Manufacturing Matters- Tuesday Top-Up 8

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Recent key developments in MAKE│NZ

• Our History – Part 6 (final):

• The New Zealand Manufacturers’ and Exporters’ Association [NZMEA] went through a lot of change – and changes – in the last decade. In 2017, after a strategy and brand review, it decided to trade as The Manufacturers’ Network, reflecting in the name what members told us was the most important thing we did for them – creating opportunities for networking. In 2018 we received an offer from the EMA, our counterpart in Auckland and the upper North Island, to join forces, and from 2019 to 2022 The Manufacturers’ Network operated as a joint venture between the NZMEA, and the EMA. It is fair to say that the collaboration didn’t work out as expected from both sides’ perspective, and in August 2022 the NZMEA resumed operating on its own under the MAKE│NZ brand. Thus, its brands changed twice in the last decade, but the NZMEA still traces its lineage back to that ad in the Lyttelton Times on July 9, 1879, calling manufacturers to get together to better pursue their interest. As the French say “plus ça change, plus c’est la même chose” – the more it changes, the more it’s the same thing.

• Also, part of what happened in the above period was the formation of the New Zealand Manufacturing Alliance, formed in 2018. This is a partnership of manufacturing industry organisations that have come together to talk to government with one voice. Participation in that partnership has changed somewhat over time. Right now, and in addition to MAKE│NZ, there is ALENZ (Aluminium Extruders); MESNZ (Maintenance Engineers); Print NZ; WGANZ (Windows and Glass) and WPMA (Wood processors & manufacturers).

• Our next meeting of the Production Managers’ Working Group will be on September 18. We’ll be picking up on a couple of the themes / issues that came out of the recent survey conducted within the group. If you are or have a production / operations manager in the Canterbury region and would like to join the group, please send me an email: dieter@makenz.org

• Two of our Manufacturing Alliance members met up with the Minister for Energy, the Hon. Simeon Brown, last week, to discuss the viability of manufacturers with high energy needs in New Zealand (see also below). The Minister assured us that the government is taking the problem seriously and pointed out that:
– He is very concerned – taking action on a number of fronts
– Nothing is not being considered
– Significant volatility is being recognised
– Government is taking away barriers to building more generation
– Reinforced that government is committed to Net Zero by 2050
– Role for gas in achieving that goal
– Review of market to deliver globally competitive energy prices
– Goal is affordable price and security

Recent key developments in New Zealand

• There are six major Japanese-owned forestry companies in New Zealand, collectively employing around 3,000 employees and generating $2.7bn in revenue each year, most of that from export sales. At least some of that capacity is now at risk of disinvestment due to more favourable energy costs elsewhere:

And yet, as Tony Clifford, Pan Pac’s Managing director, pointed out “It was only six weeks ago that I was on a trade mission with the prime minister to Japan, talking about both growing wood processing capability, but more broadly, seeking to enhance foreign direct investment in New Zealand from Japanese companies.”

• More numbers: July exports of the most important manufactured (elaborately transformed) products, excluding food & beverage, were up by 5.7% over the same month last year:

Recent key developments in the World

• A few years ago, I asked the Governor of our Reserve Bank, Adrian Orr, about the Bank’s assessment of the potential future impact on New Zealand of trade flows among the BRICS countries, and the use of currencies other than the USD to settle that trade. What I received was a rather blasé and dismissive response along the lines of “That’s never going to happen in our lifetime”.
Well, we all know what is said about predictions, especially about the future …
For the federal fiscal year 2024 (October 2023 – September 2024), USDA’s Economic Research Service estimates that there will be a record $32 billion agricultural trade deficit in the US. The fiscal year 2024 deficit follows the current record deficit of $16.7 billion set in fiscal year 2023 and would be only the fourth agricultural trade deficit in the last 50 years. For 2025, the USDA predicts a further increase to a shortfall of USD 42.5bn – another 33% increase.

Here are a few quotes from some recent grain trade publications:
“The U.S. Department of Agriculture last month said 504,000 tonnes of wheat sales to China had been canceled. The figure is equivalent to about half the total U.S. wheat shipments to China in 2022.
In spring 2023, China abruptly canceled 1.1 million tonnes in purchases of U.S. corn. They were later reported to have increased imports from Brazil instead.” (April 2024)
“China typically accounts for the majority of U.S. soybean export sales. Following record imports from Brazil, Chinese bookings of new-crop U.S. soybeans are among the lowest levels in two decades.” (August 2024)

So, China stops buying agricultural products from the US, going shopping in BRICS countries instead. The BRICS+ countries (Brazil, Russia, India, China and South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates) account for around 37% of global GDP, having overtaken the G7 economies:

Likewise, BRICS+ countries have increased their share in global trade flows; between 2020 and 2022 trade within BRICS increased by 40%, and the G7 trade sanctions against Russia will undoubtedly accelerate that trend. It is the declared aim of the BRICS+ countries not only to increase trade within the bloc, but also use alternative methods of payment, rather than dealing in USD, and within the SWIFT system of banking. In general, we can observe a channelling of trade flows globally, with geopolitical considerations increasingly making their influence felt:

There will be multiple reasons for China to buy grain from other sources. Of interest here are the consequences beyond the immediate loss of business opportunities for US exporters.

This is the Chicago Mercantile Exchange [CME], a global derivatives marketplace, founded in 1898. CME is the largest options and futures contracts exchange of any futures exchange in the world. It is the primary source of information about current and future developments in the trade of agricultural and other commodities globally. That information provides a key input to operational and commercial decisions for US farmers, for example: how much of which crop to plant, and what prices to expect upon harvest?
When BRICS+ countries trade within the bloc, as we have seen with China and Brazil, they don’t go through either the CME or the SWIFT system anymore. What that means is that market transperancy has been lost. These deals are no longer visible to US farmers, or the wider world – how much was traded when, and at what price?
That won’t be good for American farmers, but does it make a difference to New Zealand manufacturers? Most likely not directly, or immediately. But in future …?