Protectionist EU always a hard task

Industry talking heads were quick to knock it down, but how useful will the recent trade agreement with the European Union be to meat exporters? Nigel Stirling spoke to some.

In Business8 Minutes

Industry talking heads were quick to knock it down, but how useful will the recent trade agreement with the European Union be to meat exporters? Nigel Stirling spoke to some.

Three years working in Brussels for New Zealand’s biggest exporter is enough to make anybody cynical about the European Union’s openness to the idea of free trade.

ANZCO general manager of sales and marketing Rick Walker, who worked as a trade policy manager for Fonterra in the EU’s bureaucratic nerve centre from 2003 to 2006, has seen it all from the Europeans before.

“I had no expectations,” Walker said. “So I am not disappointed.”

The chief executive of Hamilton-based beef exporter Greenlea Premier Meats, Tony Egan, had a similarly fatalistic view of the free trade agreement.

“To be honest when [NZ negotiators] went into the final round they were struggling even to get what they got in the end.”

So set expectations low and you’ll never be disappointed? That might be a good rule for life but is hardly any way to measure the success of four years of talks to prise open a highly protected market of 450 million people.

The Meat Industry Association, representing exporters, and Beef + Lamb NZ, representing farmers, were unequivocal in the immediate aftermath of the agreement’s announcement in Brussels by Prime Minister Jacinda Ardern. The deal stunk.

New beef quota of 3333 tonnes, rising to 10,000t after seven years, was a drop in the bucket compared to the EU’s beef consumption of 4.5 million tonnes annually. NZ’s existing high-quality beef quota remained a miserable 846t per annum.

There were bigger gains for sheep meat, but given NZ struggles to fill its existing 114,000 tonnes tariff-free quota, these were of secondary importance.

The deal had not delivered the commercially meaningful market access gains the industry lobbies were hoping to see.

But Walker recommends taking a closer look at the detail to get a true feel for the worth of the deal.

Reducing the current in-quota tariff rate for beef from 20% to 7% was a material change for any exporter looking at which markets it allocated scarce supplies of product to. More so because the lower tariff is also to apply to the newly-created beef quota under the FTA.

“At the moment Europe is not first cab off the rank because of the tariff and reducing it actually does make that access more valuable to us.”

While the size of the new quota looked miniscule compared to total EU consumption it is more flattering when compared to rival markets.

Under existing arrangements ANZCO is eligible for 300t of NZ’s high-quality beef quota for the EU. That would increase three-fold to 1000t on the EU FTA’s entry into force.

ANZCO’s number one market for high-quality beef is Japan which buys 2000 tonnes per annum, followed by China catching up quickly with 1000t annually. NZ has FTAs with both.

“If we have that EU access and it is at the 7% tariff then it moves up the priority list in terms of other options for that prime steer around the world,” Walker said.

“A thousand tonnes of prime steer is actually a big market for us.”

Greenlea’s allocation rises from 80t per annum to 200t on the deal’s entry into force.

Chief executive Tony Egan said the increase would be soaked up by existing customers and wasn’t enough to explore the EU market any more widely than it already was.

In the past Greenlea had continued to ship to customers even once its quota allocation was exhausted in the interests of maintaining continuity of supply and business relationships.

More quota meant it would be able to meet more of that demand without paying high out-of-quota tariffs.

Canada and Mercosur deals still to be ratified

Tony Egan said the EU had agreed deals with Canada and the Mercosur group of South American countries in recent years. They had been allocated 50,000 and 90,000t respectively of new beef quota.

A backlash from European agricultural protectionists is one of the reasons both deals are still to be ratified by all EU member states. In the case of Mercosur the deal is still fully in limbo.

“We had good hopes after seeing Canada getting a good deal some time ago…but we were also realistic that the EU did not particularly want more beef.

“It is still an improvement on where we were but not as much as we would have liked.”

Silver Fern Farms group sales manager Peter Robinson said he was disappointed by the deal with the EU but that was not to say it had no value.

The increased market access gained through FTAs benefited exporters by giving them more selling options for their products.

“It may be that an FTA will enable more product to go in there, but if you have more access you also have the ability to choose markets and the best paying markets

“This one falls a wee bit short of that.”

Robinson said the EU was a strong market for beef tenderloins but age restrictions meant exporters were limited in the amount they could send there under the terms of the existing high-quality quota.

Ditching those restrictions would be a welcome boost.

While it was likely to go unused for the foreseeable future, the 30,000t of new sheep meat quota could also be a useful backstop should NZ face disruption to its main market of China, Robinson said.

That was even though many of the items popular in one market were not necessarily valued as highly in the other.

“Obviously it would be challenging if you turn up in the EU with double the amount of product it is going to have an impact on pricing.

“Also do not forget we have the unused access into the UK as well.”

“Having that access to extra quota, it just gives you options should things deteriorate in other markets.”

The same could not be said for new EU beef market access, however.

  • Nigel Stirling is a farmer, agribusiness and trade journalist in South Otago.