Tightened by China’s tariffs, Australian farmers are cultivating new markets

Australian barley farmers have been China’s first target in a trade dispute that has since spread to commodities, including coal, wine and lobster. China was furious at the call by Australian Prime Minister Scott Morrison for an international investigation into the first outbreak of Covid-19 in central China, which he considered to be mixed by a foreign government.

The trade dispute has cost the country’s barley farmers, who had previously exported up to 70 percent of their harvest to China. However, the industry has largely borne the tariff impact, with barley exports rising and very few bankruptcies, showing that trade pressure has limits on 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 by 64% in the 12 months to October 2021. Traders have been looking at sales in other large markets, such as the Middle East, although this has come with a painful compromise: Middle Eastern consumers. I mostly use barley for animal feed, not to make beer and usually pay less.

Farmers are also moving from barley to crops such as wheat, a trade that China does not dominate. They sought a unified response, such as supporting the Australian barley tariff challenge at the World Trade Organization, to prevent divisions that China could exploit.

Australian barley exports to China are worth about $ 1 billion a year before Beijing claims farmers were subsidized to sell at unfairly low prices and imposed the 80.5% tariff, according to analysis firm IHS Markit.

Many farmers have poured profits into the development of barley varieties sought by malts and Chinese breweries.

Other industries have also expanded by fueling China’s industrialization and the increasingly affluent middle class. China buys about 80% of Australia’s iron ore and has been a top customer for Australian wine, beef and timber before trade tensions escalated. Australia was a popular destination for Chinese tourists and students before the pandemic closed its national borders.

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

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

Beijing has increasingly used this economic growth as a lever to achieve its foreign policy goals. In the last decade, China has used so-called coercive diplomacy 152 times, affecting 27 countries as well as the European Union, according to an August report by the Australian Strategic Policy Institute, a government-backed security think tank. It is said that 113 of these cases have taken place since the beginning of 2018.

“The current trade disruptions with China, whether related to meat, barley, lobster or timber, are not isolated incidents,” said Rex Patrick, an upper-house MP who is not aligned with Australian parties. “Rather, they are a deliberate model of punitive measures, with the Chinese communist government putting politics before fair trade.”

Australia has been hit hardest by China’s coercive diplomacy, ASPI said. Prior to Mr Morrison’s call for an investigation into the origins of the pandemic, Australia had banned Chinese telecommunications company Huawei Technologies Co. and ZTE Body.

from its next-generation 5G mobile network, while criminalizing foreign interference in domestic policies that many considered to target China.

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

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

How the Australian barley industry affects the Beijing reaction could provide lessons to countries that upset China and are affected by punitive tariffs. Farmers like Mr. Sattler made a profit, but managed to grow other buyers for their barley crop before moving on to other crops.

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

Mr Sattler will cut his barley program in half this year, although he cites crop rotation as well as low prices for change.

South Australian producer Andrew Barr plans to reduce the share of barley on the farm he inherited from his father to 20% from about a third last year. This will be the smallest space allocated to cereals in the 20 years since the farm.

Another tactic used by the Australian barley industry has been to cultivate markets from the Middle East to Japan and Southeast Asia and even to Mexico, reducing its vulnerability to future trade sequelae, even if China’s tariffs are high. The Saudi Arabia traders’ project will become Australia’s largest market this year.

“We are happy to sell them and he has released us from prison this season,” Mr Barr said. “But that’s not what I hope will be the long-term solution.”

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

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

, which faces Chinese import tariffs for wine of 169%, intends to deliver wines allocated to China to other Asian countries, as well as to the US and Europe. The company will also increase marketing in those places.

“I went straight to the phone with the barley boys to tell them about their experiences, to get their advice on how to approach this and the approach to follow,” said Tony Battaglene, executive director of Australian Grape & Wine Inc. , an association of grape growers and wine growers, said of China’s tariff for Australian wine.

Even industries that have so far been exempt from Chinese restrictions are responsible. Huon Aquaculture Group Ltd.

, an Australian fish farmer, decided early last year to deliver salmon to the US that had been allocated to China and said it expects to further reduce sales to China in order to diversify from that market.

These strategic changes will not be easy or fast, as exporters face stiff competition and not all companies can adopt an identical playing card. Farmers can switch between crops with relative ease.

Australia began consultations with China on January 28, the first step in WTO settlement proceedings. Trade Minister Dan Tehan said Canberra is considering the next steps, including whether it will ask for a WTO panel to be tried.

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

So far, China’s target markets are only about 1% of Australia’s gross domestic product, he said.

For many, the reordering of markets outside China has long been delayed, even if it brings short-term pain for exporters.

John Blaxland, a professor of international security and intelligence studies at Australian National University, said Australia’s trade relationship with China had reached a turning point reminiscent of Britain’s 1970s decision to join the European Union. At the time, Australia had to refocus its trade efforts away from Britain.

“We have gravitated to the biggest prize of the last two decades: China,” said Prof. Blaxland. “In doing so, we overlooked the opportunities closer to home.”

Write to Rhiannon Hoyle at [email protected]