Federation of Australia Inc. (MMFA),Australian Dairy Corporation (ADC) and Dairy Research Development Corporation (DRDC). These organisations are expected among other things to disseminate market information and coordinate production and market activities. For example, some of the major objectives of the ADC are to improve the domestic market for dairy pioducts; to provide technical and product advice to emerging markets; to undertake a range of export promotion activities in overseas markets;and international promotion focused on growing Asian markets such as Japan, Hong Kong, China, Vietnam, Singapore, etc. (ADIC,1996). The farm gate pricing and domestic milk support schemes are discussed below. (i)Farm Gate Pricing
The government does not have formal control over the prices processors pay to farmers Producing milk used in manufacturing products. The manufacturing milk prices are based on both milk fat and protein, and payment to farmers by processors also depends on the quality, volumes and seasonal incentives. High prices are offered to farmers by factories to encourage them to maintain production during the dry period.
Most manufacturers offer different prices as their profits are affected by factors such as product mix, marketing strategies and processing efficiencies (NSWA, 1996-97). Consequently, farm gate prices paid for manufacturing milk are lower than the prices paid for market milk . (ii)Domestic Milk Support Scheme
Prior to July 1, 1995, the marketing of manufactured dairy products were funded by a levy on all Australian milk production under the Market Support Scheme (Crean Plan). The scheme raised domestic farm gate prices for manufacturing milk above international prices by about 2 cents a litre. However, following the Uruguay Round agreement on manufactured dairy products, Australia introduced a scheme known as 'Domestic Market Support Scheme (DMS)' on July 1, 1995. The new scheme that is administered by the Australian Dairy Corporation imposes compulsory levies both on market milk and manufacturing milk for sales on the domestic market. In 1997-98, the rates of these levies were about 1.9 and 3.8 cents per litre,respectively (ADC, 1997). The funds raised by these levies are targeted to make domestic support payment to farmers who produce manufacturing milk. This scheme provides incentives to farmers to increase production of milk used in dairy products for export markets. However,this extended market arrangement will cease at the end of June 2000,and like many other industries,
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the dairy industry will receive Commonwealth assistance estimated at 5 per cent in tariff terms after June 2000. In 1995/96, this implicit export subsidy increased gross returns on manufacturing milk by about 7 per cent (Industry Commission, 1997). This has made exporting dairy products more attractive and has encouraged milk producers to use most of the resources in the production of dairying.
However, it is predicted that the removal of this export support will reduce milk production by 6 per cent and the volume of exports by 20 per cent as producers will concentrate on the domestic markets. This will have a short term effect of reducing manufacturing milk producers' incomes, and may also encourage producers to move some resources into alternative enterprises in the long run. Consequently, this is likely to reduce production of manufactured dairy products for export markets with effect from the end of June 2000. However, given the available resources necessary to increase the volume of production, with efficient use of resources without government intervention and export promotion undertaken by ADC and DRDC, Australian dairy producers will still have the incentives to focus on both export and domestic markets. Optimal allocation of resources is also likely to increase dairy production, while domestic prices will decline, as the exportable surplus will be directed to domestic markets (ABARE, 1991a). III.AUSTRALIAN DAIRY PRODUCTS EXPORTS AND CHALLENGING ISSUES
In Australia, milk production is subject to seasonal influences, but production and exports of dairy products have recorded an average increase of about 8.8 per cent and 12.9 per cent between 1988 and 1997. The export price, which includes export freight,insurance, export commission and handling charges, is very attractive compared to the domestic wholesale prices. This partly acts as an incentive for producers to direct a large percentage of their dairy products to export markets and Australian dairy products to be less competitive on domestic markets.
Australia is considered as a relatively non-subsidized exporter compared to EU and the USA, and Australia has to compete with countries, which have considerable domestic dairy industry support and guaranteed price for manufactured products. Australia is being excluded by the impact of these export subsidy programs of the major competitors to have access to world markets. As specified in the Uruguay Round Outcome (GAW, the agreement (reduction in export subsidies and use of tariffs as trade barriers)is being implemented over a five year period with effect from 1995.However, the short run effect from the termination of the domestic support
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scheme and the limited access that Australia will have to overseas markets until the Uruguay agreement is fully implemented, will have negative impacts on the exports of Australian dairy products.
Cheese, skim milk powder and whole milk powder are the major components of exports of Australian dairy products and account for 22, 33 and 17 per cent of the total exports. Australian exports have continued to grow and accounted for about 67 per cent of total production of dairy products in 1997. However, Australia still has the potential to increase the volume of dairy production,which can be achieved by improved feed, breeding and farm management practices. But Australia will have to give priority to export development to sell the additional supply of dairy products to emerging markets in Asia, Middle East, Africa and the Americas.
In 1997, major importers of Australian dairy products (mainly skim milk powder, cheese and whole milk powder) were Japan, Malaysia, the Philippines, Thailand and Singapore, and their market shares accounted for about 41 per cent of Australia's total exports of dairy products. Japan and the Philippines are the major importers of Australian cheese and skim milk powder, respectively. In 1997, Japan's imports of cheese accounted for about 47 per cent of Australia's total exports of cheese, and the Philippines's imports of skim milk powder accounted for about 34.4 per cent of ~ustralia's total exports of skim milk powder (ABARE, 1997). The total volume of exports and total real value of dairy products have increased by 21 per cent and 3.5 per cent, respectively in 1997 compared to 1996. The world dairy production also increased by about 2 per cent over the same period. This partly affected the Australian export prices and the increase in the value of exports is substantially lower compared to the volume of exports .
