The in-principle deal was clinched just 48 hours before Trade Minister Damien O’Connor touched down in London to advance NZ’s own talks with the UK.
Those talks have been lagging as a result of continued lowball agricultural market access offers from the UK.
At the same time, concern had been mounting on this side of the Tasman since Australian Trade Minister Dan Tehan’s visit to London in April when he and British Trade Minister Liz Truss agreed they would have a deal in time for Australian Prime Minister Scott Morrison’s attendance at the G7 meeting in Cornwall.
Exporters here feared Australia might end up agreeing to a poor deal to meet the G7 deadline and set an unhelpful precedent for NZ in its own talks.
But Dairy Companies Association chair Malcolm Bailey says the UK-Australia agreement had exceeded expectations and set NZ negotiators up nicely to press their UK counterparts for a considerably better offer than had been on the table to this point.
“We must assume this is a template of where we should get to,” Bailey said.
Prospects for significant gains for either Australian or NZ farmers had been looking shaky after a late backlash from British farming groups, concerned scrapping tariffs would swamp the local market and drive down incomes.
Australia and the UK have sought to address those concerns by phasing in the removal of tariffs through the use of quotas which increase tariff-free access in equal increments over five years for dairy imports and on the same basis over 10 years for beef and lamb.
British sheep and beef farmers will be further safeguarded from surges in imports in excess of quota limits by a 20% penalty tariff for a further five years, after which all tariffs and quotas will disappear completely. Dairy products will be tariff-free after five years.
The UK had been NZ’s largest dairy market prior to its joining the European Economic Community in 1973, but high tariffs gradually whittled that down to just 0.14% of NZ’s dairy exports by 2018, despite it being the world’s fourth largest dairy importer and the biggest importer of cheese.
Before Brexit, around 93% of the UK’s dairy imports came from the EU, helped in no small part by zero tariffs.
Beef + Lamb NZ’s Dave Harrison says the tariff-free access for high-quality beef provided for in the Australia-UK deal, starting at 35,000 tonnes, before rising to 110,000t after 10 years, and free trade after 15 years, provided a “fantastic precedent”, which NZ would hope to replicate in its own talks.
“Knowing what the UK has offered us to date … it is light years apart from what they have agreed with Australia,” Harrison said.
“Hopefully they might start talking to us seriously now.”
However, Harrison says the tariff-free starting point for Australia of 25,000t for sheepmeat, from 20,000t currently, rising to 75,000t after 10 years, and tariff-free after 15 years, had the potential to put NZ exporters on the back foot in the UK market.
NZ’s existing tariff-free quota is 114,000t, and was double that prior to Brexit.
UK lamb exports to the EU had fallen since the start of the year, resulting in more domestic lamb on the local market and softer prices.
“I am not sure of its capacity to take another 75,000 tonnes – let’s put it that way,” he said.
ANZCO Foods general manager sales and marketing Rick Walker, however, believes stronger returns in other markets, such as China and North America, and a lack of historical relationships meant exporters of Australian lamb were likely to remain on the sidelines for now.
“They will have to decide whether the returns they are getting out of those markets could be exceeded by aggressively pursuing new opportunities in the UK,” Walker said.
“I do not know whether that will measure up.”
