US gains more access to NZ's key dairy market Japan - but more work to do yet

Japanese Prime Minister Shinzo Abe and US President Donald Trump. Photo / AP

It's being hailed as putting the US on an equal footing as New Zealand over dairy access to one of our most important markets, but the first step of a new American-Japan trade agreement needs closer reading.

The US Dairy Export Council says the US-Japan Phase 1 trade agreement that came into effect on January is very good news for previously disadvantaged American dairy producers and puts them on an equal footing with New Zealand and Europe.

But Fonterra, New Zealand's leading dairy exporter, said that's not quite the full story.

"The agreement goes some way to close the gap for US exporters, particularly on products such as cheese and whey, but has fallen short on a number of other products, such as butter," the company said in response to a Herald inquiries.

However, given Japan is the world's biggest importer of cheese and an important strategic market for the big dairy cooperative and for New Zealand dairying, Fonterra and trade officials can be expected to watch the negotiations for phase 2 closely.

Japan was New Zealand's second largest cheese market last year at US$243m (NZ$367m).

It was New Zealand's fourth largest dairy export market at US$545 million (NZ$823m), Fonterra said.

New Zealand was Japan's second largest dairy supplier in value terms after the EU, followed by the US and Australia.

Japan had been a major market for New Zealand cheese since the late 1950s, Fonterra said.

The new US-Japan agreement sprang from US dairy industry concern about the impact of the US withdrawal from the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), a free trade agreement involving New Zealand and 10 other countries in the Asia Pacific region, and the signing of the EU-Japan Economic Partnership Agreement.

A study commissioned by the US Dairy Export Council last year concluded that without similar trade agreements, US cheese exports could fall by 80 per cent by 2027. It found that if the US had equal market access terms, the American cheese market share would rise from 13 per cent in 2017 to 24 per cent in 2027, with dollar sales tripling to more the US$450m.

"That is significant since Japan is the largest cheese buyer in the world, importing about 300,000 tons in 2019 and forecasts suggest its appetite will continue to grow," said the council in a US industry advisory.

But it added a comprehensive US-Japan trade deal "remains essential for long-term US competitiveness in that country."

The US administration was expected to start negotiations on phase 2 around April to build on market access gains achieved in phase 1, the council said.

Fonterra said demand for cheese in Japan had grown more than 50 per cent in the past 10 years and growth was expected to continue.

"A decline in domestic milk supply in Japan means we are expecting protein and cheese imports to grow which is a good opportunity for us.

"And while CPTPP does not go as far as we would have liked in terms of dairy market access into Japan, it does represent an important step forward and delivers some useful gains - particularly on cheese and protein - which allows us to meet this growing demand and compete on an even playing field with the EU and US given their respective FTAs with Japan," Fonterra said.