China’s beer lovers to suffer from Beijing’s spat with Australia

Chinese imports of Australian barley are continuing to filter through despite Beijing’s hefty tariffs on shipments, a move that could push up beer prices in the world’s largest consumer of the beverage.

A cargo of Australian barley has docked at a Dalian port and is set to be unloaded, according to shipping data compiled by Bloomberg, the first such delivery after China imposed a more-than 80% anti-dumping and anti-subsidy tariff on the product. At least three more vessels carrying the commodity are also on course for China, data show.

China is continuing with purchases from its key trading partner because Australian barley is seen as being the best in quality among its suppliers, said Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Co.

“Despite the high tariffs, some Chinese buyers have to take these shipments as beer makers prefer Australian barley, which is high quality and gives good taste,” Ma said. “These high-end brands can simply pass the cost to downstream consumers.”

Beijing hit Australia with the tariffs last week, saying the exporting nation was subsidizing the commodity and flooding China at the cost of local producers, an accusation Canberra denies. However, Beijing has a track record of using trade as a diplomatic cudgel and analysts believe the move was in retaliation to Australia’s call for an independent investigation into China’s handling of the coronavirus.

China imports between 2 million to 3 million tons of barley for breweries as domestic production can not meet quality requirement, said Ma. Besides that, animal-grade barley is used as a substitute for corn. Given corn prices have surged this year, some of the cargoes destined for ports in the country’s south could be purchases by animal feed mills, traders said.

Another reason Chinese buyers may have pushed on with imports is because they can store them in bonded warehouses, which are exempt from customs’ tariffs, said Shi Wei, an analyst with Shanghai JC Intelligence Co. Chinese buyers have done this before with U.S. sorghum and distillers dried grains (DDGS). Importers have blended DDGS into animal feed and sold it to the domestic market without incurring the duties, Shi said.

A third possibility is by practicing a widely-known trading method in China dubbed ‘the tolling trade.’ In this system, companies that have a certain export license can buy barley from Australia, process it into malt barley, and sell the product abroad without paying the tariffs, said Lin Guofa, senior analyst at Bric Agriculture Group, a Beijing-based consulting firm.

Still, industry groups have warned that Beijing’s tariffs will gut an Australian export market that was worth A$1.4 billion ($898 million) in 2017. Also, several ships that were previously headed for China have been diverted, with one set for the United Arab Emirates and another to Japan. A third vessel has switched from carrying barley to canola, with its destination yet to be determined, shipping data showed.