115 Telegram from New Zealand High Commission in Canberra to Ministry of Foreign Affairs

Canberra, 27 March 1980

No 894. CONFIDENTIAL PRIORITY

Australia/NZ Economic Relations

Mr Nixon spoke at the opening of an agricultural field day in the Gippsland area (the dairying heartland of Victoria) on 21 March.1 On relations with New Zealand he said:

The dairying industry has, over the years, gone through many challenges and changes-some of which are, of course, continuing.

I am aware of the intense interest and concern in some sections of the industry with the development of UHT milk, and the move towards closer economic co­ operation with New Zealand.

Those in the industry would know of the consultations which are currently under way with New Zealand on the question of economic co-operation.

Those in the industry would know of the consultations which are currently under way with New Zealand on the question of economic co-operation.

Let me assure you that the Government will not allow the Australian dairy industry to be adversely affected by economic co-operation, and that we are making this point most plain in our negotiations with New Zealand.

2 It is interesting however that Mr Nixon chose the same speech to attack agricultural protectionism. He criticised the attitude of developed countries he encountered at the recent OECD meeting in Paris that 'agriculture is our oil' that is, that the way to pay for higher oil import bills was by increasing exports of subsidised agricultural products.

He said:

Australia has always spoken out strongly against dumping of subsidised agricultural products. It distorts real market opportunities and blatantly discriminates against the low cost, efficient producer, such as Australia.

Clearly, if this new 'agriculture is our oil' policy gains momentum among the industrialised nations of Europe, then prospects for increasing Australian exports must decline.

I realise that many of the poorer developing countries are currently able to take advantage of cheap prices for imports of dumped goods. But the real advantage to those countries is only skin deep, and the long-term prospect is one of real disadvantage.

By importing cheap goods, there is no incentive for the developing countries to develop their own agricultural industries. That means their progress to self sufficiency is slowed down, as is their capacity to win export earnings from agriculture. The overall result is that their economies are not becoming stronger and healthier. In terms of agriculture, the developing countries, instead of developing, are in fact being forced to stagnate because of this dumping.

Ends

3 While there may appear to be some inconsistency between 'not allowing the Australian dairy industry to be adversely affected by economic cooperation', and 'free(ing) up world trade in agriculture', Mr Nixon's comments which were not, we gather, cleared with the Department of Trade and Resources must be read alongside Mr Fraser's comments in the House on Tuesday about coming to an equitable arrangement by which trade in agriculture can take place, and against the background of the pressure building up from the dairy lobby on this issue. The lobby's latest tactic is to accuse the Federal Government of 'selling out' the dairy industry, and to have Mr Anthony removed from his 'responsibility' for negotiations with New Zealand on the grounds that he has displayed insufficient interest or sympathy for the cause of dairy farmers, and replaced by Mr Nixon. This tactic was reported in the recent article in the Melbourne Sun referred to by Mr Bowen in the House of Representatives on 25 March (our 871) the text of this is in a separate telegram.

4 Mr Nixon's statement seems to be an attempt to deflate the pressure from those in the industry who are bent on using this issue to embarrass Mr Anthony's leadership of the Country Party, and to force the Government into a comer. What Mr Nixon said is consistent with the view given us by Miller to the BAE (our 777) that ministers felt they had to be in a position to say that the industry would be fully consulted. Mr Nixon obviously felt it necessary to go one step further. The clear intention was that farmers take home with them two messages: that the Government is looking after their interests and that in any event they had nothing to fear from closer economic cooperation with NZ.

5 There is no doubt that in this election year Mr Nixon will continue to make statements to assuage farmers' fears which at the same time may have the effect of arousing suspicions among the New Zealand public. In many ways the pressure is more on Mr Nixon than it is on Mr Anthony. His Victorian constituency is in a dairy farming area and his own position was threatened last year by a local Liberal Party move to contest the seat. It required Mr Fraser's intervention to prevent a Liberal/Country clash. It seems very much in our interests to avoid if possible any New Zealand reaction which would make it more difficult for Mr Nixon to keep the issue off the boil in coming months. If we can do this our negotiating position would be much stronger when the real bargaining begins.

We shall report in a separate telegram on the general press reaction here to the Muldoon/Fraser communique.2

[ABHS 950/Boxes1221-1226, 40/411 Part 26 Archives New Zealandffe Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]