ANZ boss Mike Smith says new research commissioned by the bank will show massive agriculture export opportunity in Asia for NZ

By Gareth Vaughan

ANZ says New Zealand could more than double the value of annual agricultural exports by 2050 and generate an additional NZ$550 billion of revenue, although this could even rise to NZ$1.3 trillion if global demand for agricultural products grows faster and New Zealand lifts production volumes and develops higher value products.

Speaking to a Trans Tasman Business Circle lunch in Auckland yesterday, ANZ Banking Group CEO Mike Smith said these figures come from a major new study ANZ - the biggest lender to the New Zealand rural sector - will release next month on the soft commodity opportunities for Australia and New Zealand, primarily from feeding Asia's burgeoning urban and middle class populations.

Commissioned by ANZ, the report done by Port Jackson Partners, a Sydney-based consulting firm founded in 1991 by two former McKinsey & Company directors, is due for release around the middle of next month and will be fronted in New Zealand by Graham Turley, the bank's local managing director for commercial and agri banking.

"To give you a sense of the scale of the opportunity, the forthcoming ANZ research report I mentioned suggests that the new-found wealth of the developing world, rising incomes and population growth, will see the world demand at least 60% more agricultural output by 2050 compared to 2005-07," Smith said.

"In fact if bio-fuel uptake and the economic growth of developing countries accelerate, demand for agricultural products could more than double over this period."

Under Smith, a former HSBC executive who took the reins at ANZ in October 2007, ANZ is pursuing what it calls a "super-regional strategy" targeting Asia becoming as big a profit source for the ANZ group as New Zealand - where it owns the ANZ and National banks, UDC Finance and fund manager OnePath - within five years. Last month Smith said ANZ was on track to meet this Asian earnings goal on time in its current 2012 financial year, which ends on September 30. This would see the bank's profit sourced from the Asia-Pacific at 20%, up from 7% five years ago.

In May ANZ said it was investing A$300 million (about NZ$378 million) in its locally incorporated Chinese subsidiary, almost doubling the capital it has tipped into the business since ANZ became the first Australian bank to be locally incorporated in China in 2010.

'NZ has the land, water, skills & geographic proximity to benefit'

In his speech Smith noted demand for many agricultural products had already started to outstrip supply resulting in periods of very high global food prices during recent years.

"In the face of these shifts, New Zealand has the land, the water, the skills and the geographic proximity to benefit significantly from the huge middle class populations emerging in Asia with sophisticated tastes and rising incomes," said Smith.

"Our research suggests that New Zealand could more than double the real value of annual agricultural exports by 2050 resulting in an additional NZ$550 billion of revenues over the next four decades. Moreover, the size of the opportunity could increase to NZ$1.3 trillion if global demand for agricultural products grows faster and New Zealand can boost production volumes and continue to shift to higher value products," Smith added.

According to Statistics New Zealand, New Zealand's combined exports of processed and unprocessed products were worth NZ$32.6 billion, or about 70%, of the total NZ$46.7 billion worth of exports in the year to June 2012. The NZ$32.6 billion is up about 80% from NZ$18.1 billion in 2003.

Meanwhile, the government has a target of doubling the real value of New Zealand exports by 2025 with a goal of boosting exports from 30% of Gross Domestic Product (GDP) to 40% by 2025. Finance Minister Bill English said last month the government wants foreign investors to know New Zealand is open for business in order to help local enterprise attract the capital needed to meet these targets. The government also wants to double bilateral trade to China to NZ$20 billion by 2015.

'Economic & industry reform needed, along with farm turnover'

To grow agricultural exports by the sort of level the ANZ commissioned research suggests is possible, Smith said leadership and a willingness to pursue economic and industry reform were important. This included sourcing capital to fund growth and support farm turnover including actively considering the role of foreign capital, attracting skilled workers by boosting the image of agriculture and improving education, and focusing research and development to drive long-term growth by identifying and pursuing the highest potential opportunities.

Also needed would be the closing of performance gaps between individual farms by encouraging investment in new technologies and best practice, and targeting key markets through the better understanding of consumers in Asia, and making a conscious effort to capture premium market opportunities.

"Here, I believe New Zealand is much better placed than Australia. New Zealand's outwardly focused political and business leadership understands these opportunities and they are charting a course to take advantage of them," Smith said, touting the government's "NZ Inc China Strategy."

"The idea of a shared vision and a coordinated and cooperative approach between government and business when dealing with Asia is something New Zealand does well and it's something that Australia could learn from."

'China now focused on quality of growth rather than size'

Noting that the Chinese economy, where a slowdown is underway, had become a major talking point globally, Smith said early last year it became obvious China's short-term future would start to look quite different from its recent past.

"In China's new five-year plan, the government has stated that it will become more focused on the quality of growth, rather than the quantum. This means that China's economic model is shifting and that its 'new normal' for economic growth is now in the 7% to 8% range rather than growth rates of over 10% that we have become accustomed to over the past decade," said Smith.

However, he said the monetary policy instruments China has are "somewhat blunt and rather intrusive," something being seen now as the Chinese government manages a combination of cyclical factors such as weakening external demand for China's exports and the lagging impact of earlier tightening measures amplifying the slow down.

"Once the leadership transition that will occur later this year is complete, I believe you will see a renewed focus on maintaining internal stability with action to increase fiscal spending and ease monetary policy and this will see annual GDP growth of around 8% in China."

Noting there was still an "issue around social stability" in China, Smith suggested the easiest way to control this was to increase people's wellbeing.

And having received approval from the Hong Kong Monetary Authority to settle cross-border trade transactions in the Chinese renminbi last year, Smith said ANZ now had 2,000 New Zealand corporate customers using renminbi. He predicted the internationalisation of the renminbi would create a massive market, with Hong Kong likely to be the main financial centre to benefit, predicting a "fully convertible" renminbi possibly within five years, with the Chinese currency ultimately becoming a major global reserve currency.

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