Key heads a delegation of business leaders and Government ministers to China next week where he was to meet President Xi Jinping and Premier Le Keqiang.
Top of the agenda for both Key and the dairy industry would be safeguard tariffs on New Zealand milk powder exports, which the industry has long wanted scrapped and Australia largely side-stepped as part of its free-trade deal in 2014.
The tariffs – part of NZ’s 2008 agreement with China – are estimated to have cost dairy farmers $100m in lost potential earnings and blunted the NZ industry’s competitive edge in the Chinese market.
But rising frustration with European subsidies led to the last-minute push for Key to raise the problem for global dairy markets while he is in Beijing.
It was understood Key would be encouraged to emphasise the link between subsidies and rising production out of Europe and the slump in prices depressing the incomes of dairy farmers in both China and NZ.
The threat from the subsidies to China’s long-term goal of self-sufficiency in dairy could also be raised with the country's leadership though the industry here is anxious not to overplay that angle for obvious reasons.
Key was unlikely to be left wondering about the industry’s view during the five-day trip with Fonterra chairman John Wilson and Dairy Companies Association chairman and Fonterra director Malcolm Bailey leading a strong dairy delegation including top-level representatives from rival dairy companies Westland, Synlait and Miraka.
Pressure has come on Key and his ministers to do more to help the dairy industry as returns have slumped and after it was left disappointed by the small gains made in opening up heavily-protected markets in the United States, Japan and Canada through the Trans Pacific Partnership.
Soon after the 12-country pact was agreed late last year the Dairy Companies Association wrote to Trade Minister Todd McClay calling for a better outcome from trade talks with the European Union and for the Government not to shy away from using enforcement provisions in existing agreements to address non-tariff barriers used by trading partners to block imports from NZ.
The letter also reminded the Government of the potential to use the World Trade Organisation to tackle subsidies.
The industry believed the Government making the case to trading partners to take a stand against dairy subsidies was a tangible step towards boosting the trading environment for the embattled sector and lifting returns.
Preliminary findings of an association study on the link between subsidies and global milk production had been passed on to officials accompanying Key.
The study found the European Union increased dairy industry support payments by $1 billion in the past year.
Other findings were that EU farmers on average received 42% of their income from subsidies and that 19 out of 28 EU countries linked the payments to milk production.
But one agricultural leader accompanying Key next week questioned how strong an advocate China could be on the international stage against dairy subsidies when it supported a vast number of its own industries in a similar way.
In the past month China was fingered by the US government for heavily subsidising its wheat farmers.
“Frankly, I thought we would be talking to other countries in the WTO that are a bit more aligned to our thinking.”
The leader said he would be surprised if Key raised the issue of subsidies with China’s leaders when more important problems with the free trade agreement were still to be ironed out, such as dairy tariffs and access for chilled meat.
“I just think that these guys are running around at the moment trying to blame subsidies in Europe for the woes of the dairy industry. It is just not right. They have got to get in the real world on this stuff.”
A dairy industry insider also accompanying Key acknowledged the need for “delicate footwork” when discussing subsidies with the country’s leadership.
He still expected a favourable hearing should Key raise the issue of dairy subsidies.
“People who are producing milk in China are now losing money. They have got quite a strong interest in a reasonable world price.”
But Key would be under no specific instruction on what to ask for from the Chinese when it came to challenging Europe over its use of subsidies to support its dairy farmers.
“You can only drop things into conversations. It is not going to play well if we say you should be doing this or that … we can argue our corner quite strongly around things that affect us directly but this is real third party stuff and you are talking about the relationship between China and their European trading partners.
