News in October of an imminent free trade agreement (FTA) between New Zealand and the United Kingdom has been met with enthusiasm from the New Zealand honey industry. With a current 16 percent tariff on Kiwi honey set to be slashed from day one of the agreement being signed, there is potential for better returns to the beekeeper and market growth, but how do some of the key stakeholders see the new NZ-UK honey market dynamics playing out?
While New Zealand’s honey producers might fairly expect to see more money in their hands following signing of the finalised FTA – which isn’t expected to occur until 2022 – it’s not as simple as that, those with knowledge of the market suggest.
“Everyone along the line tends to think, there is more money here, I can clip the ticket more,” says Ian Fletcher, who in the 1990s sat around international trade negotiation tables as the European Union’s policy lead on FTAs globally.
“That means they can invest more though and for producers in New Zealand that should mean a higher income for every unit of effort.”
These days Fletcher is well aware of the units of effort that go into primary production, owning a commercial flower garden in Wairarapa while also acting as a consultant to the apiculture industry.
FTAs remove the “tax wedge”, meaning landed price and export price are only separated by the shipping cost, Fletcher says.
“That tends to generate a higher return for the exporter and potentially a higher return for the importer, say in the case of a big supermarket. Both of them have an incentive to continue to invest in the product and we may well find that consumer prices in the UK don’t move much, if at all, but there is more money which is able to be put into marketing and that sort of thing. The benefit for consumers may well be there, but it is unlikely to be the full amount.”
In the case of New Zealand honey, some of those with a closer knowledge of the market, and skin in the game, have slightly different thoughts on how the new market dynamics might, and should, play out.
Opportunity Knocks
The smart move for the New Zealand honey industry is to encourage market growth, ahead of honey value growth, in the soon-to-be tariff-free trading environment, according to Phil Caskey.
Caskey knows plenty about building honey markets, having recently returned from three years based in the UK where he sought to grow markets for the company he co-founded, New Zealand Manuka Group. He also undertook considerable work at home and abroad in the 1990s as a pioneer of the manuka honey industry.
“A 16 percent price reduction could potentially broaden the market, but if that is just absorbed through wholesalers, distributors and the like, or indeed back in New Zealand as extra profit – which there is some temptation to happen – then it will be to no avail in terms of growing the market,” Caskey warns.
“If it is passed through directly and the consumer sees that on the shelf, then I think it has potential to grow the market quite significantly over there and change the perception of manuka honey being out of reach for a lot of people.”
It is not just manuka honey that could see market growth though and Caskey says the opportunity of free trade should be looked at as the opening New Zealand honey has been looking for, to help alleviate a backlog of honey and resulting supply and demand imbalance in recent years.
“If we use this to compete against other honeys that are being brought into the UK already, then that is the real opportunity for us. We have to take a step back and look at the volume we are sitting on in the storage sheds and determine, what is the volume we need to be selling each year? How do we best do that?”
The answer to the latter question, Caskey believes, is to either open up new markets, which is very difficult and comes at high cost, or to sell more into existing markets.
The UK perennially sits in the top three New Zealand honey export markets, alongside China and the USA, worth around $70 million annually.
“We can only increase the volume into the markets to which we are already selling into on price, because we are competing with other honeys globally. This is the opportunity for that. It is a free opening into a market to get rid of the honey we have sitting in stock,” Caskey says.
“If that 16 percent is absorbed as margin – and some exporters might be pinching margin to compete so they might look at this as an opportunity to regain that – then that won’t grow the market. Realistically, if wholesalers and distributors can accept the margin is the margin, then collectively we will pass on the savings to consumers and grow the market. That is a win, because you are moving more volume, but not everyone will see it this way.”
Retailer’s Cut
UK retailers are among those who may not “see it that way”. Egmont Honey has carved out a market share in the UK in recent years and chief executive James Annabell says the big retailers are very alert and will expect suppliers, such as his company, to drop their price once the FTA comes into effect.
“It will likely be banked by the importers,” Annabell says.
“Whether that is the retailer themselves, or a distributor. We might be able to use it to negotiate a slight price rise, but it will be minimal.”
When the UK left the European Union (EU) last year, Annabell says the big retailers were quick to seize on the slight percentage change in duties on honey and expected a credit, so with a 16 percent change on the cards he expects the attitude out of the UK to be the same.
While he does not anticipate those retailers to be putting any more money into marketing of honey – as Fletcher suggested might be a possibility – Annabell believes the FTA could have the impact Caskey is hoping for, in both manuka and non-manuka honey sales.
“It’s exciting because it is good for the consumer and more people might get exposure to manuka honey, especially the lower grades. In my experience, consumers tend to dip their toe in at a lower grade and then trade up to higher grades and more profitable products. From that point of view, it is really good.”
The Egmont Honey CEO has seen a free trade deal play out before, having been on the ground in Hong Kong to negotiate supply arrangements for Watson and Son in 2008 when China and New Zealand entered into their prosperous FTA.
At that time the manuka honey market was in its infancy and went “gangbusters”, but Annabell says that sort of reaction is not likely to occur in the vastly different UK market.
“They are very different business cultures and trading environments. A lot of the growth in China came out of smaller traders wanting to have their own private labels, and the market was kind of in its infancy. Whereas the UK is an established manuka honey market and so it is not likely to suddenly become on the radar of a whole lot of different consumers who will suddenly start diving in and creating extra demand.”
Top to Bottom
Another New Zealand honey packer having success in the UK is the True Honey Co, who have forged markets by specialising in high-grade manuka honey, UMF10+ and MGO300+. Chief executive Jim McMillan says that, while those top-end markets are not as sensitive to price as lower grade honey, the FTA will undoubtably still create opportunity for them.
“It makes a difference alright, no question about that,” McMillan says.
“We are looking to increase our efforts in the UK market and so this will open up some more opportunities. Previously we have been dealing exclusively with high-end retailers, the likes of Harrods and Selfridges, now this will open more doors into new outlets, such as pharmacies.
“This will be good for the wider honey industry too, right down to lower grades and other native honeys. It should open the door wider for them, whereas previously that tariff made it unviable for some of those lower grade honeys.”
Annabell conveys a similar sentiment, pointing out that New Zealand clover honey which once held shelf space all over the UK was priced out during the manuka boom and in more recent years has been hamstrung by the tariff when competing with product from Eastern Europe and China, among others.
“I would love to see New Zealand clover and pure honeys back on the UK shelves, the same way we have managed to get it back on the shelves in Australia,” Annabell says.
Bring it On
While those with experience exporting to the UK have a good understanding of the trading environment, Fletcher knows the ins and outs of the larger trade and political environment and says there are a few more macro level insights which beekeepers should be aware of too.
The all-inclusive nature of the trade deal should open up opportunity for more fruit and vegetable growers, and thus potentially present more demand for pollination services.
The determination of a FTA between New Zealand the UK will also be beneficial should the UK re-enter the EU and trade deals need to be renegotiated, a distinct possibility, Fletcher believes.
Now though, honey traders wait for final details of the FTA to be confirmed, before it will go through both UK and New Zealand domestic approval processes, ahead of a yet to be confirmed signing date in 2022. From there, the opportunity for market growth and greater returns from producer to customer, but also everyone in between, will begin.
