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Outlook 2019: Australian Ag caught in US-China trade crossfire

Agriculture Down Under is an export-oriented industry, with around 25% going to China and a significant chunk also heading to the US, which means it faces being caught in the middle of tensions between the two superpowers.

The ongoing trade war between the US and China has chewed up a lot of column inches in the financial press over the past 12 months, as everyone scrambles to assess the impact on different sectors and regions.

Australian agriculture is an export-oriented industry, with around 25 percent of those exports going to China and a significant chunk to the US also.

As a result, Australian ag is in real danger of being caught in the middle of the dispute.

On the one hand, the disagreement may present opportunities for Australian producers, as China in particular could refocus its imports on countries that are closer to home and that it already has existing positive trading relationships with.

Chinese demand for agricultural produce is well-documented, so it’s a no-brainer that if prices are lower for Australian goods once tariffs on US goods are taken into account, an opportunity could develop to increase the export market.

On the other hand, though, with so much produce exported there is a huge amount of risk involved if the global rules-based system of trade is disrupted, potentially for the medium or long term. This is unlikely to be a good outcome for Australian farmers, especially if the net result is a global economic downturn.

There have been some positive signs in 2018, though, with Australia agreeing a new free trade agreement with Indonesia (although it has yet to be signed after Australia’s government indicated a desire to move its embassy in Israel to Jerusalem, much to Indonesia’s dismay). And Brexit, despite all the uncertainty, could present an opportunity to negotiate a new free-trade deal with the British, albeit not in the short term.

While the precise effects are still playing out and remain to be seen, 2019 will likely be a significant year should the dispute remain unresolved and uncertain.

The trick will be for Australian ag to take advantage and make the most of the opportunities where it can, while also keeping any negative effects at arm’s length. It will not be an easy tightrope to walk.