Wed, Dec 06, 2023 page8

• Facing the duty-free milk challenge

  • By Gary Chen 陳冠瑜
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  In 2013, Taipei and Wellington signed the Agreement Between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Cooperation (ANZTEC). It was the first comprehensive trade agreement that Taiwan signed with a non-diplomatic ally, symbolizing the nation’s active participation in international economic cooperation.

  The agreement, comprising 25 chapters covering trade in goods, investment, government procurement, technical trade barriers, the environment, labor and more, outlines New Zealand’s commitment to reducing tariffs on 29 industrial products within four years of ANZTEC taking effect, while all other goods would see an immediate tariff reduction to zero.

  In response, Taiwan formulated a seven-tiered tariff reduction timetable based on product sensitivity, including immediate reduction, phased reduction and tariff quotas. Zero-tariff liquid milk from New Zealand is expected to enter Taiwan in 2025, which could significantly impact the domestic dairy manufacturing market.

  Taiwan’s dairy manufacturing industry includes fresh milk, flavored milk, ice cream and other dairy products, with fresh milk being the largest category. Due to Taiwan’s unfavorable weather and land conditions for dairy farming, coupled with its reliance on imported raw materials, production costs are relatively high.

  Last year, despite the gradual recovery of the food service market, factors such as inflation in Europe and the US and the Russia-Ukraine war led to a slight 0.69 percent growth in domestic milk sales. When ANZTEC goes into effect, the zero tariff on imported liquid milk from New Zealand is expected to give it a price advantage, resulting in an estimated 30 percent decline in sales of locally produced milk.

  Facing this challenge, Taiwanese dairy giants and farmers have enhanced the quality of fresh milk, introduced advanced technology and equipment, and diversified dairy product offerings. However, the potential price difference could intensify market competition, leading to the elimination of businesses with inferior quality.

  The government has formulated policies to support the development of local dairy products, including the drafting of a dairy industry white paper and the establishment of a special area for fresh milk from small farms with animal welfare certifications. It also plans to focus on product differentiation between domestic and imported dairy products to meet consumer expectations about milk quality.

  With the growth of the domestic coffee and beverage market and the implementation of zero tariffs on New Zealand milk in 2025, Taiwan’s dairy manufacturing industry is set to face intense external competition. Dairy companies and farmers must continuously innovate, enhance product quality, and differentiate themselves from imported dairy products to maintain a competitive edge in this challenging market landscape.

  Gary Chen is an associate research fellow in the Department of International Affairs at the Taiwan Institute of Economic Research.
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