Agribusiness Bulletin

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Comprehensive and Progressive Trans-Pacific Partnership – winners and losers in Australian agriculture

Agribusiness Bulletin

This edition of the Agribusiness Bulletin looks at the impact of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) agreement on the Australian agriculture industry.

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Comprehensive and Progressive Trans-Pacific Partnership – winners and losers in Australian agriculture

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) is a multilateral free trade agreement (FTA) between 11 nations including Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These countries collectively account for 13% of global GDP1. Generally, the agreement aspires to lower or remove existing tariffs between these member nations in the hopes of advancing trade, promoting economic growth and supporting job creation.

It has been widely reported that, as a net exporter of food and fibre products, Australian agriculture stands to universally gain from the CPTPP. However, with complex multilateral trade deals such as this, the devil is often in the detail.

It is important for Australian agricultural producers and industries to consider in more detail who will benefit, in which markets and at what cost? Or, importantly, will there be any losers, and where? Over the next two editions, the Agribusiness Bulletin will be answering these questions with a focus on Australia’s major agricultural export products and markets. This edition focusses on Australia’s exports of beef into Japan, with future editions focusing on other major export commodities including cereals, dairy and seafood.

What does the CPTPP mean for Australian agriculture?

The Department of Foreign affairs and Trade (DFAT) has indicated that Australian agricultural exports stand to gain from the new agreement. The CPTPP will eliminate tariffs on more than $4.3 billion of Australia’s dutiable exports of agricultural goods, while a further $2.1 billion of goods will receive significant preferential access through new quotas and tariff reductions2.

CPTPP countries account for a significant share of some of Australia’s major agricultural export commodities that will be impacted by the agreement – including beef (representing 30% of the value of Australia’s total beef exports), cereals and grains (20%), dairy (44%), seafood (68%), horticulture (14%), sheep meat (21%) and wine (21%).

Data source: ABS (2018) International Trade in Goods and Services, Cat. no. 5368.0
Click image to enlarge

Data source: ABS (2018) International Trade in Goods and Services, Cat. no. 5368.0

Among the countries in the CPTPP are some of Australia’s major agricultural export trading partners – particularly Japan, which is a major market for Australian beef, dairy and grains. Other major trading partners include Vietnam, Singapore and Malaysia. Exporters will be hopeful that lower tariffs will remove trade barriers and establish strong trading partnerships in countries where we presently export a limited amount of agricultural and food products – such as Mexico, Canada and Chile.

Source: ABS (2018) International Trade in Goods and Services, Cat. no. 5368.0
Click image to enlarge

Source: ABS (2018) International Trade in Goods and Services, Cat. no. 5368.0

The remainder of this article will focus on one aspect – beef into Japan – and how the CPTPP will impact on Australia’s share of the lucrative Japanese beef market.

Australia’s beef exports

Australia exported almost 2 million tonnes of beef, valued at $9.5 billion during 20163. Key international markets such as Japan, United States, Korea and China; collectively consume around 80% of Aussie beef exports4.

Given the importance of exports to Australia’s large beef industry, the impact of the CPTPP on beef exports has attracted significant attention. Beef is Australia’s leading agricultural export to other CPTPP nations; valued at $3.2 billion (average over the three years to 2016-17). Japan is the largest market of CPTPP countries singlehandedly accounting for around $2 billion in beef exports per year (on average).  

Source: ABS (2018) International Trade in Goods and Services, Cat. no. 5368.0
Click image to enlarge

Source: ABS (2018) International Trade in Goods and Services, Cat. no. 5368.0

How will the CPTPP affect Australia’s position on beef exports to Japan?

Australia has the largest market share of Japan’s beef imports (comprising fresh, chilled, frozen beef and offal) ahead of the United States who are not a signatory to the CPTPP. Canada, New Zealand and Mexico also supply beef to Japan; although they represent a much smaller share.

Source: United Nations (2018) UN Comtrade. Retrieved from: https://comtrade.un.org/data/
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Source: United Nations (2018) UN Comtrade. Retrieved from: https://comtrade.un.org/data/

Beef exports to Japan is an established market for Australia and was recently made more so with the negotiation of the Japan-Australia Economic Partnership Agreement (JAEPA). This FTA means that Australia currently has a tariff advantage over its competitors. The tariff is currently 29% (with a declining trajectory year on year) while Australia’s competitors have 38.5% tariffs levied on them5. Under the CPTPP, tariffs on beef will fall to 9% for Australia and other CPTPP members by year 16 of the agreement, which is significantly lower than the lowest rate for tariffs prescribed for Australian beef under JAEPA. Existing JAEPA tariffs on fresh and frozen beef products reach a minimum of 23.5% and 19.5% respectively in 2034.

The introduction of the CPTPP signals trouble for US beef exporters. While the original Trans Pacific Partnership (TPP) agreement included the United States as a signatory, the US officially withdrew from the agreement in early 2017, opting to focus on bilateral trade relations instead. The US does not have an existing FTA with Japan, and as such, they will remain on the highest tariff structure. For this reason, CPTPP nations, including Australia, are expected to grow their share of Japan’s beef market at the expense of the US.

Source: DFAT - TPP-11 text and associated documents
Click image to enlarge

Source: DFAT - TPP-11 text and associated documents

The key takeaway for beef exports to Japan is that Australia’s inclusion in the CPTPP will result in lower tariffs compared to its current bi-lateral agreement JAEPA. This, combined with US’s retreat from the deal, represents a win for Australian beef exporters to Japan. As the second largest exporter of beef into Japan, the US stands to lose some of its Japanese market share through the CPTPP (all things being equal) and Australian beef producers are in a strong position to gain.

However, a moderating factor on this is that Australia will not be the only CPTPP country strengthening its position against the US in this market. Other signatories, including New Zealand, Canada and Mexico, also export beef to Japan, and each will receive the same schedule of reduced tariffs from the CPTPP as Australia.

This means that the relative tariff advantage that Australian beef exporters currently enjoy over those competitors, through JAEPA, will be lost as the CPTPP levels the playing field and places all CPTPP countries on the same tariff schedule. On balance, however, it would appear that gaining a tariff advantage from Australia’s status quo position (under JAEPA) and against Australia’s major competitor (the US) outweighs the loss of conceding the current tariff advantage to smaller competitors in this market.

The next edition of the agribusiness bulletin will look at the impact of the CPTPP on Australia’s cereals and grains, dairy and seafood.

Authors:
Nathan Smith, Daniel Terrill

Reference:

1. Martin, P. (February 21, 2018). TPP: New Zealand sheds light on the deal Australia is about to sign. The Sydney Morning Herald. Retrieved from: https://www.smh.com.au/politics/federal/tpp-new-zealand-sheds-light-on-the-deal-australia-is-about-to-sign-20180221-p4z14b.html

2. http://dfat.gov.au/trade/agreements/tpp/outcomes-documents/Pages/outcomes-at-a-glance.aspx

3. Queensland Treasury (2018). Trade data - exports - commodities (5-digit SITC revision 3) 1996–97 to 2016–17 (final) pivot table. ABS 5368.0

4. Meat and Livestock Australia. (2017). Fast Facts. Retrieved from: https://www.mla.com.au/globalassets/mla-corporate/prices--markets/documents/trends--analysis/fast-facts--maps/mla_beef-fast-facts-2017_final.pdf

5. International Trade Centre. (2017). Market Access Map. Retrieved from: http://www.macmap.org/QuickSearch/CompareTariffs/CompareTariffs.aspx?subsite=open_access

Published: March 2018

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