Does NZ Dairy Pose a Threat to the US Markets?

ANALYSIS - This week, leaders from nine countries are meeting to discuss the Trans-Pacific Partnership (TPP) free trade agreement (FTA) in Melbourne, Australia. And for the first time in two years access to dairy markets will be on the table.
calendar icon 2 March 2012
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For the US this could be an issue. Last year President Barack Obama backed full and comprehensive opening of markets in TPP talks, however in the dairy industry there is some resistance to this.

Only last week the US Dairy Export Council sent a letter to US Trade Representative Ron Kirk and US Secretary of Agriculture Tom Vilsack. Despite supporting the TPP, the letter cited concerns about pervasive anti-competitive practices by the New Zealand dairy industry.

The US dairy industry claims that New Zealand has a "smothering domestic monopoly and aggressive pricing in foreign markets".

New Zealand does have a dominant role on global dairy markets, accounting for 35 per cent of global dairy exports. Over the last year, New Zealand dairy exports of milk powder, butter and cheese increased 25 per cent. The US accounts for 12 per cent of global trade in major dairy commodities.

The US Dairy Export Council believes that because of New Zealand's dominant role, it policy allowing anti-competitive practices imposes negative impacts on global competitors. "Such a dominant role affords it unfair advantages over its competitors and distorts international trade in dairy products."

Fonterra, a New Zealand owned co-operative maintains around a 90 per cent market share of NZ produced milk.

The US industry has also said that is will oppose major non-tariff measures that negatively impact the US's ability to fairly compete both at home and abroad.

Simon Tucker, from DairyNZ said that shutting NZ dairy exports out of the US will not help US dairy prospects.

The US is a major player on global dairy markets, and so restricting access to its domestic markets will have effect their access to foreign markets in the long term.

With NZ focusing their dairy marketing efforts on South East Asian and Chinese markets, it seems unlikely that they will dramatically increase sales of dairy products to the US.

Earlier this year, the New Zealand Ministry of Agriculture (MAF) announced proposed changes to the Dairy Industry Restructuring Act (DIRA). Looking at raw milk regulations, MAF has proposed that Fonterra increase the volume of raw milk it makes available to independent processors.

Still under consultation, the proposals hope to increase competition at the farmgate and ensure that sufficient regulated milk is available for dairy food and beverage companies who process raw milk but do not have their own supply.

Fonterra Chairman, Sir Henry van der Heyden, said that the proposal would impose nearly NZ$200 million of additional costs over the next three years alone and work against the co-operative's efforts to reduce the price of milk in New Zealand.

With European dairy quotas being lifted in 2015, an additional nine billion litres of milk is expected to come onto the global market. Kevin Bellamy, senior global dairy analyst for Rabobank, has said that New Zealand has little to fear from this. "Continued strong medium-term growth in world demand for dairy is set to absorb the additional supply."

Charlotte Johnston

Charlotte Johnston, Editor

Charlotte Johnston - Editor

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