TPP deal to free up dairy trade would reduce volatility

TPP deal to free up world dairy trade would reduce volatility

DairyNZ chairman John Luxton writes that major TPP players are holding their dairy consumers to ransom

The news that the Trans Pacific Partnership (TPP) deal has not been agreed because of differences over autos, dairy and intellectual property is no surprise to anyone.

Some of the major players have sought to maintain trade protection rather than to reduce it.

It seems incredible that the US dairy industry has so far convinced the US negotiators that they need to be protected from any increase in New Zealand dairy imports into the US.

The New Zealand dairy industry is the only dairy sector in the TPP which is predominantly export focussed. Around 95% of our production is exported which represents around 25 to 30 percent of New Zealand's exports by value. The next closest is Australia which exports around 40 percent of their dairy production, but this represents only around 2 percent of Australia's export earnings. The US dairy sector currently provides much less than 1 percent of the US's total exports, but by volume the US is still the largest exporter of milk powder, cheese, and dairy proteins in the TPP region. The US dairy industry is four times larger than the New Zealand industry, and exports over 15 percent of its production. The US share of global dairy exports has more than tripled since 2003.

The US dairy sector has stated that access should only be given equivalent to the amount of additional access that they gain from the Japanese and Canadian dairy markets. But this makes no sense given that the US dairy market is significantly larger than the dairy markets of either Japan or Canada, having over 322 million consumers compared to Canada's 36 million, and Japan's 126 million. It also consumes nearly 800,000 tonnes of butter and butter related products annually. The Canadian, Japanese and New Zealand dairy sectors each comprise around 11,500 farms each; however the Canadian and Japanese dairy sectors are heavily protected from imported product with tariffs of up to 300 percent on imports. Being sheltered from any competition they produce around one third of the milk that New Zealand farms produce and at two to three times the cost. Dairy consumption is also much lower in these countries because of their high production cost, passed on to their consumers.

There is a parallel in New Zealand. New Zealand used to make cars like Japan does - but at a cost of nearly twice that of Japan. The removal of tariffs on motor vehicles in the 1990s reduced transport costs for all New Zealanders markedly. Free access to our market was given to the Japanese, Canadian and US motor vehicle motor vehicle manufacturers.

To date in TPP Japan has been reported as offering an annual increase in dairy access to New Zealand, equivalent to the production of about three larger New Zealand dairy farms, or .0016 percent of our total production.

Meanwhile in Japan, butter has been rationed and additional emergency imports are regularly being sought. Effectively 11,000 dairy producers are holding 126 million Japanese citizens to ransom in terms of their dairy consumption options. Canada also appears not to have made a decent offer on dairy. Whilst most sectors of the Canadian agricultural sector want TPP to be successful in order to allow an expansion of cereal, canola and pork exports, the Canadian government still seems to be focussed upon protecting inefficient parts of their farming sector. In this way Canada's 11,000 dairy farmers are holding 36 million Canadians citizens to ransom both in terms of the dairy products they can access and reducing the export prospects of their more efficient producers.

The US, Canadian, and Japanese trade negotiators need to deliver on the original intent of a comprehensive removal of restrictions on all goods traded amongst the TPP signatories - not just on the exports that matter to them.

The best outcome for dairy would be to enter into a comprehensive approach to opening up these currently closed markets by opening up progressively over 5 to10 years to allow total access. Then local dairy sectors could then adjust to the changing market.

A comprehensive freeing up of dairy trade in the TPP agreement would also markedly increase the amount of international dairy market open to trade, from currently about 8 percent of all international milk production to around 20 percent. This would markedly reduce the current volatility in world dairy prices resulting from the current thinly traded market buffeted by small surpluses or deficits in global dairy demand.

If Japan and Canada cannot agree with the need for a comprehensive TPP agreement providing duty-free access on all goods then they should leave the talks and come back when they are prepared to honour the promises they made on entering the talks in 2013 and 2012.

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