28 Mar 2014

Keep FTA with EU 'in perspective'

4:13 pm on 28 March 2014

New Zealand dairy companies say the possibility of a free trade agreement with European Union countries is a great idea but needs to be kept in perspective.

Prime minister John Key has announced that New Zealand and the EU are considering opening negotiations to liberalise trade and investment.

Dairy Companies Association of New Zealand chief executive Kimberly Crewther says such a deal would benefit dairy farmers on both sides of the world.

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Photo: PHOTO NZ

"There's a balancing effect," Ms Crewther said. "The height of our production season is at a very different time of year to the height of the European " production season. And from that point of view we have a degree of complementarity in our production.

"Equally within the market you get less volatility when New Zealand is experiencing a drought for instance, European supply might be having very good conditions and they fill that gap, or vice versa," she said.

"Price volatility is a challenge for farmers wherever they sit globally. Smoother pricing is good and you get that from liquidity from that open trade in the market."

Ms Crewther says while the prospect of a free trade agreement is an exciting development it does not mean quotas of New Zealand product into Europe, which have not been filled since 2007, would be filled after any FTA.

"A liberalisation of trade will mean that the quotas are more able to be used, so what you'll see is the tariff rates coming down. Even with the quotas there are tariff rates associated with trade within them that are quite high, and that has the effect of limiting the usability of those quotas.

"But I think there is an important point there in that trade will flow and products will flow to where the demand is. So even in the future, those quotas wouldn't necessarily be filled if there's stronger demand for that New Zealand product from elsewhere."

And "elsewhere" includes China, the Philippines, Malaysia, Indonesia and the Middle East region.

As a footnote, Kimberly Crewther says the global demand for dairy is growing at about 23 billion litres of milk a year. That exceeds New Zealand's total current annual production of about 19 billion litres.