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Industrial sectors

by Ganesh Nana

Increasingly New Zealand’s primary producers of meat, wool, dairy, fish or logs sell their products to local secondary industries, which process goods before exporting them. New Zealand is famous as a tourist destination, but education exports also feature large in the tertiary sector of the economy – in 2008 they earned $2.4 billion.


Industrial structures

In the early 2000s New Zealand’s economic structure was similar to that of other developed economies. It had small primary (mainly agricultural) and secondary (manufacturing) industries, which together accounted for about 29% of New Zealand’s gross domestic product (GDP) in 2008, and a much larger tertiary (services) sector which made up the remaining 71%.

  • Primary industry was dominated by dairy, sheep and beef farming, and also included forestry and fishing.
  • Secondary industry was unusual compared to other countries because of the large number of businesses processing primary products, such as dairy, meat and other foodstuffs, and wood and paper. Together these accounted for more than 30% of secondary industry in 2008. Machinery and equipment manufacturing made up another 10%, and aluminium and steel enterprises 8%.
  • Tertiary industry provided the majority of GDP and employment. Finance, insurance, and other business services made up about 15%, and property services another 15%. Transport, communications, retail, building, education and health each contributed between 5% and 10% of total tertiary industry.

Buying inputs

Every industry needs material and services (‘inputs’) to carry out its business. For example the New Zealand forestry industry uses inputs of pine forests, which it cuts down to make logs.

Industries also need inputs of capital in the form of equipment, such as the capital invested in the buildings and machinery used to cut and handle logs, and wages to pay employees.

An industry is related to other industries by buying products from them, as inputs. The forestry industry buys services from the transport industry to move logs to processing plants. It buys some of these inputs locally, and imports some from overseas.

Selling outputs

Each industry sells its production (outputs) to two main markets.

  • Industries sell to businesses or activities in other industries. The forestry industry in New Zealand sells logs to the wood-processing industry, which uses them as an input into its own activities, for example making pulp for paper.
  • An industry may sell products or services directly to households, or export them to buyers overseas. These direct sales are known to economists as the ‘final demand’.

The outputs of New Zealand’s primary industries do not usually make their way directly to households. Most are processed or prepared before final consumption or other uses. The forestry industry sells raw logs to the wood-processing or paper-product manufacturing industries, and not to the householder (the consumer).

A proportion of logs are exported in their raw state directly to overseas buyers. These export sales bypass the primary product processing sector of the secondary industries.

In contrast, most of the output of the service industries is sold directly to consumers, though there are exceptions – some legal, accounting, banking and other business services, as well as the services of the building, electricity, transport and communications industries, are sold to local primary and secondary industries, so those industries can complete the production of their own outputs.


Primary sector

Inputs

New Zealand’s primary industries buy most of their inputs from each other, because the various forms of pastoral and livestock farming, and some types of horticulture, are interrelated. They also buy business services like accounting, finance and banking, and there are significant inputs from the chemicals industry in the form of fertiliser.

Inputs of wages and equipment

New Zealand’s primary sector employs relatively few people, and paid just $4.2 billion in wages out of the total $70 billion national wage bill in 2008.

Economists call land ‘physical capital’. Much of the value added in agriculture is received by the owners of land in the form of a return (profit) on farmers’ labour and the equipment they use.

The logging and forestry industries, and the mining, oil and gas extraction industries, also have high levels of physical capital in the form of land and equipment.

Domestic deer

Sheep and cattle were the first animals to be commercially farmed in New Zealand, and still make up the largest stocks farmed for the primary sector. In the 1960s farmers looked for new ways to make money from their land. New Zealand became the first country in the world to successfully farm deer on a large scale.

Changes to inputs

There were few changes to the inputs of the primary sector after the 1960s. The main change was an increase in imports. New Zealand agriculture has imported a relatively small amount of its inputs, but the proportion increased in the early 2000s as secondary, or manufacturing, industry reduced in size. Machinery and equipment for the primary sector were no longer produced locally and had to be imported. The proportion of machinery and equipment imported directly, instead of being made locally, grew from less than 25% to nearly 50% by 2008.

Outputs

In the past the primary sector sold most of its output directly to overseas buyers as exports. After the 1960s this changed. In 2009 primary industries sold most of their output locally, to the primary processing industries of the secondary sector. Those industries then sold the processed primary products to overseas buyers. As a result, the amount New Zealand earned by exporting directly from the primary sector was reduced.


Secondary sector

Inputs

There is a wide range of secondary, or manufacturing, industries in New Zealand. Food processing industries such as dairy factories, abattoirs and meat freezing works, and factories processing farmed and fresh-caught fish, depend heavily on the primary sector for their inputs of raw materials. Manufacturing industries rely on the transport services industry to carry produce to the factory door for processing.

The wood processing and paper product manufacturing industries have similar structures. Both depend heavily on inputs from the logging and forestry industry, but also use the transport services industry to move raw logs to the mill for processing.

Inputs of equipment

Other manufacturing industries, such as those making telecommunications equipment, need far more imported inputs than either the primary industries or their related processing industries, because they require machinery or electrical components and other equipment.

The basic metals industry – the Tīwai Point aluminium smelter and the New Zealand Steel mill at Glenbrook – needs high levels of physical capital (land, plant and equipment) and buys large amounts of electricity as another input. Tīwai Point also imports ore.

