In a recent article, I explained the ‘what, how and why’ of China becoming dominant as New Zealand’s key trading partner. Primarily, it was about the emergence in China of new consumers with increasing spending power and an increased desire for high-protein animal-based food, with the consequent trade facilitated by a free trade agreement.
In that article, I acknowledged an increasing wave of public opinion saying that New Zealand needs to diversify away from China. I also suggested that finding alternative markets would be more than a little challenging, but I did not analyse any of those alternative markets. I left that for this article.
The topic of new market opportunities is huge, so this is just a start, just scratching the surface, and focusing on just one region. The focus here is North East-Asia because it is there – Japan, Korea, Taiwan, and Hong Kong – where incomes are higher than most other parts of Asia.
North-East Asia is also where New Zealand has developed trade relationships over a long period. Last year, these countries came 4th, 5th, 7th and 8th in terms of export importance to New Zealand. However, their combined importance to New Zealand at around 13% of exports compares to 31% for China. Equally if not more important, China has been on a continually rising trajectory of export importance (22% increase over the previous year) but these other locations in North-East Asia have shown stagnant growth as export destinations (collectively 0.2% growth over the previous year).
In searching for insights as to why these contrasts are occurring, and also as to future prospects, a good place to start is by looking at the demographics of the various countries, including New Zealand.
Looking at New Zealand’s own demographics identifies the need for increased exports in the coming decades. There are two reasons for this. First, unlike the countries of North-East Asia, New Zealand has a rapidly increasing population. Second, New Zealand is a country well-endowed in some natural resources but lacking in others. Current lifestyles are built on an export-led economy that provides the income for the items that, as a small country in the South Pacific, New Zealand will always struggle to produce.
Some people might be surprised by the statement that New Zealand has much higher birth rates than the countries of North-East Asia. Thirty-years ago that was not the case, but now it is. The evidence, drawn from United Nations data, is shown in the table below. Sitting alongside the birth-rate data are 2018 economic growth rates from the World Bank.
The population projections in that table also come from the United Nations. There is always scope for debate about the fine grain of these population projections, influenced by how birth rates might further change. However, to a large extent the numbers are already ‘baked in’ by the number of females coming through the younger age groups of the demographic pipeline. These particular projections listed here are what the UN calls ‘medium variant’.
The assumptions for most of the North-East Asian countries are that birth rates will actually increase a little over time as countries adopt policies to encourage more children. If they don’t increase, then the population declines by 2050 will be even greater than shown here.
In the case of New Zealand, the assumption is that birth rates will remain much as they are now. There is also an assumption for New Zealand that there will be ongoing net migration to New Zealand of approximately 12,500 people per year.
Even if there is no net migration to New Zealand, the New Zealand population will increase until the 2040s, at which time new deaths will catch up with new births. Alternatively, if net migration returns to a level of say 50,000 people per year, then the New Zealand population will be well over seven million by 2050.
Turning again to the countries of North-East Asia, it is evident that all will have declining populations. For Japan, that decline started close to 10 years ago, with another 17 percent reduction likely by 2050. For Korea, their decline is about to start, and similarly for Taiwan and Hong Kong. China will reach its maximum population in the second half of the current decade and then go into inexorable decline.
Some aspects of the changing demographics are best illustrated with so-called population pyramids. With birth rates above 2.1 births per women the ‘pyramid’ term is appropriate. However, as birth rates decline below 2.1 children per woman, they reconfigure, first like a misshapen brick wall and then they go inverted. Here, I compare New Zealand and Korea, using visualisation software available from www.populationpyramid.net.
In the case of New Zealand, the current traditional pyramid has already turned into a misshapen brick wall up to the age of around 60. That shape reflects the baby boom that got under way post-World War 2 and reached a birth maximum around 1960. The older age cohorts are still pyramid shaped.
By 2050, the New Zealand pyramid is expected to have a small bulge in the middle, combined with a bigger pyramid at the top caused by a higher proportion of older people than currently. However, if migration occurs at recent pre-COVID levels than the cohorts below 60 years will look somewhat fatter than shown here.
In contrast, Korea already has an inverted pyramid though to about age 50 and then a standard pyramid from about age 60. Alternatively described, it resembles a pear-shaped human with a rather large bulge in the middle.
By 2050, the Korean bulge will have moved upwards and the human shape will have morphed into an equally misshapen ice-cream cone. The lopsided shape arises from the big difference between male and female longevity in Korea. Alternatively, it can also be described as evolving to a very unstable inverted pyramid.
