Tightened by Chinese tariffs, Australian farmers are cultivating new markets

Australian barley farmers were China’s first target in a trade dispute that has since spread to commodities such as coal, wine and locusts. China was outraged by Australian Prime Minister Scott Morrison’s call for an international investigation into the first Covid-19 outbreak in central China, which he saw as an ingested foreign government.

The trade dispute has cost the country’s barley farmers, who had previously exported up to 70% of their harvest to China. However, the industry has mainly withstood the impact of tariffs, with an increase in barley exports and very few bankruptcies, which shows that trade pressure has limits in certain industries. Many of the tactics they use to survive are now copied by other exporters, such as Australian winemakers and salmon producers.

Total barley exports are expected to increase by 64% in the twelve months to October 2021. Traders have pursued sales in other large markets such as the Middle East, although this entails a painful compromise. : Middle Eastern consumers mainly use barley for livestock feed, not for making beer, and usually pay less.

Farmers also switch from barley to crops such as wheat, a trade that China does not dominate. They have sought a unified response, such as supporting Australia’s challenge of barley tariffs to the World Trade Organization, to avoid divisions that China could exploit.

Australian barley exports to China were worth about $ 1 billion a year before Beijing alleged that farmers were subsidized to sell at unfairly low prices and imposed an 80.5% tariff, according to analyst firm IHS Markit.

Many farmers had invested profits in the development of barley varieties sought after by Chinese malts and brewers.

Other industries have also expanded fueling Chinese industrialization and its increasingly affluent middle class. China buys about 80% of Australia’s iron ore and was the main customer of Australian wine, beef and timber before trade tensions rose. Australia was a popular destination for Chinese tourists and students before the pandemic closed national borders.

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

Australia is not the only one that depends 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 United States than China, according to the Lowy Institute, a foreign policy think tank. of Australia. In 2018, two-thirds of countries traded more with China than the US

Beijing has increasingly used this economic growth as a lever to achieve its foreign policy goals. Over the past decade, China has used so-called coercive diplomacy 152 times, affecting 27 countries and the European Union, according to an August report by the Australian Strategic Policy Institute, a government-backed security think tank. It was said that 113 of these cases had occurred since the beginning of 2018.

“The current trade disruptions with China, whether related to meat, barley, lobster or timber, are not isolated incidents,” said Rex Patrick, an upper house legislator who is not aligned with the major Australian parties. “Rather they are a deliberate pattern of punitive measures with the Chinese communist government putting politics ahead of fair trade.”

Australia has been hardest hit by China’s coercive diplomacy, ASPI said. Prior to Morrison’s call for an investigation into the origins of the pandemic, Australia had banned Chinese telecommunications companies Huawei Technologies Co. and ZTE Corp.

of its next generation of 5G mobile networks, while criminalizing foreign interference in domestic policies that many considered targeted at China.

As trade ties have worsened, China has 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 had fulfilled its obligations under a free trade agreement with Australia, the spokesman added.

How the Australian barley industry affects Beijing’s reaction could offer lessons to countries that anger China and are affected by punitive tariffs. Farmers like Mr. Sattler earned their profits, but were able to grow other buyers for their barley crop before switching to other crops.

“A colleague of mine said that if I was sitting on the front porch, I would have heard 3,950 barrels being transferred from barley to wheat” the day the rate was announced, said Sattler, 52, a fourth-generation farmer .

Sattler will cut the barley program in half this year, though he cites crop rotation and soft change prices.

South Australian producer Andrew Barr plans to reduce the farm’s barley share he inherited from his father to 20% by about a third last year. It will be the minimum space devoted to grain in its 20 years on the farm.

Another tactic employed by the Australian barley industry has been to cultivate markets from the Middle East to Japan and Southeast Asia, and even to Mexico, reducing its vulnerability to future commercial markets, to and all if the tariff on China is raised. The Saudi Arabian traders project will become Australia’s largest market this year.

“We’re thrilled to sell them, and this season has got us out of jail,” Barr said. “But it’s not what I hope will be the long-term solution.”

Mr Barr wants the industry to look for malt in Korea, Japan, Vietnam, Thailand and India. These markets pay a premium for high-quality barley and are closer than the Middle East, which means transportation costs would be lower.

There are already indications that other industries are copying these movements. Treasury wineries Ltd.

, facing 169% Chinese wine import tariffs, plans to ship assigned wines to China to other Asian countries, as well as the United States and Europe. The company will also increase marketing on these sites.

“We were directly on the phone with the barley guys to talk to them about their experiences, get advice on how to deal with it and the approach to take,” said Tony Battaglene, executive director of Australian Grape & Wine Inc. , an association of grape growers and wine growers, said about China’s tariffs on Australian wine.

Even industries saved so far by Chinese restrictions are responding. Huon Aquaculture Group Ltd.

, an Australian fish farmer, decided early last year to send salmon to the United States that had been destined for China and said he hopes to further reduce sales in China to diversify from that market.

These strategic changes will not be easy or quick as exporters face stiff competition and not all companies can adopt an identical game book. Farmers can switch between crops with relative ease.

Australia began consultations with China on January 28, the first step in WTO settlement procedures. Trade Minister Dan Tehan said Canberra is considering the next steps, including the request for a special WTO tribunal.

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

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

For many, the reorganization of markets far from China has long been delayed, even if it entails short-term pain for exporters.

John Blaxland, a professor of international security and intelligence studies at the National University of Australia, said Australia’s trade relationship with China had reached a turning point reminiscent of the UK’s decision. seventies to join the European Union. By then, Australia had been forced to refocus its trade efforts outside Britain.

“We have gravitated towards the biggest prize of the last two decades: China,” Professor Blaxland said. “In doing so, we overlooked the opportunities closest to home.”

Write to Rhiannon Hoyle to [email protected]