Treasury has also warned about over-reliance on China, particularly for dairy.
Hamlin says as a rule of thumb no more than 20% of revenue should be earned from one source to ensure a buffer against changes in terms of trade.
According to the 2018-19 Ministry for Primary Industries’ Situation and Outlook report, primary sector exports to China for the year to June 2019 were $14.4 billion out of total sales of $46.3b.
Add in the value of all exports of goods and services and annual sales to China earlier this year breached $15b for the first time.
There is a gaping chasm back to New Zealand’s next largest primary produce market, Australia, which is worth $4.5b followed by the United States at $4.2b, European Union $3.1b and Japan $2.6b.
Hamlin says China’s dominance comes with risk.
“The major thing to be concerned about is if you look at NZ exports generally, the share of products going to China is rising and the share of products going everywhere else is falling.
“Essentially, China is crowding out other markets.”
China is taking a long-term approach to secure food supplies for its growing population by also buying NZ processing companies, giving it control of the supply chain.
In 2017 China was the top export destination, accounting for 24% of primary sector exports by value, buying 25% of dairy, 43% of forestry, 31% of seafood and 21% of red meat.
Since the devastation of China’s pig population by African swine fever last year it has taken 31% of all primary sector exports and is the leading buyer of dairy at 31% of exports, forestry at 52% and meat and wool 33%.
By volume China’s influence is even greater.
In the year to the end of September China bought 45%, or 891,400 tonnes, of NZ beef, lamb and mutton, a dominance AgriHQ analyst Nicola Dennis describes as unprecedented and with little sign of easing despite dwindling supplies of lamb.
China’s influence is also boosting prices and demand for previously low-value cuts such as lamb flaps. It is paying $13 a kilogram for a product previously sold to Pacific markets for $2 a kilo.
Queues of Chinese traders were lined up outside NZ booths at the Anuga Food Fair in Germany trying the source supplies of NZ lamb, a sign that lamb’s new dynamics of growing global demand and steady to falling supply is not widely acknowledged, she said.
Trade Minister David Parker says the China-NZ trade relationship is one of our most important.
For the year ended June 2019 two-way trade accounted for 19% of overall two-way trade while Australia accounted for 16% and the European Union 14%.
But individual exporters decide where they export to, Parkeer says.
“It is up to individual firms to judge where they export but the Government also works hard to ensure that exporters have a wide range of options when they consider where to export their products and services.”
Beef + Lamb senior insights analyst Ben Hancock says given China and the US are the world’s two largest economies it is logical they are NZ’s two largest red meat markets.
Meat is eaten by the end user, unlike commodities such as iron ore, so that provides a degree of market certainty.
Hancock says traditionally 60% of a beef carcase has been sold frozen for manufacturing but new Chinese markets last season pushed on average 2% more of a carcase into chilled cuts.
China is already big business for Fonterra and is about to get bigger with the creation of a new role of chief executive for Greater China in the Fonterra management team.
Over a quarter of all milk collected by Fonterra ends up in China and the co-operative supplies 36% of all dairy products imported by China and 11% of all dairy consumed in China.
A Fonterra spokesman says it supplies consumer branded products, where Anchor is the number one brand across multiple categories, food service and ingredients.
Fonterra sells to 140 countries and is using the success of its China model to develop other markets.
“For example, our new strategy has identified food service as one of the five categories we’re going to focus on, expanding our food service model from China into other markets.
“We’ve recently launched our food service business, Anchor Food Professionals, in India.”
John Ballingall, an economist with consultant Sense Partners, said Chinese demand for food helped NZ recover rapidly from the Global Financial Crisis in 2008.
“We do produce a lot of what the Chinese want to buy,” he says.
Exporters are responding to Chinese demand and pricing and Ballingall says that interest is unlikely to change as the Chinese population grows, becomes more affluent and demands more animal protein.
But he reliance on China comes with risks that its economy remains strong.
“It means exporters need to be well aware that any downturn in the Chinese economy could have implications so it is important to have a diversified portfolio.”
