Impact Of China-Australia FTA On Dairy Import In China

The China-Australia Free Trade Agreement negotiations began with a joint FTAFeasibility Study from March2005to Canberra negotiations in March2012, and there areeighteen rounds of negotiations. Both sides made progress on trade in goods, sanitary andphytosanitary (SPS) issues, customs procedures and so on, but still continued discussionson the cuts of agricultural tariff and the set of sensitive products. Dairy products as aspecial commodity, the volume of trade between the two sides is not large, but the potentialis great. After the FTA is established, it might be an important impact on China. So its tradehas been a common concern of the two sides.Driven by strong consumer demand, China’s dairy industry has gained considerablesteady and rapid development since joining the WTO in2001, and imports of dairyproducts have been rising constantly. Australia is known for its low-cost dairy farming andhigh-quality dairy products, and become another huge potential importing country outsideof New Zealand. There is a huge gap in the cost of raw milk between China and Australia,after the establishment of the China-Australia FTA, there will be a rapid increase in thequantity of dairy products imports from Australia with lower tariffs. It will have greatimpact on the development of China’s cow farming and dairy industry.Based on a comprehensive understanding of dairy trade between China and Australia,using the market share (CMS) model, the gravity model and global trade analysis model(GTAP model) respectively simulated and analyzed the impact of China-Australia FTA onChina’s dairy industry. The main contents include the following five aspects:Firstly, Suppose Sino-Australia FTA established in2015, production and import tradeof dairy industry will be affected in China. On production, production of raw milk anddairy products will decline, and the prices of raw milk will rise slightly. About quantity, thenumber of dairy products imports from Australia will significantly increase (76.88%),while reducing from New Zealand (5.61%), the United States and the EU, but notmarginally decrease. In terms of price, the prices of dairy products import from Australia,New Zealand, the U.S. and the EU will be down, but the prices from Australia will largerdecrease. On market structure, although currently there is small dairy trade between Chinaand Australia, New Zealand and the United States are also Chinese leading origins. Dairytrade between China and Australia has the enormous potential with establishment of theChina-Australian FTA.Secondly, China has taken a series of differentiated prices, investment and support policies in dairy industry in recent years, and the average production scale of dairy farm isfast expanding. Due to rising prices of raw material, production costs of large-scale farmare higher than household. The farm gate price of raw milk is gradually increasing.Consumption of liquid milk accounts for the production started to decline from2008, whileimports of dry dairy products increased significantly, and the prices rose rapidly. Chinesedairy import dependency and market concentration increased significantly, and the gap ofdairy imports from New Zealand and Australian widen. As the price of raw milk inAustralia is more than New Zealand, and the sheep industry are gradually restructuring tothe dairy industry, so the impact of imports of dairy products from Australia will not beoverlooked.Thirdly, the results by gravity model analysis show that gross domestic product (GDP)and import tariffs on dairy products of China and its trade partners has a positive influenceon China imports of dairy products, and the influence of distances is limited. As well asdairy products’ tariffs being reducing as5%、10%、25%、50%and75%, the value of dairyproducts China imports from Australia will increasing17.54%、84.81%、264.38%and830.45%.If Sino-Australia FTA established in2015, the import value will reach between26.22and1930.99million dollars.Fourthly, the simulation results by using GTAP model show that China dairy importsfrom Australia will increase large, and the exports will be increase slowly when2015China-Australia FTA established. The deficit pressures on dairy trade will be furtherexpanded between China and Australia. The quantity of dairy products imports fromAustralia will increase by33,200tons, while the value will increase by103.12millionUSD in2015. The value would reach284.80million USD, and it relatively closes to thepredictive value (207million USD) of gravity model when import tariff reduces to50%.While the prices from Australia will decline11.36%, namely3,727.75USD per ton, theprices are more competitive than New Zealand (4,474$/ton) in dairy exports to China.Fifthly, expected Sino-Australia FTA established in2015, the price of raw milk inChina will reach692.71$/ton, while the price of raw milk in Australian will be434.09$/ton. The huge price gap will result in the serious challenges of Chinese large-scale dairyfarm, so the adjustment of dairy import tariffs must be treated with very caution inChina-Australia FTA negotiations. Take appropriate use of the "Amber box" policies andfull advantage of the "Green box" policies and measures to protect and support thesustainable development of China’s dairy production. Chinese dairy companies shouldseize the opportunity to expand investment in Australia by direct or joint venturesinvestment and to fight directly involved in the Australian dairy production and export sector under the favorable terms of FTA.