Myth busted – how China trade deal will really affect Australian agriculture

Agriculture has been touted as a big winner in the China Australia Free Trade Agreement but a closer look at the deal shows it is unlikely to have much influence on the national economy.

The Commonwealth Bank of Australia's head of industrials, food, beverage and agriculture, Peter McGregor, said there was plenty of reasons to get excited about the prospects for dairy, beef and wine industries. The tariffs for these products will be slashed from 20 to 25 per cent to zero in coming years.

While dairy, beef and wine a big winners under ChAFTA, there are no tariff cuts for some of Australia's biggest agriculture exports such as wool, CBA's Peter McGregor says.Credit: Brendan Esposito

But Agriculture makes up about 8 per cent of Australia's total exports to China, he said. Of that 8 per cent, about 20 per cent is dairy, beef and wine.

"The bulk of the rest is in wool, where there is no change in tariffs … and grains and oilseeds where there is no change," he said at a Committee for Economic Development of Australia luncheon in Melbourne.

Commonwealth Bank's Peter McGregor, says there are no tariff cuts for some of Australia's biggest agriculture exports.

"If you do the maths all the way through, those exciting agri commodities I've talked about account for about 2 per cent of Australia's current exports to China.

"It's positive, very positive and certainly deserves the publicity. The opportunity's there but it does need to be seen in context."

The Senate this week passed the bills needed to ratify the China Australia Free Trade Agreement after Labor dropped its opposition to the deal late last month, triggering praise from farmers.

Australian Dairy Industry Council chairman Noel Campbell said it would ensure Australia would not fall further behind its competitors such as New Zealand.

HSBC chief economist Paul Bloxham says more consolidation is needed in Australia's food bowl to improve its global competitiveness. Credit: Louise Kennerley

New Zealand signed a trade agreement with China in 2008 and since then its dairy exports to China have increased eight fold, and its beef exports have increased 11-fold, Mr McGregor said.

Industry with one voice advantage

He said it would be a disservice to New Zealand to pin the growth on the trade deal.

Mr McGregor said New Zealand had and another competitive advantage over Australia, which has helped bolster dairy exports.

"They have benefited enormously by having a dominant player in Fonterra … [which] accounts for about 93 per cent of New Zealand's dairy processing," he said.

"By definition you have an industry speaking with one voice and that's been one of the challenges here. We have a far more diversified, disparate supply base. The largest processor in Australia accounts for less than a third of total dairy volumes. Just getting the industry to speak with one voice is a huge step forward."

Australia's biggest milk processor, Murray Goulburn, had hoped to create a super co-operative in the style of Fonterra when it lobbed a bid for Australia's oldest listed dairy company, Warrnambool Cheese and Butter in 2013.

The bid failed. It would have created one of the world's 30-biggest dairy companies. Murray Goulburn managing director Gary Helou blamed then treasurer Joe Hockey for allowing a rival bid from Canada's Saputo to proceed while the Australian co-operative had to argue its case before the competition tribunal.

Murray Goulburn has since listed its non-voting unit trust on the ASX, which raised $500 million, and will help further fund the co-operative's transition from being a commodity player to a dairy brands and ingredient business.

HSBC's chief economist for Australia and New Zealand, Paul Bloxham, said the biggest constraint on the productivity and the competitiveness of Australia's food bowl was a lack of consolidation in the industry.

"We still have a reasonably large group of small players within the agriculture sector and what's very clear is that when it tends to consolidate, which is often politically unpopular, productivity increases largely because of the economies of scale," Mr Bloxham said.

"A big part of the story for Australia is that we need to see greater consolidation of the agricultural sector and that will be quite helpful in terms of improving our productivity and competitiveness."