Squeezed by China’s tariffs, Australian farmers cultivate new markets

Australia’s barley producers were China’s first target in a trade dispute that has since expanded to commodities, including coal, wine and lobsters. China was irritated by Australian Prime Minister Scott Morrison’s call for an international investigation into the first Covid-19 outbreak in central China, which he saw as interference by a foreign government.

The trade dispute cost the country’s barley producers, who previously exported up to 70% of their harvest to China. Even so, the industry has mainly resisted the tariff impact, with barley exports increasing and very few bankruptcies, showing that commercial pressure has limits for certain industries. Many of the tactics they use to survive are now being copied by other exporters, such as Australian winemakers and salmon farmers.

Total barley exports are expected to increase 64% in the 12 months through October 2021. Traders sought sales in other major markets, such as the Middle East, although this came with a painful compensation: Middle Eastern consumers mainly use barley for feed cattle, not to make beer, and usually pays less.

Farmers are also switching from barley to crops like wheat, a trade that China does not dominate. They sought a unified response, for example, by supporting Australia’s challenge to the World Trade Organization barley tariff, to avoid divisions that China could exploit.

Australian barley exports to China were worth about $ 1 billion a year before Beijing alleges that farmers were subsidized to sell at unfairly low prices and impose an 80.5% tariff, according to analyst IHS Markit.

Many farmers poured profits into the development of varieties of barley sought after by Chinese malt makers and brewers.

Other industries have also expanded by fueling China’s industrialization and its increasingly wealthy middle class. China buys about 80% of Australia’s iron ore and was the main customer for Australian wine, meat and wood before trade tensions increased. Australia was a popular destination for Chinese tourists and students before the pandemic closed national borders.

A decade ago, China accounted for less than a quarter of Australia’s exports. China’s share is now around 40%. The pandemic has increased Australia’s dependence as China’s recovery has overtaken other major economies.

Australia is not alone in its dependence on China. In 2001, when China joined the World Trade Organization, more than 80% of countries with publicly available data recorded more trade with the United States than China, according to Australia’s Lowy Institute, a foreign policy think tank. In 2018, two-thirds of countries traded more with China than with the US

Beijing has increasingly used this growing economic weight as a lever to achieve its foreign policy objectives. In the past decade, China has used so-called coercive diplomacy 152 times, affecting 27 countries and also the European Union, according to an August report by the Australian Strategic Policy Institute, a government-backed security study group. According to the agency, 113 of these cases have occurred since the beginning of 2018.

“The current disruptions in trade with China, whether related to meat, barley, lobster or wood, are not isolated incidents,” said Rex Patrick, a legislator in the upper house not aligned with the main Australian parties. “Instead, they are a deliberate pattern of punitive measures with the Chinese Communist government putting politics ahead of fair trade.”

Australia has been the heaviest target for China’s coercive diplomacy, said ASPI. Prior to Morrison’s request for an investigation into the origins of the pandemic, Australia had banned Chinese telecommunications companies Huawei Technologies Co. and ZTE Corp.

of its next generation 5G mobile network, while criminalizing foreign meddling in domestic policies that many consider destined for China.

As trade ties soured, China criticized Australia for lifting barriers to trade. “Since 2016, the Australian government has launched 25 anti-dumping and anti-subsidy investigations against Chinese products,” said a spokesman for the Chinese Embassy in Australia in December.

Beijing has fulfilled its obligations under a free trade agreement with Australia, the spokesman added.

How Australia’s barley industry resists Beijing’s reaction can offer lessons to countries that anger China and are hit by punitive tariffs. Farmers like Sattler had a loss in profits, but managed to grow other buyers for the barley harvest before moving on to other crops.

“A friend of mine said, if you were sitting on the front porch, you would have heard 3,950 augers being transferred from barley to wheat” on the day the tariff was announced, said Sattler, 52, a fourth generation farmer.

Sattler will cut his barley program in half this year, although he cites crop rotation and also lower prices for change.

South Australian producer Andrew Barr plans to cut the barley stake in the farm he inherited from his father to 20%, from about a third last year. It will be the smallest space for grain in its 20 years of farm.

Another tactic employed by Australia’s barley industry has been to cultivate markets from the Middle East to Japan and Southeast Asia, and even in distant places like Mexico, reducing its vulnerability to future trade disputes, even if China’s tariff is lifted. Traders project that Saudi Arabia will become Australia’s largest market this year.

“We are happy to sell to them and it got us out of prison this season,” said Barr. “But it is not what I hope the long-term solution will be.”

Mr. Barr wants the industry to prospect for malts in Korea, Japan, Vietnam, Thailand and India. These markets pay a premium for high-quality barley and are closer than in the Middle East, which means that freight costs would be lower.

There are already signs that other industries are copying such movements. Treasury Wine Estates Ltd.

, facing Chinese import tariffs on wine of 169%, plans to send wines allocated to China to other Asian countries, as well as to the USA and Europe. The company will also increase marketing in those locations.

“We went straight to the barley guys to talk to them about their experiences, get advice on how to deal with it and the approach to take,” Tony Battaglene, chief executive of Australian Grape & Wine Inc., a producer association of grapes and wine producers, said about China’s tariff on Australian wine.

Even the industries so far spared by Chinese restrictions are responding. Huon Aquaculture Group Ltd.

, an Australian fish farmer, decided early last year to send the salmon to China to the United States and said he hopes to further reduce sales to China to diversify this market.

These strategic changes will not be easy or fast, as exporters face strong competition and not all companies can adopt an identical manual. Farmers can switch between crops relatively easily.

Australia started consultations with China on January 28, the first step in WTO settlement procedures. Commerce Minister Dan Tehan said Canberra is considering next steps, including the possibility of requesting the award of a WTO panel.

For Australia, a commodity like barley is a fragment of its economy. “It’s huge for a barley farmer,” said AMP Capital chief economist Shane Oliver, on the tariff. “But it was not a disaster for Australia.”

So far, the markets targeted by China represent only about 1% of Australia’s gross domestic product, he said.

For many, the reorganization of markets outside China is delayed, even if it brings short-term pain to exporters.

John Blaxland, professor of international security and intelligence studies at Australian National University, said Australia’s commercial relationship with China has reached an inflection point reminiscent of the UK’s decision in the 1970s to join the European Union. At that time, Australia was forced to redirect its trade efforts away from Britain.

“We gravitate towards the biggest prize in the last two decades: China,” said Prof. Blaxland. “In doing so, we neglect opportunities closer to home.”

Write to Rhiannon Hoyle at [email protected]