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The Trans-Pacific Partnership Agreement: Should New Zealand Dairy Trade Be Excluded?

Dairy imports from New Zealand are shaping up to be a major issue as the United States proceeds with negotiations with a Pacific basin free trade agreement with Singapore, Chile, Brunei, Vietnam, Peru, Australia and New Zealand (the Trans-Pacific Partnership or TPP agreement). New Zealand is the world’s most successful dairy exporter, in part because of natural climatic advantages and in part because it has consolidated its dairy industry around one export-focused company, Fonterra, that dominates many parts of the world market.

The case for exclusion: U.S. dairy farmers and many members of Congress believe that Fonterra engages in unfair trading practices and exercises excessive power over the global dairy market. They want to exclude U.S. /New Zealand dairy trade from the proposed TPP.

The case for inclusion: New Zealand and its defenders claim that the Pacific nation’s success must be attributed to its free market, subsidy-free, and deregulated agricultural policy and to its unrelenting focus on low production costs and exports to the world market.

Questions for consideration if the TPP includes U.S./New Zealand dairy trade:

  1. Will inclusion of New Zealand dairy trade accelerate the horizontal concentration and vertical integration of the dairy agriculture sector in the United States? If so, will this increase market efficiency or facilitate anti-competitive practices?

  2. Will inclusion reduce the cost of dairy inputs for U.S. dairy manufacturers, allowing them to compete more effectively in the world market in the same way New Zealand does? If so, are there sectoral or regional trade-offs in terms of U.S. food manufacturers, dairy farmers, and marketing cooperatives? Are the U.S. job trade-offs positive?

  3. Would inclusion of New Zealand dairy trade be a form of “unilateral disarmament” by the United States, in the face of subsidies and protection of local dairy farmers in Europe, Japan, and other truly important markets?

  4. Would it be a foolish bargain to open up the U.S. dairy market, given that none of the TPP countries would be a significant market for U.S. dairy and agricultural exporters? Or, would it be a smart bargain to secure a beachhead for U.S. services exporters in the fastest-growing market in the world: Asia and the Pacific Rim?

  5. Does the US dairy industry need a different export vehicle, e.g. an export cooperative on a larger scale than now exists?

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