NZ dairy industry continues to dominate through growth

In CIGI Paper No. 37, The Role of International Trade in the Rise of the New Zealand Dairy Industry from its Beginnings to the Fonterra Era, Bruce Muirhead traces the rise of New Zealand’s innovative dairy industry, including the highly successful mega-cooperative Fonterra, and examines how it will overcome future challenges and competition.

He says that New Zealand’s most important export sector would not be greatly affected should the Trans Pacific Partnership negotiation collapse. The country’s dairy products trade has been diversified to include several Asian countries, including heavyweights China and India, and the country will participate in negotiations designed to lead the Regional Comprehensive Economic Partnership, which includes China. Such economic engagement means that New Zealand is not depending on trade with European and American markets. “The much vaunted US policy shift, its so called ‘pivot to Asia’ has already been accomplished by New Zealand in a relatively short time,” he says.

He explains that if other countries “have a viable industry of their own…they are unwilling to consider competition with Fonterra because they cannot do so effectively without the use of government programs involving subsidies or tariff rate quotas, which block much of a national market through the use of very high tariffs once a certain threshold of imports has been reached.”

“All countries with pretensions to a dairy industry, including the European Union and the United States, have balked at undertaking serious trade liberalisation negotiations in the sector with New Zealand,” says Muirhead. “The latter is perceived to be too efficient.”

Muirhead concludes that “it will be left to the likes of DairyAmerica and its increasingly focused export crusade to East Asia to put dents into [New Zealand’s and] Fonterra’s ambitions, presumably with the help of the US government.”