The EU is currently Australia’s biggest trading partner. However, the block receives only 0.9 percent of its imports from Australia. But things are looking up for food and beverage export. In 2001-2 the EU imported more than AUD$1.8 billion worth of Australian produce, more than double the figure from five years ago.

As a market it’s big and getting bigger; the EU is constantly evolving and developing. Austrade believes that an expanded EU presents more positives than negatives for Australian exporters. Countries such as the Czech Republic, Slovenia and Hungary – due to enter the EU in 2004 – have larger GDPs than familiar Australian markets such as Thailand and Malaysia, and have average growth rates in excess of three percent.

Due to its diversity, size and trade arrangements, the EU can be a complex beast with which to do business (to assist, the Department of Foreign Affairs and Trade [DFAT] has produced Export EU: A Guide to the EU for Australian Business). Because of the EU’s quotas, subsidies and tariffs, meat, sugar, dairy, wheat (as well as other unprocessed commodities) have had difficulty penetrating the market. However, there are areas of strong growth, including wine exports.

In the wake of the 1994 Australia–EU Bilateral Wine Agreement, Australia’s wine exports to the EU have increased sixfold to a 2001-2 figure in excess of $1 billion. That’s 53 percent of our entire wine export market and makes wine our third largest EU commodity export (see page 26 for a full report). Other food exports – such as fish and seafood, grains, fruit and nuts, and some dairy products – have grown.

In May last year John Azarias, senior partner of Deloitte Touche Tohmatsu, was commissioned by Federal Trade Minister Mark Vaile to produce a report on how business links with Europe could be improved. In it he said Australian firms had new opportunities to do business more efficiently in the EU.

Mr Azarias said the introduction of the Euro had meant Australian companies dealt now with one foreign exchange risk instead of several. As a consequence currency risks and exchange costs were minimised and prices in different EU countries were more easily compared. He added that these and other fiscal policies had seen an increase in EU companies’ competitiveness and efficiency, and would consequently make it more difficult for Australian exporters to compete.

“The Australian firms likeliest to succeed in the more efficient Europe of the future will be those with a clear competitive advantage over European firms,” he said, “in terms of price, quality or ability to fill a niche [and] those which can link up with a European firm which has improved its competitiveness as a result of the introduction of the Euro.”

So where are the EU opportunities and who has the potential to snare them?

According to Austrade sources in Europe, there are diverse opportunities for Australian products:

• Horticulture: UK, Netherlands, France Belgium, Germany.
• Seafood: France, Italy, UK, Spain, Central Europe, Germany.
• Meat: Germany, France (game, offal), Portugal (game), Netherlands (providoring).
• Bulk commodities (i.e. oilseeds, legumes, sugar, honey, cereal grains): Germany, Spain, Italy, France.
• Processed foods and beverages: UK, Netherlands, France, Belgium, Germany.

In the UK, where up to 1,000 Australian companies have a direct presence, it’s expected Australia’s economic advantage will continue to assist fresh produce exporters. According to Mr Azarias niche food products should find growing markets in France and the Netherlands.

In France, the principle sectors for Australian exports are seafood, fruit and vegetables, game and processed foods. Health foods have opportunities in the Netherlands, and, as a consequence of BSE, Germany presents small opportunities for organic products.
Live and fresh exports to the EU have more than quadrupled in the past eight years, led by the UK market’s demand for premium fresh food – such as seafood and fruit – during the northern hemisphere’s winter supply gap. The UK and other discerning European markets have also shown a liking for our processed and gourmet food, with exports substantially increasing in the same period.

According to Austrade Europe the aforementioned is an area in which Australia should be able to achieve further growth: shipment costs are obviously decreased due to lower volumes (when compared to fresh exports). And European supermarkets’ “private labels” have also provided Australian exporters with a strong entry point in the EU market (see full report on page 48).

