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TPP Colloquium: Agriculture

by Dave Adamson, School of Economics, University of Queensland

 

The object of free trade is a noble yet flawed concept. No trade is free and all actions have consequences beyond the immediate analysis.
In micro and macro economics 101 the concept of economic growth becomes the gilded lily where the benefits of removing all
barriers to trade allows for the perfect allocation of scarce resources to improve our chances of meeting our unlimited wants.
Economic doctrine however has to operate within the flawed human world of politics, subjectivity, international and national agreements,
biophysical limits, transportation networks and irrational behaviour.

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The goal of this section on agriculture is to look at: the problems with international trade and agriculture; Australia’s current free trade
approach; and examine the sticking points for agriculture in any FTA.



Agriculture and International Trade

For all countries there is a fundamental desire to look after its rural heritage and local produce. This protection of agriculture has in
part in desire for self sufficiency (the Treaty of Rome) and part due to powerful domestic lobby groups (France and US) wanting to
ensure that they maintain or gain a high standard of living, for example the ‘Buy American Act (1,2)’. Consequently agriculture has
been and realistically will remain one of the biggest stumbling blocks in international trade. The Doha Round of the World Trade
Organisation (WTO) collapsed after failure to reach compromise on agricultural imports in 2008. The aim of agricultural negotiations
in the WTO (GATT 1947‐ 1994) has been targeted at: the transferring trade distorting domestic policies (production stimulation,
export manipulation) towards direct support for the producer;and the liberalisation of market access.

 

Arguably the two domestic agricultural announcements that determine the distortion in world agricultural trade are the
‘US Farm Bill’ and the EU ‘Common Agricultural Policy’ (CAP). These distortions influence the allocation of resources and prices
worldwide and many of these supports get wrapped up in nationalistic fervour e.g. bio‐fuels ‘post 911’ aimed at import replacement
on oil. This policy effectively transferred a large proportion of the US corn crop away from feeding cattle to ethanol production.
This increased the world wide price of wheat and other grain staples causing s
ignificant hardship in third world countries (FAO 2008).
This price increase then stimulated marginal land (e.g. US Conservation Program) back into agriculture and no doubt has caused
other environmental damage via increased input use for higher yields.

The distortion in international markets in part negates the comparative advantage both Australia and New Zealand have
in agriculture. The geographical isolation of Australia and New Zealand developed not only unique species but also prevented the
arrival of countless banes of agricultural production: weeds, vertebrate pests, insects, diseases and pathogens. This isolation
provided a comparative advantage for agricultural production via reduced costs (lower pesticide costs) and increased production
(no stock losses from foot and mouth incursions). Overtime this advantage has been chipped away via deliberate (gorse, rabbits,
stoats) or accidental introduction of species (didymo, parthenium), been eroded through natural species migration (Eg: the Bogong
moth(3)),
and native species (heliothis, aphids) taking advantage of landscape modification (from now on pests will be used as a
generic term). To preserve the remaining comparative advantage strict quarantine protection has been imposed. This like any barrier
to trade allowed for the continuation, development and establishment of numerous agricultural enterprises with no or limited
international competition.

Quarantine barriers are a special case within the WTO and there is a whole complicated mess in trying to determine if quarantine
(termed Sanitary and Phytosanitary)
barriers are in fact trade limiting or are in fact genuine efforts in negating international
homogenised bio
diversity.


The Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures

The SPS allows countries to determine the level of risk (it cannot be zero) that unintended consequences of trade (pests)
from entering
under the relaxation of quarantine (biosecurity) measures. This is termed the appropriate level of protection
(ALOP), the SPS Agreement can be found here: http://www.wto.org/english/docs_e/legal_e/15sps_01_e.htm. To summarise
a very long and complicated procedure in gaining market access it goes something like this:

  • a country (e.g. Australia) receives an application from an exporter (e.g. NZ) to gain market  access (i.e. apples)
    to a previously closed market;
  • in this case Australia has to prove that the potential risk from allowing apples into its fresh market will cause
    unacceptable costs (economic, social and environmental);
  • realistically there are 4 possible decisions 
    o accept (or yes, sorry we were being trade restrictive); 
    o accept with conditions (i.e. reduce risk): for example: 
    only these states can import (section 92 of Australian constitution) 
    the product must be treated to reduce risk  
    o until a set condition has been proven to be true you do not have access  (confidence that the strategy to
    reduce risk is working) 
    o reject (the risk is too great)
  • depending upon the outcome then either strong arguments are made and this can progress  through to
    the WTO’s dispute resolution panel.

The SPS and the economics of biosecurity (quarantine) will be expanded latter in the document but the preservation of the
SPS needs to be a major point for Australia and NZ when it comes to any FTA due to production systems, human health
and biodiversity issues.

