China under the spotlight

A shift away

By Michael Whitehead, Head of Agri Insights at ANZ

In the horse trading around US-China trade tensions, there have been reports China may purchase an additional $US30 billion worth of US agricultural products, as part of a possible trade deal between the two countries. What would that mean for Australian agricultural exports?

The $US30 billion spend is a confronting headline but it also needs some closer examination. Total US agri exports to China in 2017 were $US20 billion so an additional $US30 billion seems implausible. Even lifting US agri imports by 50 per cent is hard to envisage.

The main US agri exports to China in 2017 were soybeans ($US12b), cotton ($US0.98b), hides and skins ($US0.95b), and coarse grains (e.g. sorghum, barley, oats, rye) ($US0.84b). Estimates on pork exports from the US to China differ between $US0.66 b (US Trade Rep Office) to $US1b (US Meat Export Federation).

China is not one of the major importers of US beef. The top six importers - Japan, Mexico, South Korea, Canada, Hong Kong and Taiwan - make up 81 per cent of imports.

It is certainly possible Chinese agri importers could hypothetically be encouraged to switch to a greater proportion of US agri exports. A similar situation was seen recently when Chinese soybean importers shifted to greater Brazilian purchases, rather than those from the US.

For Australia, this could potentially mean a shift away from some agri products. Australia's main agri exports to China are wool (A$US3b), barley ($US1.4b), dairy ($US0.9b), beef ($US0.83b), wines and spirits ($US0.83b), hides and skins ($US0.73b), sheep and goat meat ($US0.47b), horticulture ($US0.41b) and seafood ($US0.36b).

Of these, wool and sheep meat have little competition. For the others, the challenge from potential US competition needs to be kept in perspective. For example, Australian agri imports to China enjoy a good reputation in several areas - food safety, quality, consumer demand and relatively low political risk.

China may at times pull back from a market, as tends to happen with wool sales, or raise particular regulatory points, as has happened in recent times with beef labelling and milk formula import regulations. However, China is unlikely to damage important agri trade flows from Australia, particularly for products where other long term import markets could be found, potentially impacting China's ability to source these products in future.

Undoubtedly, the outcome of the US-China trade negotiations will include an important agri component. This has a lot to do with US domestic politics, where the rural electorates will have a big say in the next US Presidential election. The Chinese are well aware of this.

For Australian agri exporters, the issue certainly needs to be watched. However, the greater task will continue to be working on strategically maximising their opportunities and advantages in the continually growing Chinese market.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.