China trade tension to hit Australian beef and wool exports
Australian beef exports into China are set to face increasing competition, while wool producers are being urged to minimise their reliance on Chinese demand, as trade tensions with Beijing continue to shape Australia’s agriculture industry.
The trade warning, which was extended to industries that heavily rely on Chinese demand, including wool, as well as to producers who have already been hit with tariffs, including barley, was issued by the Rural Bank in its Australian agriculture midyear outlook on Monday.
However, the report notes that despite ongoing tensions with China and Covid-19-induced uncertainty, Australia’s agriculture industry is set to perform well in 2020, in part thanks to recent rainfall over drought-stricken areas.
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The agricultural outlook comes after Australian Bureau of Statistics data released last week showed the value of thermal coal exports to China fell by 25%, or $95m, in the month of May. The drop followed a Chinese government directive given to five major state-owned utilities in the middle of the month to avoid Australian product.
Later reports suggested thermal coal mines in Australia have been temporarily shutting down as a result of a drop-off in demand caused by Beijing’s directive, with Australian mining jobs also plummeting to a two-year low in May.
Tensions with China escalated as Australia pushed for an inquiry into China’s initial handling of the Covid-19 outbreak, with the trade minister, Simon Birmingham, complaining his Chinese counterpart would not answer his calls in May.
Since then, China has issued a warning to its citizens, and lucrative international student market, not to travel to Australia out of fears of racism. Last week, Chinese foreign ministry spokesman Zhao Lijian accused Australia of mass espionage and of “stoking confrontation”.
The Rural Bank notes China’s introduction of an effective 80% tariff on barley imports from Australia – worth $600m a year previously – has effectively “priced out Australian barley ... from its most important market”, and that shifting to alternative markets such as Saudi Arabia and Japan will result in lower prices for farmers.
Despite the Chinese ban on the importation of beef from four Australian abattoirs over alleged compliance issues in May, the Rural Bank chief operating officer, Will Rayner, told the Guardian he believes demand for Australian beef will be strong for the rest of 2020 due to a 20m tonne gap in China’s pork production – the result of African Swine Fever.
His comments come after the effective tariff of Australian beef imports to China rose to 12% at the end of June, the rate it will remain at for the rest of 2020, after exports hit the 179,000 tonnes quota earlier than in previous years.
However, meat analyst Simon Quilty told the Guardian that exporting beef into China had been “hard work” so far in 2020, and that now the prices had risen for importers who “simply don’t have the money” to pay more for Australian beef, he expected beef sales to China to fall.
Quilty noted Department of Agriculture figures showing that while 27% of Australian beef exports went to China in January, the figure has fallen to 18% in June.
“To Chinese importers, we’re on equal footing with Brazil and Argentina in terms of the 12% tariff, but their product is cheaper,” Quilty said, also noting the South American countries’ currencies made them a more attractive market for the second half of 2020 for Chinese beef imports.
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The Rural Bank also notes that Australian wool, an industry which has a roughly 75% export reliance on China, faces difficulty after a Covid-19 induced drop in consumer clothing demand and production, as well as tensions with China.
“With the Australian market so exposed to China, and the cost of processing increasing as the Chinese economy grows, Australia could begin to move some demand to other emerging export markets,” the midyear outlook said.
According to the Department of Agriculture, Australian producers exported about $3.16bn in unprocessed or “greasy” wool to China in 2018-19, which represents an even larger value and industry reliance on China than barley.
Despite tensions with China and Covid-19 changing global demand for Australian agricultural goods, Rayner told the Guardian he is taking a “glass half-full” view of the instability, and that supermarket shortages Australians were exposed to will lead to a greater appreciation of domestic food.
“Empty shelves have highlighted the importance of agriculture and farming in Australia. People have gotten closer to the producers of their food, and there has been a heightened awareness of where your food is coming from, and the safety of the supply, which is a great thing.”
Rayner said despite trade barriers with China factoring into Rural Bank’s analysis this year, it was ultimately a better problem to have than previous years of drought.
“If it doesn’t rain, you don’t have anything to export, so trade barriers aren’t even a concern ... so there’s an underlying positivity after the rains on the eastern seaboard.”
