US dairy lobby attacks Fonterra ‘monopoly’
From the Dominion Post…Strong words against the New Zealand dairy industry by United States lobbyists trying to keep it out of a trans-Pacific partnership free trade agreement are being viewed as curtain-opening rhetoric.
But associated accusations of a severely anti-competitive landscape in New Zealand are causing concern.
The United States National Milk Producers Federation, which represents the US$35 billion (NZ$49b) dairy farming sector, has told the International Trade Commission, hearing submissions on the proposed eight -nation trade agreement it is “critical all US-New Zealand dairy trade be excluded from the TPP FTA”, citing “severe” anti-competitive practices in New Zealand.
The federation argues that one New Zealand company, Fonterra, controls more than 90 per cent of milk production “meaning we are essentially pitted against a monopoly power”.
Fonterra’s “monopoly” and New Zealand’s position as a “forced” exporter helped to distort grossly the US-New Zealand trading relationship as well as New Zealand’s ability to influence global dairy markets, the federation says.
This week officials from New Zealand, Australia, US, Peru, Chile, Vietnam , Singapore and Brunei kicked off negotiations on a new trans-Pacific trade agreement.
It would build on an existing strategic economic partnership known as P4 between New Zealand, Chile, Singapore and Brunei.
Those close to the early negotiations are reluctant to comment publicly while government to government positioning is under way.
Privately they say they were not surprised by the attack, and the gripe that Fonterra, a 100 per cent farmer-owned co-operative, is a monopoly is an old song.
But it could hit an off note.
“It’s something we have to be very careful of.
“We have to watch it isn’t allowed to be used against us so we go backwards from the current status,” said one observer, noting some US dairy companies are up to seven times bigger than Fonterra and growing at a faster annual rate.
The US has made the regional free trade deal a top trade priority.
New Zealand Trade Minister Tim Groser has called it a “highly complex new generation agreement”. Canada is seen as a potential participant and Mr Groser has said additional membership would be kept “under review”.
By its own rhetoric, the New Zealand dairy industry is globally respected, and Fonterra, a nine-year-old amalgam of almost the entire industry, is a formidable influence on world commodity markets.
The industry is an economic cornerstone being New Zealand’s leading export sector, responsible for 27 per cent of overseas earnings.
Fonterra is the country’s biggest company with revenues last year of $16 billion. Not only does it control most of the country’s raw milk supply, but it is the world’s biggest dairy exporter to 140 countries.
That is thanks to New Zealand’s highly productive, low cost pastoral farming system, global roots put down in decades past by the former Dairy Board, and because Kiwis can consume only a fraction of milk produced.
The rest has to go overseas.
It adds up to enough of a threat for the US dairy federation to devote 14 of its 19-page submission to the New Zealand dairy peril.
TPP observers here believe it will be six months before participant positioning settles down and working parties of appointed officials get some momentum. It could be two years before any real progress is reported, one commentator said.
Fonterra’s official response to the US dairy lobby’s comments are mild, in contrast.
It notes New Zealand produces only 2.2 per cent of the world’s milk. The US produces 13 per cent. However, because the amount of internationally traded dairy product is significantly limited by quota and tariff regimes of the major importing countries of the US, Europe and Japan, only 7 per cent of the world’s dairy production is traded across borders, Fonterra says.
This means New Zealand’s production represents about 30 per cent of the international trade in dairy. In contrast, the US, the third largest exporter represents about 10 per cent.
It notes that Fonterra, in co-operation with other US dairy players, is the biggest exporter of dairy products from the US.
It notes Fonterra (through legacy companies) has been committed to the US dairy industry for 40 years, making substantial capital investments, sharing technology and trade expertise.
It also directly employs 100 people at its headquarters in Illinois, and its joint venture with DFA employs more than 500 people.
The US dairy lobby’s submission against New Zealand dairying is “outdated”, says a source close to the TPP negotiations, noting that the US is the No1 export destination of value, but China and Asia are the most desirable destinations by volume.
“The New Zealand dairy industry is more focused on growing in the Asia-Pacific region … it is the dairy category place to be in the future. It should be much bigger and more vibrant.”
So what would a new FTA allow Fonterra to do in the US market?
It would protect the company’s existing business and allow it to further complement the Americans’ production, suggests one commentator.
“They need to move beyond thinking this is just open access for New Zealand to the US. It would allow both country’s exporters to work together to import into Asia on consistent standards and behaviour.
“Fonterra would never put all its products into one country, it’s too much of a risk and anyway the growth is coming from China and Asia.
“The Americans are in a good position to become the next big exporter in the world, filling the gap the Europeans have left by withdrawing and not being competitive.
“[By attacking New Zealand dairying] they will be trying to put themselves in the best position to do that, to get as much protection and as much subsidy as they can before it runs out to build their export position by cross-subsiding with their local market.”