The key message from all of this is that economic growth rates that were already stagnating pre-COVID, combined with low birth rates that have already caused declining population to be ‘baked in’, plus changing age structures, creates a situation whereby developing new markets in these North-East Asian markets will be challenging.
The other marketing message to be drawn from the population pyramids is that as the pyramids become more inverted, the consumer demands also change. It is not only food requirements and quantities that change. Taking Japan as an example, for quite some years the market demand for adult diapers has exceeded the demand for baby diapers. This will also now occur in other countries.
None of the above should be taken as implying that Japan, Korea, Taiwan and Hong Kong lack relevance to New Zealand’s search for market diversification. But it does mean that New Zealand will be swimming against a demographic tide. Accordingly, if New Zealand is going to diversify significantly away from China then it will also have to search in other places. That is a story for another day.
Somewhere in the background there is also another issue that is highly controversial but cannot be avoided for ever. As New Zealand looks to the future and the challenges that lie ahead, what is the ideal population for New Zealand? Citizens will make their own individual decisions that will collectively determine the natural rate of increase. The only lever that governments control is immigration.
*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. . He can be contacted at kbwoodford@gmail.com. Keith’s previous COVID-19 articles are available here.
72 Comments
Hmmmm.
Populations declining, but there’s still markets right?
Maybe we could think a bit harder about those markets and try and better deliver on their evolving wants and needs.I think it’s simplistic to say shrinking populations equals limited opportunity.
Sure, it becomes more challenging....but we should be moving away from the mass market stuff anyway.
Hey Xing, most of Asia's military history is the history of other Asians beating up China, or being beaten up by China. And a lot of China's internal history is the history of subjugated people fighting against the Chinese government's power over them. None of them would consider any Chinese government to be their friend.
Another good read, thanks Keith. Northeast Asia is an interesting place. South Korea, Japan and Taiwan have been quite protective to its agricultural sector from what I recall. Also they are closed allies with America. I often hear this "American beef imports" conversations. NA can be also a dangerous place in next decade or two. Taiwan has been having this on going struggle with China, and COVID19 complicates whole thing even more. The whole place could get set off, and things could escalate extremely fast... My thoughts are what if we invite Japanese, Koreans and Taiwanese to come to NZ and set up research facilities? It might bring us a entirely new future.
Close allies with the US for good reason I would suggest.
I nice outpost for the yaks to keep an eye on its biggest rival; China.
NZ needs to focus on high end niche products. We need to take advantage of the path we have taken with this virus. Clean Green & Covid Free shortly.
Big problem is that rather than making society more conducive and supportive for local people to be able to have children - e.g. addressing terrible housing affordability - we rely on importing cheap, exploitable migrants to bolster the numbers so we can continue extracting pulling forward wealth from younger generations.
Exactly. You want to figure out how to make NZ more resilient and diversify the export sector, start from conditions where it makes some shred of economic sense for all the many many smart and capable NZ postgrads living in economic exile to go home. Bit hard to solve problems that require creative lateral thinking when half of your best and brightest human capital is working on some other country's problems.
I guess the question of alternatives can be split into two products
1. Those used for production of goods (logs)
2. Produce and consumables (dairy, milk powder, meats, fruits)
The demand for logs from China is two fold ~ domestic building and demand and secondly production of export goods. Presumably the latter will decline a little as production slowly moves from China to SE Asia.
The demand for meats/dairy I'd imagine is complicated as the Koreans and Japanese have domestic production which is highly regarded domestically. Taiwan may be too ? as noted by other commentators there is also a huge supply of US meats.
I guess the thing about China is that the Chinese consumers buy a huge amount of foreign product simply because they dont trust domestic production standards.
In that regard foreign product (NZ or otherwise) is probably viewed domestically in China as almost an essential for middle class families.
I'm not sure how we can go about generating that level of demand from elsewhere in NE Asia given the companies of those countries mentioned above don't regularly poison their consumers ~ and that's really what drives this massive demand for foreign food product in China.
Fifty years ago we sold practically nothing to China, and in fifty years time that may well be the case again. All we can do is tiptoe round the edges of all the big countries, with all their treaties, agreements and disagreements, keep our noses clean, and sell to the highest bidder, as Fonterra literally does. Which it does well, as long as it keeps away from business investments with obvious crooks in foreign countries, and sends it's own crooks back home to Denmark. That has been the history of all our trade.
