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NOV 13

Milk Powder, Logs and China

Recently I gave a presentation at the Pine Manufacturers / Wood Processors conference in Rotorua. As always when you do these things what to say and what not to say becomes the key consideration. Wood like raw material based supply chains is literally rooted in New Zealand, but like all resource based supply chains downstream processing can be done anywhere. The supply chain conflicts between forest owners wanting to sell logs at the best price and wood processors being unable to match the price sees the added value lost to New Zealand.

This is the heart of the story, yes exports have grown but as you can see in the presentation that growth is logs to China and milk powder to China – one market, two product types. No much to build a nations future on. Superficially trade is balanced with China but looking deeper at the number the imbalance is really in the added value activity. Little is exported to China that has any added value, imports have quite a different profile.

So where do we end up? New Zealand is losing added value content in exports, that loss in activity results in a loss of capability and capacity that further reduces the ability to add value. Our policy framework promotes this loss in added value activity, the numbers speak for themselves. Regardless of the spin from policy makers we are losing added value activity and regressing to commodities.

As always there are forces driving this process, the absence of certainty around exchange rates is at the core of the erosion of our added value capacity. Why risk investment in added value processing or new products when earnings are anyone’s guess; better invest in land and buildings.

What a way to run a country. 

tags: milk, china, logs, trade, exports, imports, growth, added value, manufacturing
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