Following the conclusion of the long overdue China-Australia Free Trade Agreement (ChAFTA), the National Farmers’ Federation proclaimed that Australian agriculture was on the verge of a golden era, provided farmers could capture a share of the rising export demand.
China is Australia’s largest trading partner by a significant margin, however the vast majority of Australia’s current exports are resource and energy related commodities. The opportunities for agricultural produce are limitless but it has not stopped certain sectors criticising the FTA outcomes.
Whichever way you cut it, these country-to-country trade arrangements result in greater market access, create competitive pricing tension with the domestic supermarket chains and hopefully lead to greater farm gate returns for Australian producers.
The reality of bilateral trade agreements is that it is impossible to please every commodity group or industry. All negotiations involve an element of compromise and it is incredibly naive to think that you will always get what you want.
In this regard, disapproval was also made by certain sectors of the Australian agribusiness community in relation to the content of the recently negotiated Korean and Japanese FTAs.
THE BENEFITS OF THE 2008 NEW ZEALAND-CHINA FTA HAVE INCLUDED:
- New Zealand exports to China increased from NZD2.2 billion in 2008 to NZD10.9 billion in early 2014
- over 90% of New Zealand exports are primary products, led by dairy and timber
- New Zealand exported more to China in the period 2008-12 than in the previous 20 years combined, and
- prior to the introduction of the FTA, exports were increasing by 4% per annum, however the growth rate has now accelerated to 45% per annum.
In a perfect world, everyone would have a seat at the table and reap the benefits from these agreements - the remainder of the economy must not be held back for the sake of a few commodities. The two stage process to be followed in the finalisation of the ChAFTA will give both sides the opportunities to renegotiate and re-evaluate the agreement in three years time. This should allow Australian exporters in the intervening period to build closer relationships, lock in supply and be better placed to gain further concessions at that time.Some have argued that this trade-off for the greater good of the economy somehow equates to socialism. I prefer to call it economic pragmatism and no amount of pie in the sky dreaming will deliver FTAs that will benefit everyone.
This ‘all in, or all out’ mentality has led to Australia losing market share in various commodities on the world stage over the last five years. Evidence of this is Australia’s declining share of the world dairy trade since the introduction of the New Zealand-China FTA.
The New Zealand-China FTA was negotiated over 15 rounds and concluded in three years. Conversely, Australia’s negotiations with China in relation to finalising the ChAFTA commenced in April 2005 and endured 22 glacial rounds.
Australia has been stuck in the starting house with a negotiation process that has clocked-up almost 10 years, whereas the New Zealand economy is performing considerably better than Australia’s post-GFC, in large part due to the success of their FTAs. The New Zealand economy was traditionally reliant on exports to the United Kingdom following World War II, however this market began to wane when the UK joined the European Community in the 1970s.
This caused New Zealand policymakers to consider alternative export markets. It is a major reason why they have been so successful in aggressively pursuing preferential trade agreements and favoured nation status with many Asian countries.
New Zealand has effectively placed themselves at the head of the queue and has well entrenched relationships with these trading partners as a direct result of its trade liberalisation policy.
Similarly, any opportunity that Australia can gain in terms of tariff relief in comparison to its international competitors should be taken full advantage of.
Like New Zealand, we need to be well positioned for the removal of trade barriers in the future.
For the foreseeable future, China will remain a net importer of agricultural produce and Australia must now get ready to service the burgeoning demand for high quality beef, dairy and other Australian produce, from China’s rapidly expanding middle-class population.
Further, the continuing decline in our manufacturing sector means that more wealth needs to be generated by the other productive areas of the economy and agriculture needs to be a key pillar in driving that growth.
Whilst ChAFTA will increase the opportunities for Australian agriculture, the business still needs to be written and the opportunities will not come to those that are not prepared to work for it.
Even if Australia achieves one-fifth of the unsustainable export growth achieved by New Zealand’s FTA, the wait will have been worth it