Fonterra Speech: The Agricultural Issue

“The Agricultural Issue”

Alexander Töldte
Chief Development Officer

Trade Negotiations Workshop
61st Asia Pacific Council of American Chambers Conference

Hilton Hotel
Auckland
New Zealand

2.30 pm
Friday 22 March 2002
(New Zealand Time)

EMBARGOED UNTIL DELIVERY

Fonterra grasped this opportunity, to be represented at today’s conference and at this workshop, with relish. Fonterra is committed to playing a leadership role in the push for global trade liberalisation. In particular, Craig Norgate has called on New Zealand to make the prospect of a Closer Economic Partnership with the United States a “national obsession”. He and I will be accompanying the Prime Minister to Washington next week to help create the coalitions of interest between the two business communities that are needed for the idea to fly. We know the odds of success. We also know the benefits of making the deal happen. That is why we say it is not a time for scepticism. It is a time for advocacy: to hustle to get into the deal flow.

Some may see some irony in a citizen of Germany – whose taxes have, in the past, helped fund the Common Agriculture Policy – and with only recent experience in the agriculture sector – being a staunch advocate for agricultural trade liberalisation. May I say that paying taxes to fund the Common Agriculture Policy – and the international aid to try to fix the problems it causes – helps focus the mind. I am delighted to be on the right side of the issue.

Growing up in a Europe still recovering from war is helpful in understanding the context of why agriculture has been the Cinderella of international trade, left on the sidelines. In a continent of rival nation states, frequently at war, domestic food production – food security – was a critical strategic issue. The idea of relying on one’s neighbours for any food staple, through trade, has historically been difficult to accept. Countries sought food security through self-sufficiency. In Europe and North America, over the years, the strategic importance placed on self-sufficiency in agriculture has been replaced by the disproportionate political importance of rural votes, as the motivating factor for protection. Privileges and protection characterised agricultural production, and that in turn strengthened the farming lobby, which continues to be able to maintain them.

The history of seeing agricultural as set apart from mainstream international trade has created a highly distorted world market, which has only been begun to be seriously addressed in the last two decades, and there is still an enormous way to go. The Uruguay Round agreements were a first step, with agriculture being part of the WTO’s rules-based system. That has allowed smaller, poorer countries to require powerful, wealthier countries to stick to their commitments. For New Zealand, the Uruguay Round allowed the country to regain lost ground on market access. The slow throttling of New Zealand’s butter trade with the European Union was eased with access restored by 50 percent. For the first time in fifty years, meaningful access to the United States was opened up for butter. Export subsidies were capped by binding legal commitments.

There is no denying that New Zealand gained from the Uruguay Round. Since the conclusion of the Round, the New Zealand dairy industry has grown by 64 percent, as measured by milk production. But we are still far from having a normal, functioning international market. Quota access continues to be severely limited. Tariffs on agricultural products remain exceptionally high. Massive production subsidies continue. While export subsidies have been capped, the European Union will still subsidise the export of more cheese than New Zealand entire cheese production. As a result, prices in the international dairy trade still continue to bear little relationship to the underlying economics of the production of the goods concerned.

I could give many specific examples of how this destructive system directly harms Fonterra and New Zealand. In some markets, the tariffs simply shut us out. In Japan for example, the tariff on butter and anhydrous milkfat is so high we would have to sell it for over US$9,000 a tonne to make a return, when the international price is around US$1,200. But reciting example after example of how the system harms New Zealand – and outlining the static benefits New Zealand would gain from trade liberalisation – only encourages the perception that international trade is a win:lose game. It plays into the hands of those who think they benefit from the current conditions. It is the dynamic benefits – and on a global scale – that should interest us more.

The sectors and countries that liberalise first tend to win first, as the New Zealand experience clearly suggests. And in liberalising, they help others to win too. The taxpayers of OECD countries pay out US$362 billion in subsidies to their agriculture sectors each year. These subsidies – and lack of access to OECD markets – prevent developing countries from establishing viable agriculture sectors. Removing all agricultural tariff and non-tariff barriers would boost the economies of developing countries by US$32 billion, according to the World Bank – the same amount the current barriers are holding those economies back. The taxpayers of OECD countries then pay billions of dollars in international aid, but it is still only a sixth of what they pay to their own farmers in subsidies. In national income terms, OECD taxpayers pay their own farmers 1.4 percent of GDP, compared with 0.24 percent to the developing countries those subsidies harm. This system is not sound economics, it is not sound strategic policy and it is not sound ethics.

In today’s interdependent world, economic security – and strategic security – are best achieved by establishing thriving trade between countries under a rules-based system. This is the message Fonterra takes to the agricultural sectors of other countries, including the United States, which is sadly taking backward steps with its Farm Bill – with another US$7.3 billion per year in subsidies to farmers. At the same time, the Congress is considering proposals to introduce import quotas on milk protein products. It is vital for our industry and New Zealand that those proposals do not succeed. We will also make the point that powerful countries, such as the United States, would not accept their premier industries – the aerospace industry or the computer industry, for example – facing blanket restrictions on access to foreign markets and being forced to compete with foreign competitors with massive state-backed support.

Our agenda is clear. We will argue for trade liberalisation from a global perspective, in support of the New Zealand Government – and other like-minded Governments – as the World Trade Organisation gets down to the new Round. We will remind all who choose to listen that the core objective of the Uruguay Round’s Agricultural Agreement was to “establish a fair and market-orientated agricultural trading system” by means of “substantial progressive reductions in agricultural support and protection … resulting in correcting and preventing restrictions and distortions in world agriculture markets”. We will enthusiastically encourage Governments to turn those objectives for agriculture into reality.

We will do the same with respect to the proposed Closer Economic Partnership with the United States. Greater access to the vast, vibrant and sophisticated US economy would increase New Zealand’s contact with talent, knowledge, ideas and capital. It would benefit us simply by raising awareness of opportunities for New Zealand, in the US, and further afield. The United States would also benefit from a deal that could increase the momentum for further economic liberalisation in the Asia Pacific region.

It is in all our interests to take the lead to help secure the economic benefits of global and bilateral trade liberalisation, and so help achieve greater international security and stability. Agricultural trade is one of the greatest obstacles. Reforming it is the best solution. Fonterra – as a leading company in the Asia Pacific region, with our top eight markets spanning the Pacific Rim – is taking the lead on trade liberalisation. We urge all our colleagues in the Asia Pacific Council of American Chambers to join with us in doing the same. You will continue to hear from us in the weeks, months and years ahead.

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