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Australia/UK Free Trade Agreement


Jerry_Atrick
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https://www.dfat.gov.au/trade/agreements/negotiations/aukfta

 

Well, since leaving the EU, Liz Truss has been making all sorts of trade deals with non-EU countries - and at breakneck speed. Of course, she has been basically coming to the same trade agreement that these countries (e.g. Japan) have had with the EU, so it has been more or less, lift and shift. But on the whole, she is seen to be doing a good job by both sides of the partisan divide. Of course, Australia doesn't have a free trade agreement with the EU; there is something with wine I think (will have to look it up). In fact, unbeknownst to most, Australia has been in trade negotiations with the EU since 2018: https://www.dfat.gov.au/trade/agreements/negotiations/aeufta/default

 

Maybe the UK can speed things up a bit compared with their EU brethren.

 

Anyway, over here, it is reported the UK want something in place - even if it is a memorandum of understanding in place by the end of June. But, as it is being presented here, it is hitting some resistance - particularly form the UK beef and lamb farmers as Aussie produce in this area is seen as both cheap and higher quality (although the best steak I have had is Hereford from up the road). The concern is that, say unlike NZ lamb, which is of average quality in the supermarkets thanks partly because of some pretty hefty tariffs: https://ahdb.org.uk/news/uk-beef-and-lamb-import-tariffs-to-remain-high-post-brexit, a free trade agreement that would result in Aussie produce competing with only transport costs added can result in some high quality beef and lamb and cheap prices.

 

Be that as it may, I see opportunities both ways. As I have no real interest in meat apart from eating it, I will keep out of that debate. However, I see movement of fine agricultural products as an opportunity for both sides. For Aus, the obvious is wine and it would be great to see the variety of Aussie wine that graced the shelves when I first arrived in the UK. We still get a reasonable selection, and it is probably China rather than the price/tarrifs that saw the variety slip here, but to get more of the better stuff back on the shelves would be a fantastic result (especially to see off a lot of the swanky but incredibly ordinary French competition).

 

Next cab off the rank for me would be the Aussie olive oil. The world loves Spanish, Italian, and Greek olive oil, but I think the Aussies do it just as well, if not better. I'm not talking supermarket drivel, of course. Somestuff I have had from Western and NW Vic has been easily the best I have tasted. Over here, even in Tesco (largest of the lower-end of the market before hitting Aldi and Lidl), the quality of extra virgin olive oil is excellent, so the focus would have to be on the high-end stuff, of which Australia would appear to have a good shot at competing with.

 

For cheese and other dairy products, Australia could be the beneficiary of UK exports. I hate to admit it, but the UK produce some of the finest dairy products you can get. Yes, the French have some of the most imaginative, and of course they and other European countries also produce fine dairy based products as well.. Sadly, and I am not sure why - is it the grasses, the soil, the lack of water, the breed of cows (and sheep, etc) - but Aussie dairy produce doesn't quite hit the mark. Even the Aldi and Lidl type supermarkets have a great selection of quality cheeses and other dairy delicacies at very reasonable prices. The more traditional supermarkets provide a selection of cheeses that had my mother.. all the way from Healesville (where not too far away were two fromageries, Cheese Freaks and The Dairy) salivating uncontrollably. And the ice creams... er.. yeah.. Sorry but even Charmaines of Fitzroy or Collingwood fame (can't actually remember where they were). My brother was a bit surprised when he had a Magnum here.. high quality creamy ice cream laced with real vanilla beans.. not ant poop imitation stuff. I had a Magnum in Aus and it was watery and tasteless. They retail here for £1.50 each on average but a box of 3 can often be had for around £2.50 on sale. I read that a beneficiary of the pandemic were local Aussie artisan cheesemakers as the European stuff became so expensive to transport. But. to be fair, trade has to flow both ways and I think Aussies could be real beneficiaries of some stiff competition  that is at least tariff free! If our dairies (not farmers) are taking the p155 out of the Aussie consumer, it will help beat them into shape.

