KEY POINTS:
Improving access for New Zealand dairy exports remains a sticking point in the free trade agreement talks with China, although Chinese Premier Wen Jiabao isn't so worried about it, says Prime Minister Helen Clark.
Her reported bad news-good news comments last week followed a bilateral meeting with Wen in the Philippines.
However, Helen Clark was upbeat about New Zealand remaining on track to sign an FTA with China by April next year.
Just how sticky a point dairy will prove as negotiators try to meet that deadline remains to be seen.
In the 12 months to November last year, New Zealand exports of milk powder, butter and cheese to China were worth $395 million, or 21 per cent of the total exports sent there, making dairy by far the biggest category. That compared with just $86 million, or 15 per cent, in the same period in 1997.
In 2005, New Zealand alone was responsible for about half of global dairy exports to China, according to Rabobank.
So how the talks on dairy pan out is of no small consequence to us.
China is said to have a general concern about opening up agricultural trade in a way that could hurt its farmers, particularly in dairy.
With such a large part of the population dependent on farming to make a living, the Government in Beijing may be keen to avoid antagonising the rural sector too much through liberalisation.
And, with dairying such a fast-growing industry in China, there may be a natural tendency to want to ensure their own people get to capture the lion's share of that growth. China initially wanted to exclude dairying from the talks.
However, a New Zealand argument has been that our dairy exports already face only "modest" tariffs under WTO rules anyway - most are about 10 per cent to 12 per cent.
So, according to this argument, even if tariffs were eliminated altogether under an FTA it would not result in a flood of our product being diverted from other markets to China, particularly if prices are good elsewhere.
Another suggestion is that - given demand for our dairy products in China - the Chinese would be doing themselves a favour by cutting tariffs even further as it would reduce raw material costs to their dairy-processing sector, making it more competitive.
Fonterra's recent moves in China - the investment in dairy giant San Lu and plans to start a farm milking up to 3000 cows - have been driven by their commercial business cases.
But Fonterra will no doubt hope a spin-off from this commitment to doing business in China is that it will help convince the Chinese to "unstick" dairy in the FTA talks.
The commitment will hopefully be seen as a clear sign we are prepared to keep investing in their industry, and help them to grow and develop it, rather than treating China as just an export destination.
The strength of China's desire to attract this Kiwi capital and expertise on an ongoing basis will also no doubt play a part in how far the Chinese are prepared to bend on dairy.
Whether such considerations do end up getting us more favourable treatment in dairy access remains to be seen. New Zealand diplomats will no doubt want to be able to play as many of these sorts of cards as possible as the high-stakes negotiations continue.
However, the Chinese - possibly keen to facilitate a deeper dairy relationship anyway but aware of how important improved access is to us - could be tempted to drag the chain on sewing up this part of the FTA. By holding out for as long as possible, they may hope the pressure will get New Zealand to blink first in this and other areas under discussion.
Officially, the two countries are committed to a good agreement that covers both sides' interests - but the realpolitik of trade negotiations means it may be some time before it is all smiles on dairy.
Chilly celebrations
Trade dealings of another kind will be commemorated next month as New Zealand marks the 125th anniversary of the departure of the first shipment of frozen sheep carcasses to Britain.
Refrigeration was the key that opened the door through which our meat and dairy sectors became the major export earners they are today.
The sailing ship Dunedin set off on February 15, 1882, from Port Chalmers in Otago. Nearly 100 days later, on May 24, the ship berthed in London.
Meat & Wool New Zealand is planning a series of events in the UK this year as it seeks to use the anniversary to promote our meat.
Ironically, the celebration of the first frozen exports comes at a time when more effort is being put into sending chilled lamb to Europe.
Chilled lamb - seen as "fresher" - fetches a premium over frozen. Britain alone has recently taken about 50 per cent more chilled lamb, at a time when total annual chilled exports to the EU have risen to 42,000 tonnes, worth some $450 million.
Number juggling
There's been some tetchiness at Fonterra lately over suggestions the co-op's forecast 45c/kg of milksolids value-add contribution to farmer payout for this season doesn't look too flash compared with earlier years.
The value-add measure relates to returns from activities such as branded consumer products. Improving value-add returns was part of the rationale for forming Fonterra.
The 45c/kg forecast for this season has been compared unfavourably with the 48c/kg achieved in 2005-06.
However, the 45c/kg figure for this season is based on a new measure of value-add.
The 45c/kg under the new measure equates to roughly 68c/kg under the old measure - 20c/kg better than what was achieved under that old measure last year.
But there's some scepticism this season's 45c/kg target under the new measure can be achieved. Even if it is, total forecast payout is flattish at $4.05/kg anyway.
However, if the target is achieved, it will boost the co-op's credibility with farmers in the value-add area. If it's not - without good reason - we can expect some further tetchniness from suppliers.
