An anti-dumping probe by the Chinese government could sideline European dairy producers and create new opportunities for New Zealand in the world’s biggest dairy import market.
China’s Commerce Ministry last month said it would investigate claims that the dumping of subsidised imports from the European Union on the Chinese domestic market was damaging its dairy industry.
The announcement came a day after the EU confirmed it would use tariffs to stem a surge in imports of Chinese-made electrical vehicles.
Rabobank dairy analyst Emma Higgins said the products under investigation, which include fresh liquid cream and grated and blue vein cheese, are not a large part of the EU’s dairy exports to China, in comparison to other dairy categories like whey.
If China responds against them with tariffs it could create opportunities for Chinese dairy manufacturing companies and others from outside the EU to fill the gap.
Higgins said China’s dairy industry is known to want to increase its small cheese manufacturing capacity to boost returns from milk surpluses currently in the market.
“The trade tensions with EU potentially mean trade flows could easily benefit us here in NZ as well as potentially the domestic dairy players in China with offshore assets in this part of the world as they look to maximise any opportunities that present themselves.”
While the European products being investigated do not include the milk powders, butter and cheeses that dominated NZ’s trade with China, that could change as tensions rise.
Higgins said that China has shown with its now-settled diplomatic and trade dispute with Australia that it is not afraid to ratchet things up.
China hit back at calls by then-Australian prime minister Scott Morrison’s call for an inquiry into the origins of coronavirus with tariffs on Australian barley in May 2020 before quickly moving to blacklist multiple beef plants, and later in the year used tariffs against its wine exports.
“Right now the disruption to global dairy markets is likely to be minimal based on the small volume of product and the types of products that are under investigation,” Higgins said.
“But these kinds of disputes can last several years and can extend out and either the [basket of] products being investigated expands out or the time period of uncertainty extends out.”
An executive at one large dairy exporter said his company is watching the situation closely “because it involves the world’s biggest dairy import market and the world’s largest dairy exporter”.
Another industry figure believes China could argue that the recent period of low returns for its producers has been made worse by European subsidies contributing to higher global production than could be justified by market prices. And targeting a small selection of products could be the easiest case to prove.
A study commissioned by the Dairy Companies Association of NZ backed this up when it found earlier this year that a 50% reduction in EU subsidies would lead to a 2.4% increase in factory-gate cheese prices for non-EU producers.
At the same time the timing of China’s dairy probe so soon after the EU’s tariffs on Chinese-made EVs suggested retaliation and further tit for tat escalation to include larger volume products couldn’t be discounted.
“China has basically said if you are going to look at our industrial policy then we are going to look at your agricultural subsidies,” one source said.
The EU is a significant competitor in most of NZ’s major dairy exports to China.
While last year it accounted for only 2% of China’s imports of whole milk powder compared to NZ’s 88%, the EU had a 22% share of skim milk imports while NZ accounted for 45%. For cheese the EU’s market share was 18% versus NZ’s 59%. For butter the EU accounted for 11% of Chinese imports and NZ’s share was 87%.
However, a dairy company executive who spoke to Farmers Weekly on condition of anonymity said NZ farmers shouldn’t rush to cheer on China in a trade war with the EU which escalates to include tariffs on major dairy commodities.
“If the European dairy industry cannot send cheese to China then it will send it somewhere else and probably with even more European Commission subsidies to help them sell it.
“There might be some short-term opportunities but that is the reality.”
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