Australian exporters now have access to one of the fastest growing economies in Latin America thanks to a new deal that started this week.
- A new free trade deal will open the Peruvian market to Australian exporters, however some export products will have tight quotas
- For sugar, in the first year of the deal, duty-free access will be given to only 30,000 tonnes — about one shipload, which will double to 60,000 after five years
- Tariffs will be eliminated completely on other products including sheep meat, wheat and, eventually, beef and seafood
The Peru-Australia Free Trade Agreement will eliminate more than 99 per cent of tariffs on products within five years but it will not necessarily be open slather.
Federal Trade Minister Simon Birmingham said some products will have quotas.
“In some cases tariffs are eliminated completely such as for sheep meat, wheat and over time for beef and for seafood,” he said.
“In other areas it operates as a tariff-free quota.”
But how sweet of a deal is it?
Sugar is one such example, in the first year under the deal, duty-free access will only be given to 30,000 tonnes of sugar, after five years that will double to 60,000.
“It’s the best access that Peru’s provided to anybody in the last 20 years,” Mr Birmingham said.
Queensland Sugar Limited (QSL) is a major bulk sugar terminal operator and CEO Greg Beashel is confident the industry will jump on this opportunity for a new market.
“I expect we will send the full amount that the quota allows for,” he said.
“So 30,000 tonnes, which will be one shipload of sugar in the first year, and then in five-years time 60,000 tonnes, which will be two shiploads of sugar.”
But this will only make up a very small amount of Australia’s total exports according to Rabobank Commodities Analyst Charlie Clack.
“Australian exports of sugar, on an annual basis we’re looking generally from 3.5 million tonnes,” he said.
“These volumes to Peru would be less than one per cent of Australian sugar exports.”
Mr Birmingham believes it will still make a difference.
“Every tonne helps, and for Australian growers having 30,000 tonnes of access without a tariff being applied is better than not having 30,000 tonnes without a tariff being applied,” he said.
Off Season Opportunities
Mr Clack believes Australia will struggle to offer competitive prices even without tariffs in a market that has major sugar producers like Brazil and Columbia as its nearest neighbours.
“It’s not just competitive at face value — the price at which it’s exported, the freight is also going to need to be included,” he said.
Mr Clack said despite this difficulty there are opportunities with South American sugar producers operating in a different season.
“So when these sorts of countries aren’t producing and Australia can then export and make use of that different season,” he said.
QSL CEO Mr Beashel is hoping this deal sets a precedent.
“These types of trade deals are very important because Australia is a very low cost producer of sugar but access to markets is a problem and subsidised production around the world is a problem,” he said.
“There needs to be trade reform in sugar so that we can get a benefit from our competitive advantage in producing sugar.”
Mr Birmingham said the Federal Government will continue work to diversify the Australian economy.
“A priority for our Government is to create as many choices, as many opportunities for farmers and businesses as we can,” he said.
Diversification still necessary
Analyst Charlie Clack said while these deals are beneficial to Australian growers, it does not protect them from the volatility of global prices.
“The industry here will still be very much exposed to the global price and really of course if Australia isn’t competitive ,then those buyers like Peru will look elsewhere,” he said.
“So that need to diversify remains and to move into other avenues, biofuels is the obvious one, but there are other ones that exist as well.”
The wider agricultural industry is also welcoming this deal.
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National Farmers Federation Spokeswoman, Laureta Wallace, said that it is important Australia diversifies its trade markets.
“Australian farmers export 75 per cent of what we produce, so carving out new export opportunities and building on existing ones is absolutely crucial to our future,” she said.
Like Mr Beashel she also hoped to see more deals like this one.
“We’ve got lots of good trade markets in Asia, in particular with China, we’re working with the EU in negotiations for an FTA now and also starting up with the UK.”