 

Australia’s Current Preferential Trade Partners

Despite the goal of international free trade, Australian’s recent approach has been to gain bilateral agreements first.
As it has proven to be easier to obtain an FTA with an individual country rather than agreement between multiple members.
Once several members have been signed then the move is towards the multilateral agreements.

 

Australia has concluded FTAs with:


• New Zealand (1983) 
• Singapore (2003) 
• The United States (2005) 
• Thailand (2005) 
• The Association of South East Asian Nations Australia and New Zealand (2008) ASEAN members (Burma,
Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, The Philippines, Singapore, Thailand and Vietnam)  
• Chile (2008)

 

Australia is currently negotiating FTAs with:

 

• China 
• The Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United  Arab Emirates). 
• Japan 
• Korea 
• Malaysia 
• Trans‐Pacific Partnership

 

Australia is considering FTAs with:


• Indonesia 
• The Republic of Korea 
• Pacific Agreement on Closer Economic Relations (PACER) Plus

 

Other Multi‐National Agreements Aus is involved in:


• APEC  
Australia, Brunei Darussalam, Canada, Chile, People's Republic of China, Hong Kong, 
China, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua 
New Guinea, Peru, The Philippines, Russia, Singapore, Chinese Taipei, Thailand, The 
United States, Viet Nam 

• The Indian Ocean Rim Association for Regional Cooperation 
Australia, Bangladesh, India, Indonesia, Iran, Kenya, Madagascar, Malaysia, 
Mauritius, Mozambique, Oman, Singapore, South Africa, Sri Lanka, Tanzania,
Thailand, the United Arab Emirates, and Yemen. The Seychelles announced its 
withdrawal from the Association in July 2003. 

China, Egypt, France, Japan, and the United Kingdom are dialogue partners of the  IOR‐ARC. At present, only the Indian Ocean
Tourism Organisation (IOTO) has observer status.

In short Australia, already has FTAs with each of the countries involved in the TPP proposal except Peru but the nature of the FTA’s
are not the same. Unlike the deal with the US the FTA with the other partners have fairly simple time lines for the removal of
agricultural tariffs between both countries. The US one however, is full of stop gap solutions, protectionisms, triggers on volumes
and prices, etc. The real benefits associated with the TPP for Australia would be to gain a better deal with the US.

The complexities of the US deal compared to the other FTA can be summarised by examining the rule for beef imports.

 

Beef into the US:

"The Agreement eliminates all US beef tariffs over time, with the previous in-quota tariff of 4.4 US cents/kg eliminated from
1 January 2005 and the 26.4 per cent over-quota tariff will be reduced to zero over 18 years. There is to be an 18-year phase
out of the out-of-quota duty beginning in year 9, with one-third of the duty phased out in years 9-13 and the remainder in years
14-18.

The Agreement also provides for increasing quota access during the 18 year tariff elimination period. The $1.7 billion annual
quota for Australian beef exports to the United States will expand by 20,000 tonnes to 398,214 tonnes in 2007, increasing to
448,214 tonnes in 2023. The estimated additional value to Australian beef exporters in 2023 is around $245 million if the
quota is fully utilised.

From year 19, all Australian beef will be free to enter the US market without tariff or quota restrictions and subject only to
a price-based safeguard. This safeguard applies to exports over a specified amount based on growth from the quota in
year 18. The US also has discretion to not apply the safeguard."
http://www.daff.gov.au/market-access-trade/fta/ausfta

I think this says: the US might eventually let Australia export a maximum of 448,214 tonnes of beef in 2023 with no price
tariffs from 2024 (in 19 years) but we might still hit you with extra charges to protect our producers if it’s too cheap.

Beef into Chile
Effectively by 2015 no tariffs (7 years) & work towards a common beef grading system:
http://www.austlii.edu.au/au/other/dfat/treaties/2009/6/


Meat into Thailand


• Thailand will phase the current 32% tariff for sheep meat to zero in 2010. 
• Thailand immediately reduced the tariff on beef to 40%, down from 51%, and for beef offal  to 30%, down
from 33%, and will phase these rates to zero in 2020.

• Thailand will phase the current 33% tariff for pork to zero in 2020:
http://www.dfat.gov.au/trade/negotiations/aust‐thai/goods_outcome_benefits_031003.html

Singapore
Free. 

NZ
Have to check.

In summary the US FTA is unique. Instead of abolishing trade restrictive practices between our two countries we
cement them in for an increase in allowable non-taxed quota we can send the US. It is important to note that all
agreements signed protect the SPS Agreement.



