Monday, February 26, 2024

Last of China’s dairy holdover tariffs gone

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Thresholds were triggered earlier each year, costing hundreds of millions.
China’s total imports of dairy are 20.3% lower at the end of September, compared to the same period the year prior.
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Chinese tariffs costing New Zealand dairy exporters hundreds of millions of dollars a year have come to an end.

The 10% tariffs were incorporated into the 2008 free trade agreement with China and kicked in when pre-agreed volumes of imports were exceeded.

The Chinese government insisted on the tariffs to give its farmers some degree of protection against surges in imports from NZ it anticipated might have resulted from the reduction in out-of-quota tariffs on dairy products.

The NZ industry was happy to go along with these safeguards because milk powder exports at the time were well below the 100,000 tonnes above which the tariffs would be triggered.

However, the melamine scandal in 2009, which caused a crisis in confidence in locally produced dairy production and a scramble for imported substitutes, coupled with strong growth in incomes, soon saw the safeguard thresholds comfortably exceeded.

The relentless growth in dairy imports from NZ since saw the thresholds triggered earlier and earlier every year. The growth was such that NZ exporters hit the limit during January every year after 2013.

Dairy Companies Association executive director Kimberly Crewther estimates that based on $2 billion sales of skimmed and whole milk powders to China in the first nine months of last year, the safeguards resulted in $200 million of tariffs being paid to the Chinese government.

“The removal of tariffs gives NZ dairy products a competitive advantage with respect to product coming out of Europe.”

Miles Hurrell
Fonterra chief executive 

The early removal of the safeguards was the No 1 priority for former prime ministers John Key and Jacinda Ardern as they sought to upgrade the groundbreaking free trade agreement with China.

But despite arguments from NZ that the measures were outdated, costly to Chinese consumers, and should be removed, Chinese leaders were unmoved.

Instead, the safeguards were allowed to expire at the end of 2022 (for liquid milk, butter and cheese) and the end of 2023 (for milk powders) as originally negotiated. Around half of NZ dairy exports to China are milk powders.

Fonterra chief executive Miles Hurrell said NZ is now in the enviable position of having completely free trade with China in dairy products.

“The removal of tariffs gives NZ dairy products a competitive advantage with respect to product coming out of Europe.”

Hurrell said the expiry of the safeguard measures at the end of December had been one factor behind a run of price increases in the Global Dairy Trade auction at the end of last year.

“Recently we have seen improved demand from China for reference products.

“The uptick in demand has come at a time when many customers in China have been making procurement decisions for product with a delivery date after 1 January 2024, when tariffs come off.”

Efforts to stimulate the Chinese economy through increased government spending are also adding to demand, Hurrell said. As a result of these measures the International Monetary Fund in November raised its forecasts for the Chinese economy to grow by 5.4% in 2023, up from its previous forecast in October of 5% growth for the year.

The IMF said it expects growth in the world’s second largest economy to slow in 2024 to 4.6%, though this was higher than its October forecast of growth for the coming year of 4.2%.

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