Souring China ties threaten Australian farmers in trade spat

Farmer Brett Hosking had high hopes for this year’s barley crop, planting almost one third more than last year after strong rains filled dams and turned fields green across eastern parts of Australia.

Now the outlook for the crop is being thrown into doubt as China, the biggest buyer of the country’s barley, looks increasingly likely to slap tariffs as high as 80% on purchases when it reports the findings of an anti-dumping probe amid escalating diplomatic tensions between the two countries.

“We won’t be selling barley to China in the foreseeable future under this tariff regime,” said Hosking, chairman of industry group GrainGrowers, who farms at Quambatook, more than three hours northwest of Melbourne. “The biggest hit is going to be to our growers in our small rural communities.”

He’s one of a growing number of the country’s primary producers mulling the potential for a further tightening of restrictions on Australia’s agricultural exports by China, its most important trading partner, after the Asian nation also barred meat imports from four slaughterhouses this week.

Australia has fueled tensions with China in recent weeks by calling for an independent investigation into the origins of the coronavirus pandemic, with a focus on wildlife wet markets. Still, a Chinese foreign ministry spokesman said Tuesday that the meat bans were a health and safety issue, denying any link between the action and the call for a probe into the virus.

Political Lever

“China never says it’s retaliation, but China does have a history of using agricultural trade as a political lever, going back at least 10 years,” said Tim Hunt, Rabobank’s head of food and agribusiness research for Australia.

Read more: China Suspends Meat Imports From Four Australian Abattoirs

The halt to imports from the meatworks, which represent about 20% of shipments, is a technical issue relating to labeling, not a diplomatic concern, said Australian Meat Industry Council Chief Executive Patrick Hutchinson.

“We’ve gone through these issues before,” Hutchinson told Bloomberg Television on Wednesday. “These are non-tariff issues we have to deal with on a daily basis. This is not an industry issue, this is a specific company issue.”

Australia’s Finance Minister Mathias Cormann also downplayed the trade spat, telling Bloomberg Television Wednesday that while there are “disagreements” between Beijing and Canberra regarding the call for an inquiry, it was separate to the barley and beef trade issues. “In any relationship from time to time there will be disagreements on certain issues,” Cormann said.

Though the trade issues can be seen in isolation, there’s little doubt “they are tangled up in the broader relationship between the two nations,” said Tobin Gorey, agricultural commodities strategist at Commonwealth Bank of Australia. “Most suspect that the barley and beef issues would likely not have arisen without that context. That contention can never be proved or disproved of course.”

Wine in Line?

China is the biggest buyer of Australian agriculture, forestry and fisheries products, with shipments of A$16 billion in 2018-19, according to Australian government figures. That’s six times more than it was about two decades ago.

The National Farmers’ Federation said it’s concerned about any disruption to trade and urged both governments to work in a “respectful manner” to resolve issues. “Two thirds of Australia’s farm production is exported. Almost one third of this, 28%, is exported to China, including 18% of our total beef production and 49% of our barley,” President Fiona Simson said in a statement.

While there’s no talk so far of any hit to the wine industry, which also counts China as a major export market, “we are always concerned when politics can interfere with business and sound commercial and customer relationships,” said Australian Grape & Wine Chief Executive Tony Battaglene.

Looking at cases involving other countries, such as Canada and Norway, China doesn’t tend to impose widespread halts to imports, rather it targets “large, important, prominent product lines to send a signal,” Rabobank’s Hunt said.

China ties were damaged in 2018 when Australia passed laws aimed at negating Beijing’s influence in national affairs and barred Huawei Technologies Co. from building its 5G network. A subsequent slowdown of Australian coal shipments to Chinese ports was blamed on the tensions. In 2019, China revoked the export licenses of two of Canada’s biggest canola shippers amid the countries’ diplomatic row regarding the arrest of a Huawei executive.

Other Buyers

The Australian government said it’s been given until May 19 to deliver its final defense against the Chinese anti-dumping probe into exports of barley.

China’s decision to pursue anti-dumping measures with such vigor is “surprising,” said Ole Houe, director at trader IKON Commodities, and there’s concern that products like iron ore could also be hit. Still, he expects the impact on barley output to be less than 5%, with many growers already having seeded the crop and China being only one factor in their decision to plant.

In Quambatook, Hosking is optimistic Australia has a good defense against the dumping and subsidy claims. There are also other buyers emerging for barley, domestically and throughout Asia, including Indonesia and Vietnam, he said. “Barley will take a hit but it won’t be the end of barley.”

“It has been devastating for everyone,” said INTL FCStone client adviser Nicholas Orssich. “There’s going to be a lot of stuff up in the air until we get some feedback on Tuesday,” he said. “China, if you look at history, they generally tend to go through with the threats that they make.”