 

Finally, aircraft manufacturers. Outside of mil and components/engines of airliners and mil, we have one manufacturer from memory (of any recognition). I can see a market for Brumby, Aussie Lightwing, Wedgetail (ex. Morgan). There would be improved access for Jabs and Gippies (are they still made in Aus???). There was a 20% tariff and then 20% VAT on the price + tariff (so double taxing).. and added 44% to the landed price. Oh, and like GST, VAT paid is normally allowed to be offset against VAT charged on sales, but for some reason, not for aircraft!

 

So, in my very short review, there are opportunities and threats... Anyone know a good olive oil producer?

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Many olive groves were planted around 1995 to 2005 but proved uneconomic as the price of olive oil in Australia fell dramatically. This was because of tax-avoidance schemes which planted huge groves and then went broke. The groves and plant were bought by the contractors that had been running them, for a pittance. Now they can produce low- cost oil in bulk without the debt servicing. Even well established olive businesses were unable to compete and have shut down. So now we have some large producers, which could export to the UK, and a lot of tiny groves that sell at local markets. But they are in it for hobby and lifestyle. Been there, done that. Many small groves have been ripped out or left to the gum saplings and kangaroos. Having said all that, the quality of Aussie oil is far superior to imports, but more expensive in the supermarkets.

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The Australian dairy industry has just about collapsed over the last few years. The big dairy companies have screwed the producers so much that they have given up. Even the milk you buy in the supermarket has little to do with milk from  cow. It is more like chalky water.

Cheeses would be a good import for Australia, I remember getting Shropshire Blue on a trip back there and it was good. I lived in Shropshire, milking cattle and had never heard of Shropshire Blue, but then I never tasted a real steak until I came here, even though we fattened beef on the farm. Too expensive for us to buy.

I think one of the sticking points for selling Aussie beef in the UK is the fact that an awful lot of it is lot fed and that is not top quality.

Wheat would be a good buy for the poms as they cannot grow good hard wheat for breadmaking there.

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Jerry, here's two of our local (W.A.) olive oil producers. I'm not sure how much oil they have available to export, the local demand is huge, despite local olive oil being dearer than European imports.

Most consumers here are quite wary of European olive oils, as they're well known for lower quality, possible adulteration, some oil operations controlled by criminals, and varieties that are not necessarily good, due to the age of the varieties.

The olive oil industry here has the advantage of being young, and being able to choose the best varieties for flavour and yield. Plus our climate and soils over wide areas seem to suit olive growing.

 

https://www.sumich.com/

 

https://www.yorkoliveoil.com.au/

 

If you're interested in citrus importation, our local orange/mandarin producer grows the best citrus fruits you will find in Australia - better than Riverina/South Australian oranges. 

Moora Citrus were selling over 60% of their produce to China, until the Chinese got narky towards trade with Australia, and cancelled a lot of the Moora citrus orders, leading to a current local oversupply.

I'll wager they would jump at the chance to sell oranges to the U.K., to make up for lost Chinese sales. There's a link on their website whereby you can initiate export inquiries.

 

https://mooracitrus.com.au/

 

Edited by onetrack
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Thanks, OT. I took a look at Sumich, and it appears to be pitched more at the bulk consumer goods end of the market, which is perfectly fine, but, the concerns of the European oils here are not the same as at home. Although their olive leaf extract is interesting. York oils is where I am thinking of in terms of market positioning... and I like the name given it is the name of a famous city in the UK..

 

Over here, Spain is the main supplier of oranges, with Portugal, and a few other nearer countries. The US gets a look in, too, but they mainly export their juices - Tropicana probably has a good 10% of the local market - in addition a lot of the supermarket home brand fresh OJ is US exported.

 

The concern for me would be logistics.. I have done wine shipping to the UK from Aus.. and I can't see Olive Oil being too much different, but fresh produce is not something I understand, and given we are almost exactly the opposite side of the world makes it interesting. Of course, at the right price, anything is do-able!

 

 

 

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About 15 years ago I read an article about olive leaf extract in an industry magazine. It said that oil leaf extract was invented at that time by an Australian oil producer who was unprofitable and looked at the mountains of prunings he produced each year. He decided there must by a product he could make from the branches and leaves. He was able to extract something which he then tested to find out whether it was poisonous or harmful, then thought about what benefits could be claimed for it. As far as I know, no benefits have been demonstrated but it has been a marketing success.  Like so many alt health products on the chemist shop shelves.