All the major population growth forecasts I have seen in the next 20-30 years are in Africa eg Nigeria. I know Asian markets are traditional and reasonably close but surely we should be at least looking for where the real population growth (and therefore markets) are going to be? As many African markets will possibly be dominated by China anyway it does generate a bit of alignment with current market strategies.
InvisibleHand
As I work my way around the globe lookng at both demographics and other market attributes, I may eventually get to Nigeria, which has an extreme pyramid and hence has lots of further population growth 'baked in'. There can, of course be too much of a good thing. The future challenges of Africa are huge, with the projections showing that Africa will have a similar total population to total Asia by the end of this century.
KeithW
There should be more focus on reducing imports. It is in effect, the same as increasing exports.
Just 30 years ago all bread in New Zealand was produced from New Zealand grown flour. Now 90% of bread is produced by two foreign owned companies (Singapore and Great Britain) that make bread in this country from Wheat largely imported from Australia.
Wheat production particularly in Canterbury (which is very suitable for Wheat production) has completely disappeared to be replaced by large scale dairy. This has proved terrible for our environment, it has reduced our economic diversity and not really achieved anything in terms of exports. We produce milk, we do not add much value to it and we ship it overseas. Where as we were growing our own wheat, milling it ourselves and adding value to it by producing baked products from it. If we did this in a regenerative fashion we would go a long way to solving our environmental problems as well.
There is a blind focus on exports as the be all and end all of an economy. I recall a talk given by Sir Steven Wilkinson, where he relayed the anecdote of attending a discussion involving senior German politicians and bureaucrats involved in trade. The firm summary from this meeting? That if everyone ran trade surpluses like Germany they would all be rich!! It is astounding how little people understand something even as simple as the fact that trade is a zero sum game.
Importing less is the same as exporting more. It also increases resilience, something that has found to be lacking recently. There should be as much focus on expanding what we can do here as there is on expanding what we can send elsewhere.
denature
NZ produces considerable quantities of feed wheat but it is correct that most milling wheat comes from Australia. One key reason, but not the only reason, is that NZ wheat delivered to the North Island is not cost competitive with Ozzie wheat.
Most but not all of the dairy expanson was on Lismore and Eyre and similar soils. These soils are not suitable for wheat. The main areas suitable for wheat are the silt soils on the south banks of the main rivers and also the silt and clay in the Ellesmere district. Even then, cropping systems bring their own environmental challenges, which, in the days when a lot of wheat was grown, we turned a blind eye to.
KeithW
Thanks for your reply Keith. Certainly cropping systems are not without environmental challenge. However re-generative farming is a different kettle of fish to the large scale Monsanto farming that sources large amounts of the worlds wheat. It can provide similar yields with a more diverse range of crops for the farmer providing them with some economic diversification. It also generates a healthy topsoil....which is a huge sequester of carbon....providing further income from carbon credits.
The price may well be more than Australian wheat....but again that is somewhat of a false economy. Australia is not a good place for farming. The soils are typically poor, and drought is an increasing problem. It is maintained by large unsustainable inputs, like draining the Murray river.
We are completely reliant on that "cheaper" wheat. Reducing some of that reliance by producing ourselves may not be as cheap as Australian wheat but what happens if Australian crops completely fail? Could not the extra price we pay may for our New Zealand wheat be seen as an insurance premium against cataclasmic failure of the Australian crop? Even partial failure would inflate the price and we would have no way of hedging that with our own supply.
Resilience in global supply chains has been shown to be virtually non-existent. We should be addressing that to some extent.
Yes, you get it. Resilience is cheaper in the long run because systems with a single point of failure will eventually fail in a catastrophic way. The costs we are bearing now from a pandemic need to be added to the accounting for globalisation. You can’t just count all the benefits of the system while it works and then refuse to count the negatives as being externalities of the same system when it all inevitably blows up.
Another way to think of it is that you're placing a bet with more limited upside to avoid an outcome with sudden catastrophic downside, which will inevitably show up over the long run. That's the situation we're in right now, and contrary to what everyone keeps saying it was a predictable outcome of the system we had in place.
