fbpx
AustralianFarmers

Australian farmers under pressure at home & overseas

Most Australians would be aware of the challenges faced by Australian farmers at home – drought, fire, flood, biosecurity incursions and the tyranny of distance to name a few. These factors have seen Australian agriculture ranked as the riskiest sector in our economy. And Australian agriculture is ranked as the riskiest of agriculture sectors in developed countries internationally.

What seems to be less known are the international market risks that Australian farmers must also manage. These include international price and contract risk, changing consumer tastes and government’s closing markets for political reasons. Australian agriculture is already at a competitive disadvantage managing these risks when you consider the massive production subsidies, and tariff and quota barriers, provided by foreign governments to their farmers. These are protections not available to Australian farmers.

The international market risk faced by farmers has massively increased in recent weeks with the US-China trade deal and Coronavirus predicted to radically curtail Australia’s agricultural exports.

The US-China Phase One trade deal sets value thresholds for the agricultural products China must import from the US. At a minimum, China must import no less than US$12.5 billion above the 2017 baseline in CY 2020, and no less than US$19 billion above the 2017 baseline in CY 2021. Total US agricultural exports to China in CY 2017 was US$19.6 billion. So the agreement requires the Chinese to purchase, at a minimum, US$32.1 billion of US agricultural goods in 2020, and US$39 billion in 2021.

US total agricultural exports in 2019 was US$128.4 billion. If implemented in full, the deal will increase US agricultural exports to China from around 15 percent of their total ag exports, to roughly 30 percent over the next 2 years. This represents a radical shift in US agricultural trade exports.

The question remains as to whether the US will be able to supply the value of product required to meet the agreement’s minimum purchasing targets. But if it does, the mandated doubling of US agricultural exports to China would allow US exporters to all but name their price, putting upward pressure on the price of agricultural products generally, including for US domestic consumers. It’s also possible we’ll see US agricultural exports pulled from existing markets to service the Chinese market.

The agreement explicitly requires China to increase its imports of US oilseeds, meat, cereals, cotton, dairy, horticultural products, nuts, wine, and seafood. Australia’s current exports of these products to China will inevitably come under increased pressure as a result. The competition will be all the more acute with the US securing reduced regulatory barriers currently holding up US imports of many of these products.

The US was able to secure concessions from the Chinese that Australian authorities have been unable to secure despite years of trying. These include automatic recognition of processing facilities and safety systems for exporting dairy (including infant formula), beef, pork, and rice to China. China has also agreed to finalise and implement import protocols for a number of products including potatoes, nectarines, blueberries, and avocadoes within 3 months. While our free trade agreement with China delivered reduced tariffs, these reductions are meaningless without import protocols in place.

 The removal of these regulatory barriers are major concessions that, in and of themselves, should deliver major new market access opportunities for US agricultural exports.

You have to wonder, though, whether the US should have stopped with these regulatory concessions rather than push for thresholds for the value of imports the Chinese are to buy.

It’s likely that managing trade by setting value thresholds is probably in breach of non-discrimination rules under the World Trade Organisation. So they create ammunition for countries hurt by subsequent damage to their trade to bring a WTO dispute. It’s also likely that mandated increased agricultural exports to China will increase US farmer reliance on the Chinese market. Should the Chinese government turn around and decide to impose new sanctions on US imports, US farmers will be even more exposed. And should the US need to pull product from third markets to service the Chinese market, they create opportunities for other exporters to fill those gaps, including Australian exporters, severing supply relationships and making it more difficult for US exporters to reenter those markets in future.

In sum, the US-China trade deal is going to make international agricultural markets more uncertain and difficult for Australian exporters to navigate at least over the next two year.

In addition to the US China deal, Coronavirus travel bans and restrictions on movements within China are holding up supply chains that would normally deliver $12 billion of Australia’s agricultural products to Chinese consumers – that is one quarter of the nation’s total farm exports.

Already the virus is having a negative impact on wool prices and seafood exports. There are also anecdotal reports of products held up on wharves and contracts cancelled.

These new developments come on top of years of competitive disadvantage created by the agricultural subsidies paid by other governments to their farmers.

An upcoming Agrifutures Australia report by Kym Anderson notes global farm support policies as of 2014 lowered net farm incomes in Australia by 14 per cent and reduced Australia’s farm exports by 27 per cent. Since 2014, the average nominal rate of assistance to farmers in all OECD countries rose from 21 percent to 23 per cent and rose more in the EU from 21 per cent to 25 per cent. The implication is that subsidies, tariffs and quota protection provided by the EU is doing more damage to Australia today than it was 6 years ago.

In addition to highlighting the damage wrought by subsidies, the Agrifutures Australia report highlights that tariffs and quotas impose as much damage on Australia’s agricultural exports.

In terms of reducing the international market risk, our current trade negotiations with the EU presents a unique opportunity to deliver complete removal of all tariff and quota restrictions. These are critical if Australia stands any chance of redressing the many years of damage caused to Australian farmers by EU policies.

It’s unclear why the EU needs to continue to block Australian agricultural products. The EU is the largest agri-food exporter in the world. Between December 2018 and November 2019 EU agri-food exports were A$243 billion – representing an 8.7 per cent increase on the year before. In that same period, the EU agri-food trade surplus was A$49 billion – that’s equal to Australia’s total ag exports for the same period.

Australian farmers and exporters do what they can to manage the multiple risks thrown at them every day. They invest in on-farm practices that build resilience and international relationships that aim to reduce the uncertainty of international markets. There is a point, however, where industry’s ability to manage risk ends and outcomes depend on government effort – removing tariffs and quotas and reducing regulatory barriers through trade agreements is one.

Australia’s farmers depend on the Commonwealth Government to continue to advocate for the extension of concessions achieved by the US to all Chinese importers. They also need to hold the line in demanding the EU agree to remove their tariffs and quotas on Australian ag exports.

Australian farmers are doing their bit – we make no apologies about strongly lobbying the Government to make sure they keep doing theirs.

Fiona Simson

Fiona Simson

Fiona Simson is the President of the National Farmers' Federation and a farmer from the Liverpool Plains.

Add comment

Follow us

Don't be shy, get in touch. We love meeting interesting people and making new friends.