New Japan-US trade deal could be bad news for NZ beef exporters
New Zealand beef exporters fear hard-fought gains made in clawing back market share in the lucrative Japanese market may be eroded by a new Japan-US trade deal which kicks in on January 1.
The deal is expected to result in cheaper US product hitting the market in the New Year, competing with New Zealand beef just as the local export season peaks.
Since the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into effect, New Zealand beef exports have enjoyed a tariff advantage over the US of 12 per cent.
This has helped New Zealand beef to regain some market share and has placed Japan as New Zealand's third most valuable beef market overall, following China and the US, with a 19 per cent increase in value compared to the year ending September 2018.
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Japan also remains New Zealand's most valuable chilled beef market, accounting for 21 per cent of the country's chilled beef exports in the year to September 2019, which at $92.2m represented a 13 per cent increase over the previous year.
Japan's parliament this month approved a trade deal with the United States tariffs on farm and industrial goods.
The deal, agreed to by Prime Minister Shinzo Abe and US President Donald Trump in September, was approved by the Upper House following its passage in the Lower House last month.
The now defunct Trans-Pacific Partnership Agreement (TPP), grouping trading nations in the Pacific region, was to have been signed in 2017 but fell over when the US withdrew its support.
What followed was the CPTPP, which excluded the US, and which gave New Zealand beef the same preferential treatment as Australian product.
"The immediate implication of that (US-Japan trade deal) for beef traders is that US export beef into Japan will benefit from a lower tariff rates than they are currently enjoying," the Meat Industry Association's trade and economic manager, Sirma Karapeeva, said.
As it stands, US beef attracts a 38.5 per cent tariff, which will reduce to 26.7 per cent - the same that applies to New Zealand beef - on January 1.
"That's not great, because one of the big wins for us as a result of CPTPP was that we were able to level the playing field with our competition into the Japanese market and to gain some advantage over the likes of the US," she said. "As of next year, we will all be on the same playing field."
Under their new trade deal, the US will be able to export 242,000 tonnes of beef - quite a low amount relative to America's total beef exports to Japan - at the new, lower tariff rate. The old 38.5 per cent impost will kick in once the cap is reached.
The trigger in aggregate for all CPTPP countries is 613,600 tonnes.
"Potentially, what might happen is that US exporters will rush to get into the Japanese market early in the year and saturate the market before they hit the trigger level," she said.
"It could be a bit of a blip in the first part of the year when the US is trying to get that much product in before the higher tariff kicks in," she said.
"Unfortunately for us, that coincides with our peak season, so a possible consequence is that our product will get displaced by cheaper US products rushing to get in," she said.
"We are concerned that having the US come in in January will start eroding some of that market share that we have managed to claw back," she said.
Japan is not New Zealand's biggest beef market but it's where their highest values are achieved.
In the bigger picture, the MIA is concerned about the erosion of world trade rules, as governed by the World Trade Organisation.
"The only systemic question is from a trade policy perspective about the fact this (Japan-US) deal is not a comprehensive deal, but it has been treated like one."
"What does this mean for the future deals - do they have to comply with World Trade Organisation requirements or not?
"If they don't, then whole multilateral trade system is likely to erode, which is concerning to a trading nation like New Zealand because we need those strong trade rules that we can rely on to manage our trade and to have recourse," she said.
Japan trade worries aside, Karapeeva said it had been a great year for New Zealand beef exports, buoyed by very strong demand from China, due in part to the outbreak of African Swine Fever (ASF).
ASB, in its latest commodities outlook, said it expects New Zealand commodity prices to remain healthy over 2020.
"In meat markets and seasonal patterns aside, we anticipate that prices will remain very high for an extended period as the impact of ASF is to persist over 2020 and potentially into 2021," the bank said.