TPP – a big shift for agriculture?

By Stephen Jacobi

Mixed bag of immediate benefits for agriculture from TPP, but bigger changes ahead.

On 4 February, at the TPP signing, the earth moved.  Imperceptibly to most, frustratingly for some, but the tectonic plates holding together world trade shifted, as 12 economies embarked together on a new economic enterprise.  This may be cold comfort to New Zealand farmers coping with drought and falling prices, but over time TPP will advance their interests, with some seeing the benefits earlier than others.

It often seems like nothing ever changes for trade in agriculture.  Even as tariffs are reduced, new non-tariff barriers seem to put in place.  But change does occur – think of the impact of the GATT Uruguay Round, which put a cap on subsidies and paved the way for increasing commodity prices.  The impact may not be felt immediately but signals are sent, markets take note and investment and production adjust.

This is essentially what will happen with TPP.  The signing in Auckland may have been largely symbolic – the deal was concluded last October and a draft text released the following month – but already a number of countries have indicated that they too would like to join – South Korea, Thailand, the Philippines, Taiwan and Colombia, even Indonesia.  This is not going to happen overnight either as TPP itself could take up to two years to get ratified.  But for now the writing is on the wall and a new framework of rules for trade and investment has been established.

Meantime there’s plenty of more tangible benefit for New Zealand farmers -even for dairy, which, with justification, feels left out of the deal.  All New Zealand’s major agricultural export sectors including dairy are covered by TPP, which will result on full implementation in tariff savings of $202 million per annum out of total tariff savings for all sectors of $259 million.  That’s not new business; just tariffs saved which make New Zealand products more competitive in foreign markets.

Beef farmers may feel the greatest benefit. The beef tariff in the critical Japanese market will drop from 38.5% to 9% over 15 years ensuring that New Zealand is not disadvantaged against Australia which earlier negotiated an FTA with Japan.  The tariff saving amounts to $18 million immediately and $48 million once the lower tariff level is reached. In the United States the small in-quota tariff will be eliminated on entry into force resulting in savings of $10.8 million.  Tariffs on sheepmeat in all TPP economies will be free after 8 years and for wool after 10 years.  The deer industry gets little immediate benefit as tariffs are already free, but will get an opportunity to address issues when others like Korea join.  Across all sectors TPP provides mechanisms to address non-tariff barriers and promote regulatory coherence which will result in less cost and more secure trade.

Tariff reductions are also achieved for horticultural products including kiwifruit, apples and a range of other fruit and vegetables – the savings are worth around $26 million.  Wine and forest products also achieve important gains.

Has dairy been left out of the TPP party?  To a large extent, yes – the liberalisation achieved is less than other sectors and some important barriers will remain even after full implementation.  That is of great disappointment to all those involved in the negotiating process. It also reflects badly on successive announcements from TPP Ministers that this would be a ‘high quality, ambitious and comprehensive’ deal.  In the end, under pressure from their own highly protected industries, the US and Japan were unwilling to open their markets.  This has resulted in a lopsided agreement and one, which most certainly is not in the interests of competitive US dairy exporters.  But there is another side to this story – the dairy industry gains some useful concessions giving a limited degree of additional access to markets like the United States, Japan, Canada and Mexico.  Peru unfortunately remains closed. The value of tariff reductions for dairy are valued at $102 million, still more than any other sector.  Importantly too a process of agricultural reform is underway in Japan, which could see significant change in the future.

Even if the glass of milk in TPP is less than half full, the wider implications of the agreement apply.  In 30 years time, when the last of the miniscule dairy tariff reductions take effect, the world will look very different.  It is hard to believe that TPP will not have evolved further and the international trading system with it.  New Zealand needs to use all opportunities open to it, through implementation and future expansion, to address unfinished TPP business.  Meantime back home the Parliamentary process for ratification is getting underway.  Farmers’ voices need to be heard in the coming debate to ensure prompt ratification so agriculture can benefit from the global shifts in trade policy that TPP encourages.