O P E D BIG BOOST TO FOOD TRADE FROM TPP Trade is New Zealand’s lifeblood. And that’s especially true for the food industry. It follows that anything that improves the profitability of exporting means good news not just for the industry but for the country as a whole. And so it is with the Trans Pacific Partnership (TPP), which was signed in February and is now going through the ratification process. The big numbers from TPP – the $274 million a year saving on tariffs and a $2.7 billion boost to our economy by 2030 – don’t tell the whole story of how much more value the TPP will add to sectors that already supply massive numbers to New Zealand’s export earnings. The food industry is a standout when it comes to export income but because of its very nature it’s also the most vulnerable, dealing as it does with sensitive goods produced along a precarious supply chain and which much of the time have a limited life. It’s also where trade barriers are highest. It all adds up to risk and cost. Luckily for all of us we are pretty good at doing what we do. Our customers say we are among the best in the world. Latest figures show just how valuable the industry is. For a start, it generates more than $34 billion in our domestic retail food, beverage and grocery products market. It’s also New Zealand’s biggest manufacturing sector, representing 44 per cent of total manufacturing income. But that’s just the start. It also generates more than $31 billion in export revenue from exports to 195 countries. That’s 72% of total merchandise exports. All of which enables it to employ, directly and indirectly, more than 400,000 people – one in five of the workforce, including, no doubt, some of the protesters. With numbers like that, even a small chance to boost trade opportunities can mean big rewards. So what will the TPP mean to the industry? First, tariffs will be eliminated over time on a number of key products. TPP will apply to more than 95% of our exports to the 11 other parties, including, critically, the US, Japan, Canada, Mexico and Peru with whom we do not already have FTAs. Tariff reductions will be worth $274 million annually – that’s just savings on duties paid, not the value of new trade created. The main beneficiaries in the food sector are beef, kiwifruit, apples, wine and seafood. The savings from just these five products amount to $94.2 million a year. Secondly, the sector’s biggest player – dairy – is not left out. True, the outcome on dairy was not as good as it could have been or what our negotiators were seeking. Even so, when the TPP is fully implemented, the estimated tariff savings for dairy will be $102 million a year. The breakthrough here is that TPP will give our dairy industry improved, if limited, new access into markets where current access is highly restricted. Dairying will gain access to tariff quotas for a number of key products in the US, Japan, Mexico and Canada, including butter and cheese into the US, and milk powders into Mexico. Potentially bigger gains are on offer in the future, including when other countries like Korea and Indonesia seek to join TPP. Remember, too, that all these numbers are just estimates based on current volumes. The reality is they will likely be somewhat higher as we have seen with other free trade agreements New Zealand has signed. Thirdly, beyond tariffs, TPP puts in place mechanisms to address non-tariff barriers (NTBs), whose impact is possibly even greater on food exports. NTBs limit volumes, erode margins, add costs and inhibit participation in global value chains. TPP mechanisms emphasise the need for predictability, consistency, transparency, and for measures to be based on science and no more trade-restrictive than necessary. This may seem less tangible than tariff cuts but is vitally important for our food industry seeking integration in global markets. Fourthly, and perhaps most important of all, TPP puts in place a new framework of rules for trade and investment that will improve the overall environment for business. We know that opening doors is one thing. The real work then starts with producers convincing retailers to take our products, and then holding on to that market. Those not involved in trade have no idea what it’s like to be an exporter fighting for market share and then keeping it. The supermarket shelf is a precarious place. There’s no doubt New Zealand must be in TPP if we are to progress as a nation. To be left out is not an option. Some have talked about what happens if the US Congress doesn’t pass TPP. In the hopefully unlikely event that should happen, New Zealand will need to progress other initiatives such as the Regional Comprehensive Economic Partnership (RCEP) with 12 Asian economies. Our growing markets are in Asia and our hopes are pinned on the burgeoning middle classes there who trust our food like they trust few others. TPP is about the way we connect with partners taking 44% of our exports, representing 812 million consumers and 36% of global GDP. TPP is a good deal for the food industry and for New Zealand as a whole, and has been achieved at a very reasonable price. The changes we have to make here as a result of TPP commitments are marginal. The bottom line is we simply cannot leave the TPP benefits on the table for our competitors to grab. Trading with the rest of the world is too important for that. 16 APRIL 2016 Katherine Rich, Chief Executive, NZ Food & Grocery Council
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