25 Aug 2015

Chinese slowdown to put pressure on food exporters

3:00 pm on 25 August 2015

NZ food exporters supplying top end branded products to China are going to find it more challenging, says a local agribusiness academic.

Those supplying commodities or ingredients will also have to put up with flat prices for the next few years, as Chinese consumers respond to the down turn in that country's economy, by favouring discounted food products over higher priced imported brands.

An overnight plunge in Chinese shares has given world stock markets an attack of the jitters as well.

The Prime Minister and some analysts say New Zealand is reasonably well insulated from events in its biggest export market.

But it was China cutting back on milk powder import that triggered the slump in world dairy prices. Log prices have fallen again for the same reason and reduced demand from China has been a major factor in falling sheepmeat prices as well.

Massey University agribusiness professor Hamish Gow said Chinese consumers will be responding in the same way that European and American buyers did during the last two global financial crises, and there were two sides to that story.

"One is, how commodity markets are going to run and we've started to see this in the dairy industry, where there's going to be downward pressure on prices and the market's become a lot more competitive. We're unlikely to see the commodity prices lifted, related to China, in the way that they have in the past.

"The lucky thing is, that's an open competitive market so, providing high quality inputs into that, at least provides some shock absorber, although it's not going to be at the great price we were looking at two years ago. That's gone.

"But the second part of this story is actually at the consumer interface, which is related to how consumers interact with their brands and how they'll make their decisions to move from high end international brands, and under financial pressure will likely drop down to local brands and store and private label brands for their purchasing decisions."

Professor Gow said New Zealand exporters who have locked themselves into relationships with those store brands will do fine, but that was as an ingredients provider.

He said if prices for those ingredients fall on the international market, it will certainly put pressure on New Zealand suppliers.

"As far as the branded offerings into those stores go, that's going to become a lot more competitive, to be able to offer high end brands."

Professor Gow said experiences in Europe and the US had shown that once consumers shift to discounted brands, they don't come back again.