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The sweet meat of the TPP

The ambitious Trans Pacific-Partnership (TPP) is a step closer after Barack Obama secured US House of Representatives approval for the Trade Adjustment Assistance legislation which offers aid and training to US workers impacted by the trade deal.

Successful final passage of the deal will redefine the US's position in Asia and for Australia and NZ the impact is potentially profound.

" Successful final passage of the trade deal will redefine the US's position in Asia."
Andrew Géczy, CEO International and Institutional Banking, ANZ

It is not surprising there are varied predictions on the outcome of the TPP as it presents one of the most complex multilateral trade agreements of our time. The sheer scale of the deal makes it unique - the twelve countries included account for around 11 per cent of the world's population and 40 per cent of global GDP.

THE WINNERS

Agriculture is an industry likely to benefit in both Australia and NZ. In fact many US agricultural groups were among the first to welcome the TPP's fast-track approval.

Agriculture is vital not only to the prosperity of the trans-Tasman partners but also to enhancing the world's food security as demand increases due to rising populations and incomes.

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This infographic is also available in an accessible pdf.

According to modelling by the US Department of Agriculture, the numbers make it clear the TPP will provide Australian and New Zealand agricultural companies with huge opportunities:

  • Agricultural imports of TPP member countries averaged $US280 billion from 2010-12, over half of which was sourced from TPP partners.
  • By 2025, agricultural trade between countries in the TPP is forecast to be 6.3 per cent, or $US8.5 billion higher than without the TPP, with two of the largest economies in the group, Japan and the U.S, accounting for the largest shares of trade according to US Department of Agriculture TPP modelling.
  • Meats will account for the largest increase in post-TPP agri-intraregional trade at 43 per cent and an increased export value of $US3.7 billion. Australia, Canada, New Zealand and the US are expected to be the major beneficiaries while Japan will be the biggest importer.
  • Dairy products will account for 20 per cent of the expanded trade, particularly when many members remove their existing high dairy tariffs. The Canadian and Japanese import markets present many opportunities, with New Zealand and the US likely to be the main export beneficiaries. For Australia, the major dairy export increase is forecast to be powdered milk sales to Japan.

TREMENDOUS OPPORTUNITY

If we look more closely at Australia and its role as a major producer and exporter of beef, the TPP provides a tremendous opportunity for the country to increase export growth with all TPP members.

Under the possible tariff cuts Australian intraregional trade in cereals, meat and dairy could rise by 40.2, 25.8 and 25.7 per cent respectively, leading to an overall increase in intraregional agricultural trade of 19.2 per cent by 2025.

New Zealand is also forecast to increase interregional agriculture trade by 12.9 per cent with strong growth in dairy and meat exports.

While the forecasts above are based on modelling, the reality is that the TPP's final details may not bring the same benefits to every sector.

The Australian sugar industry has been particularly vocal in its quest to be allowed greater imports into the US.

The huge US sugar market is tightly regulated, with importers allocated a certain portion to fill any consumption shortfall after domestic production.

With sugar having been a notable exclusion from the 2004 Australia – USA FTA, while also not gaining major access to China's market in the China Australia Free Trade Agreement (ChAFTA), the Australian sector is adamant that it must now be granted extra access.

However, in the face of a highly experienced and battle hardened US sugar lobby, this is likely to prove a difficult task.

Similarly, some voices in the Australian beef industry are concerned that an opening up of beef imports to Australia, potentially as a trade-off for market access for commodities such as sugar, could lead to enhanced risk of disease, or a diminished global perception of Australian beef's perfect biosecurity record.

The fine detail of such projects as the TPP inevitably throw-up some unexpected challenges too, particularly when interested parties – such as the US farm lobby – are very powerful. Nevertheless, the promise is considerable.

But to make these numbers a reality, Australia and New Zealand's agricultural sectors must increase overall productivity, which will require greater access to capital.

The challenge will not only be how to lift productivity to meet the increased volume demands but also how to improve the quality and food safety of products.

In addition, it will be critical for countries across the entire agricultural supply chain to enhance all aspects of their infrastructure – including food processing, transportation and cold storage. This would create increased access to quality food and also help reduce supply chain costs.

OPENING DOORS

The TPP continues to be negotiated but if passed it will open doors to increased trade for many countries and industries.

To take full advantage of the potential benefits presented by the TPP, each industry will need to carefully examine its impact on trade and the global market dynamics of their respective industries to adapt their businesses appropriately.

For example, Australian dairy processors are likely to look to the countries with the greatest increase in access, potentially Japan, and forecast product specifications or volumes.

If access to the Japanese dairy market grows, Australian processers may increase their focus on innovations in milk powder formulas for the Japanese consumer demographics, enhance their relationship with in-country distributors, and invest in the relevant technology and infrastructure.

Similarly, depending on the outcomes for the beef sector, leading producers and processors are likely to structure their output, to provide breeds, weights, cuts and packaging, most suited to their best markets, with changes in their strategies to suit new markets which may open up.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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