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Australia’s agriculture exports to China: In numbers

A trade dispute between China and Australia emerged in 2020, with the latter on the receiving end of threats of import suspensions and tariffs. A report from Rural Bank shows the extent to which each commodity could be affected.

The trade dispute between Australia and China shows little sign of easing with beef, barley, wheat and lobsters all being hit in one way or another so far in 2020.

Although there has been no official statement from the Chinese government, rumors have been circulated that a complete import ban on Australian wine, lobsters, sugar, barley, coal and timber could be on the cards before the end of the year.

Australia’s Rural Bank conducted analysis of the country’s trade with China. The bank found that barley, rock lobsters and wine would be the most severely impacted, but many other products have significant exposure with many sending a third of their exports by value and/or volume to the country.

Rural Bank estimated the annual value of Australian agricultural exports to China averaged A$12.1 billion ($8.87 billion; €7.47 billion) over the past five financial years. This accounted for 25.4 per cent of the average annual value of Australian agricultural exports of A$47.5 billion during that period. Exports to China during this time experienced a compound annual growth rate of 10.2 percent, the highest of all Australia’s export markets and far above the CAGR of 2.1 percent to all markets.

Crops

Barley and wheat are Australia’s two main crop exports to China, but barley is far more exposed with China accounting for 66 percent of exports by both value and volume. In contrast, China accounts for just 6 percent of Australia’s wheat exports.

China has been the biggest source of demand for Australian barley, taking approximately 70 percent of exports over the past five years, fueled by the need for feed barley for China’s pig herd. African Swine Fever’s decimation of the herd over the past two years has reduced this demand, meaning the focus switched to malt barley.

Saudi Arabia and Japan previously purchased similar amounts of Australian barley to China, but the increase in demand from the latter meant Australian exporters struggled to price themselves into the Saudi market. Exports there have fallen to around 5 percent of the total as a result, but there is optimism these markets could begin to buy more Australian barley again.

Exports to China have been severely disrupted since the implementation of an 80.5 percent tariff in May, following an anti-dumping investigation that dated back to 2018. In addition, China suspended all imports from CBH Group in September following claims of excessive weed seeds, denied by CBH. Exports to China have thus fallen to around 20 percent of the total, to approximately 165,000 tonnes.

China was the most valuable market for Australian wheat in 2019-20 but has historically sat at around the fifth-largest export market. The country has said it will carry out “enhanced inspections” on the crop, increasing uncertainty.

Wheat prices are expected to soften as a result, albeit from a high base, and lower prices may allow Australian exporters to be more competitive in alternative markets.

Horticulture

China is Australia’s most significant market for both fruit and nut producers, with total exports rising by 20.5 percent in 2019-20 to reach almost A$1 billion.

China’s share of total nut exports has grown from 6.9 percent in 2015-16 to almost 48 percent in 2019-20. Almonds, shown on the graph, made up more than 70 percent of Australia’s nut exports last year, with China purchasing 21 percent of the total.

Australia has been a beneficiary of the US-China trade war in this area, with China having to find an alternative supplier for almonds after placing tariffs on US imports, as well as increased demand from the growing Chinese middle class.

Fruit exports to China are expected to continue increasing without the imposition of restrictions, thanks to tariffs on citrus fruit being eliminated in 2023 under the China-Australia Free Trade Agreement and continuing increases in demand.

Rural Bank found that any suspension of fruit and nut imports by China would “likely lead to a sustained fall in both domestic and export prices” which, coupled with impacts on export profitability due to increased airfreight costs, could make perishable commodities less viable. Nut producers would be hit harder than fruit producers due to their greater reliance on the Chinese market.

Animal protein and dairy

China has been an important export market for Australian red meat and demand has helped keep commodity prices high. Should China suspend imports, prices would be expected to correct to 10-year average levels. This could severely impact producers who have restocked herds at high prices this year following the drought.

The country is also the largest export market for dairy products and any suspension would have severe impacts due to the large amounts of milk powder exported to China. Australia does have a more diversified market for dairy exports, though, so this could go some way to mitigating the impacts.

Rock lobsters are one of the most exposed commodities to China, with the country accounting for 93 percent of exports in 2019-20. This has risen sharply from a low base in the past five years. This sheer volume means any suspension could be “devastating” to the industry, Rural Bank said.

Wine and wool

Wine and wool are two of the products with the highest reliance on China.

Last year, wine exports to China of A$1.1 billion represented 37 percent of the country’s exports, while 77.4 percent of wool exports went to the country.

Wool has not been seriously threatened by import restrictions yet, but prices have already fallen due to covid-19 hitting demand for high-quality woolen clothing. As China is so reliant on Australian wool, it seems unlikely any restrictions would be put in place.

Wine is a different story, though, having become subject to a Chinese anti-dumping investigation. Alternative export markets would not have the scale to replace Chinese demand and there would be a “significant impact” on the industry, Rural Bank said.

Private equity firms have begun to acquire wine companies in recent years, including Carlyle Group’s purchase of Accolade Wines.