The Australian dairy industry and Chinese importers of Australian dairy goods could save more than $630 million in tariff duties over a decade, if Australia gets a free trade agreement with China that matches New Zealand's deal, according to industry analysis.
The financial importance of a free trade agreement with China for the dairy industry and export supply chain are contained in a recent newsletter to Victorian dairy farmers from the lobby group United Dairyfarmers of Victoria (UDV).
The newsletter tells farmers that Australian dairy products exported to China last year attracted more than $31 million in "dairy tariff duties". And without a free trade deal total duties payable would be expected to rise significantly over coming years, as demand in China for Australian dairy produce soars and export volumes rise.
The UDV wants tariffs on Australian dairy exports to China to fall immediately to the same level as those applying to New Zealand products. By 2019, it wants all key Australian dairy products exported to China to be tariff free.
Confidence is growing in agricultural and political circles that a free trade deal between Australia and China will be announced as early as next Monday (November 17), when Chinese president Xi Jinping travels to Canberra after attending the G20 meeting in Brisbane. The deal is expected to deliver significant benefits to Australian agriculture, with segments like dairy and horticulture among the key beneficiaries.
"New Zealand has written a particularly good deal, so that's the benchmark. So we're wanting to match that so we remain in the game and remain competitive. And so that we can get more money back into our own supply chain," said the president of the UDV, Tyran Jones.
Mr Jones said he was hopeful Australia and China could successfully negotiate a free trade deal. Such a deal would put more money into farmers' pockets and boost confidence in the industry. "I'm not privy to any of the discussions that have been going on, but the noises that are coming out are positive," he said.
"The dairy market in China grew 40 per cent in the last 12 months. The growth is enormous. So what we're wanting to do is make sure that we're in the market and we can compete in the market for our share of that growth opportunity," he said.
A comparison table produced by the UDV highlights the substantial disadvantage faced by Victorian dairy farmers compared to their New Zealand counterparts in the Chinese market, in the absence of an Australia-China deal. For instance, Australian-made dairy export products skim milk and infant formula now face a 15 per cent tariff in China, whereas the Kiwi alternative product has no tariff.
Australian exports of milk and cream face a 15 per cent tariff, while the New Zealand product has a tariff of just 4.5 per cent; Australian cheese faces a tariff of 12 per cent, while Kiwi cheese faces a much lower 3.6 per cent tariff. It is a similar story with butter exports, the Australian product faces a tariff of 10 per cent, the Kiwi product a tariff of three per cent.
Closer comparison shows that the current disadvantage faced by the Australian dairy industry would be exacerbated should Australia not resolve a free trade deal with China. Under the New Zealand/China deal tariffs on Kiwi dairy exports are reducing, so that from 2017 exports of New Zealand milk and cream, butter and cheese will be tariff free.
Noel Campbell, president of Australian Dairy Farmers, said it was "extremely important" for the Australian dairy industry that a free trade deal with China be completed. "The industry can't really grow significantly unless we've got a market for it. And that's an obvious market."
Mr Jones said that in some cases Chinese companies "preferentially regard New Zealand product," because of the free trade deal between China and New Zealand.
Demand in China for dairy products has surged as incomes rise and hundreds of millions of middle class people adopt a more westernised diet. And Australia's reputation for producing clean and green agricultural produce is a strong marketing point in China. Also, Chinese consumers are not likely to have forgotten the scandal surrounding a Shijiazhuang-based company, whose poisoned milk powder was said to be responsible for at least four deaths and illnesses in almost 53,000 infants in 2008.
