37 Notes by Bureau of Agricultural Economics

Canberra, October 1979

CONFIDENTIAL

Australia- New Zealand Economic Relations Implications for Agriculture

REVISED PRELIMINARY NOTES

15. Summary1

The direct effects on the agricultural industries of closer economic co-operation with New Zealand are likely to be relatively small overall. The production and marketing arrangements for major rural industries in both countries tend to be competitively organised. For both countries, the major rural industries are export market orientated and in both countries rural industries contribute significantly to total export receipts (44 per cent of the total in Australia and 66 per cent in New Zealand).

Australia and New Zealand compete strongly for third country markets in many agricultural products. The export orientation and competitive nature of the rural industries ensure that indirectly there has been a high degree of economic interdependence between the industries in both countries. Trade in agricultural commodities between Australia and New Zealand has been minimal. (One per cent of Australian rural exports are sold to New Zealand and 3 per cent of New Zealand's rural exports are sold to Australia.) Closer economic integration is unlikely to significantly alter the overall situation.

In contrast to agricultural commodities, trans-Tasman trade has been an important feature of trade on forest products, especially for New Zealand. In 1977-78, some 16 per cent of Australian imports of forest products were derived from New Zealand and this represented some 48 per cent of New Zealand exports of forest products. Conversely, some 21 per cent of New Zealand imports of forest products were derived from Australia and these represented some 8 per cent of Australian exports of forest products. Under NAFTA the majority of trans-Tasman trade is unrestricted and a fairly high degree of economic co-ordination has been achieved. Hence, the advantage of greater economic co-ordination at this time would be to strengthen the recognition in both countries of the benefits of rationalisation and long-term co-ordination of industrial development based on forestry.

While the overall direct effect on agricultural industries of closer economic co-operation between Australia and New Zealand is likely to be small the effects on producers in some of the smaller more highly regulated rural industries could be significant. In particular, the dairy industry in Australia would face significant losses that would add to the strong adjustment pressures the industry has already accommodated and continue to persist in the longer term. Closer economic integration would involve significant changes to existing marketing arrangements and would be most difficult to negotiate. Dairy products contributed some 6 per cent to the gross value of agricultural commodities produced in Australia in 1977-78 and some 12 per cent of Australian farmers are involved in dairying. In New Zealand, there are some 16 000 dairy farms and in 1976 dairy production contributed some 22 per cent to the gross value of agricultural production and employed some 26 per cent of the rural workforce.

As the agricultural industries in both countries are integral parts of the respective economies, especially with respect to the balance of payments, the indirect effects of closer economic integration on the development of the economies generally could have significant effects on the agricultural industries. In particular, a rapid growth of the mineral sector in Australia will impart significant adjustment pressures on the agricultural sector(...).2 The New Zealand economy does not have the same resource base as does Australia; for one, New Zealand is a net energy importer while Australia is a net energy exporter.

This suggests that with similar inflation rates the Australian dollar is likely to revalue relative to the New Zealand dollar. As a net result, the Australian rural industries would have greater competitive pressures to develop and adjust production structures. Closer economic co-operation with New Zealand would be unlikely to significantly alter this situation, but it would provide increased opportunities to better co-ordinate economic development of agriculture in both economies.

[NAA: A1838, 370/1119118, ANNEX 6]