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They are still some things to sort out and I did wonder how the Brits would assimilate a tougher set of regulations in their home meat industries against what is a looser regime in Aus (not as bad as the US, but not quite as stringent as Europe of which the UK regs are currently based).  https://www.abc.net.au/news/2021-06-11/british-australian-food-standard-differences-causing-angst/100205024

 

There is real concern here that BoJo's mob will loosen too far the regs to pursue free trade agreements to the detriment of consumer health. I am forever being told off by my kids about how much I say this is better in Aus, or that is better in Aus.. My daughter asked be yesterday what foods are better in Aus than the UK.. And, I  was almost stumped. Of course, the seafood is better, if you can get it or catch it. Then, it was the junk food things like F&C shops, the fast food chains, etc. But, even at the lower end of the supermarket chains, the food you get here is generally better than what I have last sampled in Aus. And to be honest, from what I saw even at Leos supermarkets, there was no competition with the top end supermarket chains here, which are within reach of all but the lower income workers - certainly the likes of tradespeople, etc, even though they may have to skimp on the caviar (OK - a little facetious, but you get the drift).

 

However, I didn't realise Aus exported meat to the EU.. But I should have because about 15 years ago, I was in a local restaurant and they had Aussie steak (fillet - or as we called it in Aus, Scotch Fillet - even though it was Aussie)... And a 200g chunk back then was going to set me back £50, which I think at the time was about $90 as the exchange rate was paltry (from the UK perspective). I couldn't justify it as the UK steak they had on offer was always pretty darned good.

 

My guess is there will be a lead in period for beef and lamb tariff reductions, or they may just say it has to meet certain requirements as does the EU in order to import it tariff free..

 

Be that as it may, I am very happy with the beef and lamb I get from the supermarkets.. I don't go for the cheapest which means I don't eat it as often as I would like.. maybe once every two weeks for a good fillet steak (although in winter, a Welsh leg of lamb would be min once a fortnight - my partner can make a couple of more meals out of it during the week for the 4 of us).

 

From a business perspective, fresh meat doesn't interest me that much for some reason unless I grow it myself. But that is a whole different ball game and not a good time to start - the Aussies are coming! 😉

 

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What I want to know is, does the FTA contain ISDS (investor-state dispute settlement) clauses?  

 

Apparently UK companies have used ISDS provisions 90 times.  The last thing we need is federal or state governments here not being able to protect heritage sites or take climate change abatement action because some company brings a dispute.

 

I really hope they've left them out.  Both UK and Australia are stable democracies with excellent court systems (well, unless you're Julian Assange) so there is absolutely no need to include dodgy ISDS provisions that were originally designed to protect countries from sovereign risk in third world countries.

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22 minutes ago, Marty_d said:

What I want to know is, does the FTA contain ISDS (investor-state dispute settlement) clauses?  

 

Apparently UK companies have used ISDS provisions 90 times.  The last thing we need is federal or state governments here not being able to protect heritage sites or take climate change abatement action because some company brings a dispute.

 

I really hope they've left them out.  Both UK and Australia are stable democracies with excellent court systems (well, unless you're Julian Assange) so there is absolutely no need to include dodgy ISDS provisions that were originally designed to protect countries from sovereign risk in third world countries.

Good point, Marty. The devil is in the detail that few have yet seen.

Although it pains to say much that is positive about John Howard, I believe he rejected a section of a trade agreement that would have allowed big foreign corporations to sue our government for doing anything that affected their profits.

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I was quite surprised to find that W.A. has a major carrot export industry! We're pretty good at growing carrots, and the world apparently loves them. Our local carrots are very tasty, and they're cheap, too - a $1 a kg, most of the time.

 

Sumich is the major carrot grower here in W.A., and W.A. supplied 85% of the carrots exported. Australia exported 110,000 tones of carrots worth AU$100M last year! That's enough carrots to put a gleam in Bugs Bunny's eyes!

