industry.
Although export receipts have now recovered to their pre-COVID levels, global trade continues to be plagued by shipping delays and logjams at major ports.
The Need for Export Diversification
The dramatic surge of exports to China in the past decade or so has largely been driven by a free trade agreement (FTA), signed in 2008. This meant that tariffs on 97 percent of our exports to China have gradually been eliminated, with even more due to be phased out by 2024. The position of China as our premier trading partner has been strengthening each year. In the September 2021 year, exports to the country grew by 16.95 percent.
This heavy dependence on China puts us in a precarious position. A third of our goods exports are at risk if the political relationship sours or the Chinese economy collapses. This does not mean that trade with China should be reined in, rather, efforts must be made to increase trade with other regions. There is a large amount of untapped potential in the European and other fast-growing Asian markets.
According to the Atlas of Economic Complexity, a tool that helps explain how global trade flows can open growth opportunities for nations, our exports are less complex than other countries with the same level of GDP per capita. This means that the economy is projected to grow at just 2.4 percent per annum over the next decade, placing us in the bottom half of all countries globally.
Being a small, geographically isolated country means that New Zealand faces some inherent challenges when it comes to increasing the contribution of exports to our economy. Access to markets can be improved by way of trade policy and negotiating new FTAs with emerging markets. We currently have 12 FTAs in force, with seven under negotiation.
One of our biggest barriers to trade, distance from markets is not a challenge that is easily solvable, further highlighting the need for adding value to current exports and building strong trading relationships with diverse countries.
Article courtesy of berl.co.nz
