Oz plays catch-up with China FTA

Australia exported $385 million of dairy products to China last year. Photo / Getty Images

A freshly inked free trade agreement could allow Australia to play catch-up with New Zealand's ballooning growth in dairy exports into the Chinese market, according to research commissioned by the NZ China Council.

But the council's executive director, Pat English, says this country remains well positioned in the Asian mega-market and the deal signed in Canberra on Monday should be more "complementary than competitive" to our agricultural sector.

NZIER research commissioned by the council said New Zealand's FTA with China, signed in 2008, meant this country had been able to outperform its export peers, such as Australia, over the past few years.

While strong growth in rural production had played a part, New Zealand's exports of soft commodities - such as dairy - to China had enjoyed a four-fold increase since 2008, according to the research.

The research said Australia, on the other hand, had experienced a less than two-fold increase in its soft commodity exports into the Chinese market over the same period.

"If Australia had been able to mimic New Zealand's performance, its soft commodity exports to China would be some 80 per cent larger in 2013 and total exports 8 per cent larger," the research said.

"New Zealand's experience shows that [Australia's] soft commodity exports can be larger, add diversity to Australia's export exposure to China and boost total exports by around 8 per cent."

Australia's export mix to China is currently dominated by minerals such as iron ore.

English said rising Chinese demand meant there was plenty of room for New Zealand and Australia to grow their dairy exports to Asia's biggest economy.

"Yes, I think there's going to be some competition but New Zealand will, for some time, still have a tariff advantage over Australia," he said.

Hayley Moynihan, Rabobank's director of dairy research for New Zealand and Asia, said the FTA levelled the playing field for Australia's dairy sector.

"In terms of being a competitive threat [to New Zealand], much of it will depend on how much enthusiasm the Australian industry responds with in terms of milk production," Moynihan said.

New Zealand dairy giant Fonterra, which operates manufacturing facilities in Australia that supply export markets, described the FTA as a "game changer".

Judith Swales, managing director of Fonterra Australia, told ABC Rural that the deal put the Auckland-based firm in a strong export position.

"The advantage for Fonterra Australia is we can leverage on that expertise and that experience that Fonterra New Zealand has built up since they signed their FTA back in 2008," she said.

Swales didn't expect the FTA to impact New Zealand's export volumes to China.

"If you look at analysis recently from Rabobank, they estimate there will be a supply gap in the next few years of 10 billion litres in China of milk," she said.

"So this isn't about Australia competing with New Zealand. There is plenty of demand."

What effect will it have

What does the FTA mean for Australia's dairy industry?

It could help boost dairy exports and diversify Australia's export mix away from the minerals it currently depends on. Tariffs on Aussie dairy products, which go as high as 20 per cent, will be removed over 4-11 years.

Is it a competitive threat for New Zealand?

Australian dairy farmers would have to significantly ramp up production in order to give this country a real run for its money, says Rabobank economist Hayley Moynihan.

What has NZ's FTA done for the country?

New Zealand's exports of soft commodities like dairy have seen a four-fold increase since 2008. Total exports have tripled, reaching $10 billion last year.