From the beginning of the COVID-19 recession, we’ve expected regions with large food-based primary sectors to weather the economic storm better than those that are highly exposed to international tourism.

This view was borne out by the differences in regional economic activity declines across the country in the June 2020 quarter. Tourism-focused economies such as Queenstown-Lakes and Mackenzie contracted by more than 20% compared to the June 2019 quarter. By contrast, economic activity in primary sector-focused districts such as Wairoa, Tararua, and Carterton declined by less than 5% compared to June 2019.

Apart from the ongoing strength of domestic consumption, food-based primary exports continued to perform, as foreign consumers have increasingly been attracted to New Zealand’s produce, due to its reputation for high quality and food safety standards. Supply disruptions globally also provided New Zealand with an opportunity to step into the breach in some areas. Meat, dairy, and in particular fruit exports have generally remained above 2019 export levels (see Chart 1). During October, seafood exports made a significant recovery, as China implemented import restrictions on a range of products from Australia.

However over the past two months, export values have started to slide downward.

There are some dark clouds lurking on New Zealand’s international trade horizon. Our exports are affected by lower levels of restaurant and hospitality activity that are hitting demand for higher-value foodstuffs. The resurgence of COVID-19 in several of New Zealand’s key international markets is also worrying. A return to varying levels of lockdown in these countries is likely to limit demand, even for food-based products.

These softer export trends are likely to show through in reduced incomes for meat and wine producers, for example, as they are forced to settle for lower prices from international consumers with a reduced willingness or ability to pay top dollar.

The same is true for non-food primary and manufactured exports. In the case of wood and forestry products, freight issues earlier in 2020 and then a sluggish rebound in Chinese activity over the first half of the year have kept growth in check. Over time we expect a lack of overseas processing activity will also likely reduce demand for some of our mining outputs.

Finally, our exports remain at risk of disruptions in global markets and supply chains, as international shipping and airfreight traffic is reduced, and routes are rationalised.

According to the latest forecast from the World Trade Organisation (WTO), world merchandise trade volumes are expected to decline by 9.2% in 2020. For the June 2020 quarter, the total value of New Zealand’s international trade declined by 17% compared to the June 2019 quarter, with lockdown hitting overall trade activity.

Government has put in place various policy initiatives to promote export-led recovery in New Zealand’s industries. The Trade Recovery Strategy, launched in June 2020, aims to place the country in the best possible position to recover from the effects of COVID-19, attract investment, and take advantage of new export opportunities. Industry Transformation Plans (ITPs) are under development for key sectors including agritech, digital technologies, advanced manufacturing, food and beverage, and forestry and wood processing. Export promotion is likely to be a key element of these ITPs.

Just over a week ago, fifteen countries in the Asia-Pacific region, including New Zealand, signed the Regional Comprehensive Economic Partnership (RCEP) agreement. This agreement covers almost one-third of the world’s population, and the fourteen other signatories account for more than half of New Zealand’s exports.

Our initial high-level modelling suggest that the unrealised export opportunities for New Zealand exporters in these fourteen countries could be worth more than $2.8bn, mainly in primary products in which New Zealand already has an established track record of exports.

Over the past few months, the Infometrics team has been working to improve our modelling of regional exports, and the data that we can provide to our clients on the subject. These improvements will allow clients to more effectively map the value chains of export products produced in their regions, from primary production to secondary processing. Our modelling will also provide insights into the export potential that exists for regional products in various export markets. We will be providing clients with more information on these developments in early 2021.

Please get in touch with Alistair Schorn if you would like more information.