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New Zealand dairy optimistic into 2024
The New Zealand dairy sector has started the new year with great courage. Although the prospects for the dairy market are not yet completely clear, the year has started with windfalls for exports and the prospect of better prices.
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The most important windfall is the end of all tariffs that have hitherto applied to dairy exports to China. As of January 1, the final step in a free trade agreement concluded with China in 2008 was taken. This agreement provided for a phasing out of all import tariffs on New Zealand dairy.
Last barrier gone
Until 2022, some barriers remained for a number of products. However, at the end of 2022, these will expire for liquid milk, butter and cheese. Only for powder a safety threshold of 10% remained in place. However, this has also expired with effect from the new year. And it was precisely this last obstacle that was very important for New Zealand's exports to China. Despite a 10% tariff, 2023% of dairy exports in 50 consisted of milk powder, mainly whole milk powder.
Hurrell is happy
Fonterra boss Miles Hurrell is delighted. “New Zealand is now in the enviable position of being the only country that now has complete free trade with China in dairy,” he told New Zealand media. "That also gives us an important competitive advantage compared to Europe."
Hurrell noted that Fonterra took advantage of that moment even before the actual end of the last barriers, as he saw much better sales to China at the last GDT auction of 2023.
The downside is that dependence on the Chinese market is increasing, but New Zealand dairy is happy to take this for granted.
Australian market
Another advantage for New Zealand is that it also does very good business in the Australian dairy market. This has been going on for some time and is because the Australian dairy industry pays farmers in that country quite high prices. This is a result of legislation from a few years ago, when the government wanted to protect farmers against arbitrariness when reclaiming milk money by dairy cooperatives.
This legislation appears to have gone too far, resulting in a significant milk price difference between Australia and New Zealand. Dairy from the latter country is now considerably cheaper, which is why this product is entering the Australian market in large quantities and indirectly undermining the position of Australian dairy farmers. For the time being, however, New Zealand dairy farmers are benefiting from it.