OPINION: Two recent market interventions by China could both help and hinder Australian agriculture.
Agricultural commodity markets are driven by supply and demand: if there is a drought, supply drops and the price rises.
However, supply and demand can be driven by government intervention as well.
In recent years, there have been many examples of this, including tariff wars between China and the US, tariffs against Australian agriculture, and the ban on live sheep exports from Australia.
In recent weeks, two interventions could have had significant impacts on Australian agriculture, both of which were caused by China. One of these could be negative and one could be positive.
The first intervention that could be negative to Australian grain exporters is rumours of curtailment of imports of feed grains into China.
In the past six months, grain markets around the world have been falling, with the value falling considerably as global production has been enough to more than meet demand. This is happening at a time when the cost of producing crops has been high compared to the long-term average.
The Chinese government wants to keep its farming population happy, and grain prices have also fallen there. China is a huge importer of feed grains, including corn from the US and barley-sorghum from Australia.
It is rumoured, and reported by Bloomberg, that Chinese users of grains were ‘advised’ to focus on purchasing feed grains from local Chinese producers instead of importing from foreign nations.
This has a huge potential negative effect on Australian feed grains such as barley and sorghum. If Chinese buyers reduce their demand for imported grains and focus on domestic products, then demand from China could significantly drop.
China is the largest buyer of barley and sorghum from Australia.
While this is still a rumour, if this is true, it is an example of a government attempting to reduce trade in order to benefit their own producers.
The second intervention doesn’t directly concern Australia but comes from struggles between China and Canada.
The story starts with electric vehicles. China has grown its exports of EVs in recent years to the point where Western nations have started introducing tariffs on Chinese imports.
At the end of August, Canada followed with the introduction of a 100 per cent tariff on the import of EVs from China.
A 100 per cent tariff on electric vehicles would significantly affect international trade dynamics. It would substantially increase the cost of imported EVs, effectively doubling their prices in the domestic market. This price hike could deter consumer demand for foreign EVs, leading to a decline in imports.
The Chinese government reacted by announcing that it was going to start an anti-dumping investigation concerning Canadian canola exports.
This will sound familiar, as China did similar to Australia with barley and ended up imposing an 80.5 per cent tariff on our barley exports.
China is the largest single buyer of Canadian canola and exports have been strong in recent years. If China intends to introduce a retaliatory tariff on Canadian canola, then they will have to look elsewhere for canola.
The most obvious choice for China would be Australia, and that would be a great opportunity to help lift canola prices here. The problem is that China has a zero-tolerance approach on blackleg disease, which restricts our ability to trade with them, although that could change quickly if China dictates it wants Australian canola.
China is an important market for Australian agriculture and decisions made by its government will have a huge impact on our trading relationship. The relationship will be volatile for some time and could cause booms and busts for Australian agriculture.
• Andrew Whitelaw is co-founder and director of Episode 3 (EP3)