Petroleum refining uses high levels of physical capital and is especially dependent on imported inputs. It imports crude oil and other fuels and refines them into petrol for domestic users.

Inputs of wages

People are needed to work the machinery for the manufacturing sector, so industries which process primary products are more labour-intensive than primary industries themselves.

The meat and dairy processing industries of the secondary sector paid $1.7 billion in wages out of the national total of $70 billion in 2008. Other manufacturing industries, such as those making telecommunications equipment, were also relatively labour-intensive. In those industries, the largest wage bill was the $1.3 billion paid by the machinery and equipment manufacturing industries.

Viperous seats

In the early 1980s New Zealand had nine large firms assembling motor vehicles. By 1998 there were none. Since then a new secondary industry has grown up making and exporting vehicle parts and equipment, such as alloy wheels, tyres and headlights. In the early 2000s Racetech Seats, based in the Hutt Valley, made special seats for high-performance road vehicles, jetboats, pleasure boats and motorsport teams around the world. In 2002 the company won a contract to make the seats for the Dodge Viper, Daimler Chrysler’s first factory-made racing car.

Changes to inputs

After the 1960s the secondary sector required more local inputs, mainly because the expanding wood and wood products processing industry needed raw logs from the forestry industry. There have been even bigger changes to inputs imported from overseas. The closing of local manufacturing industries in the 1980s meant fewer of those industries imported goods.

Outputs

New Zealand’s secondary industries export a large proportion of their outputs, and contribute the bulk of New Zealand’s total export earnings. In 2008 export earnings from secondary industries were more than $40 billion. Exports from the meat and dairy processing industries were worth about $10 billion, and wood, pulp and paper exports were worth a further $2.5 billion. The steel and aluminium industries had made export earnings of more than $8 billion.

Changes to outputs

After the 1980s there were dramatic changes to the outputs of many industries within the secondary sector. The amount those industries sold directly as exports rose from 4% to over 25% by 2006, mainly due to the growth of the wood products and forestry processing sector. The amount sold to local consumers dropped from around 50% to 20%, due to the closure of vehicle assembly plants and clothing and textiles factories in the 1980s.


Tertiary sector

Retail sector

The tertiary sector has widely varying input needs, but many tertiary industries rely heavily on imports from overseas. In 2008 most of New Zealand’s total import costs of $47.5 billion were made up of goods bought from overseas for reselling to the consumer, through the retail sector. These imports included food, clothing, plastics, motor vehicles and machinery.

Domestic inputs

Many other tertiary industries bought much of their inputs locally from the secondary sector in 2008, although some also imported a great deal.

The building industry used a range of inputs from manufacturing industries, in particular building materials from the wood processing industry, and products from concrete and cement, ceramics, glass, basic metals and fabricated metal product industries – some imported. The building industry also used services from the transport industry, and from business services, such as design, architecture, consultant engineering, accounting and legal services.

Throughout the 20th century a great deal of capital equipment was invested in the electricity industry in New Zealand, such as hydro dams, turbines and transmission lines. The communications industry also depends on capital equipment such as network cabling.

Imported inputs

In 2008 the transport industry used large inputs of petroleum and other fuels, most imported by the petroleum refining industry. The transport industry relied directly on imported cars and other vehicles.

Kiwi curriculum

New Zealand is one of the leading exporters of education according to the Organisation for Economic Cooperation and Development. International education, either by teaching overseas students in New Zealand schools and other institutions, or sending New Zealand teachers and teaching resources overseas, earned $2.4 billion in 2008. These export earnings increased five times between 1998 and 2008, making this tertiary sector industry one of New Zealand’s top five export earners.

Inputs of wages and equipment

Most tertiary industries employed large numbers of people. The service industries accounted for more than $50 billion of the $70 billion national wage bill in 2008. This included the wages of most retail and sales staff, doctors, nurses, teachers, builders, accountants and lawyers. Within this group, the health industry topped the list with a wage bill of over $6 billion, followed by the retail trade and the education industry at just over $5 billion each. Other service industries with large wage bills were other business services ($4.8 billion), central government administration and defence ($4.3 billion), and the building and construction industry ($4.5 billion). In the early 2000s the electricity industry required very little labour.

As the transport and communications industries have become more dependent on large-scale distribution networks, and equipment such as cabling, airports and planes, they have employed relatively fewer people for their size. The proportion of total wages they paid halved from 40% in 1952 to 20% in 2008. At the same time the proportion of physical capital rose from 15% to 25%, due to the development of large distribution networks, and related equipment such as telecommunications networks or aircraft.

Outputs

Local sales in the transport and communications industries increased from 50% of total sales in 1952 to nearly 65% in 2008, as the industries became increasingly important service providers to other local industries.

Exported outputs

A total of $7.5 billion in export sales was earned by the retail, accommodation, transport, cultural and personal services industries in 2008, industries which together provided most of the earnings from overseas tourism. Exports also increased from the wholesale and retail trade, transport and communications, and other service sectors, mainly due to tourism and, in the early 2000s, education exports.


How to cite this page: Ganesh Nana, 'Industrial sectors', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/industrial-sectors/print (accessed 15 November 2019)

Story by Ganesh Nana, published 11 Mar 2010