“The Agricultural Issue”
Alexander Töldte
Chief Development Officer
Trade Negotiations Workshop
61st Asia Pacific Council of American Chambers Conference
Hilton Hotel
Auckland
New Zealand
2.30 pm
Friday 22 March 2002
(New Zealand Time)
EMBARGOED UNTIL DELIVERY
Fonterra grasped this opportunity, to be represented at today’s conference and at this workshop, with relish. Fonterra
is committed to playing a leadership role in the push for global trade liberalisation. In particular, Craig Norgate has
called on New Zealand to make the prospect of a Closer Economic Partnership with the United States a “national
obsession”. He and I will be accompanying the Prime Minister to Washington next week to help create the coalitions of
interest between the two business communities that are needed for the idea to fly. We know the odds of success. We also
know the benefits of making the deal happen. That is why we say it is not a time for scepticism. It is a time for
advocacy: to hustle to get into the deal flow.
Some may see some irony in a citizen of Germany – whose taxes have, in the past, helped fund the Common Agriculture
Policy – and with only recent experience in the agriculture sector – being a staunch advocate for agricultural trade
liberalisation. May I say that paying taxes to fund the Common Agriculture Policy – and the international aid to try to
fix the problems it causes – helps focus the mind. I am delighted to be on the right side of the issue.
Growing up in a Europe still recovering from war is helpful in understanding the context of why agriculture has been the
Cinderella of international trade, left on the sidelines. In a continent of rival nation states, frequently at war,
domestic food production – food security – was a critical strategic issue. The idea of relying on one’s neighbours for
any food staple, through trade, has historically been difficult to accept. Countries sought food security through
self-sufficiency. In Europe and North America, over the years, the strategic importance placed on self-sufficiency in
agriculture has been replaced by the disproportionate political importance of rural votes, as the motivating factor for
protection. Privileges and protection characterised agricultural production, and that in turn strengthened the farming
lobby, which continues to be able to maintain them.
The history of seeing agricultural as set apart from mainstream international trade has created a highly distorted world
market, which has only been begun to be seriously addressed in the last two decades, and there is still an enormous way
to go. The Uruguay Round agreements were a first step, with agriculture being part of the WTO’s rules-based system. That
has allowed smaller, poorer countries to require powerful, wealthier countries to stick to their commitments. For New
Zealand, the Uruguay Round allowed the country to regain lost ground on market access. The slow throttling of New
Zealand’s butter trade with the European Union was eased with access restored by 50 percent. For the first time in fifty
years, meaningful access to the United States was opened up for butter. Export subsidies were capped by binding legal
commitments.
There is no denying that New Zealand gained from the Uruguay Round. Since the conclusion of the Round, the New Zealand
dairy industry has grown by 64 percent, as measured by milk production. But we are still far from having a normal,
functioning international market. Quota access continues to be severely limited. Tariffs on agricultural products remain
exceptionally high. Massive production subsidies continue. While export subsidies have been capped, the European Union
will still subsidise the export of more cheese than New Zealand entire cheese production. As a result, prices in the
international dairy trade still continue to bear little relationship to the underlying economics of the production of
the goods concerned.
I could give many specific examples of how this destructive system directly harms Fonterra and New Zealand. In some
markets, the tariffs simply shut us out. In Japan for example, the tariff on butter and anhydrous milkfat is so high we
would have to sell it for over US$9,000 a tonne to make a return, when the international price is around US$1,200. But
reciting example after example of how the system harms New Zealand – and outlining the static benefits New Zealand would
gain from trade liberalisation – only encourages the perception that international trade is a win:lose game. It plays
into the hands of those who think they benefit from the current conditions. It is the dynamic benefits – and on a global
scale – that should interest us more.
The sectors and countries that liberalise first tend to win first, as the New Zealand experience clearly suggests. And
in liberalising, they help others to win too. The taxpayers of OECD countries pay out US$362 billion in subsidies to
their agriculture sectors each year. These subsidies – and lack of access to OECD markets – prevent developing countries
from establishing viable agriculture sectors. Removing all agricultural tariff and non-tariff barriers would boost the
economies of developing countries by US$32 billion, according to the World Bank – the same amount the current barriers
are holding those economies back. The taxpayers of OECD countries then pay billions of dollars in international aid, but
it is still only a sixth of what they pay to their own farmers in subsidies. In national income terms, OECD taxpayers
pay their own farmers 1.4 percent of GDP, compared with 0.24 percent to the developing countries those subsidies harm.
This system is not sound economics, it is not sound strategic policy and it is not sound ethics.
In today’s interdependent world, economic security – and strategic security – are best achieved by establishing thriving
trade between countries under a rules-based system. This is the message Fonterra takes to the agricultural sectors of
other countries, including the United States, which is sadly taking backward steps with its Farm Bill – with another
US$7.3 billion per year in subsidies to farmers. At the same time, the Congress is considering proposals to introduce
import quotas on milk protein products. It is vital for our industry and New Zealand that those proposals do not
succeed. We will also make the point that powerful countries, such as the United States, would not accept their premier
industries – the aerospace industry or the computer industry, for example – facing blanket restrictions on access to
foreign markets and being forced to compete with foreign competitors with massive state-backed support.
Our agenda is clear. We will argue for trade liberalisation from a global perspective, in support of the New Zealand
Government – and other like-minded Governments – as the World Trade Organisation gets down to the new Round. We will
remind all who choose to listen that the core objective of the Uruguay Round’s Agricultural Agreement was to “establish
a fair and market-orientated agricultural trading system” by means of “substantial progressive reductions in
agricultural support and protection … resulting in correcting and preventing restrictions and distortions in world
agriculture markets”. We will enthusiastically encourage Governments to turn those objectives for agriculture into
reality.
We will do the same with respect to the proposed Closer Economic Partnership with the United States. Greater access to
the vast, vibrant and sophisticated US economy would increase New Zealand’s contact with talent, knowledge, ideas and
capital. It would benefit us simply by raising awareness of opportunities for New Zealand, in the US, and further
afield. The United States would also benefit from a deal that could increase the momentum for further economic
liberalisation in the Asia Pacific region.
It is in all our interests to take the lead to help secure the economic benefits of global and bilateral trade
liberalisation, and so help achieve greater international security and stability. Agricultural trade is one of the
greatest obstacles. Reforming it is the best solution. Fonterra – as a leading company in the Asia Pacific region, with
our top eight markets spanning the Pacific Rim – is taking the lead on trade liberalisation. We urge all our colleagues
in the Asia Pacific Council of American Chambers to join with us in doing the same. You will continue to hear from us in
the weeks, months and years ahead.
END