Australia in China box seat

10 Sep, 2018 02:30 PM
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Australian Bureau of Agriculture and Resource Economics and Sciences chief commodities analyst Peter Gooday addressing last week's regional outlook conference at Narrogin.
Australian Bureau of Agriculture and Resource Economics and Sciences chief commodities analyst Peter Gooday addressing last week's regional outlook conference at Narrogin.

LOCAL agriculture producers are much better off than United States’counterparts in the US-initiated trade war with China, according to the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES).

Its chief commodities analyst Peter Gooday told an ABARES-organised regional outlook conference at Narrogin last week that US agriculture production into China now faced “substantial” tariffs, especially when compared to Australia’s production under the China-Australia Free Trade Agreement (ChAFTA).

“So while the majority of our products are facing low tariffs which will fall to zero in the end under the ChAFTA, US producers are now facing tariffs of between 25 and 70 per cent,” Mr Gooday told the conference.

Even US$12 billion in government subsidies promised last month to help US agriculture sectors impacted adversely by tariffs imposed in July by the Chinese government in retaliation to US tariffs put on Chinese goods, seemed unlikely to affect Australian farmers, he said.

“There’s not that much detail about this (US government agriculture subsidies) at the moment,” Mr Gooday said.

“There are three basic components to it – payments direct to producers to help them manage disrupted markets, the purchase of surplus commodities for distribution through US nutrition programs and foodbanks, and a trade promotion program to help develop new markets.

“While our exporters would be better off if no help was provided by the US government, compared to where we were before the trade war started the subsidies seem unlikely to affect Australian agriculture exporters significantly.

“There could be negative impacts if the US government over-compensates for the tariffs or if US producers change the composition of what they produce and increase competition in other international markets we export to.

“It’s too early to tell yet.

“We’ll have a better idea when more of the details are revealed (by the US government),” he said.

As an example of the scale of benefit the US trade war with China has brought Australian agriculture producers, Mr Gooday compared China’s import tariffs on some Australian and US commodities after July 6.

Under ChAFTA Australian wines attract 2.8-13pc tariff while US wines are hit with 29-35pc.

Australian fresh or dried fruits pay 2-16.7pc tariff compared to 47-70pc on US fruits, Australian pork 2.4-9pc compared to 62-70pc on US pork, Australian beef 7.2-15pc compared to 37-50pc on US beef, Australian dairy products 2-12pc compared to 33-40pc on US dairy and Australian vegetables and legumes 1.4-2.6pc compared to US horticulture at 25-38pc.

There was also commercial advantage for Australian exports that did not come under ChAFTA, Mr Gooday said.

Examples he gave included Australian Durham wheat with a 1pc tariff compared to US Durham attracting 26pc tariff, Australian corn 1pc compared to US corn 26pc, Sorghum with no tariff on Australian production but 27pc on US and Australian soybeans 3pc compared to 28pc on US soybeans.

The trade war had not initially involved agriculture, with tariffs applied by the US on steel and aluminium imported from China and some of Australia’s “allies” – Canada, Mexico and the European Union, Mr Gooday pointed out.

It has escalated from there in July when the US introduced 25pc tariffs on US$34b of Chinese goods and China retaliated with $34b in tariffs on US goods, of which about $19b was on agricultural goods – soybeans, corn, wheat, sorghum, cotton and beef, he said.

The US then implemented a second tranche of tariffs covering an additional $16b of Chinese goods last month and China retaliated in kind but did not include any further agriculture products.

There has been additional “threats from both sides” since then.

Irrespective of whether the trade war develops further between China and the US, the “basic story is positive for (local) agriculture”, Mr Gooday said.

“We’re expecting the world economy to increase by 3.9pc this year and next year – that’s the highest rate of growth since 2011.

“Growth in China won’t be as strong as it has been in the recent past, we expect it to average 6.6pc this year and come down to less than 6pc in the medium term.

“That’s still a high rate of growth and it’s strong enough to support growth in those emerging Asian economies.

“We’re expecting the value of the dollar to average US76 cents this year, that’s 2c lower than last year (making Australian commodities purchased in US dollars cheaper) and we assume that depreciation will continue over the medium term.

“Interest rates rising in the US relative to here and an expected fall in iron ore and coal prices will both put downward pressure on the Australian dollar.”

The value of Australian agricultural production has increased steadily, up by $13 billion over the past 10 years with 10pc of the increase in the past five years, Mr Gooday said.

Across major commodity groups, meat and live animal producers and exporters had benefited most with a 33pc gain due to favourable prices.

Seasonal conditions and variable prices had seen the value of grains production slide 4pc and fruit and vegetables production value was up 4pc.

“Over the next five years we expect the value of agricultural production to keep increasing, over $63b ($60b expected 2018-19) in real terms by 2022-23 driven by strong demand for some livestock products and some horticulture products like cherries, citrus and nuts,” Mr Gooday said.

He said the value of crops and livestock production have both been rising, but for crops the increase has come from increased production volume while for livestock the added value has come from price increases with production volumes relatively unchanged.

“On the cropping side we’ve seen good export growth in wine, cotton and sugar, but in broadacre cropping export growth has been variable, reflecting the variable seasonal conditions,”Mr Gooday said.

“We expect livestock exports to grow faster than crops and for horticulture exports to continue increasing quickly.”

Mr Gooday said ABARES was not expecting international price hikes for any Australian export agriculture commodities in the foreseeable future, so farm profitability was “going to come from productivity rather than price”.

He said for farmers, managing input and production costs was going to be “critical”.

In the current year ABARES expects total agriculture export values to slip about 2pc due to lower supplies of some crops such as grains and pulses and higher domestic consumption of feed grains due to the Eastern States’ drought.

Increased competition in some of our international markets for beef and veal are expected to keep prices lower there.

But overall, ABARES is expecting steady growth in exports through the medium term, Mr Gooday said.

He said ABARES data showed 70pc of Australian agricultural production was exported and most was produced by larger rather than smaller farms.

“A small number of large farms now produce most of Australia’s agricultural output.

“We expect this trend will continue, large farms will get bigger but the number of small farms won’t change that much, they’ll just make a smaller and smaller contribution to production and exports,” he said.

ABARES data also showed family-owned farms out-performed “corporate farms”, he said.

FarmWeekly

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