News that the review of the China-New Zealand FTA is unlikely to result in improvement for dairy access is disappointing for the New Zealand dairy industry. The Dairy Companies Association of New Zealand (DCANZ) says this increases the importance of high quality and timely access improvements for dairy from the other trade negotiations currently underway.
“Despite the close relationship that New Zealand and China enjoy, New Zealand dairy exports to China continue to incur over a $100 million in tariffs each year, with the safeguards regularly triggered in early January” says DCANZ Chairman Malcolm Bailey. “Additionally New Zealand exporters of milk powder, cheese, and butter will be at a growing tariff disadvantage relative to Australian competitors until these safeguards end in 3-5 years”.
DCANZ agrees with the assessment that New Zealand will have the best dairy access into China of any country in the world when dairy safeguards end in 2024. However, five years will be a long-time for New Zealand dairy exporters to be at a tariff-rate-driven commercial disadvantage. It is therefore important for New Zealand to advance high quality and timely access improvements for other markets.
Beyond China, dairy exports continue to experience highly constrained access into many markets. DCANZ estimates that only 12 percent of global dairy consumption sits within markets that it would classify as open to trade. While a 2017 report by NZIER estimated that tariffs suppress the value of current New Zealand dairy production and exports by an estimated $1.3 billion annually, and non-tariff barriers have been estimated to add over $3 billion in costs to dairy exports in the APEC regional alone.
“This is significant for a sector that is a major contributor to economic activity in regional New Zealand, and which is committed to investing to improve sustainability and the value of our production” says Bailey.
“An additional $1.3 billion of export returns would go a long way in supporting additional investment to grow value and sustainability. Enabling more dairy consumers in the world to access New Zealand products would assist New Zealand to target the top 2-3% of consumers with our 2-3% of global dairy production”.
A recent NZIER report (Commissioned by DCANZ) highlighted that dairy continues to account for 1 in every 5 dollars earned from New Zealand goods and services trade and is in turn vitally important as a purchaser of goods and services from a third of all other New Zealand industries.
Trade liberalisation over the last 30 years has supported the New Zealand dairy industry to grow value. “New Zealand’s dairy export revenue per cow has increased by more than 73% since 2001, and this additional value has flowed through to New Zealand households in the form of wages earned by dairy industry employees and payments for goods and services provided to the dairy industry,” says Bailey.
In the context of an inclusive trade agenda it is relevant that 79% of the $2.6 billion of wages payed directly by the dairy sector went into rural communities across all regions of New Zealand. Ten percent of all dairy assets sit within Maori ownership and dairy processing provides the fifth highest average female salary out of 139 industries in New Zealand.
DCANZ believes New Zealand’s trade agenda will provide opportunities for further dairy trade liberalisation and stresses the importance of the New Zealand Government pursuing these with a high level of ambition.
“The tariff free access that New Zealand dairy exports will have into China from 2024 sets a benchmark for RCEP, Pacific Alliance, and EU FTA agreements to match” says Bailey.
“There is no reason why tariff protection in Japan, the EU, Korea, Mexico, or India should continue for any longer than in China. We note that the EU is a competitive exporter of dairy products; Mexico has already fully liberalised its dairy market to American exports; Japan is using annual emergency tenders to fill domestic shortages; and India is forecast to have a growing dairy deficit.”
“Improved access into these markets in the next five years will also help lessen the impacts on New Zealand dairy exporters of a competitive disadvantage versus Australia into the Chinese market” says Bailey