Fonterra's milk payout will get a boost as China gradually lifts its tariffs on New Zealand dairy products over 12 years following yesterday's signing of a free trade agreement.

Fonterra, which is due to revise its forecasted payout on Friday, is currently predicting a record $6.90 per kg of milksolids but economists expect the final figure to be closer to $7.30.

The dairy industry exports $250 to $300 million worth of milk powder, cheese, butter and ice cream to China each year.

Fonterra chairman Henry van der Heyden told the Waikato Times from Beijing yesterday the agreement would make things equal and would mean more cash for farmers.

Fonterra faced on average tariffs of 10-15 per cent on exports to China, with milk powder at the top end of the range. The tariffs would gradually be abolished over 12 years.

Exports of apples, seafood and most manufactured goods to China will be tariff-free by 2012. Kiwifruit tariffs, as well as those for beef and sheep meat, will go to zero by 2016, while tariffs on butter and cheese will disappear in 2017, and those on milk powders two years later.

James Reeves, Waikato manager of Meat and Wool NZ, said the deal could only be a good thing for farmers.

"The projection for red meat demand in China is very good so any preferential entry we get into China can only be of benefit. If we really want to get some benefits from it, it is going to be down to how well we can convince the Chinese consumer to buy our meat."

Waikato Federated Farmers president Stew Wadey said: "It can only be good for the dairy and meat industries. The only real issue is the time it will take to come to fruition."

Steve Tucker, deputy chief executive of the Gallagher Group in Hamilton, said anything that opened up trade between countries was positive.

"The release of trade barriers and duties will bring trade harmonisation ... it paves the way to make it easier."

Philip Gregan, chief executive officer of New Zealand Winegrowers Association, described the agreement as a significant boost for local growers. He said New Zealand's wine exports were small at about $4 million and the agreement would "absolutely" increase the amount of wine exported to China.

Employers and Manufacturers Association spokesman Bruce Goldsworthy said the five-year phase-out period on manufactured exports was better than what many members had been expecting.

The association encouraged exporters to act quickly to take advantage of New Zealand being the first developed country to sign a free trade deal with China.

"The trade advantage offered by the once in a generation window could last no more than a year," northern association chief executive Alasdair Thompson said. "Australia is likely to be amongst those hot on our heels."

New Zealand tariffs on most Chinese imports would reach zero by 2012 or 2013 while those on textiles, apparel, footwear and carpet would be phased out by 2014 or 2016. The gains for exporters from the agreement clearly outweighed reducing New Zealand tariffs, Mr Goldsworthy said.

"Apart from clothing and footwear New Zealand tariffs are currently only 7.5 per cent and soon to reduce to five per cent. So going from five per cent to zero over a five-year period is not a major concern."  See Deal may double exports, page 14.