TPP has an ambitious agenda to open up markets. For the dairy sector in New Zealand and for Fonterra it offers prospects to break down long established and high barriers to trade. This matters as the dairy sector exports around 95% of the milk produced in New Zealand. In that situation it depends very much on keeping as many markets open as possible. Through the existing FTAs with Australia, Chile, China, ASEAN, Taiwan and now Korea a fair bit of the world is covered. Yet that still leaves large dairy markets like the EU, USA, Japan and Canada with very high tariffs up to 200-300% and with quotas of limited size.
TPP is the best opportunity available to attack the barriers in Japan, Canada and the USA as well as improving existing access in Mexico and Peru. Not surprisingly the intent of opening up these markets is not a shared objective with the domestic industries. Strong pressure is being exerted on their governments to minimise the tariff and other concessions.
Around the agriculture world dairy is a highly protected commodity. Its only rival is sugar.
The intent to eliminate tariffs, reach high quality solutions and comprehensively cover all products is very important in TPP. While there would inevitably be a longish time line to reach the goal of no tariffs this is a very serious negotiating objective. New Zealand has an outstanding record in its existing FTAs of reaching zero tariffs and obtaining high quality outcomes. Trade negotiations are always complex but they also need a clear purpose.
Fears are often expressed that New Zealand will ‘swamp’ domestic production in other countries. At around 20 million tonnes New Zealand is a relatively limited milk producer as compared to the whole of the EU and USA. The New Zealand supply is spread across a vast range of countries depending on long and short term market conditions. The objective in TPP is to open up more opportunities for dairy exports within TPP supplying countries including New Zealand.
A high quality TPP result would over time be a major advance in liberalising dairy trade. It would extend substantially the number of markets that are on a path to being opened and increase significantly the percentage of trade covered by FTAs.
This post was prepared by Ken Geard, Senior Trade Advisor at Fonterra. Ken is retiring after a long career in trade policy at first with the Government, then with NZ Dairy Board and latterly Fonterra. We in the New Zealand trade community thank Ken for his great service and we wish him all the best for the future.