Australia-China Trade Deal a Turning Point for Dairy Exports?

Sarah Oliver at the Peterson Institute for International Economics shows the impact on dairy exports of New Zealand's 2008 free-trade agreement (FTA) with China and suggests that Australia's soon-to-be-signed FTA with Beijing will be a boon for Australian dairy farmers.

Dairy Exports to China, 1991-2014

Source: Peterson Institute for International Economics: Chart of the Week: Australia, New Zealand, and the Chinese Dairy Market, February 12th, 2015

New Zealand's dairy exports skyrocketed soon after 2008, in contrast to those from Australia, which have stayed relatively flat during the same timeframe. Sarah Oliver argues that this could be because China puts tariffs of 10-15% on dairy imports from Australia which, when reduced, may open up a huge potential market for Australian producers.

Such a deal is a huge opportunity for the Australian agricultural sector and will boost political support for prime ministerTony Abbott. That said, its unclear just how much of the proceeds of a diary boom will stay in Australia, since Chinese investors have been aggressively piling in during the past few years and are actively looking for future opportunities.

This story speaks to ongoing trends in the Asia-Pacific, including closer trade integration, aggressive outbound investment from China and the impact of emerging consumer demand. That said, freer trade will boost competition for New Zealand, for whom dairy exports to China account for 33% of merchandise trade. Luckily for New Zealand, India is emerging on the scene and will be a larger market in 2050 than China, according to the Reserve Bank of New Zealand.

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