The elimination of export subsidies for agricultural exports is a watershed for world trade that will help boost dairy prices, Fonterra says.

A World Trade Organisation ministerial conference held in Kenya and attended by New Zealand Trade Minister Todd McClay has agreed on the WTO Nairobi package, which will eliminate the ability of WTO members to subsidise their agricultural exports.

That is an outcome successive New Zealand governments have sought for decades, with trade envoys identifying agricultural subsidies, along with tariffs, as one of the biggest obstacles to free trade.

Fonterra chairman John Wilson said the historic breakthrough would be good news for dairy farmers.


"For years the use - or even the threat - of export subsidies have resulted in world dairy prices below their true level, reducing returns to dairy farmers," Wilson said.

Trade Minister Todd McClay. Photo / NZME
Trade Minister Todd McClay. Photo / NZME

"Export subsidies have long been acknowledged as the most damaging form of subsidy and their removal from agricultural trade is a watershed for global trade," he said. "The Nairobi outcome takes global trade rules one essential step further towards a level playing field for dairy trade."

McClay said it had been illegal to subsidise the exports of industrial goods for more than half a century, and it was a major achievement to have that extended to agriculture.

"This outcome directly benefits New Zealand agricultural exporters who have to compete in some markets with subsidised goods."

Failure to reach such an agreement would have been "nothing short of disastrous" for the international trading system, he said.

A survey by the Worldwatch Institute last year showed New Zealand's largely subsidy-free status was not the norm - and that the top 21 food-producing countries paid out an estimated US$486 billion ($722 billion) in farming subsidies in 2012.

China paid US$165 billion in 2012, mostly to support rice and wheat farmers, with Japan paying US$65 billion, the European Union more than US$100 billion and the United States $30 billion.

In October, former Trade Minister Tim Groser, recently appointed New Zealand's next ambassador to the United States, spoke to media at the International Federation of Agricultural Journalists Congress and said he believed the world was in the early stages of the globalisation of world agriculture.


Subsidising agriculture put the industry into a museum, Groser argued, and the decision to try to exempt agriculture from market forces was unsustainable.

"This is the fundamental reason why New Zealand agriculture is so strong because we didn't have a choice, it was export or die."

Federated Farmers National President William Rolleston said it was a positive and potentially significant deal. "Given the scale and significance of New Zealand's agricultural export earnings, the removal of any instrument that can distort market forces and disadvantage our exporters is an important step forward," he said.

"Achievements at a WTO level also remove the need to develop bilateral solutions with individual trading partners, so we hope there are more deals of this nature to come from the WTO."

The deal completed a year of important international wins in what have been difficult market conditions for much of New Zealand's farming sector, he said.

"It's been a challenging year for many farmers with drought, floods and a prolonged period of low dairy prices, but the Nairobi agreement rounds off a series of key international achievements during 2015 which have strengthened the medium term outlook."