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Look to India to spice up trade

Look to India to spice up trade

Many Kiwi primary producers have viewed China as the great land of opportunity as that country has progressively opened itself up to trade with the West. However, rising on the horizon is another economic star, also burgeoning with opportunity for our farmers, growers and associated businesses. That market is India, but as an export market it’s not for the fainthearted.

With a population of more than 1.2 billion, India is one of the world’s largest economies. It is also undergoing a period of significant social change and extremely rapid growth. Even during recession, its economic expansion has been plotted at more than 5 percent. And those tracking these things project the country will speedily return to the 9-10 percent it has experienced over most of the last decade.

However, food prices in India are on the increase was well as demand outstrips supply and the nation struggles to feed its population. The country currently ranks at 67 out of 84 countries on the International Food Policy Research Institute’s global hunger index, created to assess levels of child malnutrition, child mortality and the proportion of population who do not get enough to eat. In fact the Indian government is poised to introduce a new law making access to food a basic right of every Indian citizen. Driving this policy is the idea of subsidising food for 70 percent of the population.

It is onto this stage that New Zealand has been advancing since early last year in an attempt to encourage India to abolish trade tariffs on our exports and reduce other non-tariff barriers. This is a path we have trodden before.

There have been a number of bilateral treaties in place between New Zealand and India, across a range of market sectors, since 1963. More recently, however—since April 2010—our two countries have been in talks regarding a bilateral free trade agreement (FTA). This follows the respective trade ministers confirming in 2009 that a feasibility study had found that “the two economies are largely complementary, and an FTA would deliver an outcome of genuine mutual benefit”.

New Zealand Trade Minister Tim Groser talked up the opportunities: “A free trade agreement with India offers great promise for New Zealand businesses. India is already one of our fastest growing markets, with New Zealand exports having tripled over the last decade.”

Sharing the love: as an export market, India is not for the faint-hearted but prime minister hopes a great relationship will develop

The fourth round of FTA negotiations took place in New Delhi in March 2011. Then, in the same month, Prime Minister John Key headed a delegation back to New Delhi for the fifth stage in the process. It is expected that a deal will be clinched soon.

The March/June trip was modelled on the new ‘New Zealand Inc’ India Strategy. It was the first of a series of all-of-government initiatives to set priorities and coordinate relations with key offshore partners. The strategy incorporates a clear vision that India should be a core trade, economic and political partner for New Zealand. Among its five goals, it aims to treble exports from mid 2010 levels to $2 billion per year by 2015.

So what do New Zealand producers stand to gain in all this?

Two-way trade between New Zealand and India is currently valued at more than $1.25 billion, with our exports worth $917 million for the year ending March 2011. That’s nearly double their value two years ago and now makes India this country’s 7th largest export market. The majority of those goods are primary commodities, including dairy products, fruit, log exports and wood pulp, and hides and skins.

The sociologist Ashis Nandy once noted that “in India the choice could never be between chaos and stability, but between manageable and unmanageable chaos”.

Given dairy’s near super-star status in our economy, it was no surprise that representation from the New Zealand dairy industry was encouraged on the June trip, with a trade strategist from Fonterra joining the party. What was surprising, however, was the sheer size and scale of India’s own industry.

“India is the single largest dairy producer in the world and, unlike other parts of Asia, it already has a high level of domestic dairy consumption. Precedent suggests that that’s only going to grow as consumers become wealthier,” says Simon Tucker, executive director of the Dairy Companies Association of NZ (DCANZ), of which Fonterra is a member. “Much of the country’s domestic herd is buffalo. They supply the ghee that is the common cooking fat in Indian households, the milk that gets added to teacups and the ever-prevalent yoghurt.”

Until relatively recently, the sub-continent was self-sufficient in regards to dairy, but demand today is rapidly outstripping supply. This is leading to a new situation where India is much more open to the idea of dairy imports, says Tucker. However, it currently charges a high tariff on many dairy imports, so in addition to the chance to address these through FTA negotiations, the New Zealand sector is examining other opportunities as well.

“Fonterra is looking particularly at partnering with Indian farming interests to produce milk in India,” Tucker observes. “And if we do get into producing milk over there, it could also make sense to work with Indian partners to look at supply chain and R&D issues as well. With the remarkable projections for dairy consumption in India—and its export market—it would make great sense for us to be part of that. It’s essential that we take a long-term strategic view of this very important country.”

Another traveller on the official trip to the sub-continent was Don Braid, group managing director of transport and logistics powerhouse Mainfreight. As a key player in New Zealand’s export activities and someone with an eye for offshore opportunities, Braid was keen to take a look at the state of India’s freight and distribution capabilities.

“India has been on our radar for some time—we have known for a while that there would be significant opportunities in that market. What we were after was clarity; some way to judge the size of that opportunity,” he explains.

“Unlike China, India is a country that places a strong focus on domestic consumption, and food producers simply can’t keep up with the demand. However, from a transport point of view, what logistics framework there is, is disparate and disorganised, particularly when it comes to cool chain. This currently means that up to 40 percent of their domestic crop perishes post-harvest, simply because of the delay and the poor standard of handling before it gets to market. It’s a tremendous waste.”

That said, he is quick to observe that New Zealand firms like his need to be very careful not to over-commit, should they look to enter the Indian market.

“There are two points to make here: we’re not on our own internationally in approaching this massive market and the chances it offers; and each individual company will do best out of adopting a specialised approach, rather than trying to be all things to all people. This means that Kiwi businesses need to be tightly niched in their approach in order to reap the greatest successes.”

For Braid, the trip was very much a fact-finding mission, and he was impressed at how the Ministry of Foreign Affairs and Trade (MFAT) and New Zealand Trade and Enterprise (NZTE) paved the way.

“First and foremost, the government and the businesses that attended approached the Indian market as NZ Inc, rather than as a bunch of individual players. That went down exceedingly well on both sides. NZTE also put a lot of time and effort into researching who we needed to talk to in order to get the answers we wanted. We were fully briefed, right down to how to behave and how to do business in India,” he says.

“Then we were given the opportunity to meet a number of international players and our next step is to determine which one we will be best to partner with. We will definitely be back up there in the next three months and we hope to have a deal up and running in the next six months.”

And milk and logistics are just the tip of the iceberg. According to Credit Suisse, the total wealth of India has tripled in a decade to $3.5 trillion and is expected to double again in the next five years. This is driving a change in demographics resulting in a growing cohort of increasingly discerning middle class foodies with more disposable income than ever before at their fingertips.

All going well, Kiwi producers are going to be a part of that new Indian future.

This story originally appeared in Primary magazine. Click here to subscribe.