New Zealand warming to Chile

TWO CONTRASTING pieces of news this past week in Santiago captured the hopes and fears of the blossoming relationship between New Zealand and Chile.

On one hand, some 2500 students are vying for 300 scholarships the Chilean government will give for study in New Zealand next year and many more are expected to apply before the deadline. But on the other, some farmers were angry that Soprole, Fonterra's Chilean subsidiary, cut by 7% the milk price it pays them.

And there's a connection between the two items. The scholarships are the first in a new programme to help bolster Chile's chronic skills shortage. By 2010, when the country celebrates it bicentenary, 3300 Chileans a year will be heading off for tertiary training around the world.

New Zealand was quick to spot the potential of the initiative and, along with Australia, was the first country to sign up with Chile. A fair few people coming to New Zealand next year will be training for the rapidly developing Chilean dairy industry on either technical or university courses.

And New Zealand investment in farms, technology transfer and downstream processing is playing a major role in the sector's progress. For example, Fonterra recently bought out the minority shareholder in Soprole. The deal gives it full control of 25% share of Chilean processing capacity.

But some farmers saw the Soprole price cut as an attempt by Fonterra to flex its new strength at their expense. The company said, though, it was responding to falling product prices in global markets.

The farmers are worried this rising tide of New Zealand investment will harm their livelihood. They are particularly concerned by competition from Kiwi farmers investing heavily in local land. They are introducing seasonal pasture farming techniques with lower production costs than the Chilean system of year-round milking of cows fed on grains and forage.

The latest, and by far the biggest, deal was the recent purchase of a 19,000ha estate near Osorno, the dairy capital of Chile. The buyer was a New Zealand investment group led by Mark Townshend, a large-scale farmer at home and a former Fonterra director. Henry van der Heyden, Fonterra's chairman, is one of the co-investors. They plan to develop it into a series of farms stocking a total of 45,000 cows.

More progressive local farmers, though, are welcoming the infusion of capital and technology. For example, Aproleche Osorno, the dairy farmers' association in the Osorno region, is working closely with New Zealand Trade & Enterprise to help bring Chilean farmers and Kiwi agribusinesses together on projects to convert land to pasture farming.

This step-change in collaboration between the two countries was triggered by the P4 trade and investment agreement signed by New Zealand, Chile, Singapore and Brunei in September 2006.

The pact was seen as a new model for trans-Pacific relations and it marked a significant deepening of New Zealand's relationship with South America. Chile is an attractive partner because of the close similarities between the two country's primary sectors. Investment gives overseas companies access to Chile's free trade agreements which cover 95% of the world's population.

And P4 will take on far more significance if the US agrees to negotiate entry to it. In effect, New Zealand would gain free trade access to the US. Washington is expected to decide soon whether to begin talks.

Chile, with a population of 16.6 million, is also an attractive market in its own right and a good base from which to do business across the continent. For example, Glidepath, the Auckland maker of airport baggage sorting and handling equipment, has had its South American base in Santiago for some years. It was exhibiting this past week at a major trade show in Brazil.

Yet, for all the attractions of P4, it has taken sustained work across a range of programmes over the past two years to get some commercial momentum going, officials from the Chilean and New Zealand governments say.

Corfo, the Chilean government's economic development agency, and NZTE have led the work. More than a dozen trade, science and other missions have travelled between the two countries. Corfo has also funded a number of market studies by New Zealand companies, taken a stand at Fieldays 2008 and will share a stand with NZTE at the Chilean equivalent in November.

One of the main thrusts of NZTE's work is its Food Value Chain project. The goal is to help a large number of New Zealand agribusinesses establish operations in Chile, Brazil, Argentina and Uruguay. So far some 45 companies have been involved but many as yet are still in the investigation rather than investment phase.

Spreading knowledge about NZ pastoral farming techniques is an essential part of the market development. To that end, NZTE has worked with the Aproleche Osorno, Universidad Austral de Chile, other local dairy leaders and Mike McBeath, a Waikato farm consultant with a dozen years' experience in Chile, to develop the Manual TecnoKiwi to help local farmers adopt NZ technology.

The TecnoKiwi programme already has five Chilean-owned monitor farms that are demonstrating to their neighbours the benefits of the technology.

While dairying will dominate New Zealand's primary sector engagement in Chile, there are plenty of other opportunities thanks to soil and climate similarities.

One example, is the flourishing business of Novazel, a horticulture operation owned by Flowerzone, an Auckland company, and some other New Zealand investors. Beverley Joe, Novazel's general manager, made her first trip to Chile in 2003 to explore the possibility of supplementing New Zealand flower growing. For example, the great length of Chile makes it possible to grow flowers in the north ahead of the NZ season and in the south after it.

She began running Novazel shortly after it started up three years ago. Then it was exporting for two months of the year. Now it ships every day. It has a staff of 13 working with 15 contract growers on some 30 species.

Novazel is also developing overseas markets for native Chilean plants and places a strong emphasis on working with New Zealand plant growers and breeders.

This collaborative approach is clearly the absolute key to deepening the New Zealand-Chilean economic relationship. It won't be easy. There is a long history of intense and bitter rivalry between the likes of the apple, kiwifruit and forestry sectors of the two countries, not to mention some disastrously dysfunctional joint ventures such as Carter Holt Harvey's in forestry.

And there are some huge hurdles to overcome such as skill shortages in Chile and resistance from farmers in both countries.

The fact is, though, both countries will be able to do more together than they can on their own. If companies learn how to play to those strengths, Chilean-New Zealand ventures could carve out large and profitable roles across South America and beyond.
Rod Oram travelled to Chile with the help of the Ministry of Foreign Affairs and Trade.

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