China Tariff Threat Adds to Australia’s Grain Industry Woes

The looming threat of major tariffs on Australian barley shipments to China, its biggest export market, compound an already gloomy outlook for the cereal that’s been hit by lower beer demand amid the coronavirus pandemic.

The Australian government said it’s been given until May 19 to deliver its final defense against a Chinese anti-dumping probe into the country’s exports of the cereal. A working group of Australian grain industry bodies said Saturday it believed China plans to impose tariffs of as high as 80% on the sector.

Australia has stoked tensions with China in recent weeks by calling for an independent probe into the origins of the coronavirus pandemic, worrying businesses in the most China-dependent developed economy. Beijing has pushed back, labeling calls for the investigation “politically motivated” and warning of a potential consumer boycott of Australian products.

The prospects for Australia’s barley exports were already depressed as the virus lowers beer consumption, damping demand for malting barley, and as global barley stockpiles remain high, said Cheryl Kalisch Gordon, Rabobank senior grains and oilseeds analyst.

“We already had a bearish outlook for barley due to ongoing concerns about China’s demand,” as well as high global stocks and expectations of increased Australian supply this year, Kalisch Gordon said. “This adds to that downside.”

The threat of tariffs is not unexpected, but 80% is about twice as high as the market had anticipated and would make Australian barley uncompetitive, said Andrew Whitelaw, grains analyst at agricultural commodities adviser Mecardo. The grain’s discount to wheat had already risen sharply as the market priced in the impact of the measures.

Australia typically exports about 60% of its barley, with China buying about 60% of those shipments, Kalisch Gordon said. However, since the investigation started in November 2018, and due to low supply caused by the drought, China’s demand for Australian barley was already about 50% below the five-year average in 2019.

China was Australia’s biggest buyer of barley for years, purchasing about $700 million to $1.3 billion worth of the commodity. It imported 6.5 million tons of Australian barley in 2017, but this shrank to 4.2 million tons in 2018 as drought ravaged Australian crops, and fell further to 2.3 million tons last year, according to Beijing customs data. The two nations entered a free-trade agreement in December 2015.

“We have a range of other markets, including Japan, which can be very important, but not one single market that comes anywhere close to the size of export opportunity for Australia that China presents,” Kalisch Gordon said.

Major Impact

Australia’s biggest grain exporter CBH Group received information from the ministry of commerce that tariffs are likely to be imposed on the country’s barley as a result of the anti-dumping investigation, said Jason Craig, chief marketing and trading officer at the Perth-based cooperative.

“If they are to go ahead, the tariffs will have a significant impact on Western Australian growers by reducing the competitiveness of Australian barley into the Chinese market, and we have seen barley prices come off already on the back of this news,” Craig said in emailed comments.

Western Australia was responsible for 88% of Australia’s barley exports to China, with about A$805 million shipped from the state in 2018-19, state Agriculture Minister Alannah MacTiernan said in a Sunday statement. The state’s growers have “no ready alternatives” to China as an export destination.

Exporter GrainCorp Ltd. is closely monitoring the situation and working with the industry working group as a response to China is formed, a spokeswoman said by email.

The country would put forward the strongest possible case to Chinese authorities ahead of the final outcome, Trade Minister Simon Birmingham told Sky News Australia on Monday.

“We still hope that the final determination is one that reflects the reality, which is that Australian agricultural producers—our farmers, our grain growers, our barley producers—are not subsidized by the Australian government and they don’t dump their product on international markets below cost,” he said.