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What would an FTA with New Zealand mean for Irish dairy?

Irish Examiner | 14 June 2022

What would an FTA with New Zealand mean for Irish dairy?

by Stephen Cadogan

With the EU expected to sign a free trade deal with New Zealand this summer, anxiety is rising in the huge dairy industries down under and in Europe over how the deal will affect them.

With a clampdown on information from negotiators on each side, some industry representatives fear the worst.

The Dairy Companies Association of New Zealand (DCANZ) is concerned at rumours of the EU doubling down on keeping its market almost entirely shut to New Zealand dairy exporters.

The European Dairy Association (EDA), representing milk processors, has said "the silence of the European Commission is more than worrying" in response to the EDA’s requests for meetings on the EU-NZ Free Trade Agreement.

The EU produces about seven times more milk than New Zealand, and is the world’s largest dairy exporter, accounting for about 30% of global dairy exports.

The EU’s internal dairy market has more than 9 million tonnes of cheese, 2.5m tonnes of butter, and 2m tonnes of milk powder traded annually between its 27 member countries.

Matching the UK’s deal

In the free trade talks, the EU initially offered limited in-quota tariff access for New Zealand cheese, butter and milk powders. The offer was for 1,500 tonnes of cheese. The butter and whole milk powder in-quota tariff offer started at 200 tonnes. In both cases, the tariff rates were seen by the NZ side as a significant market access impediment.

The NZ dairy industry also resented the EU proposal that New Zealand cheesemakers could no longer use European cheese names such as feta, parmesan and gruyere.

DCANZ strongly supported the New Zealand Government in rejecting the EU’s previous market access offer.

If the EU’s revised offer does not improve access significantly, the DCANZ wants the New Zealand Government to say ’No’ again.

DCANZ says there is no reason the EU can’t match the deal New Zealand signed recently with the UK, which amounts to comprehensive tariff elimination. DCANZ also pointed out the EU already eliminated dairy import tariffs in deals with the UK and Canada.

EU-NZ trade negotiations started in 2018. Many expect them to move towards a conclusion in July, when the more free-trade oriented Czech Republic takes over the EU presidency from France.

With much nervousness in the agriculture sector over the talks, the French EU Presidency was seen as very reluctant in its approach to the NZ trade negotiations.

With the possibility of increased imports from NZ of dairy, beef, and lamb, as the EU’s top agricultural producer, France was particularly sensitive, especially during its presidential and legislative elections, which concluded last weekend.

"Broad consensus"

Negotiations between the EU and NZ are likely to accelerate now, and perhaps a New Zealand delegation will visit Europe in July, led by New Zealand Prime Minister Jacinda Ardern and Agriculture and Trade Minister Damien O’Connor, for final negotiations and signing of the trade deal.

There is pressure now on the EU to finalise trade agreements, after the pandemic delays in negotiations, and the delays for the French elections.

EU trade commissioner Valdis Dombrovskis said recently there is a “very broad consensus” in the EU behind stepping up efforts to conclude and ratify trade agreements.

“We need to reconsider the current geopolitical landscape to ensure the security of our supply chains and create new opportunities for our exporters”. He said Russia’s invasion of Ukraine, and China’s “ambiguous positioning” on it, are adding to pressure for trade deals.

"We need to get over the finish line agreements which have been negotiated, like Chile, Mexico or Mercosur.

"We also need to advance ongoing negotiations for new deals, notably New Zealand, Australia, Indonesia and India."

Impact on dairy

A free trade deal with New Zealand could increase trade in goods by 47%, and the services trade by 14%, by reducing existing barriers. Currently, the EU is New Zealand’s third-biggest trade partner, with about €10bn of trade in goods between them.

However, the EU dairy sector is understandably nervous about free trade with a major dairy exporter such as NZ. EU dairy already faces unprecedented challenges at farming and processing level. For example, the EU’s Green Deal policy could increase the cost of milk production in the EU by more than 30% by 2030.

Giving in to New Zealand’s requests for dairy market access, especially on high added value products, would nearly be seen as the last straw.

EU exports of dairy products to New Zealand in recent years ran well behind the value of New Zealand dairy exports to Europe.

This was the case despite the EU’s tariffs on dairy imports being set at high levels (for example, €70 per 100kg of New Zealand butter tariff rate quotas). The quota tariff for New Zealand cheese has been at €17.06 per 100kg. The quotas are often not filled, because of the high tariffs.

Out-of-quota tariffs have been prohibitive, for example, €1,896 per tonne for butter and €1,409 per tonne for cheese.

Key dairy export items from the EU to New Zealand include whey, cheese and lactose.

The trade in the other direction mainly includes casein and caseinates, anhydrous milk fat, butter and cheese.

The Dairy Companies Association of New Zealand says the EU and NZ can both gain from breaking down the high levels of trade protection which help to cause extreme price volatility in the global dairy trade.

Fonterra, the biggest NZ dairy company, says a free trade deal would lead to supply chains linking dairy production in New Zealand and the EU with growing demand in emerging markets such as China.

However, for Ireland, it’s the market next door in the UK that matters most, and that has already come under threat from the Free Trade Agreement finalised between New Zealand and the UK last February Tariffs on NZ butter coming into the UK will be eliminated over five years in six equal reductions.

The transitional quota will open at 7,000 tonnes and increase in equal instalments to 15,000t in year five.

Similarly, cheese will become tariff-free over five years, with the transitional quota starting at 24,000t and rising in equal instalments to 48,000t by year five.

Trade in both butter and cheese will be fully liberalised from year six onwards.

 source: Irish Examiner