The Global Dairy Trade (GDT) price index is at a two-year low, but there is some good news ahead, says Rabobank dairy analyst Emma Higgins.
He says an enormous amount of due diligence is required by companies planning to go into joint ventures in China.
They must understand the market and what might happen later as the venture proceeds, he says. The market can offer great value if a NZ company gets the right business partner.
But many unsuccessful attempts at JVs were made by people and companies in the dairy sector.
“We could all do well to learn what went wrong from the mistakes made by the dairy sector. It is also fair to say that a lot also went right.
“Imports were the balancing act for the Chinese market, which left the production here hugely exposed to rises in the demand for product but also reductions in demand. Volatility became a huge problem and choosing the right partners became an issue and a lot of people didn’t get this right.
“And a warning: while being first-mover in the market has an advantage, it’s important to realise that the competitors arrive soon after and that’s made China bit more challenging in recent years.”
Understanding the business culture of China is important, and to us in the west it is different and complex. But the Chinese find our business culture difficult to understand.
“They talk a lot about the culture of the west and how new that is to them. In the last decade we have seen huge numbers of Chinese delegations of executives travelling around NZ, Australia the US and Europe learning how industries work, who are the key players and how they operate in these markets. Our market is as foreign to them as their’s is to us,” he says.
Much has been said about NZ risking over-dependence on the Chinese market, much as it was on the British market in the 1960s and 70s and on Iran in the 1980s, Hunt says. But the risks in China are greater than was the risk of NZ’s reliance on Britain at the time.
“The risks are different: China has certainly become like Britain was in that it’s become clearly the leading market for NZ agricultural products and that reliance on one market brings its own risks.
“But the China situation is different from Britain in several ways: the Chinese market is far more opaque than Britain and it’s harder to ascertain what’s going on than it was with Britain.”
Hunt says the big difference was the close political alignment between Britain and NZ which, however, also brought complexities to light when Britain joined the EEC.