This is a very good example of barriers to trade – CIE AS Level Unit 4 and NCEA Level 2. There has been a lot of publicity about potatoes being imported from Holland and Belgium at a price below that of New Zealand farmers. Pw represents the price which dumped items are imported into a domestic economy which is below the domestic market price.
European farmers have traditionally been receiving subsidies from their governments which means they can drive down export prices. Dumping margins are currently between 95 to 151%.
(Domestic value − Export Price) ÷ Export Price x 100 = % Margin of Dumping
Domestic value: The normal value is generally the selling price of the good in the country where it was produced.
Export price: The export price is generally the exporter’s selling price reduced by any export charges that are included in the price, such as freight and insurance.
These margins are expected to increase with price undercutting for the NZ industry of between 18% and 38%.
The absence of a tariff will see NZ potato processors being forced to cut production and demand for potatoes from NZ growers would drop leading to higher unemployment in the industry. The imposition of an anti-dumping duty on dumped imports of frozen potato products, would help to maintain demand for New Zealand grown potatoes, and ensure the continuity of employment and business in the growing sector. A duty would mean that the potato growers would experience the same market conditions, including competition between themselves and fluctuations in market prices, as they did before the dumping occurred.
The value of exports of potatoes and potato products from New Zealand grew from $93 million in the year to March 2010 to $128 million in 2020; an increase of 38 percent. During the same period, the value of imports of these products increased from $47 million to $60 million; an increase of 28 percent.
Effects on consumers
It should be noted that there is no guarantee that the benefit of lower prices will be passed on to consumers. It is probable that any advantage of low prices to consumers will not endure. Dumping occurs because overseas producers have a glut of produce or a collapse in demand in their own markets, and both these conditions are unlikely to be sustained. Accordingly, a longer term consequence for consumers is that they could face higher prices if New Zealand based processors and growers are forced out of business by the dumping.
Effects on employment
At the national level, potato growing and processing is a relatively small industry, but it still directly and indirectly provides employment for almost 5,000 people. Potatoes are one of the few crops grown outside, produced in most regions of New Zealand and harvested all year round. The industry is therefore an important provider of widely distributed and stable employment.