EU fires shot at Fonterra

By FRAN O'SULLIVAN and LIAM DANN


The European Union wants the "activities" of New Zealand's largest company, Fonterra, to be put up for negotiation at forthcoming trade talks in Mexico.

The EU has also indicated that any improved access to its own agriculture markets will be primarily for "poorer developing countries".

The tough position _ spelled out in a paper by EU Farm Commissioner Franz Fischler _ makes it clear that the EU will play hardball at the World Trade Organisation meeting in Cancun next month.

"The EU is willing to negotiate further cuts in its export refund programme but only if all forms of export competition are on the negotiating table," the paper says.

"Examples of these are US export credits, abuse of food aid to dump surpluses, or the activities of the Canadian Wheat Board and Fonterra of New Zealand." New Zealand has been in the vanguard of trade liberalisation, earning praise last week from visiting US Under-Secretary of Commerce Grant Aldonas as being the"thin end of the wedge" in efforts to crack open the world's agriculture markets.

But the EU has repeatedly claimed that Fonterra's legislated stranglehold on dairy quotas through to 2007 for the EU and US markets makes it a de facto single-desk seller.

The quotas _ about 10-12 per cent of Fonterra's exports by volume _ are worth about $400 million, says a company source.

But a spokeswoman for Trade Negotiations Minister Jim Sutton last night hotly contested the EU's claim, saying it was quite clear that Fonterra was not a state trading enterprise or a single-desk exporter.

"Fonterra is a privately owned co-operative company." The spokeswoman said the exclusive quota allocation was temporary while an appropriate allocation system was worked out.

But any New Zealand dairy producer could export products to non-quota markets, providing they met MAF assurance requirements.

Fonterra's Brussels-based director of government and trade, Phil Turner, said the EU's attitude came as no surprise.

"It's a sore that the Europeans have had for years," he said.

It stemmed from the time when the New Zealand Dairy Board was officially designated by the Government as a State Trading Enterprise.

"The Europeans have always tried to use them (STEs) as targets.

It's part of the European need to find some things to complain about." Comparisons with organisations such as the Canadian Wheat Board might have been valid once but the Dairy Board was now gone, Turner said.

"Our view in Fonterra is that has made the whole argument mute.

"Fonterra is not a State Trading Enterprise, it's not a statutory body and it doesn't have a monopoly on exports." If this issue did end up on the table at Cancun it would not worry Fonterra, he said.

"We'll stifle a yawn and say: Are you still on that one?" Turner said he was still optimistic that Cancun could produce some progress on agricultural reform.

It was a positive sign that the US and Europe were now negotiating, he said.

"The trouble is that we think the Americans have given away far more than they should have at this early point." The EU is also circulating a Canadian consultants' report which claims Fonterra uses its "single-desk" status to offer lower prices on products for export.

The report, commissioned by the Dairy Farmers of Canada from Grey, Clark, Shih and Associates, also says Fonterra is a price-setter on world markets.

In the six months to last November, Fonterra "deliberately chose to liquidate its inventory at a loss", the report claims.

"As a result, Fonterra drove prices down 30 per cent, and, despite increasing its total sales by 40 per cent, made those sales at a loss." Turner said the report was a ludicrous document produced by some consultant lawyer.

"It accuses us of export subsidies, dumping and all sorts of things.

"You don't have to live in New Zealand very long to know that no one is subsidising our exports."