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ZNR UUUUU ZZH
P 270648Z MAY 09
FM AMEMBASSY WELLINGTON
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INFO RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
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RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 02 WELLINGTON 000122 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/ANP AND EEB/TPP/ATP AMY WINTON; STATE PASS TO 
USTR BARBARA WEISEL 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD PREL NZ
SUBJECT: NEW ZEALAND'S FOREIGN MINISTER CRITICIZES US DAIRY 
SUBSIDY 
 
WELLINGTON 00000122  001.2 OF 002 
 
 
¶1.  (SBU)  In a lunch today with New Zealand Foreign 
Minister Murray McCully and Charge, the former opened the 
conversation by noting the New Zealand Government,s strong 
negative reaction to the recent dairy subsidy announcement 
by the USG.  McCully remarked that the decision by the EU 
and US to promote subsidies is an unhelpful step in the 
world economy ) not just for the dairy sector but also for 
United States credibility as a free market leader in the 
international arena.  With the world,s trade discussions 
hanging in the balance, now is the time for clear, 
long-term strategies rather than short-term policies that 
favor domestic constituents, said McCully.  New Zealand sees 
the United States as the key to moving the world forward on 
open markets and free trade; the dairy 
subsidy decision undermines USG credibility as a world 
leader, believes New Zealand.  McCully added that Trade 
Minister Tim Groser,s public comments on the issue were at 
the positive end of the spectrum of GNZ opinion ) a strong 
indication of the depth of rancor within the government 
over the USG decision. 
 
¶2.  (SBU)  In a separate lunch with Embassy Agriculture 
Attache, the President of Federated Farmers presented a 
letter for President Obama that begins: &On behalf of the 
thousands of New Zealand farmers who have farmed without 
subsidy since 1985, can I respectively ask why your 
administration has decided to punish New Zealand for the 
inefficiency of American Dairy farmers.8 (NOTE: Fed Farmers 
is the largest organization representing New Zealand farmers. 
END NOTE.) 
 
¶3. (SBU)The US Dairy Export Incentive Program (DEIP) has 
received significant media attention in New Zealand, both 
print and electronic, with all the press treatment highly 
critical of the U.S. decision.  New Zealand Trade Minister 
Groser has been interviewed by the press and the subject 
came up in Prime Minister John Key's weekly press 
conference.  Groser characterized DEIP as having 
"effectively destroyed the immensely difficult exercise" of 
getting the commitment to eliminate export subsidies as 
part of the WTO Doha trade talks.  Dairy Companies 
Association chairman Malcolm Cailey said DEIP showed 
"complete disregard" for that goal, and a "lousy signal" to 
the global trading system about US intentions.  PM Key said 
DEIP was "an unhelpful move" that flies in the face of USG 
statements arguing against protectionism.  GNZ officials 
also worry about possible retaliation from the European 
Union, which is a much larger exporter than the US and 
capable of larger subsidies.  The subject of subsidies and 
trade protectionism has appeared in op-ed columns, with the 
universal opinion being that subsidies undermine free 
trade. 
 
¶4.  (SBU)  Another theme in the press is the destabilizing 
impact of the USG subsidies on international dairy prices 
and the negative impact it will have on farm incomes and 
the overall New Zealand economy.  Dairy products account 
for approximately 25 percent of New Zealand's total 
merchandise exports and the dairy cooperative Fonterra is 
New Zealand's largest company.  If dairy prices fall, it 
reverberates throughout the entire economy.  NZ Federated 
Farmers have described the US return to dairy subsidies as 
a potential catastrophe for New Zealand, saying that, 
because of these subsidies, NZ will get less for its 
exports and be substantially poorer.  Unlike their US 
counterparts, NZ dairy producers are not subsidized and are 
more vulnerable to fluctuations in world prices. 
 
¶5.  (SUB)  Fonterra has also expressed concern about the 
U.S. decision, but their Managing Director for Global 
Trade, Kelvin Wickham, told the press that "the bigger 
issue for us is the exchange rate."  Fonterra is also 
surprised that the U.S. tok the decision on subsidies 
now.  From Fonterra's standpoint, the EU use of export 
subsidies was controlled and measured; Fonterra had hoped 
that the US would have waited until later in the year when 
 
WELLINGTON 00000122  002.2 OF 002 
 
 
the markets were more stable to implement any subsidies. 
Fonterra also believes that the subsidies will not help US 
dairy producers that much. 
 
6.(SBU)  COMMENT: Because agriculture and trade are so 
important 
to the New Zealand economy, these issues are often at the 
heart of the US-NZ bilateral relationship.  The issue of 
subsidies is unlikely to disappear anytime soon, 
particularly if world dairy prices start coming down. 
KEEGAN