Groser sees good progress in TPP talks, but concerned US and Japan may do side-deal on dairy that ignores NZ; Key cautious

By Lynn Grieveson

Trade Minister Tim Groser has returned from a TPP ministerial meeting in Sydney over the weekend confident that the "finish line" for the trade agreement is in sight.

But he is increasingly concerned that the United States and Japan might get together to make a sweetheart dairy access deal on the side that might not be in New Zealand's interests.

Groser told Audrey Young of The Herald  his "central concern" now was that the rules over tariffs and access for dairy produce could be agreed between Japan and the US, and imposed upon New Zealand.

"The US interests are not New Zealand's interests," he was quoted by The Herald as saying. Groser later told Radio New Zealand he expected Governments would be in a position to take deals back to their parliaments in the first quarter of next year.

Prime Minister John Key, talking to reporters before Tuesday's caucus meeting, said he had not had a chance to discuss the weekend's meeting with Groser, but shared his view that "dairy is very important, and it is very important that we see progress when it comes to dairy."

"The TPP is a 'one in a lifetime' opportunity for a high quality trade agreement, " he said. "I don't think we should trade it away that easily."  

High quality deal?

Key did not rule out walking away from the free trade negotiations if there was no chance of zero tariffs on New Zealand dairy produce.

"In the end, like any negotiation, it's sort of 'see how it all goes'. All I can tell you is what I have said so often before - that the feedback that I've always had from President Obama is that he's very committed to a high quality deal, " he said." Let's see how that plays out."

Key also did not rule out stepping back from the line of  'zero tariffs on all agricultural products', to allow some tariffs on primary produce in exchange for a zero tariff deal on dairy.

"Let's wait and see," he said.  "Like any free trade agreement that we undertake, you never get 100% of what you want but we are going to start at the maximum position and see how it goes."

However he talked down concerns over a potential 'sweetheart deal' between the United States and Japan, saying: "interestingly enough, I don't know how big a deal dairy actually is for Japan anyway. It's a much bigger issue for the United States."

"Don't forget the United States have real gains to be made when it comes to beef and dairy into Canada and other markets, so I am pretty sure you will find that the dairy lobby in the United States will be as active wanting liberalisation as the New Zealand lobby is."

Spierings on Ebola and the payout

In addition to concerns over the outcome of the TPP, Fonterra CEO Theo Spierings now has Ebola on his mind.

Spierings told TV3's The Nation on Saturday he was concerned the spread of the virus could potentially close borders to trade in West Africa, where Fonterra sells five to six percent of its product.

"The question is 'can it be contained quickly?'. It doesn't feel to me as if it is under control at the moment - and I am saying it mildly," he said. "I am quite worried about it, and I am very worried it will spread because I have lived in West Africa and it is very difficult to contain a virus to a certain region."

Key said anything that dampened down the return to New Zealand dairy farmers was of concern.

But farmers can take heart from Spierings confidence that there would be a rebound in demand, and prices, for dairy produce. He said on The Nation that the current dairy price of US$2640 a tonne set in the latest GlobalDairyTrade auction was "way below" what he and other milk traders and milk companies saw as a "very fair price" of around US$3,500.

Fonterra's current forecast for the 2014/15 season of NZ$5.30/kg is predicated on a return to US$3,500/tonne. Economists have lowered their forecasts to around NZ$4.80/kg in recent weeks after a series of poor auctions.

"We will come back to that level, whether it is four months or six months, but we will get back to it," he said of the US$3,500/tonne level. He was asked about the economists' forecasts and said Fonterra's forecasts were based on detailed views of both supply and demand, neither of which the economists had.

Peak cow?

Asked if New Zealand had now reached 'peak cow' following years of dairy conversions, Spierings said there was still potential for a further growth (through both conversions and productivity increases) before the degradation of freshwater meant the emphasis was "on the productivity route only."

"New Zealand can easily grow for the next ten years by two percent, three percent, but we need different solutions," he said.

He said Fonterra had looked at New Zealand's dairying regions catchment by catchment and still saw growth of 2-3% per annum in production in all areas.

"In every catchment, in the coming 10 years, we can still grow, with 60% percent based on conversions and more animals, and 40% on productivity."