Domestic subsidies on dairy products became an issue between Australia and New Zealand in the early eighties when these countries began discussing a new free—trade agreement. Subsidies alter the production and marketing efficiency in their dairy industries and affect the degree to which Australia's and New Zealand's dairy industries compete in each other's domestic and international markets. The Australian dairy industry is more heavily subsidized than New Zealand's. Removing the subsidies in both countries would favor New Zealand's competitive position in Australia's domestic and international markets.