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Export drop forces India policy rethink
15 Feb 2014
Following a significant drop in New Zealand's exports to India, New Zealand Trade & Enterprise is commissioning two major pieces of research to help Kiwi companies sell higher value products into the market.
Exports to India, which is our 15th largest export market, fell 14.9 per cent to $669 million in the year ending December 2013, and by half in the month of December alone.
Much of the fall is due to the continuing decline in hard coking coal spot prices to around US$143 a tonne as coal makes up just under a quarter, or $165m, of our exports to India. To demonstrate the decline that has caused such a headache for state-owned Solid Energy, coal exports to India were worth $255m in 2012 and $334m in 2011.
But a sharp rise in the value of the rupee - now 51.6 cents to NZ$1, a slowing of economic growth last year (although forecast to improve this year to 5.3 per cent), and a strong domestic focus due to India's upcoming general elections this year, have also been contributing factors to the overall export slide.
The bulk of our exports to the Asian country are commodities such as kiwifruit, dairy products and meat and some Kiwi suppliers are directing their product to other markets where they can get a better return rather then sell at the prices being offered. Clayton Kimpton, NZTE's regional director for India, Middle East and Africa, said there was no point selling to India if you were not making money there.
Although India was best seen as a long-term market rather than short-term, a lot of Kiwi companies dip their toes in the water and then out again because they were not making enough profit from India or couldn't meet the required scale, he said.
Talks on a proposed free trade agreement with India are progressing slowly and the government's stated target in the NZ Inc India Strategy, launched three years ago, of growing annual merchandise exports to at least $2 billion by 2015, now appears pie in the sky.
While Kimpton admits the strategy target was overly ambitious, he thinks the current decline can be turned around by being smarter in working out who the high-value customers are, where they are, and what they want to buy. According to a 2011 E&Y report, India's middle class is estimated at 50 million people, or 5 per cent of the population, but was expected to grow steadily in the next decade to reach 200 million by 2020.
NZTE is about to commission a market research firm for what it's calling the Top End project that will answer questions around wealthy Indian consumers and help develop a strategy for offering New Zealand products to them.
"This will apply across a range of New Zealand businesses. We will have a better targeted market rather than having our companies simply turning up saying they need help finding a distributor. That's only one aspect, they also need to know what to sell them."
The project is expected to be completed by the end of the year.
NZTE has also just started a scoping study on providing cold storage to India where food wastage is a major problem, not just once it's been sold to a consumer but also on the journey from producer, wholesaler and retailer.
An estimated 22 per cent of food grown in India is wasted before it reaches the consumer.
"The logistics across the country are not sophisticated and there is a push by the Indian government for help with cold storage. We have real strengths in this area, with pipfruit in particular, and we're working on a collective project with New Zealand businesses, Indian businesses and the Indian government," Kimpton said. It's hoped the scoping study will be completed this year and a pilot coldstore facility rolled out by the end of 2015, he said. The food processing industry, which is growing at 13 per cent per annum, emerged as one of three potential opportunities for New Zealand exporters at an India New Zealand Business Council briefing held in Auckland this month.
Dr Devi Singh, director of the Indian Institute of Management in Lucknow, said India has high volumes of production in food, livestock and dairy but there was a gap in the infrastructure in food processing, storage and transportation. He identified opportunities in food technology, food safety and security, and nutrition, particularly relating to protein deficiency.
Dr Singh also said Kiwi companies would be better off aiming for joint ventures with Indian businesses rather than directly exporting themselves, mainly due to issues around bureaucracy and scale.