Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
The NZ China free trade agreement (FTA) was to eliminate all import tariffs on all dairy products in 2024. But under present transition arrangements less than 25% of the products enter China at lower tariffs.
Dairy Companies Association of NZ (DCANZ) chairman Malcolm Bailey says the rapid expansion of Chinese consumer demand for dairy products was not anticipated when the deal was made.
Bailey hopes negotiations announced last week towards an FTA upgrade will help exporters.
“DCANZ’s priority is for more comprehensive coverage of trade during the transition to full tariff elimination from dairy products in 2024, in recognition of strong Chinese import demand,” says Bailey.
“Extending the coverage of tariff preferences will reduce tariff related costs for Chinese consumers. It will also ensure that NZ exporters do not end up at a tariff disadvantage to Australian exporters as we transition towards tariff elimination.”
Bailey points out that the Australia China FTA does not have the same quantity limits on tariff preferences for butter and skim milk powder. NZ exported NZ$2.77 billion of dairy products to China in 2015.
Fonterra chairman John Wilson says the upgrade of the FTA will allow a strengthening of the dairy relationship between NZ and China.
“The leadership of both countries recognises the value of improving the FTA. We [will keep building] our business in China and the FTA will remain the key to that growth.”
Fonterra has operated in China for 40 years and now has farms, and sells ingredient products, foodservice and consumer brands including Anchor, Anlene and Anmum.
The co-op’s investments include a partnership with Beingmate, a leading Chinese infant and child food manufacturer.
It has completed two farming hubs and is working on a third in partnership with Abbott. It employs 1500 people in China.
Prime Minister John Key announced at APEC the upgrading of the China NZ FTA. This followed a meeting of Trade Minister Todd McClay and Chinese Commerce Minister Gao Hucheng.
