China syndrome infects our ag export outlook

Ag risks rise with China policy shift and economic chills

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Peter Gooday, ABARES

Peter Gooday, ABARES

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Australia's biggest farm export market is making life more unpredictable for suppliers

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Farmers and agribusinesses are being quietly warned not to take China’s burgeoning hunger for our exports for granted.

China buys about 25 per cent of Australian farm exports - worth almost $12 billion a year - making it our biggest customer, by far.

In fact, it represents more than the combined value of sales to our next three biggest overseas agricultural markets, Japan ($4.9b), the United States ($3.9b) and South Korea ($2.9b).

However, the Chinese economy is slowing and economists are talking of “upside risks” to future market trends as trade tensions with the US throw estimates about its farm commodity import agenda into confusion.

The Australian Bureau of Agricultural Resource Economics and Sciences has noted trade tensions could also hurt global income growth, eroding important demand from not just China and the US, but across Asia - the source of 67pc of all our farm export business in 2017–18.

ABARES tipped Chinese economic growth of about 6.2pc this year, down from 6.9pc in 2017.

By 2024 its growth would slow to 5.4pc.

China’s agricultural policies are changing, which will change our export priorities - Peter Gooday, ABARES.

China was also “industrialising” its already-significant farm production capacity, including boosting red meat output, as part of a shift from being a heavy industry and manufactured export driven economy to one more focused on consumption and services.

“China’s agricultural policies are changing, which will change our export priorities,” said ABARES chief commodity analyst, Peter Gooday.

He told last week's agricultural Outlook 2019 there was much to be alert to.

“China’s value to Australia’s farm export economy is currently as important to the role played by Japan in the early 1990s," he said.

“But it’s not just a big importer, China is also a big agricultural producer and exporter.”

Bigger farming agenda

Mr Gooday pointed to key changes in Beijing’s agriculture priorities, including bigger, more efficient farms, more dairy, beef and sheep meat production, and a focus on specialisation and crop quality.

China was even taking more interest in global farm trade diplomacy issues such as the anti-dumping rules it could use to protect domestic markets, and was expected to comply with as an exporter.

Improved food safety and consumer confidence in domestic supplies were also top of mind for Chinese agricultural sector leaders.

ABARES forecasts significant potential grain and livestock production gains for China, which in turn could be awkward for Australian exporters trying to anticipate Chinese demand, or the flow-on impact on surrounding Asian markets.

Frustratingly, global grain markets were already crowded, with “ample producers”.

There will be $US700b less purchasing power globally this year, much of it lost from developing countries - Robert Johansson, USDA

However, Mr Gooday believed feed grain imports were likely to continue rising as the Chinese looked to supplement their own production with feed sourced overseas.

China was also diversifying its sources for imported meat and dairy when needed, prioritising food safety and credible supply chains, which should advantage Australia.

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“Milk production is planned to increase 6pc and dairy food production by 8pc, which suggests quality milk powder imports should be supported by this policy,” he said.

Robert Johansson

Robert Johansson

Economists’ warnings on Chinese market uncertainty, and the impact of slowing Chinese growth on Australia in general, coincided with US Department of Agriculture forecasts for slower Asian economic growth.

“There will be $US700b less purchasing power globally this year, much of it lost from developing countries,” USDA chief economist in Canberra, Robert Johansson told the Outlook conference.

Notably, the US anticipated a decade of “relatively flat, if not declining prices” in global grain markets.

However, any settling down in trade tensions or a trade deal between the US and China would likely strengthen the Chinese economy, having positive implications to Australia's economy because it was so strongly reliant on Chinese growth.

Aussie dollar moves

On the other hand, exporters could also see the Australian dollar recover and be less export competitive.

Last year our dollar fell 14pc against the US greenback, which was much more than the US currency’s rise against the Canadian dollar, the euro, the Chinese yuan, Japanese yen, Korean won or Taiwanese dollar (ranges of 2pc to 10pc).

After averaging an export-friendly US72 cents in 2018-19, our dollar would lift slightly to average US73c in 2019-20, according to ABARES, then US74c during the next five years.

Reflecting tighter global markets and tighter supplies available for export, Australian farm export earnings were forecast to fall 6pc this year to $45b by 2019–20.

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