In the post war period and up to about 1980 lower North Island bakeries were supplied with flour from mills mainly in the North Otago area, transported north by coastal shipping. These arrangements were conducted by the Wheat Board, which I think went west during the Douglas era. Coastal shipping was driven out of business largely by the heavily subsidised activities of NZ Railways and its interisland ferries. The North Island bakeries then tried to use flour made from NI wheat, milled in Palmerston North but it was not satisfactory and required blending with better grade flour. This in turn placed the lower NI bakeries at a competitive disadvantage relative to those which were able to source their flour from mills that had direct access to superior Australian wheat via international shipping. Most of that North Otago land that grew wheat is probably now in dairying courtesy of the North Otago Irrigation scheme.
The observation is based on the idea that seeds produce fruit. Seeds can be actions or words or thoughts.
That if you kick a dog often enough it becomes wary of all people and is more likely to bite strangers.
That if you verbally denigrate a child often enough you destroy their confidence.
That if you tell enough lies that eventually you undermine your own credibility and struggle to be heard.
If you keep thinking all bankers are evil doers it can lead you to stand by if bankers are vilified and their lives destroyed, or even rationalise away the fact of them being led off to 'reeducation camps'.
Words, actions and thoughts are all seeds and some of them take root and bear fruit.
If you keep attacking investors, eventually investment stops.
If you keep blaming foreigners for all your problems, eventually they stop coming around.
If you keep making trade harder and harder and tell people it's evil, sooner or later you become poorer.
It's not dissimilar to the idea that actions have consequences except it is more broad in nature and less obviously directly connected.
Does that help?
I guess.
I don't know why it applies to what I was saying though. I'm all for trade it's great. Sometimes one side benefits more sometimes the other benefits more, but both sides benefit from trade.
However trade must balance to be sustainable in any sense of the word.
Germany is an actively mercantilist country. Other countries run deficits with it so that they can buy it's products. They do this by borrowing money. Sometimes from the Germans themselves. This is not sustainable policy.
Many people do not understand this as evidenced by the fact that people who should know better believe everyone can run a surplus and be rich like Germany. That is not possible as every surplus needs a deficit to balance.
I have nothing against Australians or their wheat. I have no problem with importing their wheat I use it myself. I simply believe relying on their wheat almost solely, when their country has been shown to be extremely unstable environmentally is a very dangerous position for us. Particularly when we are capable of growing our own wheat for eating and have done so before.
Never mind Ralph, he’s a banker who’s getting a bit nervous that he’s about to cop a lot of hate for his part in writing some of the liar loans that are about to crash the Aussie banking system. The penny hasn’t dropped yet on why his neoliberal ideology doesn’t work despite it just being discredited in the most spectacular way possible.
Comes across as being out of touch eh - he/she assumes that what we've had has been great and needs to keep going, but not realising its been a disaster for those who have been locked out of home ownership, are renting, struggling to pay the bills etc. And the system of the last 10 years post GFC has only been making it worse.
But Ralphs views are probably representative of about 30% of the people I talk to as well. Keep the good times going and bugger those being left behind.
He said yesterday that he's renting, in Sydney, so I'm pretty sure he is the "temporarily embarrassed millionaire" variety of young right winger who consistently votes against his own interests out of a smug self-assurance that everyone else "doesn't understand economics."
What ever we do, I believe that we would be wise to work towards a world with steadily decreasing population. In the long term we have no choice. We will either manage our population in this way our selves and on our own terms, or else nature will do this for us as we are beginning to witness. Believe me this is just the beginning of our troubles if we do not.
There is no need for us fear the economic repercussions of a reducing population as there are a reasonable numbers of economies that have done very well over many years in the face of long term decreasing populations. All the above countries demonstrate this. They are not alone there are a number of notable others.
I don't think it matters, we are not trying to solve problems in the past we are looking to problems now and in the future..
https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_dy…
It's looks pretty clear.
Contraceptive may well be the mechanism, but you need to be able to afford it, to use it. And you probably need some education as well. These are all functions of wealthier societies.
It depends on the resources available. Take France from 1000 to 1790 - population growth faster than resources and they ended up with regular famines. The British might have gone the same way except they had an industrial revolution - permitted massive population growth with (on average) massive growth in wealth. Compare with PNG - like much of Africa has massive population growth matching economic growth which is shared less and less equally. For a great example of population growth and wealth growth see NZ 1840 -> 1900. Or population stand still and great wealth growth and you have China.
So all things being equal best to keep a stable population.
