Allan Barber assesses the new UK FTA and finds it the FTA is a positive step forward, but is not considered likely to produce much immediate gain for either the meat or dairy sectors

The Free Trade Agreement with the UK signed at the beginning of this month is a significant advance on current access rights to one of the world’s most important markets to which New Zealand exporters have had restricted access since 1973. When Britain joined the Common Market, New Zealand retained rights under WTO rules to export a large volume of duty free sheep meat, but precious little else, unless it incurred a substantial tariff.

Following ratification by the respective parliaments, likely before the end of this year, suppliers of all sorts of products and services will be entitled to sell without tariff and quota restrictions. For obvious reasons meat and dairy are the exceptions, although both of these have a transitional period during which increasing volumes will be granted free access until they too can compete on a completely even playing field.

An independent economic modelling report forecasts up to a $1 billion increase in New Zealand’s GDP as a result of a more than 50% rise in exports to the UK over time and substantial savings in duty payments. Duty savings are somewhat hypothetical, as they are paid not by the exporter, but by the buyers who must assess their effect on the price of the goods in their buying decision.

Products which stand to benefit from the new arrangements are butter, cheese and beef, which till now have been almost totally excluded by very limited quota and high tariffs, as well as a range of other agricultural goods including wine, honey, onions and hoki. Since 1973 Britain has imported most of its dairy products from the EU at zero duty, while over 90% of beef imports have been of EU origin, mostly from Ireland. Last year New Zealand supplied less than 1% of UK dairy imports, totalling $4.6 million of which two thirds was infant formula, while the beef quota was a mere 424 tonnes, incurring a 20% tariff.

This state of events is not suddenly going to change dramatically as soon as the FTA has been ratified, because building business relationships will take time; UK buyers already have their preferred suppliers and New Zealand exporters must satisfy existing customers. Eventually money talks and products will find their way to the highest paying markets, but it will take time for the parties to trust each other and for buyers to be confident what they decide to import can be delivered on schedule to their customers’ satisfaction.

But it will also rely on marketing programmes to inform British buyers of the desirable characteristics of New Zealand beef and dairy products, although older consumers will remember our butter, while a broader cross section will certainly know our lamb.

I anticipate the meat exporters already supplying sheep meat to UK retailers and food service companies will be more prepared to take advantage of their established trading relationships to up their beef business. The duty-free quota in year 1 has been set at 12,000 MT rising to 38,820 MT by year 10 and 60,000 MT by year 15. These volumes should be compared with annual beef exports to China and the USA which are between 160,000 and 190,000 MT each, while none of our other main markets – Korea, Japan, Taiwan, Canada – exceeds 30,000 MT. The quantity of exports to the UK will depend on how competitive prices are, how badly they want the product and whether our exporters can or want to satisfy their demands.

Dave Courtney, GM Customer of Silver Fern Farms, welcomed the new FTA, noting while tariff reductions were relatively small, it would provide greater options, especially for beef where SFF had been unable to build any enduring relationships. “The FTA gives us the opportunity to put beef in front of existing lamb customers in various channels, from food service, manufacturers and retail. This will bring a broader range of NZ products to discerning consumers.”

ANZCO’s Rick Walker agreed the FTA will provide a great opportunity for beef which did not previously exist, but warned against expecting too much in the short term. He sees the greatest potential in developing food service sales to the high end restaurant trade through food processors and distributors which focus on that end of the market. The other market segments, retail and food ingredients, offer less opportunity because retailers have made a big push into British origin beef and lamb, while food ingredients tend to be more price-driven with that market well served by Irish exporters. ANZCO is currently looking at the costs and benefits of investing in UK market development when compared with existing markets.

AFFCO’s Mark de Lautour echoed the belief the FTA contains relatively small benefits for red meat exports, especially sheep meat which comes nowhere near filling its existing quota. While he welcomed anything that boosts international trade, he noted the broad political view in New Zealand appeared to target decreasing livestock numbers at the expense of carbon farming.

Dairy exporters will face similar issues when looking at developing sales to what is essentially a new market, albeit one with huge potential. The UK imports around $7 billion of dairy products annually and is the world’s second biggest dairy importer with a 77% milk self-sufficiency level. It imports approximately half a million tonnes of cheese a year, a quantity 50% larger than New Zealand’s total exports. Most of the imported dairy product comes in duty free from the EU.

Fonterra is in the very early stages of looking at the opportunities, although it is too early to say which specific products have greatest potential. Their PR spokesperson said the company’s long-term goal was to grow food service and high value ingredients, although global branded products may also offer opportunity.

In summary, the FTA is a positive step forward, but is not considered likely to produce much immediate gain for the meat and dairy sectors.

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