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Future Focus: Signposts to Success for New Zealand's Primary Industries

3. Geopolitical Power Shifts and International Trade and Investment

Power blocs and sustainability politics?

Key aspects of global future insight into geopolitical power shifts over the next several decades are:

• US domination of the global political economy steadily declines and it is obliged to accept increasing influence from China, India, Japan, and groups of non-aligned countries.

• The drive for multilateral approaches weakens (evidenced early in the period by difficulty in progressing the World Trade Organization [WTO] Doha Round) and is replaced in part by strong nationalism and blocs formed for reasons of regional security, together with a proliferation of bilateral relationships.

• Strengthening ideological tensions arise from clashes of various moral philosophies including fundamentalist religions and secular politico-economic beliefs.

• After “peak oil”, there are much stronger attempts at dominance of oil reserves and rights to discovery, with consequent potential for conflict.

• There is increasing likelihood of international disharmony regarding access to potable water (of drinkable quality), especially in India and China, motivated by population growth and the differential impacts of climate change on water supplies.

• There is substantial uncertainty about the path to be taken by China, especially relating to ensuring political stability and addressing environmental degradation.

• From about 2015, there is a possibility that civil society movements globally will begin to unite around the belief that the mainstream politico-economic model is unsustainable, leading to a new politics focused on the requirement for human existence in harmony with ecosystems. This would arise from “green” movements but would be more holistic and have broader mainstream constituencies.

Globalisation constrained?

New Zealand food and beverage industries, unlike their counterparts in manufacturing and services, have been leaders in global industries that have themselves been slow to globalise – including dairy-based food and beverage and meat – largely because domestic markets absorb high proportions of production in most countries. Thus, in these industries the potential for globalisation is being realised at the same time as the underlying processes are being constrained.

Key aspects of global future insight into international trade and investment over the next several decades are:

• The processes of globalisation continue steadily, strengthened by the increasing global presence and connectivity of China, India, and Eastern Europe, as well as by more powerful communications technologies. These processes continue to support steady economic growth, at least until 2015.

• However, counter forces are also present and strengthening. Global economic activity becomes increasingly constrained by the weakening of the dominant US financial/economic model and reduced appetites for multilateralism, as bloc-based security measures favour greater self-sufficiency.

• Global economic growth is also slowed by large increases in the cost of use of energy, by increasing risk around energy prices and supply, and through degradation of the quality of water and air. This will become highly significant during the period 2015-2020.

• Business confidence and economic activity is also affected adversely by the escalation of regional conflicts around ideologies, access to oil, and – from about 2012 – access to water.

• Globally, the business models that are thriving increasingly involve disaggregated, global supply chains. Trade in tasks becomes more prominent as production processes are located where they can be done most efficiently.

• Border control remains fundamentally important for nations into the future. However, “behind the border” issues such as sustainability, animal welfare, and other non-tariff barriers to trade, are increasingly important, and will continue to be a challenge. The present niche segments that prefer organic foods and “fair trade” may expand in scope and within the next five years could move towards mainstream segments in affluent markets.

• The impact is currently on developed countries, but in time developing countries will also be affected. The expectations of consumers are that products will be of the same standard wherever they are purchased.

• While agricultural tariffs and subsidies still represent large distortions in the international trading system, and there are substantial gains still to be made from trade liberalisation, these are declining. To maximise economic performance in agriculture and other sectors, an integrated view of the flow of goods and associated services around the globe will be needed.

• Supermarkets are growing in power and influence as they internationalise, driving aggregation of food and ingredient firms. They are increasingly establishing their own product certification schemes, and contracting directly with producers to supply genetically accredited animals of assured quality.

• In general this move towards “secondary regulation” may limit the scope and effectiveness of actions nations (and their agencies) can take to influence the outcomes they want. However, there will likely also be an increase in government-to-government environmental agreements over the next decade.

• There will also be increased pressure to reconcile sustainability imperatives with WTO principles such as non-discrimination, and New Zealand should ensure that it is at the forefront in development of international environmental and sustainability standards. (See also box on page 7 of Section 1.)

What are the implications for New Zealand land-based value chains?

The broad implication for New Zealand land-based sectors is that there will be substantial shifts in the geopolitical contexts of the international trade and capital flows upon which most depend.

At the level of markets that are of interest to New Zealand land-based industries, the current growth of consumer requirements for food/product safety and assurance of provenance will expand rapidly.

Demand for food from markets such as China will rise greatly. China’s internal economy is expected to develop rapidly over the coming decades. The economic rise of Asia, which brings large consumer markets closer to New Zealand, offers the potential to mitigate the effects of physical remoteness, but also generates significant competitive challenges for New Zealand firms.

Establishing how to leverage Māori cultural capital as a point of difference in international markets is an ongoing opportunity (also see Section 5).

Agriculture and horticulture

There is reason for considerable optimism about the prospects for agriculture and horticulture over the next decade or so. Positive aspects include:

• growth of demand in affluent westernised markets for animal protein products continually exceeding supply from domestic sources and imports, resulting in upward price trends. Although this will encourage non-animal substitutes, the target markets for New Zealand sectors will retain preferences for higher-priced products of animal origin, especially when these origins are traceable and are demonstrably safe and based on sustainable practice;

• strong core biological systems expertise resident in New Zealand or readily accessible. However, this depends on sustaining, and establishing as required, world-leading research and education;

• smart commercial people;

• rapid innovation in production and processing systems. Aspects of this will be more intensive land use that also has reduced impacts on the environment, and processing that minimises waste, greenhouse gas emissions, and effluents to water, and also co-generates electricity wherever possible;

• the attainment of strong returns to New Zealand investors and more secure positions in international markets through transferring production and processing technology offshore.

A number of enterprises, such as Zespri, have achieved success with new business models that source product outside New Zealand. However, Zespri’s success is based on its owning the kiwifruit germplasm that is licensed to growers internationally.¹² Thus, for these models to succeed in the future, New Zealand firms need to retain control of the relevant knowledge assets.

Forestry

Forestry has continued to suffer the effects of a long-term decline in the competitive position of its commodity products, and to struggle to find robust platforms for product/market opportunities that would generate higher value from some components of the raw material – although some operators have achieved this.

However, there is great potential for forestry, beyond the traditional value chains, to deliver a mix of values that include:

• targeted carbon sequestration;

• traditional lumber/structural timber;

• clearwood products with quality enhancements;

• processed wood fibre, emphasising biomaterial applications;

• targeted water quality enhancement;

• biofuels production;

• amenity value and tourism.

This mix of values requires a mix of tree varieties and forest types (see also Section 4).

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¹² In contrast, the elite germplasm for vegetables, for example, is owned by multinationals.

Contact for Enquiries

Strategy and Performance Group
Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington

Tel: +64 4 894 0593
Fax: +64 4 894 0738 Contact this person