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RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Trans-Pacific Partnership Nears Completion—and That’s a Good Thing

Oct 18, 2013

This agreement could be as significant to U.S. dairy trade prospects as NAFTA was 20 years ago, cementing our presence in world markets for decades to come.

Trade negotiators are in the final stages of completing the Trans-Pacific Partnership, with final agreement expected in 2014. They’ve been at it since 2005.

That doesn’t mean the U.S. will start shipping ice cream and yogurt to grocery stores in Toronto or Tokyo any time soon, however. There is the matter of congressional approval—which in itself can take years—and a phase-in period that could take a decade or more for specific products.

Nevertheless, getting trade negotiators to sign off on the agreement is a very important step. It sets the wheels in motion for country-by-country approval. Those involved include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam.

"The TPP started with no clear upside for the U.S. dairy industry," said Tom Suber, president of the U.S. Dairy Export Council (USDEC), in testimony he made to Congress last April. "However, the addition of Canada and now Japan has created a new paradigm in the TPP negotiations that, if done properly, could provide a significant boost to the prospects of an overall net positive outcome in the negotiations."

Canada, of course, would be the big prize. It’s already our No. 2 destination for U.S. dairy exports (though China has recently moved into that spot with a recent surge in its purchases). The problem is that Canada is bit of a revolving door.

Under current law, our dairy sales to Canada fall under its Import for Re-Export Program, where Canadian companies can import our milk and dairy ingredients duty-free on the condition that the final product is exported and not consumed by Canadians. Some portion of those exports end up right back here in States. "Our goal is genuine access to the Canadian consumer market," says Shawna Morris, the National Milk Producers Federation (NMPF) VP of Trade Policy.

Canadian dairy farmers, with dairy quotas that are valued at upwards of $25,000 per cow, might have something to say about unfettered U.S. access. But the voices of 12,500 Canadian farmers might be drowned out by 35 million or so Canadian consumers. We’ll see.

Japan is the second prize. Last year, it imported $284 million of U.S. dairy products, and a favorable TPP which lowers high tariffs and regulatory burdens would undoubtedly add significantly to that total, says Suber.

But the TPP would also allow stiff competition for Japanese dairy case space from New Zealand and Australia, he says. "As a result, Canada is still viewed as providing the most significant potential gains for the U.S. dairy industry," he says.

The biggest dairy challenge of the TPP negotiations, according to the National Milk Producers Federation (NMPF), is the inclusion of New Zealand. If Fonterra, New Zealand’s dominant milk company with 95% market share within the country, is allowed to remain intact, it poses a significant threat to the U.S., claims NMPF.

Not only can it compete very well in newly opened markets, it could gain access here. And with its monopoly hold of its country’s milk supply, it can dictate the prices it pays to its farmers and thus the prices it charges to customers. Open dairy trade between the U.S. and New Zealand would cost the U.S. industry $20 billion over the first decade of the agreement, NMPF estimates.

Whether that actually happens, of course, is open to debate. New Zealand is currently focused almost solely on China, and the opening of other Pacific nations (after all, this is a Pacific trade agreement first and foremost) would offer tantalizing opportunities much closer to Auckland.

The bottom line of the Trans-Pacific Partnership is that it could be as significant to U.S. dairy trade prospects as NAFTA was 20 years ago, say dairy trade analysts. NAFTA opened our eyes to world trade and dairy exports’ potential. The TPP could well cement our presence in world markets for decades to come.

You can read more on the TPP here and here and here.

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