Fears over ChAFTA impact on food prices

20 Nov, 2014 05:16 AM
COFCO deputy general manager Pan Honghuan. Photo: Philip Gostelow
I don't expect Australians to have to pay for a free trade agreement
COFCO deputy general manager Pan Honghuan. Photo: Philip Gostelow

COLES managing director John Durkan said Australians should not have to pay at the checkout if farmgate prices rise after free trade agreement (FTA) with China.

Federal Agriculture Minister Barnaby Joyce ­conceded on Tuesday that farmers would be able to demand higher prices as there would be more buyers following the reduction of tariffs on a range of produce sold to China.

This has raised concerns food prices would rise as retailers passed on higher costs of buying produce.

But Mr Durkan said agricultural ­production would increase over the long term to meet fresh demands from China, which would limit price rises for consumers.

In the short term he said it may be more difficult but he vowed Coles ­customers would not get slugged for produce price rises resulting from the FTA.

"I don't expect Australians to have to pay for a free trade agreement," Mr Durkan said.

"We certainly won't be lifting prices. Over the long term there will be more supply in Australia."

Mr Durkan was in Perth on ­Wednesday for a Coles-backed Global Food Foundation food summit, where one of China's largest food processors and agricultural traders, COFCO, ­signalled its intent to strike a ­Memorandum of Understanding.

The deal provides for "mutual ­co-operation" between the non-profit foundation and COFCO to contribute to global food security.

COFCO Australia deputy general manager Honghuan Pan, who has been based in Perth for four years, said the Chinese group COFCO, which stands for China National Cereals, Oils and Foodstuffs Corporation, is state-owned.

Farms not COFCO's expertise

Ms Pan said COFCO, which owns Queensland sugar mill Tully Sugar, was not interested in buying farms because its expertise was in processing and ­trading.

"We don't have the experience to be farming," Ms Pan said.

"We would like maybe to co-operate with farmers not only in the domestic market but also in Australia and other markets."

Ms Pan said COFCO was looking at the potential to expand its processing assets in China to cater to the ­potential for Australian live cattle to be exported to China.

The Abbott government is working with China to strike a deal that could see more than a million head of cattle exported to China each year, a figure that would require the nation to boost its herd. Cattle could then be processed more cheaply in China.

"We all know that the beef and lamb industries are very labour-intensive. To save the cost of this industry we think (exporting) live cattle is very good for .?.?. Australia," said Ms Pan.

Ms Pan said if the deal proceeded COFCO may look to develop processing assets closer to the nation's ports, rather than rely on assets further inland.

Mining billionaires Andrew Forrest and Gina Rinehart have begun investing in agriculture in the past year and stand to benefit from the opening up of trade to China.

Mr Forrest, who bought Western Australia's largest beef processor Harvey Beef, said it made sense to export live cattle to China rather than process it all in Australia because there was excess processing capacity in China.

"If this new policy is executed I believe the Chinese companies will be able to set up new facilities along the coast areas rather than inland," Ms Pan said.

"We have to be sure this policy will be executed so we have to wait and see what will happen."

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20/11/2014 5:28:55 AM

Supply and Demand, lets hope as a producer demand outpaces supply and prices increase to a sustainable level. I suspect we may be on the cusp of the end of the two major supermarkets in Aus dominating the end game. Bring it on !!
20/11/2014 6:21:43 AM

Coles CEO, John Durkan, is full of it. Any rise at the farm gate for produce is a tiny percentage of the retail price of food. Take bread. In a $5 loaf on Coles' shelves, the farm gate cost of the main ingredient, wheat, is about 10 - 12 cents. In a $3 bottle of milk, the farm gate cost of the milk as between 30 and 50 cents. Meat sold at Coles for about $30/kg costs about $2.50/kg at the farm gate. The consumers already add about 20 times the cost of the raw material in what they charge via their labour component within input and supply chain costs of all goods and services in Aust.
Ga Warrender
20/11/2014 11:18:34 AM

Australian farmers receive only 10% of the sale price of their produce - the other 90% goes to middlemen, specifically the supermarkets. The farmgate price has to rise to keep farmers in business & if Coles wants to keep its customers happy all it has to do is take less profit. Of course this will not please those "investors" who buy supermarket shares & who profit from the low prices paid to the people who produce the food.
21/11/2014 11:02:34 AM

Interesting that the mega Corporations like Coles, so vigorously fight for free and open markets and yet when it looks like others in the market are about to get some benefit out of that same system, they squeal like little babies. Bring on the benefits of any new deals with Chinese customers for our primary produce. If grains, meat, dairy and wool all jump in price by 10-20% it would still be a drop in the ocean impact on retail prices. It certainly would not match the compounded annual increase in off farm costs & incomes over the last 50 years.
21/11/2014 5:04:06 PM

Fixing cost of a product must be consider on the basis of farmers and consumers welfare not for supermarkets.
22/11/2014 3:08:51 AM

To LTF and Ga Warrender and Cmt. You are so right. O cant believe the arrogant stupidity of Coles to attack a) Free Trade and b) Farmers in this way. I am getting rid of all my Wesfarmers shares as a matter of principle on this one.
23/11/2014 9:46:31 AM

party is over for you and your bunch, durkan. its the farmers turn to dictate price and screw you over with no remorse.
Bushie Bill
25/11/2014 8:02:48 AM

This argument is as relevant to reality as the debate about how many angels can dance on the head of a pin. You hillbillies are so easily distracted.
Jock Munro
27/11/2014 4:58:54 AM

Once again Bushie: thank you for your encouraging words.
Bushie Bill
27/11/2014 2:00:43 PM

Jock, you sure are a slow learner!


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