A Trans-Pacific Partnership (TPP) agreement could boost New Zealand’s agricultural exports to the other partner countries by up to 13 per cent by 2025, the United States Department of Agriculture estimates.
That would be on top of the 14 per cent growth in exports to TPP countries its modelling predicts would occur anyway, without TPP.
The TPP-derived increase by 2025 would amount to $1 billion, in constant 2007 US dollars.
But the results, contained in an October 2014 USDA report, «Agriculture in the Trans-Pacific Partnership», come with some substantial caveats.
It is a best-case scenario which assumes the elimination of all tariffs and tariff-rate quotas on agricultural goods by 2025.
While the details of the market access negotiations remain shrouded in secrecy – including those between the United States and Japan which will drive the overall level of ambition in the agreement – assuming that the reduction of agricultural tariffs will go so far so soon is heroic.
The USDA economists acknowledge as much: «Because not all tariffs are expected to be eliminated in the TPP agreement, it may overestimate the gains from this portion of the final agreement.»
Second, the percentage increase is from a relatively low base.
For example, in the year ended September 2014, New Zealand’s exports of meat and dairy products to the two biggest TPP economies – the US and Japan – totalled just over $4 billion, or 10 per cent of exports of primary products overall, according to data underlying ANZ’s commodity price index.
The USDA economists also note that their modelling does not allow for efficiency gains or protectionist policy responses in some countries as a result of TPP-driven structural challenges to previously protected sectors.
«The provision of duty-free access for dairy products from major dairy-producing countries such as the United States and New Zealand would be a major policy departure for Canada,» they say.
Canada operates a «supply management system» whereby production of some foods is limited by quotas determined by growth in domestic demand and designed to keep farmer incomes higher than they would be under a free market.
The USDA’s baseline scenario models what it expects to happen to agricultural trade among the TPP countries by 2025 without a TPP agreement (but including any tariff reductions already negotiated in bilateral trade agreements).
The baseline has New Zealand exports growing by 14 per cent, on the back of a rise of nearly 20 per cent in trade in bovine meat, and includes sheepmeat as well as beef and a 14 per cent increase in milk powder.
With a TPP eliminating all tariffs and tariff rate quotas by 2025, New Zealand meat exports to partner countries would rise 22 per cent and dairy exports 19 per cent above that baseline, accounting for 90 per cent of the TPP-related boost to exports.
In absolute terms that increase is $900 million (in 2007 US dollars).
«New Zealand’s agricultural growth will be led by gains in its output of dairy and meat products as it increases its exports of these commodities to Japan, Canada, the United States and Mexico,» the report says.
But the impact on gross domestic product would be almost imperceptible – 0.01 per cent or one-hundredth of 1 per cent.
The USDA notes, however, that the estimated GDP benefit (which is even smaller for most other TPP partners) takes no account of other parts of the TPP agreement.
Another modelling exercise, by I Cheong at the Asian Development Bank Institute last year, estimated the boost from the TPP agreement to New Zealand’s GDP by 2027 as nearly 1 per cent.
Planned trade pact
• The Trans-Pacific Partnership (TPP) aims to create a regional free trade agreement involving 12 Asia Pacific countries: Australia, Brunei, Chile, Japan, Malaysia, Peru, Singapore, the United States, Vietnam, Mexico, Canada and New Zealand.
• Collectively the TPP economies represent more than US$27 trillion in GDP.
• The TPP negotiating parties account for 45 per cent of NZ’s total trade.
Source: NZ Herald