 

https://www.freshplaza.com/article/9329986/australian-carrot-exports-surge-to-be-worth-100m-during-pandemic/

 

 

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  • 2 weeks later...

If we look at the history of free trade agreements, Aus always gets screwed and free trade destroys local business, unless heavily subsidised as in many other countries. Our economy has been steady since interest rates have been on hold and low, rising interest rates only helps the banks and rich, as does free trade.

 

We have the best resources on the planet, yet our governments are determined to give it all away for almost free and then we import it all again as junk throw away commodities. To me this makes no sense whatsoever and if we established a stable sustainable economy instead of a boom and bust one, the country would have no need for free trade agreements with anyone. All free trade does, is push globalisation and profit growth agenda's.

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1 hour ago, Dax said:

, rising interest rates only helps the banks and rich,

 

It is a bit of a mixed picture regarding interest rates.   In the early 1980s we were saving up to buy a house.  Interest rates were high so our savings account yielded 10% yay!     But our home loan was 13% bummer!      Now we have taken an early self funded retirement and if I were to just put my money in the bank I would only be getting a pathetic 1%.    The upshot is high interest rates are better if you are saving or investing and bad if you want a loan.

 

It is a similar situation when it comes to the unemployment.    A low unemployment rate is great for workers, it means they can demand better wages and conditions.    For employers near full employment means you are in competition with other employers for the best employees.    It is likely to cost an employer more stop their workers looking for a better deal.

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I bought my first house when interest rates were increasing. I sold when they got to about 12% and built my next house.

Now my grandson has bought a house and interest rates are really low, but the low rates mean that buyers can afford to pay more. What happens when rates go up.

The banks foreclose, young people lose their homes. Then the banks dribble the homes back onto the market in a controlled way to control prices. Lovely. For the banks.

In Gladstone Qld, the market collapsed when the gas plant on Curtis Island was finished the construction phase. Hundreds of workers out of a job, many left town and the banks foreclosed on a lot of owners. They waited with empty houses all over the place and trickled them back onto the market. Prices now are nearly as high as they were in the building boom. Many young people have lost thousands and marriages have broken up. I have done OK as a bank shareholder.

The banks are Morrison mates and that is the way our government is handling the situation. make it dead easy for the young people to get into debt, so that they can be ripped off.

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The one difference to the past though is the price of houses.

 

When my father sold our house about 20km north of Hobart in 1985, he got about $55,000.  His salary then was $35,000, so the price of the house was a bit over 18 months salary.

When I bought my first house in 1999, I paid $72,000.  At the time I was earning around $36,000 so again, just on 2 years salary.

 

Now you pretty much can't buy a house for less than half a million, in fact that original house my dad sold recently went for 1.2 million.  I'm really worried that my kids won't be able to afford to move out (scary thought!)

Edited by Marty_d
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I saw the result of savage interest rate moves in the rural areas of W.A. in the early 1980's. Around 1979-1980, farming was going well, and farm prices in the W.A. Wheatbelt were climbing, thanks to good grain prices.

Farms that had been selling for $60-80 an acre ($150 - 200 Ha, approx) in the late 1970's, were skyrocketing to $200 an acre ($495 Ha).

As the standard saying went in the farming areas, "they aren't making it (farmland) anymore" - so, the ones who wanted to expand ,were quickly grabbing the neighbouring farms that became available.

 

Immediately, these farmers who bought the neighbouring or nearby properties, were already saddling themselves up with 3 times the level of debt they'd might have previously had, if they'd previously bought farmland at $60-80 acre.

Interest rates on these farm expansion purchase were at a manageable 7% to 8% in 1979-1980. But within 3 years, interest rates had skyrocketed. Those loans were now running at 16% to 18%!.

 

As a result, many of those farmers who expanded with pricey farmland additions around 1979-80, went broke, as they were not only facing 3 times the repayment amount - but the doubling of interest rates on the larger-sized loans was an absolute killer. It was a sobering lesson for many. 

I see the exact same thing happening with house purchases today. I have never seen interest rates as low as they have been, the last 3 or 4 years. If interest rates return to "normal levels", the amount of housing foreclosures will be horrendous.

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