The Australian seafood industry has pinpointed the EU as one of its future priority markets. John Fitzgerald, AFFA’s market adviser and analyst for the fisheries Market and Access and Trade Program, said the EU has the world’s most formidable barriers for seafood trade.
“It can be a very difficult market to work in, but we’re optimistic that we’ll only get better in that market as demand for seafood products rises.”

According to ABARE, Australia exported $36 million worth of fish and seafood to the EU (the world’s largest seafood market) in 2001, approximately three percent of our export. This is made up mainly of prawns exported to Spain. However, Mr Fitzgerald sees potential for expansion of Australia’s fish exports to the EU.

“There’s likely to be increased demand for high quality seafood sourced from low risk producers and there’s a dwindling EU fish stock. They’ve had massive overfishing almost universally in Europe; their fleet is much too large to sustainably manage the stock. What’s happening is it’s hard to negotiate management plans across country borders.”

He added that changing consumer preferences in regard to protein sources were leading to an increased demand for seafood. In addition, he said there was also pressure from member countries to liberalise EU seafood markets, despite resistance from strong lobby groups in Denmark, Spain and Scotland (fishing accounts for more than 10 percent of employment in these countries).

However, as Mr Fitzgerald mentioned, the EU is a tough market for seafood exports. He said Australia was hamstrung by minimum prices, high tariffs, stringent health conditions, logistics, preferential treatment in regard to tariffs for less developed countries and the general non-price competitiveness of the market.

The barriers faced by the seafood industry are repeated for numerous Australian food industry exporters; our export performance remains adversely affected by the EU’s Common Agricultural Policy (CAP) and its resultant barriers and distortion of the international market.

The Cairns Group represents Australia’s interests at the upcoming Doha Round of WTO negotiations. In a statement released late last year, Peter Corish, National Farmers’ Federation (NFF) president and chair of the Cairns Group Farm Leaders, said unless there was agreement on “substantial liberalisation of agricultural trade there should be no agreement on anything else”.

European farmers receive massive annual subsidies which place large costs on Australian agricultural producers. Mr Corish also criticised the EU for its sluggishness in putting its proposals on the table and for its demand that any concessions it might make in agricultural support must be reciprocated by concessions in the area of non-trade concerns.

Australia is the largest beef exporter in the world (in 2001, almost a billion tonnes ship weight) and the second largest exporter of sheepmeat (275,000 tonnes ship weight in 2001). However, stringent quotas meant that in 2001 the EU accounted for approximately six percent of our sheepmeat exports and one percent of our beef exports. Despite disincentives, Meat and Livestock Australia (MLA) is currently working on a fresh beef campaign in Denmark and exhibits at ANUGA Trade Fair in Germany (the largest food trade show in the world).

“One lives in hope,” said Peter Barnard, general manager (marketing services) with MLA “We trust that as a result of the Doha round there will be increased access to the EU market. We have an office in Frankfurt and we’re keen to expand our exports into the EU market.”

He added that tariffs and quotas were not the only barrier for Australian beef and sheepmeat.

“It is a more difficult market to service than most because of the regulations that apply to it. The beef has to have whole of life traceability right down to individual animals, and not only do processing plants have to be registered with the EU, but so to do supplying properties.”

Quotas and subsidies also work against Australian dairy exports. Australia has an annual quota of 3,250 tonnes of cheddar as well as an extra 20-30 tonnes of cheeses for processing (allowed after the WTO’s Uruguay round of trade negotiations). Australia has very small quotas for butter and skim milk powder, but cannot export any milk or whole milk powder into the EU.

“It’s obviously an attractive commercial market, but it’s the accessibility that has a big impact on how much effort companies put into commercially moving product into it,” said Chris Phillips, the Australian Dairy Corporation’s (ADC’s) international trade development general manager. “There’s no other driver for improvement in access other than what will come out of the Doha round of negotiations.”

Mr Phillips said the EU doesn’t understand the common interest it shares with the US, Australia and other Cairns Group nations in terms of the world price of dairy products.

