Saturday, March 30, 2024

WTO Nairobi deal future-proofs earnings for agri exporters

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New Zealand agricultural producers aren’t likely to see immediate benefits from the World Trade Organisation’s deal to remove export subsidies, but the deal struck will prevent nations from propping up their local industries in the future. 
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The World Trade Organisation’s ministerial conference in Nairobi, Kenya last week signed off on a series of decisions, one of which will phase out agricultural export subsidies by 2020 for developed nations, and by 2023 for developing economies.

While hailed as a breakthrough by Trade Minister Todd McClay, the tangible benefits are more difficult to quantify because few nations are currently subsidising their exports.

However, those policies have hurt New Zealand exporters in the past, with the European Union and the United States the biggest users of the subsidies.

“Currently we are in a period where most developed countries are not using export subsidies to any great extent,” a Ministry of Foreign Affairs and Trade spokeswoman said. “However, during the global financial crisis of 2008/09, some major developed countries provided significant export subsidies for dairy products.”

That meant global dairy prices fell faster than they would have otherwise, reducing returns of local farmers, who are typically more efficient than their international counterparts.

That coincided with the launch of Fonterra’s GlobalDairyTrade auction platform, which shows the average winning price tumbling from US$4,395 a tonne in July 2008 to as low as US$1,829 a tonne in July the following year.

The average winning price was US$2,458 a tonne at the last event on Dec. 15, having bounced back in recent months after increased international supply and a drying up of Chinese demand eroded global prices and local farmgate returns.

MFAT says the Nairobi deal is significant because all developed countries have undertaken to remove those subsidies on dairy products by the end of 2020, after which they will be illegal under WTO rules.

That will also limit the ability of the large developing nations such as India and China from using those mechanisms to sustain their own industries when they enter foreign markets, providing a form of insurance that New Zealand producers won’t be undermined by those policies in the future. 

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