Sustainability trends in key overseas markets: market drivers and implications to increase value for New Zealand exports

Abstract

This report examines trends in consumer concerns regarding sustainability in key overseas markets for New Zealand. These trends are affecting and will continue to affect what consumers buy and the premiums they will pay. The implications of these for New Zealand are explored in this report. The report also extends to other issues that may have potential to impact on our exports. The changing international policy environment, especially within developed countries, reflects the breadth of sustainability initiatives. This includes environmental regulation and schemes affecting many products. This also includes targets for reduction in CO₂emissions with the EU targeting a 20 per cent reduction. Of particular concern to New Zealand is the development of agri-environmental policies. In the EU the introduction of the Single Farm Payment increasingly requires farmers to meet social and environmental criteria. In addition, the EU subsidises farmers to meet more stringent environmental standards. The US also has working land conservation programmes which reward farmers who incorporate sustainable practices in production. However, much of the move towards sustainability in markets is being driven by the private sector and retailers. This is seen with the development of GLOBALGAP - a compliance regime developed by retailers which now incorporates around 80,000 producers in over 80 countries. Also, many retailers have developed their own schemes to attract market share. These include the Red Tractor Scheme, major international retailers acting as “gatekeepers” for sustainable goods, retailer ‘sustainability promotion’ schemes (such as Tesco’s Fresh & Easy, Marks & Spencer’s Eco-Plan A), and other schemes. Similarly, consumer attitudes and behaviours are changing, particularly within premium segments. Many consumers are reacting to the associated environmental and social impacts of the products they are purchasing, and seeking out products that promote sustainable practices in production and consumption. This can be seen with the rise of the Slow Food movement and the LOHAS (“Lifestyles of Health and Sustainability”) movement, which includes consumers within USA, UK, China, France, Japan, and many others. Related to these trends is the growth in ethical food and fair trade. These markets have continued to grow during the recession, although, as they tend to focus on developing countries’ exports, this is of less relevance to New Zealand, but does stress the importance of social issues as well as environmental concerns. The issues which, and have the potential to, influence markets include those relating to climate change, such as carbon footprinting and /or reduction in carbon emissions. Tesco has taken the lead in the application of carbon footprinting, and this has been taken up in many countries. However, the actual calculations and use of footprints has been slow due to the difficulty of measurement, and some retailers have moved away from following this policy, deciding to reduce their own footprints. New Zealand has to be aware of this requirement for some markets, and also the issues around carbon measurement ensuring that international standards apply and no certification agency obtains market power. Another growing issue is around water quality and quantity. There is the potential for the introduction of “water footprinting” schemes to show consumers the associated water used to produce an item with water footprint calculators available. This has potential to affect New Zealand as, firstly, meat has a relatively high water footprint to other products, but also New Zealand, with its relative abundance of water, has a high water usage to other countries which do not, such as parts of Australia. Of more relevance to New Zealand is water quality. The rapid change in land use in New Zealand has led to increase in nitrates discharged and, whilst this has been from a much lower base than other countries, does have the potential to reduce the perception of New Zealand as clean and green. Many countries overseas have policies towards protecting biodiversity and wildlife on farms. This reflects the multi-functionality of land use in some countries. In New Zealand, due to its large conservation areas, there has not been the same imperative or priority to protecting biodiversity and wildlife on farms. However, more and more overseas market access schemes for premium segments of the market are requiring this. This is reinforced by subsidies for wildlife and biodiversity protection and enhancement. Animal welfare is stated by some as the most important concern of consumers in some markets at present. There is a growth in concern from intensive farming systems which does not affect New Zealand as much as other countries. However, concerns still exist, such as tail docking of lambs; castration without anaesthetic; abortion of cows, and winter shearing of sheep. Concern about the environment has also led to demand for lower meat and dairy consumption. This is due to the relatively high level of emissions from livestock, among other issues such as water use and efficiency of calorie production. Thus various schemes are in place internationally encouraging lower meat consumption, as well as major government procurement agencies reducing meat purchasing. A growing trend is the campaign to eat local food, arising out of environmental concerns, as well as concerns about the recession, with the aim to support local communities. The issues for New Zealand are that local foods are not necessarily better for the environment (such as shown by Food Miles), and also not an option for feeding large populations but just niche markets. Thus, there has been an increase in farmers’ markets (marketplaces in which farmers sell their products directly to the public), community-supported agriculture (community-based procurement of food products from a communally owned/operated farm), food box schemes (in which sellers take produce from the farmer and deliver these directly to the consumer). For New Zealand, the challenge is to effectively market its food based upon the social and community values in New Zealand. There is growing demand for products which provide health benefits aside from basic nutrition, generally known as functional or fortified foods. This is especially true of Asian and ageing markets, both of which are growing. Many of the issues above relate to, or rise from, developed markets. However, there is growing evidence that the developing markets especially in countries such as China are also requiring similar attributes. Asian markets tend to pay premiums for natural attributes which as a characteristic is very similar to sustainability in European markets. Moreover, the growth of the supermarket sector in countries such as China and the movement of western chains such as Wal-Mart and Tesco into these markets mean that the procurement policies are likelyto meet international standards.