Trad­ing places

Free trade proves fruit­ful for dairy farm­ers, vint­ners and or­chardists.

The Australian - The Deal - - Contents - Story by Rowan Callick

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

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