The head of Fonterra's Chinese operations, Bob Major, says the FTA's impact will be gradual for the company. Photo / Derek Flynn
The head of Fonterra's Chinese operations, Bob Major, says the FTA's impact will be gradual for the company. Photo / Derek Flynn
KEY POINTS:
A week after the New Zealand-China Free Trade Agreement was signed, Guangzhou Customs got in touch with Kiwi dairy giant Fonterra and asked if it could be of help.
It was the first of the many intangible benefits the co-operative is likely to receive as a result ofthe FTA.
Fonterra's view is that the symbolism of the agreement is as powerful as the words and that taking steps now to establish closer trading ties is a positive move for New Zealand's economic future.
"In terms of current business, it does not do a lot," said Fonterra's managing director China, Bob Major.
"There is a positive and indirect atmosphere around it. It is received by people in China in a way that New Zealanders are not going to understand."
Major, an old China hand on his second stint in the People's Republic, said the phasing-out of duties over 12 years was not enormous and the reduction would not have a direct impact on Fonterra for now.
The co-operative does about $450 million of business in China, half of it whole milk powder with the rest made up of a variety of products including skim milk, cheese and butter. That business will continue to grow but Fonterra does not expect the product mix to change much in the short term.
Major, who manages Fonterra's interest in its Shijiazhuang San Lu Group joint venture (he is also deputy chairman of San Lu) as well as the ingredients and brands businesses, said he was always on the lookout for other joint ventures.
"We are always looking at other opportunities."
His matter-of-fact approach to the FTA echoed that of his chairman, Henry van der Heyden, who a day after the deal was signed spoke more of the political symbolism of the agreement than its practical effects.
"For New Zealand to be the first developed country to sign such an agreement is a significant achievement, and will stand us in good stead as we further develop our relationship with China," van der Heyden said in a statement.
"It will significantly improve access for New Zealand exporters, provide certainty in our trading environment going forward, and support Fonterra's strategy in China."
While few ordinary Chinese would know the Fonterra name, it has considerable standing with Chinese officials and the food trade. Much of this rests with the quasi-official status it inherited from the former New Zealand Dairy Board.
Major attributes the success of Fonterra's relationship with China to New Zealand's efforts in the 1970s to improve the health of Chinese children by introducing an infant formula. It is not by accident that Major was responsible 20 years ago for establishing the operations in China, which is now one of Fonterra's largest export markets.
What is certain is that Fonterra's "business-as-usual" approach, rather than the gradual removal of tariffs, will be the cornerstone of the co-operative's expansion in China in the next decade.
Under the FTA, butter, liquid milk and cheese tariffs will be phased out by 2017, and skim and whole milk powder tariffs by 2019, although both are subject to a quantity safeguard extending another five years above which duties could be applied.
A national interest analysis produced by the Ministry of Foreign Affairs & Trade basically makes clear that China would not have agreed to full tariff elimination in the dairy sector over a commercially meaningful timeframe without the safeguard.
A mid-term review in 2013 will assess the impact of New Zealand exports on China's rapidly growing dairy sector. Given that the Chinese dairy industry is already twice the size of New Zealand's, there is reasonable confidence the safeguard will not be applied.
