19 October 2015

TPP negotiations conclude – what does it mean for Australian agribusiness?

AgriThinking

This article was written by Fiona Chong and Scott Bouvier.

The Trans-Pacific Partnership (TPP) negotiations were finalised on 5 October 2015. If the negotiations are ratified, the TPP agreement should provide substantial benefits for Australian food and agriculture businesses. With a combined population of about 800 million and a combined gross domestic product of over $US28 trillion, the 12 TPP countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam) represent around 40% of the global economy and the agreement would create the world’s largest free trade area.

However, the deal will face real challenges in being ratified, especially in the US and Japan. For example, US presidential candidate Hillary Clinton has announced her opposition to the deal as currently comprised. In any event, the TPP deal is unlikely to finish ratification until 2018. 

This article summarises the benefits that the TPP agreement would provide for Australian food and agriculture businesses. 

Australia exported close to $15 billion worth of agricultural goods to TPP countries in 2014, representing close to 33% of Australia’s total agricultural exports. The TPP agreement will eliminate tariffs on more than $4.3 billion of Australia’s dutiable exports of agricultural goods to TPP countries upon entry into force. A further $2.1 billion of Australia’s dutiable exports will receive significant preferential access through new quotas and tariff reductions. Importantly, the TPP agreement will offer gains beyond Australia’s existing Free Trade Agreements with Japan (JAEPA) and the US (AUSFTA). 

Some highlights include:

Dairy

Building substantially on JAEPA, the TPP agreement will eliminate tariffs on a range of cheeses covering over $100 million in existing trade with Japan, give new preferential access for a further estimated $100 million of trade and provide new quota arrangements for Australia on butter and skim milk powder.  In the US, the TPP agreement will eliminate tariffs on dairy products including milk powders, ice-cream, infant formula and selected cheeses, increased quota access of 9000 tonnes for Australian cheese exports and improve quota administration arrangements.  New preferential access and quota systems for butter, cheese and milk powder will be achieved in Mexico, and preferential access into the highly-protected Canadian market will be granted with quotas for cheese, milk powders and butter and the elimination of tariffs on milk protein concentrates.

Beef

Over 55% of Australia’s beef exports go to TPP markets. The TPP agreement will see significant reductions and elimination of tariffs on beef and beef products into Japan (improving on the JAEPA outcomes); elimination of tariffs on beef and beef products into Mexico, Peru and Canada over 10 years and elimination of the AUSFTA beef safeguard tariffs of up to 10% into the US.

Sheep Meat

Australia exports around $965 million in lamb and mutton to TPP markets, 38 percent of Australian sheep meat exports. Tariffs on sheep meat exports to all TPP countries will be eliminated upon entry into force of the TPP agreement except in Mexico, where they will be eliminated within 8 years.

Pork

In 2014, 70% of Australia’s pork exports went to TPP countries, valued at $72 million. The TPP agreement will eliminate the ad valorem component of Japan’s pork tariffs and reduce its specific tariffs applied to pork cuts and carcasses within 10 years of its entry into force; eliminate all Malaysian pork tariffs within 15 years and eliminate Mexican tariffs on entry into force.

Sugar

The TPP agreement will grant Australia new access into the US, effectively doubling Australia’s entitlements with a 65,000 tonne base allocation and will secure 23% share of additional allocations. Extending JAEPA, tariffs will be eliminated and levies reduced for high polarity sugar into Japan; eliminated on refined sugar into Canada and raw sugar into Peru; and wholesale licensing arrangements for supply of refined sugar to the food and beverage industries in Malaysia will be liberalised.

Rice

The TPP agreement will secure a 6,000 tonne quota expansion for Australian rice into Japan (growing to 8,400 tonnes after 12 years) and an agreement for new administrative arrangements to facilitate trade. The tendering process for rice in Japan will be improved, with Japan now offering tenders 6 times a year, including an additional tender in May in line with Australia’s growing season. Tariffs into Mexico will be also be eliminated.

Cereals

Around 18% ($1.5 billion) of Australian cereal and grain exports in 2014 were to TPP countries.  The TPP agreement will eliminate tariffs on wheat and barley into Mexico (within 10 years) and Canada (upon entry into force); reduce the mark-ups applied to wheat and barley in Japan and create new quota arrangements for wheat, barley and malt above and beyond JAEPA.

