Long wait for ChAFTA benefits

15 Dec, 2014 03:00 AM
Chinese consumers, not producers, will be the primary beneficiaries of cuts to tariffs

AGRICULTURAL producers are unlikely to see better returns flow directly to them as a result of the China-Australia Free Trade Agreement (ChAFTA), Rabobank reports.

The bank’s analysts expect that Chinese consumers, not producers, will be the primary beneficiaries of cuts to tariffs on Australian produce.

“Benefits are also likely to be captured at the strongest points along the supply chain, where concentration and market power allow price maker advantage,” a new Rabobank industry note on ChAFTA reports.

The benefit of ChAFTA to producers will be indirect and long-term, Rabobank suggests, relying on greater market access as Australian produce becomes more price-competitive.

“This will become increasingly important in stimulating demand in this nascent market, which then has the potential to feed into higher global prices with all else remaining equal,” the analysts wrote.

“The question then becomes one of the propensity of Chinese consumers to keep purchasing more, and the capacity of Australian producers to produce more to meet this demand.”

Rabobank expects the answers to this two-part question to be different, depending on the sector.

In dairy, for instance, Chinese demand is expected to continue to grow at 3.5 per cent a year.

Australian liquid milk production, on the other hand, has plateaued. New Zealand is capturing more of the growth in Chinese dairy consumption because it is stepping up production.

For beef, the picture is similar. Rabo expects China to increase beef imports by 15-20pc by 2018, and that Australia will continue to hold just under half the official market for beef imports.

There are two wrinkles in the scenario: Brazil’s recent re-admission to the Chinese market after a 2012 ban over disease fears, and the likelihood of Australia’s beef output being constrained following a record drought-induced turnoff of stock.

However, over the nine-year time frame of the agreement, Rabo expects that tariff reductions will help Australia stay competitive with Brazil.

China has become the biggest destination for Australia’s sheepmeat exports - it took 34pc of exports in 2013 - and Rabo expects that figure will grow.

That might not have been the case in the absence of ChAFTA, because the China-New Zealand FTA will mean tariffs on Kiwi-sourced sheepmeat will be phased out in 2016.

New Zealand already punches above its weight in China, with 57pc of the imported sheepmeat market. Australia holds 40pc, and Uruguay 3.5pc.

Once implemented, ChAFTA will help Australia again compete on equal terms with New Zealand, with Chinese consumption trends supporting further growth in the market.

China also takes three-quarters of Australia’s wool, but Rabo doesn’t see ChAFTA delivering much change in returns to wool producers.

Under the ChAFTA, Australia has been granted a country-specific quota of 30,000 tonnes (clean wool). This allows Australia to export 30,000t before attracting the one per cent tariff that applies to the general China wool import quota.

“While the 30,000-tonne quota will provide some benefit to wool exporters, it is not expected to have any significant impact on the Chinese demand for wool or prices paid in the market,” Rabo concludes.

Soft commodities - sugar, cotton, grain - were excluded from ChAFTA, and Rabo doesn’t see the agreement greatly influencing these sectors.

Rabobank points to other, also less immediately tangible benefits of the agreement.

“An additional benefit of the ChAFTA, albeit a less tangible one, is the ongoing evolution of the policy and trade relationship between the two countries,” the report notes.

“Official agreement indicates a strong willingness by both countries to collaborate, fostering trade and supporting economic growth and development. This improved mutual understanding should in turn further assist in resolving other impediments to agricultural trade, such as biosecurity, food safety, businesses relationships and investment protocols.”

Matthew Cawood

Matthew Cawood

is the national science and environment writer for Fairfax Agricultural Media
Date: Newest first | Oldest first


15/12/2014 7:32:56 AM

If previous FTA's are anything to go by there will be more losers than winners in Australia as result of the signing of the ChAFTA. Accurate and transparent reporting into the future will be necessary to see the overall benefits.
15/12/2014 9:25:28 AM

Here is an unbiased assessment of the Australia/China FTA which must carry a lot of authority coming from a global agricultural bank like Rabobank. This not to say that our Government has done a bad thing, but more the case of looking at the deal without political sugar coating. When we do that many of the advertised benefits for Australia disappear or become very distant or insignificant.
Bushie Bill
17/12/2014 5:55:08 PM

It would be a longer wait without it.


Screen name *
Email address *
Remember me?
Comment *


light grey arrow
Why do they forget the small producers they are the backbone of the industry. What. Did this
light grey arrow
Good these guys will be able to help the farmers they are treating like second class peasants.
light grey arrow
Lets' hope Troy Grant doesn't Delforce's website or it will be yet another NSW