Free trade proves fruitful for dairy farmers, vintners and orchardists.
TIM Reid's recent experiences personify the power of a free-trade agreement. Already one of Australia’s foremost horticultural farmers, he was exporting about five tonnes of cherries to South Korea a year from his farm in Tasmania’s Derwent Valley. When Australia’s free-trade agreement was ratified by the parliament in Seoul in December it arrived in the nick of time for him.
The agreement abolished the 24 per cent tariff on cherries. January is the key month for cherry production and marketing, and so Reid Fruits was suddenly positioned to take full advantage of the FTA with this year’s crop. He was able to seize on the sudden margin, and the orders kept rolling in as he kept flying fresh fruit to Seoul. “It made a huge difference for our competitiveness in the Korean market,” he says. “It was a phenomenal boost – with the exchange rate providing further support.” In the end, he sold 185 tonnes, 37 times the amount he sold last year, earning his family firm an extra $3 million. No wonder Trade and Investment Minister Andrew Robb made a trip last month to Reid’s farm to help celebrate such a palpable win for freer trade and no wonder he received a hero’s welcome.
A fifth generation farmer, whose family has been on the same property since 1856, Reid has grabbed opportunities as they have come. He is among an increasing number of Australians in agribusiness now able to take advantage free-trade agreements with key Asian countries – China, Japan and South Korea. Success has not come overnight for his business. His farm predominantly produced apples until about 15 years ago when he made the big shift to cherries. He now has 100 hectares of trees planted. Enough young trees are already becoming established, to enable production to increase by almost half again over the next three years. This year, more than 1000 tonnes of first-grade cherries were harvested, with 80 per cent exported by air to about 20 countries, mostly to those in the depths of winter for which Australia’s seasons provide considerable comparative advantage.
The international enmeshment is deepening. Late last year, Reid signed a memorandum of understanding with China’s Jinsheng Group to take a stake in Reid Fruits for an undisclosed
sum, believed to be in the millions of dollars. This will underwrite further expansion, and will see sales to China – already the biggest market for his cherries – double and possibly even triple. It was no coincidence that the deal was cemented in the immediate wake of Australia’s free-trade agreement with China that was signed after 10 years of tough negotiations when Chinese President Xi Jinping was in Australia for November’s G20 meeting. The Chinese president made a trip to Tasmania after the meeting.
Despite its success in other countries, Reid Fruits has struggled to gain market share in Japan, a famously cherry-mad country, because of its import barriers. But Australia’s free-trade agreement with Japan, which came into effect on January 15, provides for preferential access to cherries from Australia during the exporting season. “We’re hoping that FTA will promote our Japanese sales in the next growing season,” Reid says.
For 10 months of the year, Reid’s farm operates with about 20 full-time staff. But when harvesting season reaches its peak, it employs 600, giving a huge boost to the local economy with beneficiaries ranging from shops and fertiliser sprayers to backpacker accommodation and rural merchandise. The company spends a lot on high-quality packaging that is manufactured in Australia. Transport companies also benefit, with the cherries being carried first to the mainland, mostly to Melbourne, and then flown to their international destinations. Reid Fruits is one of the biggest of about 100 cherry growers in Tasmania who are gaining from the new north Asian FTAs.
Knock-on benefits from the agreements are starting to be felt across the country’s food sector. Northern NSW dairy group Norco has pioneered a cold supply chain to facilitate fresh milk exports to China. The company says it is “well placed to take advantage from any further improved market access there, and is investing $4.5m to upgrade its Raleigh dairy processing facility” near Coffs Harbour to meet increased demand. Murray Goulburn managing director Gary Helou says his company is also investing to expand its manufacturing, with the China agreement cementing the firm’s status there and, thus, “supporting higher farmgate returns to our suppliers and shareholders”.
Andrew Kay, managing director of wine producer Wirra Wirra in McLaren Vale in South Australia, says his firm sees the agreement with China as a potential game changer. The company has been exporting to China through a distributor which has more than 200 fine wine stores across the country. “Like most premium producers, we have seen the Chinese market slow down over the past 18 months,” Kay says, as the central government’s anti-corruption purge has slashed official hospitality. But he says the market is in transition. “We expect the recovery to start to gain momentum over the next 12 months or so. With tariffs falling, it leaves us well placed to take advantage of the recovery and the growing middle-class consumer demand for fine wines.” Treasury Wine Estates says the removal of tariffs on sales to China over the next four years “is good news for both our business and our brands”. The company already exports more than 70 per cent of its product, a percentage likely to increase with the help of the agreement. “Premium quality brands like Penfolds are already hugely coveted by discerning Chinese consumers, and the FTA will make it easier and more cost-effective for TWE to realise growth opportunities” in China.
“When I travel through Asia, it’s obvious how popular Australia’s quality produce has become among the growing middle class,” says Andrew Robb. “The landmark free-trade agreements we’ve secured with Korea, Japan and China mean exporters, including those in Tasmania, can access these markets more competitively.” He predicts exports to China will “surge” when the agreement comes into force later this year.
Bill Paterson, Australia’s ambassador to South Korea has lead an aggressive marketing campaign to ensure the South Korea agreement is pursued to its full capacity. South Korea, he says, is already Australia’s third biggest export market, and Australia is South Korea’s fourth largest trading partner overall. “Australia is still seen as a nation of kangaroos and a dairy industry,” he recently told the influential Korea Economic Daily. “With the FTA coming into force, I hope we can see bilateral cooperation and investment expanding to sectors such as financial services, manufacturing and ICT [information and communication technology], to change the image of Australia in the minds of Korean people.”
Trade Minister Andrew Robb, right, with cherry exporter Tim Reid