New ‘no rules’ trading environment unsettles Australian agricultural exports

A comprehensive AgriFutures Australia-funded report released today gives policy makers, industry peak bodies and primary producers a roadmap as to how a less predictable trading environment may impact export markets.

AgriFutures Australia Managing Director, John Harvey said the ITS Global analysis, Bilateral trade wars, Understanding the implications for Australian agriculture, gives the industry a firm footing for policy creation.

“This robust analysis gives Australian exporters the knowledge they need to take a leadership role in attempting to restore stability for agricultural commodities in the current global trading environment,” said Mr Harvey.

“The findings show that unilateral moves by the Trump Administration to renegotiate existing trade agreements have threatened World Trade Organisation (WTO) principles of a rules-based trading system, creating uncertainty for Australian agriculture.”

The report identified a wide range of risks and opportunities for Australia’s agricultural interests arising from the current trade wars, finding some Australian products are likely to fare better than others.

AgriFutures Australia Senior Manager, Business Development, Jen Medway agreed that while some industries will prosper and others may feel the pressure from these trade wars, understanding the potential impact is fundamental to creating stability in an unsettled trade environment.

“Australia’s dairy industry is one industry that could potentially benefit from trade opportunities with China on the back of additional tariffs imposed on US dairy products.

“On the flip side, a prospective US–Japan free trade agreement (FTA) could negatively impact the dairy industry as US producers disadvantaged in the Chinese market could gain improved access to Japan.

“For the Australian wool industry, the bilateral trade wars may not have a noticeable impact, despite China implementing retaliatory tariffs on some US wool products. The relatively small size of the US wool export market to Asia will buffer any significant uncertainty for Australian wool exporters as a result of the increased tariffs,” said Ms Medway.

This is similar for Australian sheep and goat meat exports, primarily lamb, where the aftermath of the trade wars are expected to be minimal. These products have not been the focus of additional tariff actions, however a US-United Kingdom (UK) FTA (following the UK’s exit from the European Union) would have a negative impact on some Australian markets.

“The UK is a leading sheepmeat exporter and the US is Australia’s most important market, any improvement in access for UK product into the US would be damaging to Australia’s export interests,” said Ms Medway.

Another area we may see increased competition is in Australia’s fresh, chilled and frozen beef exports due to risks identified in Australia’s two biggest beef export markets – Japan and the US.

“The US is increasingly eager to expand their export reach of beef products into Japan, with the US having very limited access to China and the EU due to a ban on hormone growth promotants. With the US and Japan edging closer to negotiating a bilateral FTA, Australian beef exports to Japan may suffer,” said Ms Medway.

Mr Harvey acknowledges the importance of the report findings, noting they are critical to putting rigor around our understanding of the top line impacts for agriculture products as a result of the trade wars.

“It will inform Australian industry input on how best to ameliorate the detrimental side effects of current and possible future trade measures,” Mr Harvey said.

Mr Harvey added that the take-away message from the research is that trade wars breed uncertainty. Uncertainty is bad for business and leaves agricultural producers, traders and buyers struggling to manage a shifting policy landscape.

“The longer this period of uncertainty lasts, the more commercial decisions will need to be made by Australia’s agricultural stakeholders facing the prospect of sudden and unpredictable policy changes at the global level,” Mr Harvey said.

As a medium-sized, open economy dependent on trade to underpin economic growth, Australia benefits significantly from the confidence and predictability inspired by the smooth operation of the international trade regime.

Industry by industry outlook

Beef
Australia’s beef exports are likely to be largely unaffected by tariff actions in key markets, however a prospective US FTA with Japan threatens Australia’s current competitive position in that market. US trade talks with Brazil could see it expand its presence in the US market to the disadvantage of Australia.

Dairy
The trade wars do not appear to present major risks for Australia’s exporters of concentrated milk and cream products. Most of the key Asian markets – including Singapore, Indonesia and Malaysia – are not implicated in the current conflicts. China, Australia’s number one market, has instituted an additional tariff on imports of US dairy products.

The impact on Australia’s cheese and curd exports is likely to be mixed. Australian exporters may benefit from Chinese tariffs on US product, but will likely face competition from New Zealand-based exporters, who enjoy better access to the Chinese market than their Australian counterparts, under the terms of the NZ–China bilateral agreement.

Wheat
Trade policy actions are projected to have an overall positive impact on Australia’s wheat exports, particularly to China. US access is currently restricted. However, settlement of the broader trade dispute between the US and China could re-open or expand this market for US exports.

Horticulture
For horticulture export interests, the impact is largely positive in the short-term, particularly for exports to China under the terms of ChAFTA. It is yet to be seen if Beijing’s negotiations with the US result in greater US access for horticultural goods.

It is also possible that an FTA between the US and Japan would expand access for US horticulture at the expense of current Australian access to the Japanese market.

Sugar
There is a negligible impact on sugar exports overall. China’s tariffs on US cane sugar, plus preferential access under ChAFTA may create opportunities for Australian exporters to expand existing supply arrangements to the Chinese market. China’s apparent efforts to diversify supply sources for agricultural goods could see sugar products from Latin America entering the market to a greater degree.

Wool
Australia’s wool exports to China are not directly impacted by the bilateral trade wars. US tariffs on Chinese yarn exports could impact negatively on Chinese demand for Australian wool. However, the impact is likely to be small, as there have not yet been additional tariffs applied to other end uses for Australian wool, including apparel.

Cotton
Australia’s cotton exporters are projected to benefit from the temporary advantage offered by China’s tariffs on US exports. In 2017, the US was China’s top source of cotton imports, followed by Australia.

Crustaceans
Australia’s exports of crustaceans may benefit from additional opportunities in the Chinese market due to tariffs on US product. However, Australian exports to other Asian destinations may suffer, as US exporters seek out alternative markets.

Caption: Asia takes the lion’s share of Australia’s agricultural exports. Seven of the ten top export destinations by value are Asian nations. China leads the way, and in 2017 purchased 20 per cent of exports of Australian priority products identified for this study, valued at more than US$5 billion.

To download the AgriFutures Australia report, visit www.agrifutures.com.au/product/bilateral-trade-wars