China now devours a third of Australia's farm exports but agribusiness specialist Rabobank warns shipments to the Asian economic superpower have probably hit their peak.
Australian exports of food and agricultural products to China jumped by eight per cent in value terms in 2019-20 to $12.6 billion, the highest level in the history of the China-Australia trading relationship.
The growing importance of China as a major destination for our food, fibre and livestock exports during the past 14 years has put a strong foundation under Australia's rural economy.
But Rabobank said it has also created a reliance on a single overseas market not seen since Australia was "joined at the hip" to Great Britain in the 1950s.
Nervousness about our heavy trade dependence on China has escalated rapidly since relations between Canberra and Beijing began to sour and COVID-19 sent the global economy into a nosedive.
China has been using sanctions against some key farm imports from Australia - notably beef and barley - as a lever to force Canberra to tone down its criticism of Beijing on a range of issues including its territorial ambitions in the South China Sea, its alleged interference in Australian politics and its lack of co-operation for an inquiry into the origins of coronavirus.
Now Beijing has announced an anti-dumping investigation into Australian wine imports which has angered the industry, the National Farmers Federation and the Australian Prime Minister, Scott Morrison.
China is now Australia's biggest wine export market with sales hitting $1.1 billion in 2019-20.
Rabobank head of food and agribusiness research Tim Hunt said "extracting one in three of our export dollars from one market" was a major risk for the Australian food and agricultural sector, particularly with the rising political tensions between the two countries.
Australia's biggest farm export gains to China in 2019-20 were for beef ($2.8b) and sheepmeat ($1.2b) to help fill a huge animal protein shortage caused by the decimation of the Chinese sow herd by African swine fever.
But shipments of dairy, wine, grains and oilseeds and fruit also all saw year-on-year gains, as Australia continued to ride the wave of opportunity generated by China's rising incomes, Rabobank said.
Australia's beef exports for the 12 months ending July surged 31pc to 287,623 tonnes while sheepmeat exports rose 11pc to 140,613 tonnes, making China the biggest volume export buyer in both categories.
However, in the calendar year to July beef exports have dropped 9pc to 133,735t and sheepmeat by 16pc to 61,207t but part of this drop was probably influenced by reduced supply.
Mr Hunt said in a year in which political relations with China had soured, the share of almost all of Australia's agri-exports destined for China rose. But trade was now starting to suffer.
"This shouldn't come as a complete surprise.
"China has often found reasons to reduce purchase of agri products from countries when tensions arise," Mr Hunt said.
"Australia has five food and agriculture exports to China (beef, lamb, wool, wine and fruits and nuts) that can be worth over a billion dollars in any given year.
"In 2020, China has so far impeded or threatened to impede three of these via the removal of accreditation to supply some beef product lines from certain abattoirs, the imposition of an anti-dumping duty of barley and now a threat to impose anti-dumping duties on wine also," he said.
"The (wine) investigation may ultimately find that no such dumping has occurred. But these investigations can take more than a year and the uncertainty it creates can impact trade in the interim, and can undermine investment appetite in the sector."
The bottom line was 2019-20 may prove to be the peak of Australian agriculture's exposure to China for several reasons, Rabobank said.
Firstly, the likely rebound of wheat production this season would see a hefty boost to shipments of a grain typically sold to markets outside of China.
Secondly, China's 80 per cent anti-dumping duty on barley would likely see most exports directed elsewhere for at least the next 12 months, the bank said.
The Chinese pig herd was also recovering which may mean Australia's beef and sheepmeat exports may also have peaked.
Regions like South-East Asia were also expected to play a bigger role in the textile milling industry which would see Australian cotton exports to China decline over the medium term.
But the size of the trade flow will be heavily influenced by the politics between the countries and the strategy of buyers and sellers, Mr Hunt said.
"The extent of exposure to China and the risks this is bringing may see many industries look to diversify markets in coming years.
"The Chinese market is hard to replicate in size, growth and value. But there are growth opportunities in other markets that Australian exporters can tap into in coming years, especially if progress is made in improving market access."