Australian farmers cultivate markets with China’s tariffs

Australia’s barley farmers were China’s first target in a trade dispute that has since spread to commodities, including coal, wine and rockfish. China was angry over Australian Prime Minister Scott Morrison’s call for an international inquiry into the first outbreak of Covid-19 in central China, seen by a foreign government.

The trade dispute has cost the country’s barley farmers, who previously exported up to 70% of their crops to China. Yet the industry has mostly withstood the tariff impact, with barley exports increasing and very few bankruptcies, showing that trade pressure has limitations on certain industries. Many of the tactics they use to survive are now being copied by other exporters, such as Australian winemakers and salmon farmers.

Total barley exports are expected to increase by 64% in the twelve months to October 2021. Traders have been chasing sales in other major markets, such as the Middle East, though this has led to a painful trade-off: consumers in the Middle East mostly use barley for animal feed, not to make beer, and usually pay less.

Farmers are also switching from barley to crops such as wheat, which China does not dominate. They sought a joint response, as through Australia’s challenge to support the World Trade Organization’s tariff tariff, to prevent divisions that China could exploit.

Australian barley exports to China were worth about $ 1 billion annually before Beijing claimed that farmers were subsidized to sell at unfairly low prices and set the 80.5% tariff, according to analytics firm IHS Markit..

Many farmers have poured profits into the development of barley varieties sought by Chinese maltsters and brewers.

Other industries also expanded by feeding China’s industrialization and its increasingly prosperous middle class. China buys about 80% of Australia’s iron ore, and it was the best customer for Australian wine, beef and lumber before trade tensions increased. Australia was a popular destination for Chinese tourists and students before the pandemic closed its borders.

A decade ago, China accounted for less than a quarter of Australia’s exports. China’s share is now around 40%. The pandemic has increased dependence on Australia as China’s recovery has outperformed other major economies.

Australia is not alone in its dependence on China. In 2001, when China joined the World Trade Organization, more than 80% of countries with publicly available data recorded more trade with the US than China, according to the Lowy Institute of Australia, a think tank for foreign affairs. By 2018, two-thirds of the countries traded with China more than the US

Beijing is increasingly using the increasing economic leverage as a lever to achieve its foreign policy objectives. Over the past decade, China has used so-called coercive diplomacy 152 times, affecting 27 countries as well as the European Union, according to a report by the Australian Strategic Policy Institute, a government-backed government, in August. It is said that 113 of the cases have occurred since the beginning of 2018.

“Current trade disruptions with China, whether related to meat, barley, lobster or timber, are not isolated incidents,” said Rex Patrick, a lawmaker in the main house, who is not in line with Australia’s mainstream parties. “It is rather a deliberate pattern of sanctions with the Chinese communist government that puts politics before fair trade.”

Australia has been hit hardest by China’s coercive diplomacy, ASPI said. Before the request of mr. Morrison to investigate the origins of the pandemic, Australian Chinese telecommunications company Huawei Technologies Co. and ZTE banned. Corp.

from its next-generation 5G mobile network, while also criminalizing foreign interference with domestic policies that many viewed as China-targeted.

As trade ties weakened, China criticized Australia for raising barriers to trade. “Since 2016, the Australian Government has launched 25 anti-dumping and anti-subsidy investigations against Chinese products,” a spokesman for the Chinese Embassy in Australia said in December.

Beijing has fulfilled its obligations under a free trade agreement with Australia, the spokesman added.

How the Australian barley industry can withstand the setback of Beijing could provide lessons to countries that anger China and are hit with punitive tariffs. Farmers like Mr. Sattler made a profit, but was able to grow other buyers for their barley before switching to other crops.

” A friend of mine said that if you were sitting on the front porch, you would hear 3950 augers transferring barley to wheat ” the day the tariff was announced, ” he said. Sattler, 52, a fourth-generation farmer, said.

Mr. Sattler will halve its barley program this year, though he cites crop rotation as well as soft prices for the change.

South Australian producer Andrew Barr plans to reduce barley’s share in the farm he inherited from his father to 20%, from about one-third last year. This is the least space allocated to the grain during its 20 years on the farm.

Another tactic used by the barley industry in Australia was to cultivate markets from the Middle East to Japan and Southeast Asia, and even as far as Mexico, which reduced the vulnerability to future trading levels, even if the tariff of China lifted. Trader project Saudi Arabia becomes the largest market in Australia this year.

“We like to sell to them, and that brought us out of jail this season,” he said. Barr said. “But that’s not what I hope is the long-term solution.”

Mr. Barr wants the industry to explore malts in Korea, Japan, Vietnam, Thailand and India. These markets pay a premium for high quality barley and are closer to the Middle East, which means freight costs will be lower.

There are already signs that other industries are copying such movements. Treasury Wine Estates Ltd.

, which faces 169% Chinese import tariffs on wine, plans to ship wines assigned to China to other Asian countries as well as the US and Europe. The company will also increase marketing in those places.

“We immediately called the barley guys to talk to them about their experiences, get their advice on how to deal with it and the approach to follow,” said Tony Battaglene, CEO of Australian Grape & Wine Inc. , an association. of grape growers and wine producers, says the Chinese tariff on Australian wine.

Even industries that have so far been spared by Chinese restrictions are responding to it. Huon Aquaculture Group Ltd.

, an Australian fish farmer, decided early last year to send salmon to the US earmarked for China and said it would reduce more sales to China to diversify the market.

These strategic shifts will not be easy or fast, as exporters are experiencing strong competition, and not all businesses can accept an identical playbook. Farmers can switch crops relatively easily.

Australia began consulting with China on 28 January, the first step in WTO settlement procedures. Trade Minister Dan Tehan said Canberra was considering the next steps, including whether a WTO panel should decide.

For Australia, a commodity like barley is a fragment of its economy. “It’s big for a barley farmer,” said Shane Oliver, chief economist at AMP Capital, about the tariff. “But it was not a disaster for Australia.”

So far, markets through China account for only about 1% of Australia’s gross domestic product, he said.

For many, reordering markets away from China has long been in arrears, even with short-term exporters.

John Blaxland, a professor of international security and intelligence studies at the Australian National University, said Australia’s trade relations with China had reached a turning point reminiscent of the British decision in the 1970s to join the European Union. At the time, Australia was forced to reorient its trade efforts away from Britain.

“We have increased the biggest price in the last two decades: China,” said prof. Blaxland said. “In doing so, we overlooked opportunities closer to home.”

Write to Rhiannon Hoyle by [email protected]