Explainer: What you need to know about the India Free Trade Agreement

See how the Australia-India Free Tree Agreement will impact the agriculture industry, including the livestock, grain and horticulture sectors.

Australia and India have signed an interim free trade deal. See how the FTA will impact the agriculture industry, including the livestock, grain and horticulture sectors.

LIVESTOCK:

Sheep producers are likely to be one of the big winners from a deal signed between India and Australia to free up trade.

The interim Australia-India Economic Cooperation and Trade Agreement, signed late last week after a decade of negotiations, will reduce both sheep meat tariffs, currently at 30 per cent and wool tariffs now at 2.5 per cent back to zero.

No time frame has been released for the elimination of the tariffs as the deal needs to be legislated but its announcement is being lauded as a win for sheep meat and wool.

The Australian wool industry is hoping the reduction in tariffs will encourage India to buy more wool.

Australian Wool Innovation chief executive John Roberts said the trade agreement was another positive development for Australia’s wool growers.

“India is the third largest importer of our wool and the removal of the 2.5 per cent tariff will create even more demand,” Mr Roberts said.

“In the six months to January this year, India bought 8,190,780 tonnes of wool which is 4.5 per cent of the national clip and an 82 per cent rise on the previous year.”

Mr Roberts said the industry had noticed strong demand from India, particularly in wool from 17.5 to 20 micron.

Fox and Lillie national wool brokerage manager Eamon Timms said the company’s Indian clients had been talking to them about this for many months and “expressing how important it would be to their wool business”.

“Strategically this free trade agreement is an important signpost to the future,” Mr Timms said.

“Many Western countries are trying to encourage developing economies outside China to speed up their rate of development as the geopolitical concerns over the world’s second largest economy — and the largest buyer of Australian wool — deepen.”

And while Australia sold just 111 tonnes of sheep meat to India during the past five years, the zero tariff is positive according to Sheep Producers Australia chief executive Bonnie Skinner.

“For Australian producers and exporters, the agreement will enable our industry to be better placed to help supply some of the demand in India for high quality sheep meat,” Ms Skinner said.

“Securing this agreement signals a new chapter in our bilateral relations and an opportunity for us to work collaboratively for years to come.”

A range of other exports including coal, lentils, lobsters, wine and some fruit will be part of the deal.

GRAINS:

One of the most important crop commodities Australia trades with India — chick peas — has been left out of the interim Australia-India Economic Cooperation and Trade Agreement signed late last week.

The noticeable omission from the trade deal comes after chick peas exports to India have had hefty tariffs placed on them since December 2017 when India introduced a 30 per cent tariff on lentils and chick peas to protect domestic prices and Indian farmers.

The tariff on lentils has since dropped to zero per cent, while the chick pea tariff is currently at 66 per cent.

Pulse Australia chief executive Nick Goddard said he found “no concession on chick peas disappointing”.

“It wasn’t for want of trying according to the negotiators, so it is a disappointing outcome,” Mr Goddard said.

“We understand and support India moving toward a self sufficiency strategy, but food security is important for them, so they need to have access to markets if a monsoon season fails.”

“We know tariffs can be dropped overnight, but farmers can’t grow a crop overnight.”

“We understand the market we are operating in, but to shut the door on chick pea imports for an indefinite period doesn’t provide hope for growers.”

Fortunately, Mr Goddard said Australia had strong markets for chick peas to the Middle East and Pakistan.

“Growers planting chick peas this year will have market outcomes, and with input costs so high any sort of legume will be for free nitrogen in paddocks.”

Meanwhile, Mr Goddard said the deal was “good not great” for lentils, as the tariff dropped from 30 per cent (the tariff is due to go from zero to 30 per cent in June) to 15 per cent, and the tariff on fava beans would go to zero per cent over seven years.

Thomas Elder Markets analyst Andrew Whitelaw wrote in an analysis that India moves between being an importer and an exporter dependent upon seasonal conditions.

Mr Whitelaw said during the past decade, Australia has provided just under 70 per cent of India’s chick pea imports.

“The farm lobby in India is very strong, and farmers were not happy about the lentil tariff removal. They will be pushing to continue to keep Australian chick peas out.”

There is no timeline for when the deal will be finalised, as it still needs to be legislated in Australia, which is unlikely before the federal election.

HORTICULTURE:

Fruit and vegetable producers will set their sights on India following Australia’s signing of a trade agreement with the world’s fastest growing major economy.

Australian Fresh Produce Alliance chief executive Michael Rogers said the success of the nation’s fruit and vegetable industries was heavily reliant on export opportunities given the bulk of agricultural production was exported.

“This deal has gone a lot further than people expected, in terms of the pace of tariff reductions and the number of products included. It’s a good outcome for horticulture,” Mr Rogers said.

The Australia-India Economic Cooperation and Trade Agreement, signed by Trade Minister Dan Tehan on Sunday, will see tariffs eliminated over seven years on a variety of horticulture products including blueberries, avocados, onion, cherries, asparagus, lettuce and celery.

Tariffs on wine, apricots and strawberries would be reduced, while orange and mandarin producers are set to gain as soon as the agreement takes effect with an immediate 50 per cent reduction to almond, orange, mandarin and pear quotas.

But Mr Rogers said trade agreements must be followed with technical market access protocols.

“We welcome this agreement with India, but it is vital that we follow up with expanded technical market access. Without expanded technical market access, both in India and other markets, the industry’s export growth is very constrained” said Mr Rogers.

Australia’s wine industry has welcomed the interim FTA as a positive step towards export market diversification away from China.

“The agreement is beneficial for very high-value wine producers, many of which are small and medium-sized businesses. They will now have confidence to explore new opportunities in the Indian market as the staged tariff reductions are implemented” said Mr Battaglene.

The interim agreement will give Australian wine preferential tariff treatment. Wine imports in India are currently slugged with a 150 per cent tariff, but when the agreement takes effect, tariffs on Australian wine with a cost, insurance and freight value of more than US$5 per 750mL bottle will be reduced to 100 per cent, with a further phased reduction of 5 per cent a year for 10 years down to 50 per cent.

Tariffs on bottled Australian wine with a value of more than US$15 will immediately reduce to 75 per cent, and then down to 25 per cent over 10 years.

It is expected the FTA will come into effect late this year. It’s implementation is contingent on its ratification in both countries, which in Australia means consideration in parliament by the Joint Standing Committee on Treaties and the passage of implementing legislation, namely an amendment to the Customs Tariff Act.