Asia is the leading export market for Australian dairy products.However, it is anticipated that there are considerable hurdles-to maintain sales on export markets in the region. Most of the Asian nations are experiencing slow economic growth due to the recent financial crisis and political instability in some parts of the region.
Australia imports dairy products (mainly cheese) to meet the increasing domestic consumption as most of the country's dairy products are exported due to the relative attractiveness of exporting to domestic sales.The total domestic consumption of dairy products fluctuated throughout the 1990s but has shown an upward trend in recent years. Thus, the volume of dairy products sales on the domestic market had also fluctuated during the same period but
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increased on average by about 2 per cent between 1988 and 1997. Similarly, the consumption per person of dairy products has been fluctuating since 1989 but has increased on average by 2.9 per cent over the same period.
Imports of dairy products increased on average by about 7.2 per cent, and exports of the same product recorded an average increase of about 12.8 per cent, between 1988 and 1997.Prices of imported dairy products are relatively lower compared with the prices of domestically processed dairy products. Imports of dairy products at lower prices have made the Australian processed dairy products less competitive on domestic markets. New Zealand is the major supplier of cheese to Australia. The closer Economic Relations agreement between New Zealand and Australia has made Australia's domestic markets more accessible to New Zealand's exportable surplus production of dairy products (ABARE, 1991b). Australia's production costs are similar to those in NZ, but dairy products imported from NZ are relatively cheaper compared to Australia's dairy products sold on domestic markets. Limited domestic market capacity and the inaccessibility of other overseas markets for NZ's exportable excess production, are some of the factors that made NZ's dairy products relatively cheaper on the Australian domestic market. Ⅳ.EXPORT MARKET OPPORTUNITIES FOR AUSTXALIAN DAIRY PRODUCTS
In 1997, Australian total real export value of dairy products was estimated at $1.3 billion and recorded an increase of about 3.5 per cent compared with 1996 . Australian exports of dairy products to S.E. Asia and other Asian countries accounted for about 44 and 25 per cent of their total imports of dairy products, respectively and about 69 per cent of Australia's total exports of dairy products in 1996. Japan, the Philippines, Malaysia, Singapore,Thailand and Taiwan are the major importers of Australia's dairy products, and their imports account for about 55 per cent of Australia's total exports (ABARE, 1997).
Japan, which is considered the number one Asian per capita consumer of dairy products, is the largest importer of dairy products in the Asian region. It is also the largest market for Australian dairy products and the major export market especially for Australian cheese. In 1996, its total imports of dairy products were estimated at 185.3 thousands tonnes, and about 48 per cent of its total imports was purchased from Australia .
Cheese accounted for about 22 per cent of Australia's total exports of dairy products in 1997, and exports to Japan accounted for about 48 per cent of Australia's total exports of cheese
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(ABARE, 1997). Under the Uruguay Round agreement on dairy products trade, Japan is committed to purchase a minimum of about 137,202 tonnes of dairy products.This provides greater export market opportunities for Australian dairy products in the Japanese market. This is based on the assumption that Japan would take action to reduce any existing trade barriers under the proposed Asian Pacific Economic Cooperation (APEC) free trade agreement and the Uruguay (GATT) commitment.
The bulk of Australia's dairy products are exported to the Asian countries, mainly due to Australia's geographical proximity to the region. The lower transportation costs have given Australia competitive advantage over other exporting countries. However, as a result of the recent financial crisis and political instability in some of the Asian countries, their economic growth is slowing down. Australia will need to give priority to export development to emerging markets in which it has competitive advantage. Australia has to diversify its export market base and focus on the markets in Africa, the Americas, Middle East, Europe, Russia, and the Pacific. The imports of dairy products of these countries accounted for about 12, 24, 11, 8 and 3 per cent of total world exports, respectively in 1996. Australia's exports of dairy products to these countries account for about 0.6, 0.9, 0.9, 0.6, 0.1 and 0.1 per cent of total world exp&, respectively during the same period.imports are also estimated at 20 per cent of the total consumption requirements. The preferential tariff agreement between China and Australia will remove the trade barriers for Australian dairy products exports to China (ADIC, 1996).
Australia's exports to China accounted for about 5 per cent of China's total dairy products imports in 1996. There is also a scope for greater export market opportunities for Australian dairy products in S. Korea. It is estimated that per capita consumption of dairy products will rise from 45 kg in 1991-92 to more than 63 kg in 2000 (ADIC, 1996). The country is expected to liberalise its trade barriers under the Uruguay Round arrangement. Australia's exports of dairy products to S. Korea account for about 0.02 per cent of Australia's total exports and 0.16 per cent of S. Korea's total imports . The geographical proximity and quality of Australian dairy products will provide better opportunities for Australian exporters to have large market shares in the Chinese and S. Korean markets.
Australian exports of dairy products to Europe mainly consist of cheese, and the Australian exports account for 5 per cent of Europe'stotal imports of cheese. However, after the
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