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Leaf Through Emerging Trade Trends Underlining Potential For NZ Businesses

Summary

  • NZ recorded an annual trade balance deficit of $1.3 billion for the year ended May 2020 due to low imports over the last two months amidst lockdown.
  • Recommencement of large-scale manufacturing in China and eased restrictions are driving the log industry.
  • Growing inclination towards immune-boosting seems to be aiding demand for natural products such as manuka honey.
  • The trend of home renovations has stimulated the sale of furniture, electrical, and hardware in May 2020 by $573 million over May 2019.

New Zealand, grabbed global attention as a “virus haven” on the back of dedicated policy measures, seems to be pulling the cords of consumer confidence and business sentiments with the phased opening of the economy.

However, shadows still linger over the path to economic recovery amidst growing fears of second wave infection as the country observes new cases with New Zealanders returning from overseas.

Moreover, strict lockdown measures impacted the nation’s exports and imports for May, with coronavirus cases flaring up in other nations further jeopardizing the international trade scenario.

The latest figures by Stats NZ showed that the annual trade balance was a deficit of $1.3 billion for the year ended May 2020, with a narrowed gap of $1.1 billion between annual exports and imports compared to the previous month. The country recorded a 25.6% annual contraction in the monthly imports, while exports fell by 6.1%.

International statistics manager Darren Allan indicated that “low imports over the last two months” led to the quick contraction of the NZ annual deficit.

While the change in the trade scenario can have substantial implications on NZ businesses, let us have a closer look at how emerging trade trends highlight the potential for closely fabricated business activities:

Nature Oriented Businesses

The impact of the COVID-19 response was evident in trade statistics, with forestry being classified as non-essential service, under Alert Level 4, driving a 6.1% reduction in export figures. While the log price in May climbed to $184 per cubic meter due to the manufacturing resumption in China.

Meanwhile, golden Kiwifruit exports rose by 36% or $242 million during March, April, and May compared to the same period in 2019.

On the other hand, honey exports marked an annual uptick of 53.4%, indicating people’s growing interest in natural immune-boosting foods. It appears to have overtaken New Zealand’s more traditional wool export industry that was worth $450 million in the year ended May 2020.

In the wake of changing trends, New Zealand Wool and Carpet company, Cavalier Corporation Limited (NZX: CAV) continues to advance its transformation strategy that focusses on the expanding demand for greener, healthier, and more sustainable products.

Comvita Limited (NZX: CVT) reported decent sales output during March Quarter with a substantial year-on-year increase in harvest. The market leader in Manuka Honey also successfully raised $50 million in its retail entitlement offer.

Dairy Producers

May merchandise data also witnessed rising export values of dairy products such as milk powder, butter, and cheese by $57 million or 5% over May 2019 figures. Infant formula remained in hot demand among the overseas importers.

ASX listed dairy producers deserve closer attention here, with the dual-listed company. The A2 Milk Company Limited (NZX: A2M) witnessing stimulated demand, being added as a component to S&P/ASX 50 Index. Meanwhile, Synlait Milk Limited (NZX: SML) has eased its forecast base milk price to $7.05 kgMS from $7.25 kgMS for the 2019 / 2020 season.

Home Related Businesses

As per Electronic card transactions data released by Stats NZ for May 2020, consumable sales marked an uptick of 12% over May 2019, driven mainly by substantial movements in furniture, electrical and hardware, that spiked by $573 million.

Navigating through Alert Level 4, stay-at-home orders and social distancing norms have embraced the trend for improving residential space. Meanwhile, people’s budget for overseas travel also seems to have been allocated to home renovation and refurbishing activities.

In this transformational scenario, The Warehouse Group Limited (NZX: WHS) saw significant pent up demand, pivoting its operations to agile principles for supporting improved speed to market, collaboration, innovation, and productivity. Although it recorded a decline of 17.9% in its unaudited retail sales during the Third Quarter, it witnessed an increase of 74.8% in online sales compared to the previous corresponding period. The company is facing an unprecedented scenario, withholding guidance on FY20 profitability.

While the Arden Government further gears up to conquer the challenges on trade scenario, attempting to unsettle the country’s equilibrium and ensure economic revival and trade boost; recently signed digital trade agreement DEPA offers a leading edge to New Zealand by unlocking a slew of opportunities for small and medium enterprises. Besides, tech adoption, innovative offerings to cater to the paradigm shift in consumers’ preferences, and strategic business initiatives can play a crucial role in chartering out business growth and expansion plans

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