Blog: Dean BestAustralia's dairy industry hails China trade deal

Dean Best | 17 November 2014

Australia's dairy processors will gain a "significant advantage" on some of their international competitors in China after Canberra and Beijing announced a free trade agreement between the two countries.

China is one of the top target markets for dairy companies around the world, not least in Australia, where the country's food industry is building much of its hopes for growth on serving Asia's fast-growing economies.

Australia dairy exports to China are worth A$461m (US$401.8m) and already account for 16% of the sector's annual export revenues.

"The free trade agreement will strengthen Australian dairy's competitiveness by providing our industry with a significant advantage compared to other countries in the market that do not have a free trade agreement with China," Noel Campbell, chair of industry organisation the Australian Dairy Industry Council, said. "It also puts the industry on a more level playing field against key competitors in the Chinese market, such as New Zealand."

Australia's neighbour became the first developed country to sign a free trade agreement with China. In 2008, New Zealand announced a deal with the Beijing and its businesses, notably dairy giant Fonterra, have been busy building their presence in China.

Murray Goulburn, the Australian dairy co-op, has made no secret of the importance it is placing on China as it seeks to further grow its business overseas.

The company accounts for a hefty chunk of Australia's dairy exports to China, shipping A$200m of infant nutrition, milk powder, cheese and drinking milk in its most recent financial year.

Gary Helou, Murray Goulburn's MD, said Australia is investing in its manufacturing network to provide products to China. He said the co-op and the wider dairy industry needed to review the agreement with China in full but revealed some early optimism.

"The first objective in this FTA was to begin to redress the disparity between Australia and New Zealand dairy trade to China. Second was to achieve a pathway to total free trade providing a competitive advantage and protecting Australia's long-term competitiveness in China. It seems these objectives have been delivered," Helou said.

When just-food meets dairy companies from around the world, the prize on offer in emerging markets often forms a central part of our conversations with businesses keen to grow overseas. Often, there is - at least publically - a relaxed tone when discussing how competitive the race is to carve out significant footholds in these markets. The stock answer is that there is enough growth to go around. That was certainly the reported stance of Fonterra to news Australian mining billionaire Gina Rinehart is looking to tap into rising demand in China for premium infant formula.

Nevertheless, the trade deal will help Australia compete with its rivals in New Zealand, provide the country's processors with a possible edge over dairy companies from elsewhere - and help do battle with the emerging domestic powerhouses being built in China's dairy sector.

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