Issues that the TPP must address


There are a number of things that must be discussed if the TPP is going to proceed and these  include:

• Food Safety 
o Production systems  (Clean & Green) 
* Chemicals, etc 
* Why US BSE was good for Aus & NZ  
* GE Free 
* Growth Hormones 
o Human Health  
• Removal of trade disruptive domestic support 
• Agreement to carbon reduction targets 

Food Safety
Australia and New Zealand must ensure that the TPP does not impact on their ability to market  goods as ‘Clean and Green’.  In order for
this image to be upheld then:

  • we must be able to meet nil tolerance to chemicals and pests when we export;
  • we cannot allow specific chemicals to be used in production systems;
  • GE and human growth hormone labelling of produce http://www.wto.org/english/tratop_e/sps_e/sps_agreement_cbt_e/c5s3p1_e.htm;
  • SPS and the way we state ALOP  and undertake risk analysis must not be watered down.

 

The ‘Clean and Green’ image and being ‘pest free’ is worth significant market advantage. In fact for beef exports from Aus and NZ we
have benefited greatly at the US expense when mad cow bovine spongiform encephalopathy (BSE) (4) was detected in its herd. BSE
occurs when cattle digest meat by products. Meet products can transfer this disease to humans called Creutzfeldt‐Jakob disease (vCJD
or nvCJD) and ultimately it leads to death in humans. Within 24 hours of reporting the BSE outbreak the US lost market access to
140 countries in 2004. In Japan the US has not recovered market share (see Figure 1) primarily due to subsequent outbreaks and
consumer reaction and at the same time
the price paid in Japan for BSE free beef increased dramatically (See Figure 2). This has
been of significant benefit to Australia and to a less extent New Zealand. It has been estimated that Japanese consumers had a
willingness to pay a 50% premium for guaranteed BSE free beef (McCluskey et al. 2005).

Figure 1(5)

 

figure1

 

BSE partly explains why the Australian trigger quota levels to the USA have not been breached.

Australia has also benefited in other traditional US beef stronghold markets such as Korea.

These are the top value markets and there preservation must be maintained. In order for this to occur, the
SPS must never be watered down.

 

Figure 2(6)

 

fig2

 

It is also important that we maintain a very high standard of quality of what we allow into our primary and secondary markets to
ensure market access, food safety requirements and human health issues, not only in New Zealand and Australia but in companies
we invest in overseas as there are domestic repercussions. For example:

  • in 2008 the Chinese company Sanlu (43% owned by Fonterra) was found to be putting melamine
    into its powdered milk (7)
    . As a result 6 babies died and over 300,000 were sick from kidney stones.
    It has been estimated that this scandal cost Fonterra over $200 million in investment and this was
    passed back to NZ dairy producers in reduced prices.
  • The need to ensure that NZ apples are dipped in chlorine to prevent fireblight entering Australia.  Fireblight is commonly controlled by Streptomycin.  In Australia Streptomycin 
    (and many other antibiotics) are not allowed for use by agriculture and it was withdrawn in 
    1989 due to international market access requirements and due to the risk of antimicrobial 
    resistance (AMR) in humans and to mitigate risks with zoononic diseases.  AMR(8) is a major 
    on‐going concern in hospitals.  A major outbreak costs about $12 million in disinfection costs 
    in Australia.


    A zoononic infection is one that can be transferred between animals (domestic and wildlife) and
    humans. By minimising antibiotic use and preventing types of antibiotic being used in agriculture
    the problems associated with cross species resistance is minimised. For example Clostridium difficile
    is endemic in north America and Europe and in those countries is highly resistant to antibiotics.
    It is a gastrointestinal disease in piglets with a mortality rate of about 15% and it also reduces liveweight
    gain in swine by approximately 10% throughout the animals’ life. C. difficile is difficult to eradicate in
    livestock herds once infected as the spores survive in the environment for a significant amount of time.
    One in the human population it has been proven to be highly contagious and in England and Wales
    the human death rate increased from 1,211 to 2,083 between 2001 to 2005
    9. While in Quebec,
    Canada, 7004 people were infected and 1270 died (18% mortality rate). C.difficile is in Australia but
    we do not have this problem and it has been suggested that this is due to the low usage of cephalosporin
    in Australian piggeries.
    10


It is important that producers retain the ability to environmentally label products if they wish under the TPP. Environmental
labelling would cover: genetically modified organisims(11); the use of human growth hormone; and the way the product
was produced (ie: dolphin free tuna). This labelling provides the domestic customer with a choice and is a requirement for
some international markets (12).

The preservation of the clean and green image provides Australia with significant market access and the processes by which
we get there (i.e. reduced use of anitboitics) also has significant implications for human health expenditure. It is vital that
under the TPP that these issues are not tampered with.

