Expanding export opportunities in the UK
The free trade agreement signed earlier this month between New Zealand and the United Kingdom will open up huge opportunities for local exporters. The Free Trade Agreement (FTA) will eliminate all tariffs on New Zealand exports, with 97% of them being removed the day the FTA comes into force. Although, the government estimates the FTA will boost GDP by $1b we have used our Export Market Finder tool to identify some of the top opportunities for New Zealand exporters.
This FTA will make New Zealand more competitive in the UK market as we are only the second market, after the EU, to secure a deal after Brexit. Many other countries will still face punitive tariffs and quotas, giving New Zealand an upper hand. Our Export Market Finder tool currently identifies 311 realistic export (goods) opportunities in the UK. The FTA with the UK will only increase the number of realistic export opportunities and export earnings potential.
The table below shows 10 of the top export opportunities ranked by their untapped export potential – a measure of the prize of becoming a large player in an export market1. Our model filters out unrealistic export markets where import demand for a product is small or in decline, and if the market is difficult to access in terms of shipping logistics, tariffs, or market concentration. The model also accounts for domestic production and export capabilities.
Of the top 10 opportunities identified a few obvious examples come out such as wine, cheese, and apples. Some of the other food items like frozen potatoes, water, sauces, and capsicums are the unusual suspects.
Wine comes out with the highest untapped potential. Even though the value of our exports to the UK are already high, there’s more room to grow (see Chart 1). Our enhanced competitiveness through the FTA should allow us to take more market share from other large competitors like France or help grow the overall demand for NZ wine.
However, our current favourable position in a market doesn’t necessarily mean we will easily continue to grow our exports there. For example, sheep meat, of which we are the dominant supplier into the UK, wasn’t identified as a growth opportunity. This is because we are already at or near market saturation (see Chart 2). However, sheep meat also had a sizable tariff in place of 12%. Sheep meat is one of the few exports where the tariff elimination will occur 15 years after the start of the agreement. Such arrangements give UK sheep farmers a time to adjust to the increase in competitiveness after trade barriers are removed.
Some of the more interesting opportunities that have a high untapped export potential are frozen potatoes, capsicums, and flavoured water. Although we currently export very little or zero of these to the UK, they are all large trade markets and have been growing in recent years (see Chart 3). New Zealand also has established export markets for these products in other countries and should look to the UK for new opportunities.
This Free Trade Agreement is going to be a good step up for many exporters already tapped into the UK market. Nevertheless, New Zealand should use this opportunity to see what other potential export markets we can develop and grow.
1 Untapped potential is calculated at the average export value of the top six exporters (excluding NZ) into the target market. The top six is chosen because for over 94% of imported products, more than 80% of a country’s imports come from six or less major suppliers.