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The Government has cut a deal which will break dairy giant Fonterra's effective monopoly on importing New Zealand quota butter into Britain.
Fonterra, the world's biggest dairy exporter, has been creaming extra profits by having its own subsidiaries import the butter Fonterra sends to fill New Zealand's quota in Europe.
But from next year, Fonterra will get just a 55 per cent initially of the import quota, and that share may decline further in the future, with 45 per cent being available to other EU importers from 2007.
Where all importers have to pay the same world price for butter before selling at a higher price inside the European Union (EU), those buying New Zealand quota butter make extra money because New Zealand produce attracts only a lower tariff.
Fonterra's predecessor, the Dairy Board, began cashing in on such an arrangement over 30 years ago, and Fonterra continued the practice.
The difference between the world price at which the butter is exported from New Zealand and the price at which it can then be sold in the EU has been estimated at about $264 million a year.
Some commentators have estimated the way the trade is structured gives Fonterra an extra $70 million profit -- sometimes called a "quota rent".
The Government's hand has been forced on the cosy arrangement by the European Court of Justice ruling on July 11 that the existing system is discriminatory and monopolistic.
A German dairy company, Franz Egenberger GmbH, complained to the court that import licences for New Zealand butter were being issued by United Kingdom authorities and only to subsidiaries of Fonterra.
Now, these "traditional importers" of New Zealand quota butter will initially retain only 55 per cent of the quota and their share may decline in subsequent years.
From 2007, import licences for the New Zealand butter quota of 77,402 tonnes will be divided up between "traditional importers" and newcomers.
The "traditional importers" in 2007 will be those who imported during 2006, and from 2008 onwards, those who imported in the preceding 24 months will qualify.
Trade Minister Phil Goff said today the court's major concern had been that the existing system discriminated against European traders, and the Government had agreed with the European Commission on a new regime for New Zealand butter exports from January 1.
The proposed regime guaranteed newcomers would have access over time to bid for a share of New Zealand butter, and needs of "traditional importers" had been taken into account Mr Goff said.
The new regulation covering the changes has been submitted to member states through the EU's milk management committee, and a decision is expected early next week.
New Zealand's preferential access to Europe for some dairy and meat products dates from when Britain, its traditional customer, joined the European Economic Community in 1973.
It is charged a lower tariff on annual quotas for 77,402 tonnes of butter, 7000 tonnes of cheddar cheese, and 4000 tonnes of cheese for processing.
Mr Goff said the deal struck an "appropriate balance" between meeting the European Court of Justice ruling and ensuring that the EU's long established commitments to New Zealand were taken into account.
As part of the package, the tariff for New Zealand butter imported under the quota would be reduced to euro700 ($1380) per tonne from the current rate of euro868.8 -- a 19.43 per cent reduction, Mr Goff said.
There would also be a change in the butterfat standard from 80/82 per cent to 80/85 per cent, with a 3.5 per cent reduction in the quota -- to 74,693 tonnes -- to take account of the higher levels of fat.
These changes to the conditions of entry of New Zealand butter need to be approved by the Council of the European Union. Some of the changes might not be in place until later in 2007.
Butter imports to Europe were temporarily suspended following the court ruling.
- NZPA
