Protectionism still exists in trade among countries today, and exporters need to find areas with strong demand and lack of access, according to industry consultant and researcher Wayne Prowse, of Fresh Intelligence. “Agriculture has always been difficult. Multilateral trade agreements have always been difficult. We hear of Doha and these sorts of agreements, which are still not ratified,” he told the PMA Fresh Connections Conference Day attendees in Melbourne.
Horticulture makes up a small percentage of the $19 trillion in global trade annually, but investment in technology for smaller and developing countries has helped. “We’ve seen that in spectacular ways with the likes of Taiwan and South Korea and in the last 20 years China,” Mr Prowse said. Withdrawing protection measures, improving market access and other policies can help to drive trade and seize opportunities Mr Prowse said, and removing tariffs and non-tariff barriers helps. “Looking at other areas, including labour and the environment, a comprehensive free trade agreement also encapsulates a lot of these issues.”
Increasing movement of goods into another market and improving efficiencies were other broad aims Mr Prowse covered in his presentation. “The cost of trade is large but a lot of times trade in overseas markets is less in value than it is in the domestic market.”
Know where we stand, strategise accordingly
Fruit and vegetables formed a smaller part of agricultural exports from Australia, which are driven primarily by meat and grains, around 70-80%. Horticulture exports were around 10%, and more than 70% of total exports to China will be iron ore, Mr Prowse said. Japan and the US were other large markets, but Hong Kong is a ‘huge’ market for Australian horticulture, he added. “I’d pay tribute to our governments in New Zealand and Australia for what they’ve done to get free trade agreements. We’re a small player,” he said of the industry. “You think that everything revolves around fresh produce but we really have to think again. Let’s know where we stand and rework our strategies accordingly.”
Value and perspective: the real impact of FTA’s
On balance countries with FTAs are trading slightly better, according to data presented. New Zealand’s FTA trade at $25 billion compared to $24 billion non-FTA was cited. New Zealand’s agreement for economic cooperation with Taiwan holds 8929 tariff items, of which 197 are for fresh produce. Many have immediate tariff eliminations. That leaves 13 products in that 197 with measureable trade. Three of those – kiwi fruit, apples and cherries - account for 95% of the fruit and vegetable exports to Taiwan. Tariffs are being phased out gradually for kiwi fruit between now and 2017. Other items are being phased out by 2021 “When governments say they are reducing tariffs on all of these products, have a look at how slowly they are getting reduced,” Mr Prowse told the audience. “Trade is up 23% compared to the three years prior to the agreement. Whether it is due to the free trade agreements or not you can be the judge, but certainly we can see that tariffs are being reduced from $20 million to $12 million at the moment and will continue to be reduced.”
Cherries to Taiwan average $6.8 million US and since the agreement has been in place exports to Taiwan have increased significantly. The equivalent of half a million dollars in tariffs have come off, and that trade has lifted to $14.7 million, while Chile reduced.
The examples continued, and Mr Prowse pointed out that 17 out of 25 tariff lines have been removed from the South Korea and Australia FTA. “It will take five to 15 years to get them off, except for cherries. With cherries, immediate reduction of tariffs to zero,” he said. “Once we take out all the products out where we don’t have quarantine access, we’ve only got about five fresh fruit products that have quarantine access into Korea. That brings it back into perspective what access we do have.” There will be no tariff reductions on oranges set to arrive after October 1, the agreement says. Grapes arriving after May 1 will be subject to the 45% tariff rate. “That’s significant because it’s still near the peak of the season, it’s towards the end,” said Mr Prowse.
Mr Prowse explained how cherry exports have lifted into South Korea since implementation of the agreement. 97% of all imports into Japan are also expected to be duty free when the agreement is fully implemented. Oranges and asparagus make up the bulk of Australia’s exports into Japan, with access just granted for table grapes. Tariffs will increase for those not imported into Japan by the end of February. “Oranges are by far the market leader into Japan. We’ve been developing that market and we’re the dominant market leaders in our southern season.” This is likely to have less of an impact than cherries, according to him. “It will certainly be better because a 16% tariff will find its way back into the supply chain. Not all buyers will get the benefit but it will take that cost out of the supply chain and make it more affordable.”
‘Right produce, right price, right promotions’ Success stories
Thailand was one of Australia’s first major FTAs, and came into force in 2005. “It was very interesting to see how the market has grown,” Mr Prowse said. “A lot of tariffs were at 33% or 43%, that sort of area, where it phased down to zero by 2010.” The two exceptions to that, mandarins and table grapes, should be tariff free by the end of 2016 he said. “I do like looking at these figures because it’s such a great story. You can see growth as the tariffs are coming down.
Looking at the value of what we’re exporting adds perspective, according to Mr Prowse. “I’m not saying it’s good news or bad news. I’m saying that’s what’s happening. Let’s look at how we can move forward.” Understanding Peru or Chile as a competitor, for example and finding a point of difference would help.
The agreement between New Zealand and China for kiwi exports was an example given. “I’m sure the free trade agreement there was helpful, but I’m sure it didn’t see the impact that the one for cherries did,” Mr Prowse said.
Apples were ‘more than a free trade agreement’ situation, according to Mr Prowse. “It was a 10% tariff, reduced to zero by 2012. The trade was increasing; the Chilean FTA was at the same time. New Zealand apples are very small, but suddenly there was a huge increase when the US was knocked out of China. All these games talked about earlier are still going on” Australian apples only first entered China in 2014. Australia supplies approximately 300 000 of 9 million tonnes of produce into the Chinese market, according to data presented by Mr Prowse.
“Right produce, right price, promotion and distribution. It’s got to all come together,” Mr Prowse said. “The FTA is a tool that might be able to help us with pricing and relationships.”
“Market access, in terms of quarantine access is critical when it comes to distribution. If we don’t have access, we don’t have trade,” he concluded. Cherries moving into Japan during their season was a key concern Mr Prowse raised. “What are the industries that have strong demand and inhibited demand because of lack of access?” he asked the audience before finishing.
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Wayne Prowse, Principal
Fresh Intelligence Consulting
LinkedIn: Wayne Prowse