Word of warning from NZ

The long-awaited deal has been hailed by many as a golden opportunity for numerous agricultural sectors across the country, but Rabobank's director of dairy research New Zealand and Asia, Hayley Moynihan, said Australia would be wise to learn a few lessons from NZ's experience with China.

"New Zealand's experience is certainly that the FTA doesn't provide a silver bullet in terms of dealing with regulation in the market place," she told a Gardiner Foundation event in Melbourne recently.

Ms Moynihan said the transformation of the infant milk formula market in China over past 12 to 18 months was an example of how quickly regulation could change.

"In NZ we have three brands (of infant formula) to choose from," she said.

"In China, there's a whole aisle - going from geriatric formulas all the way to infant formulas.

"So it is vast. And while that's provided a lot of choice, it is also difficult to see where a lot of it comes from."

This uncertainty in country of origin, combined with the Chinese milk melamine scandal of 2008 (which saw six infants die from kidney stones and kidney damage and 54,000 hospitalised), led to a tightening of regulations.

Pricing of imported infant formula also became a concern.

"The Chinese Government undertook an investigation into pricing, which found foreign companies were being anti-competitive - and some were fined. They forced prices to come down more relative to domestic products," she said.

This in turn forced consolidation of the sector, so the sector could be more effectively controlled. From 300-plus infant formula brands, the Government set a largely reduced target of about 100.

Supply chain audits were also introduced, and brands had to be certified.

"There were NZ manufacturers that missed out on that certification…it certainly had an impact despite the warning," Ms Moynihan said.

"This provides an example of how things can change. This is a market that can change quite quickly."

She said when it came to market regulation; NZ had learnt that having established relationships in place on the ground was critical to getting product to the right places.

"It's about having investment in time and commitment, and actually having local people on the ground," she said.

But it's not only the NZ dairy industry that has been impacted by changing regulations. Beef farmers have been hit too, with imports halted for a period in 2013.

After the NZ Ministry of Agriculture & Fisheries changed its name to the Ministry for Primary Industries, the Department forgot to tell any of the bureaucrats in China - as well as change documentation on export certification.

Containers of meat were arriving in China with the wrong certification and subsequently sat on ports for some time.

A report has now been released into exactly what went wrong.

"It (the report) said while NZ had world-class food safety and export certification systems, the country had not kept pace with the specific requirements to China - and the pace and speed where growth had occurred," Ms Moynihan said.

Not long after, Fonterra NZ had to recall products after suspected botulism-causing bacteria were found during safety tests - and China placed a temporary ban on whey products from NZ.

As a result of the recall, she said the country learnt some valuable lessons.

A number of changes have occurred, including having more people on the ground in China.

The biggest thing learnt was not to have a 'ship it and send it' attitude, she added.

"Without the investment in time, money and people, it is hard to capitalise on opportunities," Ms Moynihan said.

Although she said China was an exciting market place, she said the speed of change was having an incredible impact on the dairy market.

"It is not easy, it is changing rapidly, and the hand of regulation is playing a big role."

NEW Zealand farmgate milk prices have plummeted for the 2014-15 season, with a drop in production anticipated.

Hayley Moynihan, who is Rabobank's director of dairy research New Zealand and Asia, said many NZ farmers would be doing it tough, with many unable to purchase supplementary feed through summer.

"If they have a dry summer, you will see an accelerated drop in production," she said.

Cash-flow would be tight, but she expected prices to recover at the end of 2015.

Ms Moynihan said NZ was more susceptible to changing global dairy prices when compared to Australia, because the country relied solely on exports.

While sharing her thoughts at a recent Gardiner Foundation event in Melbourne, she also revealed an uncertain future for exporting fresh liquid milk overseas.

New South Wales-based dairy co-operative Norco has found success with flying liquid milk to China, with the product retailing at $9/litre in Shanghai - but Ms Moynihan said the concept was a tricky one.

"There is a market opportunity there. But one of the things I observed this year in China is a compaction of price points in both the fresh milk and UHT category," she said.

"The difference between premium and standard products has narrowed. It is risky and you are looking at that gap closing…and potentially closing rapidly."

She said the carbon footprint could also become an issue.

"Chinese consumers are very aware of where their product comes from and also what the supply chain looks likes. And as that market becomes more sophisticated, the acceptability of flying water - which is what it is - will become socially unacceptable."