12 Feb 2014

High demand for NZ products in China

6:55 am on 12 February 2014

Westpac says the drivers pushing the prices of New Zealand's main exports to stratospheric levels are looking more structural than cyclical.

The bank said in its latest economic overview it was not just about the $5 billion boost in the dairy industry's income, because a wide range of sectors were benefiting.

Chief economist Dominick Stephens said the high prices were specific to New Zealand rather than being part of a more generalised commodity price boom.

"The first structural change that's going on here is urbanisation in China. This is a story that's been around for a while but it's perhaps turning out to be even more powerful than we expected," Mr Stephens said.

"So Chinese people are urbanising in droves and demanding more protein, particularly milk, as they do so.

"Only about a quarter of Chinese mothers breastfeed, so there's great demand for infant formula."

That, combined with concern about the safety of local products, added up to strong demand for New Zealand milk powder.

However, it wasn't just dairy products that there was demand for, with strong prices being paid for lamb, beef, forestry and seafood exports.

"China has become our biggest export destination for all agricultural products except for beef, where it's second," Mr Stephens said.

"I'm starting to put one and one together here and discern that the common denominator is actually New Zealand itself."

The prices of New Zealand's commodities were still likely to fluctuate but from a higher base, he said.

As well, countries such as Brazil and Uruguay could compete more vigorously with New Zealand in supplying the demand for our commodities but that was likely to be a slow process.