Dairy Industries Agreement

13 April 1982

Australia- New Zealand Closer Economic Relations

MEMORANDUM OF UNDERSTANDING ON DAIRY PRODUCTS

1. The Governments of Australia and New Zealand look to their respective dairy industries to develop and maintain understandings on the means whereby dairying will be included in the Closer Economic Relationship (CER). To this end, the industries have formed a committee-the Joint Dairy Industry Consultative Committee (JICC) which is currently made up from representatives from the New Zealand Dairy Board and representatives from the Australian industry, including the Chairman of the Australian Dairy Corporation, and representatives of the Australian Dairy Farmers’ Federation and the Australian Dairy Products Federation. Government officials are invited to attend as observers.
2. The members of the Joint Dairy Industry Consultative Committee recall: 1. The two industries share common origins and enjoy a similar degree of economic efficiency in relation to dairying elsewhere. Trans-Tasman trade in dairy products has been virtually free of quantitative restrictions, and tariffs are at negligible levels. 2. From the very outset of the establishment of central dairy industry boards in both countries in the 1920s, there has been a continuing practice of consultation and exchange of information, the mutual objective being to sustain confidence and to optimise returns to both countries. 3. Over the past decade, the direction of their respective trades has diverged. In Australia, production has declined, to the extent that the bulk of milk production is presently sold on domestic markets. Nonetheless, exports remain a significant outlet, currently utilising around 25% of manufacturing milk production and being of vital significance to Victoria and Tasmania. Although the New Zealand industry is the principal supplier to its domestic market, its size and structure require it to be directed primarily toward international markets at large, which currently utilise 75% of total whole milk production.
3. The members of JICC have noted that: 1. The Prime Ministers of Australia and New Zealand have agreed that the central trade objective of the CER will be ‘ … a gradual and progressive liberalisation of trade across the Tasman on all goods produced in either country on a basis that would bring benefits to both countries’. Both sides recognise that trans-Tasman trade will be liberalised progressively under the CER in such a way as not to result in unfair competition between industries or disruption to industries of either country. 2. Where tariffs remain on the trans-Tasman dairy trade, they will be liberalised in accordance with the provisions of the CER. 3. In order to prevent disruption of any industry, the Governments intend to establish safeguard procedures within the CER as a whole. It is understood that these safeguards would apply, for example, to cases of distortion arising from dumping or subsidising of exports, or where the objectives of the agreement were being frustrated. 4. In any event, it is the intention of the industries that trans-Tasman dairy trade shall proceed on an orderly basis and in a manner consistent with their mutual objectives.
4. The members of JICC accordingly place on record the following: 1. The JICC will normally consult twice per year. The consultations will include:
   1. the review of production, and of trade, in milk and milk products;
   2. the intentions of the industries in each other’s domestic dairy market;
   3. the respective policies and practices in export markets;
   4. any changes in domestic policies which may affect the dairy industries in either country.
      1. The consultations shall have the mutual objectives of:
   5. sustaining the confidence of the industries in both countries;
   6. not undermining the returns to the industries of either country, and
   7. not undermining the established price structure in each other’s domestic markets, taking account of all relevant terms and conditions of sale.
      1. The industries share concern at the possible effects of a major collapse in international prices, arising from the actions of third countries. In this event, the JICC will consult as to how best to respond in their mutual interests.
      2. Governments in Australia have the right to set domestic prices and also the right to prevent these prices falling at times of depressed international prices.
      3. In New Zealand, the Government has no significant role in domestic price determination, as this derives through a smoothing mechanism from realisations from international markets.
      4. 1. For cheese the parties agree to consult as to their intentions in each other’s domestic market and in their discussions will have regard to market growth.
   8. The current understanding on New Zealand’s level of cheese imports into Australia will continue, with New Zealand’s sales being related to the growth in the Australian market.
   9. In relation to cheddar:
   10. The existing NAFTA by-law arrangements will be abolished.
   11. Future sales of New Zealand cheddar cheese in Australia will also be related to total market growth.
   12. The JICC consultative process will include an exchange of information on the activities of each industry aimed at increasing total growth in the Australian cheese market.
       1. Fluid milk industries in both countries are controlled by separate specific legislation. The New Zealand Milk Board has responsibility for the domestic market, but the New Zealand Dairy Board is responsible for export. In Australia, the responsibility for supply of fluid milk to the domestic market lies with the respective State milk authorities, but the Australian Government is responsible for export controls. As fluid milk and cream make important contributions to returns to producers in both countries, any trade in these products would not take place without prior consultation in the JICC to ascertain whether such trace would be consistent with this understanding.
       2. Both industries acknowledge the principle of preferred supplier in the event of a domestic shortfall. The continuing process of consultation and exchange of production and marketing information should facilitate the achievement of this objective to the extent possible.
       3. Consistent with the increasing degree of co-operation between the two countries, which is envisaged in the CER, the JICC would like to see more specific action by the New Zealand Dairy Board and the Australian Dairy Corporation to develop further co-operation in international markets, in the interests of optimising returns to the industries in both countries.
       4. Consultation between the Board and the Corporation on the advice which they offer to their respective Governments on international dairy trade policy issues, and in combating agricultural protectionism and export dumping, is of considerable value and will continue.
       5. The industries in both countries attach great importance to their respective domestic arrangements, which can influence the size and structure of the industries in each country. Within this context, both industries agree to consult in regard to domestic policies.1

(R. G. CALVERT) On behalf of New Zealand Delegation

(M. L. VAWSER) On behalf of Australian Delegation

[NAA: A13/113, 82/2479, iv]

• 1 The file copy is endorsed with the words, ‘This is the final version signed by the 2 industries’. The Australian Dairy Corporation forwarded it to Nixon under cover of a letter dated 7 May 1982.