Tomatoes and the closer economic relationship with Australia

Abstract

The Closer Economic Relationship with Australia agreement (CER) was brought Into effect on 1 January 1983. The CER provided for the liberalisation of trade between New Zealand and Australia. This liberalisation is to be effected through the gradual elimination of barriers to trade following an established formula. Some departures from the formula are provided for where specific products would be treated in an inappropriate manner if the formula were followed. The objective of the liberalisation procedure is complete removal of barriers to trade by 1995. The granting of access to the New Zealand market for Australian tomatoes is included in the agreement. The level of access provided caused New Zealand growers of hothouse tomatoes to express concern over the possible impact of imports on the New Zealand industry. This Discussion Paper provides a report on an investigation of the likely impact of Australian tomato supplies on the New Zealand market. It is established that the most probable source of exports to New Zealand is Queensland. A review of Queensland tomato production costs indicates that a price of $A5.00/10 kg carton would be required by Queensland growers to cover their variable production costs. Additional costs involved in exporting to New Zealand result in a New Zealand market price of $NZ17.00/ 10 kg carton ($NZ1.70/kg) being required by Queensland growers. This price can be achieved on the New Zealand market between June and November. Exporting to New Zealand would therefore only be attractive to Queensland growers during that period. The New Zealand hothouse tomato growing industry supplies approximately two thirds of the tomatoes for the freshmarket. These supplies are predominantly during autumn, winter and spring when higher prices are available. During summer, prices are lower as outdoor grown- tomatoes become available. The hothouse tomato growing industry considers that the high winter prices are essential to their profitability. It is probable that some price reductions will occur as a result of imports from Australia being available during winter. However, the quality of the Australian product is likely to be inferior to that available in New Zealand and therefore the price impact will be less. In addition, up to 1988 the quantity of tomatoes able to be imported from Australia is limited to a level equivalent to between 0.57 per cent and 1.01 per cent of average New Zealand annual hothouse tomato production. The average variation in New Zealand hothouse tomato production from year to year (over 1975 to 1981) exceeded the total allowable Australian supply by between 14 and 25 times. Therefore the impact of New Zealand supply variations on the market price is likely to be greater than the impact of supplies from Australia. Over the longer term, increased supplies from Australia can be expected to have a greater impact on the New Zealand market. The establishment of appropriate premiums for higher quality New Zealand tomatoes through the use of an effective marketing system would reduce this price lowering effect of imports from Australia. Some reduction in New Zealand hothouse tomato production could be expected as less efficient growers fail to achieve adequate returns. There is likely to be increased total demand for tomatoes during the winter period when lower priced Australian tomatoes are available. Increased outdoor tomato production during the summer months could also be expected to offset reduced hothouse tomato supplies during summer. Overall, prices are likely to be reduced (with premiums available for high quality product) and tomato consumption could be expected to increase.