Last week the Business Council of Australia released a report, Building Australia’s Comparative Advantage, which in turn built on another report, Compete to Prosper: Improving Australia’s global competitiveness, which they had commissioned from McKinsey Australia. I haven’t read either of them fully yet, and I’m not too sure whether I buy into the “let’s aggregate industries into globally competitive sectors” line taken in both of them, but in any event I also found this:
This is McKinsey’s estimate, in Aussie cents per kilogram, of New Zealand’s cost advantage over Australia in the international dairy trade. The total advantage in our favour is 55 cents per kg, which looks a sizeable amount in the context of (say) the dairy payout, and the largest part is down to our cost advantage in getting into the Chinese market duty-free as a result of our free trade agreement (FTA) with China.
You can also see the contribution of the FTA in the graph below, also from McKinsey, where after a short post-FTA lag, our dairy exports to China took off. Aussie dairy exports didn’t. For completeness, I should add that McKinsey also credit the relative vigour of our dairy industry deregulation (“Australia…deregulated but without anything approaching the intent and ambition across the Tasman”, p35), which I agree with, and also admire the creation of Fonterra (“New Zealand created a dairy industry structure that was designed to compete globally”, and Australia needs “purposeful market design”, p36), which I’m more ambivalent about, but there’s no denying a big payoff from our free trade approach.