Quite right, and for this reason noone, except Africans, have to fear the rising population of the African continent. Except of course the countries adjacent, to which a lot of Africans will try to shift to, to escape the ever worsening hellholes they escaped from. But don't even think about selling stuff to any African government, unless paid in full, up front.
What is driving the public desire to economically diversity away from China? People in New Zealand bring up China’s terrible human right record as one reason yet this country has anchored itself to US strategic interests, a country that has a long history of committing war crimes, violating human rights and crushing democracy whilst hypocritical promoting paeans on its commitment to the rule of law, human rights and democracy.
The reality is that China will continue to grow in economic and political importance and it will be the regional hegemon whether New Zealand likes it.
To suggest that Japan, South Korea and Hong Kong are alternatives does not solve the issue because like New Zealand, they are dependent on China. So in effect, such diversification would merely conceal the dependence. These countries/places have historically been part of China’s sphere of influence and will naturally be reconciled to China once the US stops meddling. The US cannot afford to continue militarily occupying Japan and South Korea, so they will need to seek rapprochement.
You have alot to learn about democracy in the western world. What do you think Tax Havens about, and who do you think hides their money there?
Multi national companies have dominated governance for a long time, and if there was true democracy (rather than plutocracy/crony capitalism) western governments would legalise to split them up.
Time to wake up and smell the roses Brock
"What is driving the public desire to economically diversity away from China"
A free democratic nation just doesn't have much in common with centrally controlled oligarchies who starve their citizens, put minorities or opponents in reeducation camps, manipulate their currency, have no free press, have no independent justice system, don't respect private property and oppress any free thinking.
Chinese people themselves are largely wonderful. And they also have a very low incidents of child abuse.
You can go to America and tell them. Many people living there criticise the USA government and every four years attempt to change it. Now try it in China. It does make a difference.
Didn't Japan achieve economic power back in the 1960s without depending on China. Checking wikipedia the IMF has GDP per capita in 2019 for China as $10,098 and Japan as $40,846. So it is China's potential that we should be interested in not its success to date (ref taiwan $24,827).
We have only had a meaningful trading relationship with China for a very short time. With UK coming on stream to trade with the colonies again we will have trading choices, and just have to choose the option that benefits us most. If China, then them. If someone else, then them. Quite simple really.
Surely China has 3 populations - a small elite, a recent substantial middle class numbering in the hundreds of million which contains many millionaires and over half the population are very poor peasants. The demographic pyramid could be different for each section of their population.
Lapun
I agree the demograhics of China are complex.
Just under 40% are now classed as rural.
In my experience there are very few young people on the farms - it is mainly older people >50 years and some grandchildren.
I expect the rural population to further decline as the move to the cities continues and as the older farmers die off.
KeithW
This is the subject everyone needs to understand. We are going into a future where population demographics are changing rapidly. Although NZ has a growing population the issue we have is that rural and provincial areas are declining, and rapidly. The growth is around the major urban areas. These has massive ramifications for rural industries and towns. Google Dr NatalieJackson for a number of articles on this. So markets will change but NZ will change rapidly as to where people will work and live. What and how we produce goods in a rural scene will be forced to change simply by these changes plus all other climate issues etc as well - its already happening if you look at who works in primary industry now. Immigration won't solve this either as other countries will be chasing them - just look at the graphs. Its very challenging but we need to understand these issues to get a idea of what is achievable, resilient and profitable going forward.
Jack, This a a MPI funded project which if it is successful may be rolled out across the rural provinces. https://thrivingsouthland.co.nz/ It is still very much in startup stage so there's not a lot of detail around the projects. I also believe that in time it will become 'community led' not farmer led. But the initial focus in Southland is on using catchment groups, some of which include rural urban communities, of which there are around 22 that covers the vast majority of Southland excluding DOC areas. The key will be to give power back to the provincial communities to decide what future they want, with government being the enabler. No doubt each province will have its own unique factors which could see some changes to the project in Southland. I would expect to see big changes in the Waikato region, especially, happening over the next 20years. Farming change usually follows the $$.
Thats great - it is being recognized but the big challenge will be to get what young people to stay in provincial and rural areas. Its not impossible and in some ways the high house prices in urban areas can drive people out in a perverse way. We are still going to have to address the simple numbers game - there just arent as many young people to go around going forward - maybe Covid is a chance to show there is stable work, careers and great lifes to be had in these regions. Still be a challenge but its reality and if you know the issue its easier to try and address rather than shooting blind.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.