Economic Impact of the COVID-19 Pandemic on New Zealand’s International Trade in Dairy Products: An Empirical Investigation

Deng, Fylgessio A A
Sen, Rahul
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Bachelor of Business (Honours)
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Auckland University of Technology

The New Zealand dairy industry typically accounts for 30% of the global dairy exports. These exports contribute approximately $20 billion annually to the New Zealand economy. However, the outbreak of COVID-19 in 2020 led to the closure of international borders and the implementation of restrictive measures, adversely impacting New Zealand's exports and imports of dairy goods, which has hitherto not been studied empirically. This study contributes empirically to the literature by investigating the extent to which COVID-19 impacted New Zealand's dairy exports and imports in 2020, whether the COVID-19 impact had been uniform or heterogeneous across the categories of dairy goods and over the months following the outbreak of COVID-19, and whether the existing regional trade agreements (RTAs) had alleviated this impact. To this end, we analyse, by applying the Poisson Pseudo Maximum Likelihood (PPML) method to the gravity model of international trade, the monthly bilateral trade data of dairy goods traded between New Zealand and 155 trading partners from January 2019 to December 2020. The findings of our research can be summarised as follows. First, except for whey and milk constituents, we find that COVID-19 significantly reduced the growth rates of New Zealand's dairy exports and imports in 2020. However, the reduction was more severe in the most traded product categories and the product categories most exposed to China's market. As China continues to pursue its zero COVID-19 approach, it is most likely that the exports of these product categories may continue to be adversely affected. Thus, this study emphasises (i) a diversification of New Zealand risks in terms of export markets and (ii) government support for the industry. Second, the economic impact of COVID-19 on New Zealand’s dairy exports and imports was different each month for most product categories. The effect was relatively stronger during the months associated with stricter COVID-19 containment measures, such as January to April 2020, when China locked down the Hubei province and 19 other provinces/regions. Third, RTAs helped mitigate the negative economic impact of COVID-19 on New Zealand’s dairy exports and imports, but New Zealand’s dairy imports benefited more than exports. This unequal impact of RTAs on New Zealand’s dairy exports and imports was partly due to the fact that New Zealand Dairy exporters face significant barriers in the form of high compliance costs of non-tariff measures (NTMs) – such as the 59 sanitary and phytosanitary (SPS) measures imposed by China on dairy imports from New Zealand (TRAINS, n.d.) – which may not have been addressed even as part an RTA.

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