“We’ve said to them while you operate the way you do with subsidies you can’t compete in the world market. If you remove your subsidies and push for some meaningful market access in other markets you’ll see the world price of dairy products move a lot closer to the prevailing internal EU price, and you’ll be able to trade without subsidies.”

March 31 is the deadline for countries to have their Doha Round proposals on the WTO table. Australia is pushing for nations to reduce industry support (subsidies) and to eliminate some tariffs. A DFAT spokesperson said the EU’s proposal, tabled late last year, was in keeping with the protectionist position put forward at the Uruguay round.

The Cairns Group has the EU’s CAP, the mechanism that delivers subsidies to European farmers, squarely in its sights. Late last year Cairns Group members presented a proposal on market access to the WTO’s Special Session of the Committee on Agriculture. It’s aim was to deliver substantial new market access opportunities by reducing all developed country tariffs (some of which are currently several hundred percent) to 25
percent or lower.

The plan also proposed to substantially expand developed country’s tariff quota access by adding 20 percent of domestic consumption. In addition, the Cairns Group proposal hoped to improve tariff quota administration to ensure existing and new market access opportunities could be fully applied. However, a DFAT spokesperson said at the time of writing that the EU was still mooting “average cuts”. The WTO Committee on Agriculture’s overview paper, released late last year, also outlined continuing differences of opinion among member countries on the tariff issue.

In addition to tariff, subsidy and quota barriers there are numerous other trade issues unique to the EU with which Australian exporters must contend.

One of the key issues Austrade officials are seeing is a Europe-wide adoption of the “Western European lifestyle” and an increase in affluence amongst young people. Food and drinking habits are changing (for example in Poland there is a shift away from vodka) and new opportunities are arising as a result. In addition, large European supermarket chains are moving deeper into “accession” countries (those on the verge of joining the EU) making available to consumers in those countries a greater variety of food than that to which they’ve been accustomed.

Food safety (as MLA and AFFA officials pointed out earlier) is a major issue in the EU. The EU has Europe-wide legislation that covers production, ingredients and marketing. While debate continues about the creation of an EU food safety organisation, each member country has its own agency which covers the entire supply chain.

Austrade officials said the standards European retailers and food producers require often outstrip the legislation in force. As a result there’s a trust relationship: on food safety, consumers trust retailers and retailers trust suppliers.

Suppliers must therefore provide “traceability” for every ingredient and for each step in the process. However, on the upside, EU standards are considered to be the world’s benchmark; exporters aware of EU needs are well placed to deal with future requirements in any part of the globe.

Large supermarket chains in the EU often have safety requirements even more stringent than the normal EU standards. However, as Austrade officials pointed out, being a supplier to a major retail chain in the EU provides opportunities to access the same supermarket channels into Asia.

Each EU member country also has stringent recycling requirements. The UK, like many EU nations, is pushing more responsibility onto the producer to make sure materials are both recyclable and reusable. A DFAT spokesperson also said Australian food exporters should keep track of a mooted new EU policy on chemicals which all member countries will have to take on board.

So what of the future for Australia’s exports to the EU? Clearly, changes to quotas, subsidies and tariffs are fundamental to Australia’s ability to be a major player in a future expanded EU. This makes the Doha Round of WTO trade negotiations central to Australia’s EU prospects.

On the macro trade level, DFAT points out that while the EU is a regional block, powerful member states like the UK, France and Germany wield the influence that would be expected of such high level economies. Spokespeople say the EU’s permutations make it complex to relate to: no one can accurately say in what direction the EU may move next. For its part, Austrade Europe says it will conduct specific in-market research for companies in order to assess which EU markets will best suit them.

The growing EU market is impossible for Australia to ignore.
But so too are the challenges associated with penetrating it. However, wine’s success, albeit via a bilateral agreement, shows that circumstances can change. Huge and seemingly impregnable markets can open up, and industries and companies must lay their EU export foundations to take up opportunities as they emerge.