SINGAPORE – Australia is at an disadvantage in its trade dispute with China, which has found alternative sources such as the US for supplies, according to S&P Global Platts.
China currently imports many products from the US, including wheat, corn and soybeans, Andrei Agapi, director of the Asia-Pacific pricing association for agriculture at Platts, told CNBC’s “Squawk Box Asia” on Tuesday.
The purchase came after Beijing agrees to make a “substantial purchase” US manufacturing, agricultural and energy products, along with services, as part of a “phase one” trade agreement between two economic powers.
Analysts said China had “the potential to buy more” as it wanted to replenish its inventories and reserves. Agapi explains, “There is room for more suppliers, this is not just a US game.”
“China doesn’t really need wheat and barley … from Australia. More Australia needs the Chinese market,” Agapi said.
A farmer operates a combined harvester as he unloads wheat into a grain cart during harvest at a farm near Gunnedah, New South Wales, Australia, on Tuesday, November 10, 2020.
David Gray | Bloomberg via Getty Images
One of the factors driving interest in buying agriculture is China’s recovery from African swine fever, which crushed the country’s pig herds and shipped them. Pork prices are soaring for the months to November. The economy has also largely recovered from the coronavirus. As a result, Agapi says “feed requests are going online quite aggressively.”
“Whatever is the cheapest supply and the most supply, it will be appreciated,” he said.
That could bode well for Australian farmers, who have emerged from three consecutive years of drought and are in “a pretty good time to compete” as crop yields increase, Agapi explained. That gives farmers more flexibility to price their produce on a competitive basis.
But in May, China charges hefty rates for Australian barley, set the price for crops from the Chinese market. The episode highlighted the importance of Australian exporters to diversify their markets, said Agapi.
The trade dispute between the two countries escalated over the weekend when China again imposed tariffs on Australian products, this time targeting the country’s wine exports.
“Australia has had to scramble to find several homes for the cargo, some of which are already afloat and en route… to China,” Agapi said, referring to the grain levy. “If the decision comes from China to withhold any imports – if there is no diversification – then exports are suddenly abandoned.”
That doesn’t mean that there aren’t buyers elsewhere for the crop. Analysts explain that Australian barley and wheat have been “historically very competitive” in places like Indonesia and the Philippines in Southeast Asia and even in the Middle East.
“You can always find a buyer,” says Agapi. “It’s about price, basically.”