With the conclusion of safeguard duties on milk powder on December 31, 2023, all New Zealand dairy products are now granted duty-free access to the Chinese market starting from January 1, 2024. Prior to this, China and New Zealand had entered into agreements, mutually committing to the phased elimination of import tariffs on dairy products. Notably, safeguard duties on New Zealand's liquid milk, butter, and cheese concluded on December 31, 2021, while safeguard duties on milk powder were set to conclude on December 31, 2023.
China stands as New Zealand's largest trading partner, with New Zealand serving as the primary source of imported dairy products. According to the China Chamber of Commerce for Import and Export of Foodstuffs, Native Produce, and Animal By-Products, the top three countries exporting dairy products to China in 2022 were New Zealand, the Netherlands, and Australia, claiming respective shares of 46.8%, 17.8%, and 7.1%. Delving deeper into specific categories, from January to November 2023, New Zealand held a dominant position as the primary source for large-pack milk powder, cheese, cream and light cream imports in China, capturing substantial shares of 69.3%, 59.9%, 87% and 55.1%, respectively.
The comprehensive removal of tariffs brings significant benefits to New Zealand dairy enterprises exporting to China, particularly in gaining a competitive edge in pricing and cost optimization. New Zealand Trade Minister Todd McClay anticipates that the removal of these remaining tariffs will lead to additional annual tariff savings of approximately NZ$350 million. China has been a pivotal overseas market for prominent New Zealand dairy enterprises such as Fonterra and a2 Milk. Data indicates that over a quarter of Fonterra's products are sold in the Greater China region. In the fiscal year 2023, Fonterra's Greater China region recorded revenues of NZ$7.072 billion, constituting 27.15% of the group's total revenue. With the official implementation of a zero-tariff policy on all New Zealand dairy products, NZMP, Fonterra's brand of dairy ingredients and solutions, has expressed its commitment to serving the Chinese market with increased agility and intimacy.
It is also worth noting that industry experts believe that the tariff exemption on New Zealand dairy products will have a limited impact on China's dairy industry and other trade partners with China in the short term. The safeguard duty conclusion in this instance mainly applies to large-pack milk powder used as a raw material. Over the past two years, China's dairy industry has faced phase-specific oversupply in the raw milk segment, as well as noticeable shifts in the consumption and manufacturing of dairy products. This has resulted in a decline in the import of large-pack milk powder but a growing trend in high-value categories such as protein, cheese, butter, etc. In this context, the expected impact of tariff exemption on milk powder is relatively limited, while significant opportunities exist in high-value dairy categories.
