South East Asian powerhouse nation, Vietnam, announced last week it had revised its most-favoured-nation (MFN) tariff rates for corn and wheat imported from origins that are not already subject to free trade agreements (FTA).
The tax on corn will fall from 5 per cent to 2pc, and the wheat tax will drop from 3pc to zero.
The decree, which will reportedly take effect on December 30, was primarily made to support its domestic stockfeed industry.
This sector was hit particularly hard in mid-2021, when Vietnam's most serious COVID-19 outbreak escalated government control measures.
According to World Trade Organisation (WTO) trade rules, countries cannot typically discriminate between their trading partners.
Grant a trading partner a special favour, such as a lower customs duty for one of their products, and the same must be awarded to all other WTO members.
This principle is known as the MFN treatment.
But some exceptions are permitted.
For example, countries can set up a FTO that applies only to goods traded within the group, which discriminates against goods imported from outside.
The ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) is a trade agreement between Association of South East Asian Nations (ASEAN) member states - which are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam - and Australia and New Zealand.
Through this agreement, Vietnam does not impose import taxes on Australian wheat or barley.
The change to the import tax regime will put the United States on a level playing field with its competitors from ASEAN and the Black Sea region.
Nonetheless, rising prices and high sea freight rates have rendered US origin wheat uncompetitive into Vietnam for all but some inelastic milling wheat demand.
Vietnamese millers prefer soft white wheat (SWW) from the US for its high dissolvability, and dark northern spring (DNS) wheat for its gluten strength.
The country has experienced rapid expansion and development during the past two decades.
Growth in animal-based protein consumption has gone hand-in-hand with this economic development.
Vietnam has turned to imports of corn, wheat and barley as stockfeed ingredients to support a 30pc increase in meat production since 2010.
Pork has traditionally been the meat of choice for the Vietnamese people.
But consumption of chicken meat, beef and seafood has increased considerably in recent years.
Vietnam imported more than 500,000 tonnes of US wheat in the 2020-21 marketing year, which was second in volume to Australia at 2.37 million tonnes.
Vietnam has imported an average of 4.24 million tonnes of wheat in the past five years, and the USDA has them pegged-in for 3.65 million tonnes in the current marketing year.
Australia is well positioned to capture the bulk of that business again in 2021-22.
Feed wheat imports by Vietnam increased by 518,000 tonnes in the first eight months of the 2021 calendar year, which was 96pc higher than at the same period last year.
This increase was due to the price competitiveness of feed wheat over corn.
Demand for wheat-based products in the Vietnamese hotel, restaurant and catering sectors remained low due to COVID-19 restrictions on international tourism and travel.
Vietnam is by far the biggest importer of corn in South East Asia after domestic production peaked mid-way through the past decade and demand continued to soar.
It was fifth on the list of global importers in 2020-21 at 13.5 million tonnes, and the USDA has them matching strides with South Korea in fifth spot in 2021-22 at 11.5 million tonnes.
This will be the first year-on-year decline in corn imports since 2011-12 and is primarily due to lower exportable supplies out of Brazil.
Corn imports fell by 402,000 tonnes in the eight months to August 2021, which was 5.8pc lower than the previous corresponding period.
Corn and feed wheat are exchangeable sources of energy in many stockfeed formulations.
As corn prices rose relative to wheat in the past 15 months, wheat and - to a lesser degree - barley, replaced corn in the rations.
In response to domestic demand signals, Vietnamese corn production started increasing in the 1980s and continued this upward trend until 2015.
But it reached an inflection point in the 2015-16 marketing year, when imports exceeded production for the first time in almost 50 years.
Production stalled and has declined slowly ever since, as domestic producers found it increasingly difficult to compete with imported corn on both a cost and quality basis.
Barley has also found favour in stockfeed rations in Vietnam, particularly following the introduction of the exorbitant import tariff by China, which forced Australian exporters to actively nurture alternate markets.
In the 2018-19 marketing year, Vietnam imported just 133,000 tonnes of barley, which was almost exclusively malting barley for the brewing industry.
That increased to almost 200,000 tonnes in 2019-20, and then skyrocketed to 750,000 tonnes in 2020-21.
The USDA has Vietnam penciled-in for 800,000 tonnes in the current trade year.
According to Australian Bureau of Statistics (ABS) export data, barley shipments to Vietnam from October 1 last year to September 30 this year totaled 640,000 tonnes.
Malting barley accounted for 124,000 tonnes, which was in line with historical purchases but only 19.3pc of the total.
Feed barley shipments came to 516,000 tonnes, or 81.7pc of the total.
This was up substantially from historical numbers.
With another big barley crop being harvested now, Australia is ideally placed to capture most of Vietnam's increasing barley demand this season.
The tax changes announced last week will make competing origins more competitive into Vietnam from December 30 onwards.
But it is unlikely to have a material impact on Vietnamese demand for Australian wheat and barley in 2021-22, as high prices and a hot sea freight market keep most competitors well out of the money.
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