About 92 per cent of global milk is consumed domestically, but some countries use government subsidies to maintain production levels and protect producers with high tariffs.
The milk companies are arguing that more liberal trade negotiations would help to lower the volatility that has seen the milk payment received by Fonterra farmers swing from $8.40 a kilogram of milk solids from the 2013/14 season to $3.85/kg at one stage this season, before lifting last month to $4.60/kg.
Opponents say tariffs result in higher prices for consumers and lower export returns for non-subsidised and efficient farmers.
Dairy products are among the most protected sectors globally, with markets such as Canada, Japan and the United States remaining largely closed because of high tariffs.
Japan’s tariffs for butter are estimated by the Dairy Companies Association of New Zealand (DCANZ) at 400 per cent, wholemilk powder 350 per cent and skim milk powder 285 per cent while Canadian tariffs are also high.
Tariffs have been gradually lowered for many agriculture products through trade negotiations, except for dairy which has been largely exempt from changes.
Dairy seems to be among sticking points in Trans Pacific Partnership Agreement (TPPA) negotiations underway in the United States.
DCANZ chairman Malcolm Bailey said negotiators needed to deliver a deal that stacked up for New Zealand as the negotiation was down to the final big issues including dairy which accounted for between a quarter and a third of New Zealand’s exports earnings.
«Twenty years after the Uruguay Round of WTO negotiations, global dairy trade remains highly restricted, meaning a thin market which is prone to price volatility. New Zealand dairy farmers, and our economy as a whole, have felt the pain of that over the last year.
«Dairy volatility has meant over $7 billion less in revenue generation for New Zealand over the last year. For a small export orientated economy that is a significant impact.»
Bailey said more intent was needed than negotiations previously tabled in Maui and Japan’s offer reported to be 70,000 milk equivalent tonnes equalled 7000 product tonnes or a two per cent market opening. The US and Canada had shown little ambition either.
Trade success would mean the opening of markets for all goods traded in the region, including dairy, and not just opening trade for the export interests of the big countries, he said.
Milk price volatility also comes from rising and falling supplies because of different weather patterns, and demand shocks were created earlier in the global financial crisis. More lately the Russian ban on dairy imports hit global demand.
DCANZ says a more open global dairy market would help balance out rise and falls in milk production and demand and provide more stable prices.
Lincoln University trade and global value chain professor Crawford Falconer said New Zealand had made impressive ground in trade negotiations since the Uruguay round because of free trade agreements and successful negotiations with China and Asian countries had been «terribly significant».
He said people thought the TPPA was just a deal with the United States, but trading talks had opened up with other Pacific Rim countries such as Japan, Mexico, Canada and Peru.
«We have been trying to get an agreement with Japan for years and with Mexico for years and we never even tried Canada because we thought it was impossible. All of that is on the table with TPP.»
Negotiating lower barriers for dairy was always difficult, but doing nothing was not the answer. The next «cab off the rank» to attempt an agreement would have to be Europe as it had an agreement with Canada and was getting close to an agreement with Japan, he said.
Falconer said life would be made difficult for New Zealand if preferential tariffs were opened up to the US and South American countries for beef.
Source: Stuff
