China/Australia Free Trade Agreement: Implications for Global Meat and Dairy28 November 2014
The ratification of the free trade agreement (FTA) between Australia and China in November, following negotiations that started almost 10 years ago, will open up a huge potential market for the Autralian meat and dairy sectors.
China is Australia’s largest trading partner, with 20 per cent of Australian imports coming from China, and 36 per cent of exports going to China.
According to Alan O’Brien, from the Shanghai Office of Bord Bia, under this deal China will benefit from easing of restrictions on foreign direct investments, with core benefits in mining, energies and agriculture.
The Chinese market is currently worth €6.37 billionn to Australia’s agrifood sector, however, the country's share of China’s import market has more than halved over the last 10 years, dropping from six per cent to three per cent of the overall import market, with countries including New Zealand, France, Indonesia and Brazil increasing share across key sectors, primarily meat and dairy.
This new trade deal represents a big win for Australian dairy and meat sectors, with tariffs being phased out over the next 10 years or four years for dairy in line with the New Zealand FTA.
Implications for the Australia’s Dairy Sector
Australia is a strong player in China’s dairy market but, as highlighted by Rabobank this year, the country has been marginalised as a major exporter due to a decrease in Australia’s overall dairy production; volume growth representing a core marketing tool in China in building strategic relationships.
This FTA will increase Australia’s competitive position in China, especially with regard to New Zealand, its core competitor in powders and commodity products.
Tariffs on Australian dairy products are expected to be brought in line with New Zealand; all being phased out by 2019.
This deal will also impact Europe’s competitive position across key commodities, including infant formula.
Implications for Australia’s Beef Sector
Unlike the FTA for dairy products, the meat sector, including beef and pork, will see tariffs phased out slowly over a 10 year period.
Last year Australia dominated China’s beef import market, accounting for 51 per cent of China’s total imports of 282,890 metric tonnes (New Zealand accounting for 12.4 per cent).
This deal will strengthen the country's already strong position (general beef tariff currently 25 per cent versus New Zealand 5.6 per cent -all phased out by 2025).
China’s Beef & Pork Offal Tariffs
China’s total offal imports reached 832,058 MT in 2013, with pork accounting for 97 per cent of this figure.
The current general tariff facing Australia (and the EU) ranges from 12 per cent-20 per cent; preferential rates for New Zealand range from 0 per cent-2.7 per cent.
These rates for Australia will be phased out entirely by 2025, with pricing implications for European competitiveness.