Fonterra, Zespri back TPP

Fonterra Cooperative Group [NZX: FSF] and Zespri International have voiced their support for the Trans-Pacific Partnership at a select committee hearing, although neither could quantify the benefit of the treaty being ratified.

Fonterra's director of global stakeholder affairs Philip Turner told Parliament's foreign affairs, defence and trade select committee  the dairy cooperative was disappointed with the immediate outcome for its sector but sees longer-term benefits.

"Although TPP falls well short of full liberalisation of dairy products, it will provide some limited new access for key traded products," Mr Turner said. "New Zealand exporters currently face prohibitively high tariff barriers on dairy products. Dairy exporters in New Zealand will benefit more from being within the TPP than if New Zealand remained outside it."

Mr Turner said Japan, the US, Mexico and Canada were four of Fonterra's top 10 markets, and had a collective trade of $US2.56 billion in 2015. At the end of the transition period, New Zealand will have limited quotas to export butter and milk powder to Japan, most cheese types and butter into the US, milk powder, cheese and butter into Mexico, and butter, cheese and milk powder into Canada.

Fonterra hasn't done any deeper analysis of the potential financial benefit from tariff removal, saying there was potential to draw inaccurate conclusions about the impact down the track and Mr Turner dismissed the government's projected gain from tariff reductions of up to $96 million at the end of the full term as "very hard to use as an indicator of full benefits."

"Tariffs are paid by importers, not exporters, so it does not necessarily change into a benefit for New Zealand," Mr Turner said. "The tariff savings are simply a crude proxy for trade opportunities that would result from greater market access. More market access will benefit our farmers but trying to quantify that is very hard."

Zespri had a quantifiable number – $15 million, which was its calculation of tariff removal in Japan, the kiwifruit marketer's most valuable market.

Zespri's chief operating officer, Simon Limmer, predicted a 33% growth in that market should the TPP be ratified although, when asked how he could quantify the benefit to producers, he said the benefit would accrue more over time. 

"It's not an immediate benefit back into growers' pockets but the  indirect benefit from that long-term investment and a sustainable position in that long-term market is going to be very valuable," Mr Limmer said. "The $15 million is the exact quantum in terms of what the tariff represents but it will flow through in the market in terms of our ability to be more competitive. Now that flows through into additional volumes, additional run rates, our ability to build volume in the market, which does have an indirect financial benefit for us through the supply chain."

Six of Zespri's top 20 markets are present in the deal – Japan, Malaysia, the US, Singapore, Australia, and Canada – which had about $500 million in collective sales in 2015. Zespri is expecting a 50% increase from those markets to $750 million in sales by 2020.

(BusinessDesk)