Under pressure from Chinese tariffs, Australian farmers are cultivating new markets

Australian barley farmers were China’s first target in a trade dispute that has since spread to commodities such as coal, wine and lobsters. China was angry at Australian Prime Minister Scott Morrison’s call for an international investigation into the first outbreak of Covid-19 in central China, which the country said was complicated by a foreign government.

The trade dispute has cost the country’s barley farmers, who previously had exported up to 70% of their crop to China. Still, the industry has largely weathered the tariff impact, with surging barley exports and very few bankruptcies, showing that the trade pressure on certain industries is limited. Many of the tactics they use to survive are now being adopted by other exporters, such as Australian winemakers and salmon farmers.

Total barley exports are expected to increase by 64% in the 12 months to October 2021. Traders have continued to sell in other major markets such as the Middle East, albeit with a painful trade-off: consumers in the Middle East East usually use barley for animal feed, not beer, and usually pay less.

Farmers are also switching from barley to crops such as wheat, a trade that China does not dominate. They have looked for a unified response, for example by supporting Australia’s barley tariff challenge to the World Trade Organization, to avoid divisions that could exploit China.

Australia’s barley exports to China were worth about $ 1 billion annually before Beijing claimed farmers were subsidized to sell at unfairly low prices and imposed the 80.5% tariff, according to analysis company IHS Markit.

Many farmers had invested their profits in developing barley varieties that Chinese malters and brewers were looking for.

Other industries have also expanded, fueling the industrialization of China and its increasingly affluent middle class. China buys about 80% of Australia’s iron ore and was the main customer for Australian wine, beef and timber before trade tensions escalated. Australia was a popular destination for Chinese tourists and students before the pandemic closed national borders.

Ten years ago, China accounted for less than a quarter of Australia’s exports. China’s share is now about 40%. The pandemic has increased Australia’s dependence as China’s recovery has outpaced other major economies.

Australia isn’t the only one dependent on China. In 2001, when China joined the World Trade Organization, more than 80% of countries with publicly available data registered more trade with the US than with China, according to Australia’s Lowy Institute, a foreign policy think tank. In 2018, two thirds of the countries traded more with China than with the US.

Beijing has increasingly used that growing economic weight as leverage to achieve its foreign policy goals. According to an August report from the Australian Strategic Policy Institute, a government-backed security think tank, China has used so-called coercive diplomacy 152 times in the past decade, affecting 27 countries as well as the European Union. It said 113 of those cases had occurred since early 2018.

“Current trade disruptions with China, whether related to meat, barley, lobster or timber, are not isolated incidents,” said Rex Patrick, a lawmaker in the upper house who is inconsistent with mainstream parties in Australia. “Rather, it is a deliberate pattern of punitive measures where the Chinese communist government puts politics above fair trade.”

Australia is the hardest target of China’s coercive diplomacy, ASPI said. Before calling on Mr Morrison to investigate the origins of the pandemic, Australia had Chinese telecom companies Huawei Technologies Co. and ZTE banned. Corp.

of its next-generation 5G mobile network, while also criminalizing foreign interference in domestic policies that many believe targeted China.

As trade relations deteriorate, China has criticized Australia for raising trade barriers. “Since 2016, the Australian government has initiated 25 anti-dumping and anti-subsidy investigations against Chinese products,” a spokesman for the Chinese Embassy in Australia said in December.

Beijing had fulfilled its obligations under a free trade agreement with Australia, the spokesman added.

How Australia’s barley industry is weathering Beijing’s backlash could offer lessons to countries that anger China and are hit by punitive tariffs. Farmers like Mr. Sattler took a hit, but were able to cultivate other buyers for their barley crop before switching to other crops.

“A friend of mine said, if you were sitting on the porch, you would have heard 3,950 augers transferred from barley to wheat,” the day the rate was announced, said Mr. Sattler, 52, a fourth-generation farmer.

Mr. Sattler will halve his barley program this year, although he mentions both crop rotation and soft prices for a change.

South Australian producer Andrew Barr plans to reduce the barley share of the farm he inherited from his father to 20% from about a third last year. It will be the least space allocated to the grain in his 20 years on the farm.

Another tactic used by the Australian barley industry has been to cultivate markets from the Middle East to Japan and Southeast Asia, and even as far afield as Mexico, reducing vulnerability to future trade disruptions, even with the Chinese tariff Will be cancelled. Trader’s project Saudi Arabia will become Australia’s largest market this year.

“We are happy to sell to them, and it has got us out of prison this season,” said Mr. Barr. “But it’s not what I hope the long-term solution is.”

Mr. Barr wants the industry to scout malters in Korea, Japan, Vietnam, Thailand and India. Those markets pay a premium for high quality barley and are closer than the Middle East, meaning freight costs would be lower.

There are already signs that other industries are copying such moves. Treasury Wine Estates Ltd.

, facing Chinese import tariffs on wine of 169%, plans to ship wines allocated to China to other Asian countries, as well as to the US and Europe. The company will also increase marketing in those places.

“We were directly on the phone with the barley people to talk to them about their experiences, get their advice on how to deal with it and what approach to take,” said Tony Battaglene, CEO of Australian Grape & Wine Inc., a association of grape growers and wine producers, said about the Chinese tariff on Australian wine.

Even industries so far spared by Chinese restrictions are reacting to this. Huon Aquaculture Group Ltd.

, an Australian fish farmer, decided early last year to ship salmon destined for China to the US and said it expects to further reduce sales to China in order to diversify from that market.

These strategic shifts will not be easy or quick as exporters face strong competition and not all companies can use an identical playbook. Farmers can switch between crops relatively easily.

Australia began consultations with China on January 28, the first step in the WTO settlement process. Trade Minister Dan Tehan said Canberra is considering the next steps, including requesting a WTO panel to rule.

For Australia, a commodity like barley is a fragment of its economy. “It’s huge for a barley farmer,” said AMP Capital chief economist Shane Oliver of the rate. “But it hasn’t been a disaster for Australia.”

So far, the markets that China targets represent only about 1% of Australia’s gross domestic product, he said.

For many, the realignment of markets outside of China has long since been neglected, even if it causes short-term pain for exporters.

John Blaxland, professor of international security and intelligence studies at the Australian National University, said Australia’s trade relationship with China had reached a tipping point reminiscent of the UK’s decision to join the European Union in the 1970s. At the time, Australia was forced to refocus its trade efforts away from Britain.

“We have grown towards the biggest prize in the last two decades: China,” said Prof. Blaxland. “In doing so, we have overlooked opportunities closer to home.”

Write to Rhiannon Hoyle at [email protected]