Wool

Australian wool exports to TPP countries were valued at around $82 million in 2014. The TPP agreement will eliminate all remaining tariffs on Australian raw wool exports to TPP countries from entry into force of the TPP agreement.  Products produced using Australian wool in Malaysia, Vietnam or any other TPP partner will receive preferential treatment throughout the TPP region.

Horticulture

The TPP agreement will eliminate 50% of existing tariffs in Japan, including eliminating table grape and fruit tariffs immediately with the remainder largely eliminated in 10 years on citrus, apricots, peaches, nectarines, plums, mangoes, pears, berries, asparagus, carrots and potatoes; and tariffs on onions and cherries to be eliminated in five years. Half of all horticulture tariffs in Vietnam will be removed within five years and the remainder within ten years. Canada will remove horticulture tariffs immediately. Mexico will eliminate most horticulture tariffs on the TPP agreement’s entry into force, and the rest in 15 years. In return, Australia will remove the 10% tariff on Mexican broad beans.

Seafood

The TPP agreement will eliminate all tariffs into Canada, Peru and Vietnam on entry into force, and Mexico and Japan within 15 years.

Cotton

All tariffs on Australian cotton will be eliminated. US tariff elimination will occur in accordance with the timelines in the AUSFTA by 2023. New regional supply chains into the US and Japanese consumer markets will be created.

Wine

The TPP agreement will eliminate tariffs into Mexico (between 3 to 10 years) and Canada (upon entry into force), Peru (within 5 years) and, for the first time, Malaysia (within 15 years) and Vietnam (within 11 years). Labelling rules and technical requirements for wine and spirits will be simplified. The Australian wine industry will be able to use the same labels on bottles of wine for export to all TPP countries, making marketing and distribution more cost-effective.

Processed/ packaged foods and beverages

Canada and Mexico will eliminate virtually all tariffs on confectionery, beverages, chocolate, juice, biscuits, jam, and processed foods with a small number of exceptions, with most being implemented upon entry into force.  Japan will eliminate tariffs for mineral water, sparkling wine, juices, biscuits, jams and breakfast cereals at various times over the next 10 years and provide significant new quotas for confectionary and chocolate products, which will expand over a 10-year period.  Vietnam and Peru will also eliminate tariffs for certain processed/packaged foods and beverages over a 10-year period.

Other key features

On foreign investment, all proposed investments by foreign governments will continue to be examined and lower screening thresholds will apply to investment in agricultural land ($15 million) and agribusiness ($55 million).

Similar to the recent FTAs, the TPP agreement will also include mechanisms to enhance transparency, cooperation and promote good practice with regard to the establishment and maintenance of technical non-tariff trade barriers and provide mechanisms to address those which are impeding fair trade.

The TPP may be expanded beyond the current 12 countries as the agreement will contain provisions for additional nations to become signatories to the agreement after it has been concluded and ratified.

Reaction across the agricultural sector

The deal is being hailed as a success for Australian agriculture, with exporters of beef, wine, wool and cotton all expected to benefit significantly under the deal. The Australian Food & Grocery Council has welcomed the announcement, recognising that the TPP agreement ‘will further open up some of Australia’s key export markets, particularly in the food, beverage and grocery sectors.’ The NFF has welcomed the improved market access the agreement will provide across a range of agricultural sectors including dairy, beef, horticulture, grains and rice; and stated that ‘[r]educed tariffs and greater certainty on rules means more market opportunities and more investment and this means more jobs and growth in regional centres.’ The Australian Sugar Industry Alliance, while acknowledging that the deal overall is positive for Australian sugar, is disappointed with the protectionist stance that the US maintained on market access for Australian sugar, and says it would have ideally liked more.

Two National Party MPs from Queensland have threatened to cross the floor in protest against the treatment of Australian sugar. However, the Nationals’ Deputy Leader and Minister for Agriculture Barnaby Joyce has affirmed the deal. “There are major gains for Australian farmers in the signing of the world’s largest regional trade agreement,” he said. “While the agreement does not deliver on the aspirations of all industries, the overall gains for the agricultural sector are real.”


For more insights on the food and agribusiness sector, see AgriThinking.

Other articles in this edition include: 

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