 


US Domestic Policy & Increased Market Access


The TPP does allow both New Zealand and Australia to broach is the issue of the US Farm Bill and arguing for the moving
away from trade distorting to direct farm support. The current export enhancement policy(EEP) on dairy products (see Table 1)
is having significant impacts on world dairy prices (14, 15), especially for NZ producers.

 

table1

 

Currently the US is NZ single largest dairy export market in value. The question that has to be asked under the TPP is what does
the deal offer for NZ dairy when the EEP is aimed at trade distortion.

 

table2

 

Obviously the NZ dairy will aim to keep its market access options open in order to maximise its return from exports.
The question is will NZ dairy benefit from increased market access. If we look at Table 3 what we find is that US allows
a maximum of 6,977 Tonnes to be imported. Of which NZ already has a quota of approximately 151 tonnes and can
it also export as part of Any Country 2 which has another quota limit of 6,656 Tonnes. If we examine the data NZ
exported 2,669 tonnes of butter in 2007 to the US, which was approximately 42% of all butter imported. But the volume
exported is still well short of the quota limit.

table3

We then have this conundrum as there are export opportunities throughout the world what is the TPP going to really deliver
that will benefit NZ exporters in all areas. Ideally like most of the FTAs signed the removal of all import restrictions (limit and
price) should be removed as long as there are no complications with the SPS or food safety.

 


Climate Change

The Garnaut review into climate change (Garnaut 2008) highlighted the risks to agricultural production in Australia.
These risks are worldwide and realistically the TPP offers a great opportunity to help cement real CO2 reduction targets and the
opportunity should not be missed.

 

Summary
For real advantage out of the TPP we need to see: 
• SPS retained; 
• US Export Enhancement Policy (EEP) Removed; 
• US Farm bill subsidies for direct payment only; 
• No US Quotas on imports; 
• No tariffs or price penalties applied in a reasonable time frame 2015‐2020;  
• Food safety 
o Chemicals what can’t be used and withholding periods 
o Agreement on GE labelling 
o No human growth hormone injected food 
• All parties sign onto a ‘real’ Carbon reduction target for 2020 and beyond for the benefit of  the ecosystem which ultimately
benefits agriculture.

 

References:
Songer, J.G. and Anderson, M.A (2006) Clostridium difficile: An important pathogen of food animals, 
Anaerobe (12) pp. 1–4. http://microvet.arizona.edu/Faculty/songer/foodani.pdf

Riley TV. Increased length of hospital stay due to Clostridium difficile associated diarrhoea.  Lancet 
1995; 345: 455‐456. 

FAO 2008, The State of Food and Agriculture: Biofuels: prospects, risks and opportunities, FAO, 
Rome. 
Garnaut, R 2008, The Garnaut Climate Change Review: Final Report, Cambridge University Press, 
Melbourne. 
McCluskey, JJ, Grimsrud, KM, Ouchi, H & Wahl, TI 2005, 'Bovine spongiform encephalopathy in 
Japan: consumers' food safety perceptions and willingness to pay for tested beef*', The 
Australian Journal of Agricultural and Resource Economics, vol. 49, no. 2, pp. 197‐209.

 

Footnotes


(1) http://www.cato‐at‐liberty.org/2009/06/08/buy‐american‐hurts‐most‐americans/
(2) http://www.acquisition.gov/far/current/html/FARTOCP25.html

(3) http://www.maf.govt.nz/sff/about‐projects/search/02‐027/02027finalreport.pdf

(4) http://www.abc.net.au/rural/news/content/200906/s2586764.htm

(5) Adapted from ABARE (2008), Australian Commodity Statistics 2008, ABARE.

(6) Adapted from ABARE (2008), Australian Commodity Statistics 2008, ABARE.

(7) http://www.abc.net.au/news/stories/2009/01/28/2476412.htm

(8) http://www.smh.com.au/news/health/battle‐to‐beat‐the‐superbugs/2007/12/05/1196812824902.html

(9) http://www.statistics.gov.uk/pdfdir/deaths0207.pdf

(10) http://www.mja.com.au/public/issues/185_03_070806/ril10472_fm.html

(11) http://www.foodproductiondaily.com/Quality‐Safety/Labelling‐of‐GE‐animals‐sought

(12) http://www.abareconomics.com/publications_html/crops/crops_01/gmo.pdf

(13) http://www.etaiwannews.com/etn/news_content.php?id=966113&lang=eng_news&cate_img=35.
jpg&cate_rss=news_Business

(14) http://www.weeklytimesnow.com.au/article/2009/06/04/83745_dairy.html

(15) http://www.stats.govt.nz/products‐and‐services/global‐new‐zealand/2008/global‐new‐zealand‐
Dec08.htm
Last Updated on Monday, 22 March 2010 21:07
 

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