This was a substantial decline from the $105.2m exported in the comparable 2013-14 period but more than farmers might have expected if they had been listening to Prime Minister John Key’s urging exporters not to exploit various trade embargoes.
On the other hand, it was less than might have been earned if NZ First was calling the shots on trade policy. Leader Winston Peters said dairy exporters should be free to milk the Russian market for as much as they could get.
Sanctions, embargoes and Key’s advice to the industry look like the reason for the steep decline in the trade with Russia.
The European Union, the United States and other Western countries last year imposed economic sanctions against Russia to punish Moscow for its military support for Ukrainian separatists and its annexation of Crimea. NZ didn’t join them.
Russia responded by banning imports of meat, fish and dairy products from the EU, US, Australia, Canada and Norway.
NZ wasn’t included in the ban and Russia signalled its willingness to increase cheese imports from NZ to make up some of the shortfall.
A big opportunity seemed to have been opened for this country’s dairy exporters.
But before leaving the G20 summit in Brisbane in November, Key said government officials had asked Fonterra and other companies not to exploit the gap left in the Russian market when other countries applied their trade sanctions.
Taking advantage would be a terrible look for NZ, he said.
The Government couldn’t stop Fonterra and the others from exporting, but he was confident they were acting responsibly.
Fonterra’s general manager of trade strategy, Robb Stevens, at that time confirmed the Government had asked agricultural exporters, including Fonterra, to show restraint and not take advantage of the restrictions imposed on other nations.
But a significant impediment to ignoring the Government’s advice was Russia had imposed import restrictions on ingredients from about 60 NZ dairy plants in 2013, after Fonterra reported what was suspected to be a botulism-causing toxin in one of its products. It was a false alarm but it took until August this year for Russia to remove the restrictions on some products from 29 of the plants.
With the restrictions lifted, those plants could send dairy ingredients, including whey protein concentrate and milk protein concentrate. The latest statistics would not have recorded any receipts from those sales.
Another factor is that NZ butter was excluded from the Russian restrictions and butter, along with dairy fats and oils, had traditionally dominated the Russian trade. This category accounted for 99% of NZ’s dairy export receipts in 2014-15, although the butter component had shrunk annually from $162m in 2009-10 to just $16m in the latest August year.
Trade Minister Tim Groser welcomed the news in August that Russia was allowing more dairy products to be sent there. But this raised political questions because it was at odds with what Key told Parliament on July 22, when he said NZ should show solidarity with other countries that had applied sanctions on Russia because of its actions.
When Key was asked to clarify NZ’s position, he referred questions to Groser, who said, “In response to Russia imposing agricultural import bans on a number of countries in August 2014, the NZ Government advised that it would not undertake any proactive official contact with Russian authorities that would facilitate back-filling for banned countries on the Russian market. The Government cannot tell NZ companies what to do but has urged caution in relation to the Russian market.
“Well-advanced negotiations for a free trade agreement with the Russia-Belarus-Kazakhstan Customs Union remained suspended.”
Butter has been Fonterra’s major export to Russia for many years, but export volumes declined significantly after the delisting of plants by Russian authorities, Miles Hurrell, group director co-operative affairs, said.
Fonterra declined to provide dollar figures, but Hurrell said they had continued to sell some dairy ingredients and maintained the sales office in Moscow over the past two years.
It remained committed to its Russian customers, with whom it had long-established partnerships, and had been working with them to supply high-quality ingredients and support their dairy manufacturing businesses.
Rod Quin, chief executive of Westland Milk Products, said his company had sold butter and anhydrous milk fat to Russia for many years.
However, since the botulism scare sales had been limited and since trade sanctions were imposed against Russia by other countries they hadn’t sold anything.
So why has the Government not imposed a ban on economic dealings with Russia as other countries have done?
Key gave this explanation to Parliament on July 22:
“The reason that we do not have bilateral sanctions on Russia is to do with the fact that, actually, this Parliament will not give the Government the authority to do that, because it is blocked by the Labour Party.”
But Labour’s primary industries spokesman, Damien O’Connor, said his party wasn’t against farmers trading with Russia.
He had kept an eye on trends in dairy exports to Russia and noted the fall-off in trade in the past year. It was more likely because of the measures imposed by Russia after the botulism scare, he said.
Winston Peters was critical of Key’s stance.
“It is rich of Mr Key to trumpet ‘free trade deals offer real benefits with jobs and economic growth in NZ’ when he is blocking an opportunity for our struggling NZ dairy exporters,” he said.
Peters revisited the issue last month after the 12 Trans Pacific Partnership nations reached agreement in principle. He called for a resumption of negotiations on the Russia-Belarus-Kazakhstan Free Trade Agreement, noting Russia was the world’s fifth-largest food importer. Before the sanctions it imported more than $50 billion worth of food. It was also the world’s number two dairy importer, “so it is madness for Mr Key not to use trade as a positive diplomatic tool”.
He cited forecasts from the US Department of Agriculture’s Moscow bureau that Russian beef imports would rise as its domestic beef industry fell 40% short of demand.
“Not actively trading with Russia hasn’t altered Russia’s foreign policy, so it really is a time to give trade a chance,” he said.
