Squeezed by China’s tariffs, Australian farmers cultivate new markets


SYDNEY – Alan Sattler had been on his tractor for three hours one morning last May, sowing hundreds of kilograms of barley seed in the arid wheat belt of Western Australia, when he received a text message from his grain agent. China, its biggest market, was imposing a punitive tariff on Australian barley.

Mr. Sattler inspected his 8,000 acre farm where he had already planted 2,500 acres of barley. He called the runner. “Now what we are gonna do?” Mr. Sattler implored, leading his question with “some interesting curse words.”

Australian barley growers were China’s first target in a trade dispute that has since expanded to staples like charcoal, wine and lobsters. China was angered by Australian Prime Minister Scott Morrison’s call for an international investigation into the first Covid-19 outbreak in central China, which it saw as meddling by a foreign government.

The trade dispute has cost the country’s barley farmers, who had previously exported up to 70% of their harvest to China. Still, the industry has mostly weathered the impact of tariffs, with barley exports increasing and very few bankruptcies, showing that trade pressure has limits in certain industries. Many of the tactics they are using to survive are now being copied by other exporters, such as Australian wine producers and salmon farmers.

Market movement

Australian barley is heading to the Middle East and Southeast Asia as sales to China dry up.

Barley exports to the rest of the world

Barley exports to the rest of the world

Barley exports to the rest of the world

Barley exports to the rest of the world

Total barley exports are forecast to increase by 64% in the 12 months to October 2021. Traders have sought sales in other large markets like the Middle East, though that has come with a painful trade-off: Middle Eastern consumers. They mainly use barley for livestock feed, not for making beer, and they usually pay less.

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

Barley harvested on Mr. Sattler’s farm. Australian farmers are looking for export markets outside of China, such as Saudi Arabia.

Australian barley exports to China were worth around $ 1 billion annually before Beijing alleged that farmers were subsidized to sell at unfairly low prices and imposed the 80.5% tariff, according to analyst firm IHS Markit..

Many farmers had invested their profits in developing barley varieties sought after by Chinese malters and brewers.

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

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

Australia is not alone in its dependence 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 United States than with China, according to Australia’s Lowy Institute, a foreign policy think tank. By 2018, two-thirds of countries were trading more with China than with the US.

Beijing has increasingly used this growing economic clout as a lever to achieve its foreign policy goals. Over the past decade, China has used so-called coercive diplomacy 152 times, affecting 27 countries and the European Union, according to an August report from the Australian Institute for Strategic Policy, a government-backed group of security experts. He said 113 of those cases had occurred since early 2018.

Australia’s main exports

China imports a significant portion of Australia’s top 10 exports.

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“The current trade disruptions with China, whether related to meat, barley, lobster or lumber, are not isolated incidents,” said Rex Patrick, an upper house lawmaker who is not aligned with the main parties in Australia. “Rather, they are a deliberate pattern of punitive measures with the Chinese communist government putting politics before fair trade.”

Australia has been the main target of China’s coercive diplomacy, ASPI said. Before Morrison’s call to investigate the origins of the pandemic, Australia had banned Chinese telecommunications companies Huawei Technologies Co. and ZTE. Corp.

of its next-generation 5G mobile network while at the same time criminalizing foreign meddling in domestic policies that many consider to be directed at China.

As trade ties deteriorated, China has criticized Australia for raising barriers to trade. “Since 2016, the Australian government has launched 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.

China imposed tariffs of up to 212% on Australian wine, prompting politicians around the world to criticize what they call “harassment” from Beijing. WSJ visits a winemaker who hopes global care will help the industry. Photo: Lisa Maree Williams / Getty Images

How Australia’s barley industry supports Beijing’s backlash could offer lessons to countries that enrage China and are hit by punitive tariffs. Farmers like Sattler were hurt by the profits, but were able to grow other buyers for their barley crop before switching to other crops.

“A colleague told me, if you were sitting on the front porch, you would have heard that 3,950 bits were transferred from barley to wheat” the day the rate was announced, said Sattler, 52, a fourth-generation farmer.

Barley fields harvested on Mr. Sattler’s farm. Some farmers have opted for crops like wheat, a trade that China does not dominate.

Sattler will cut his barley program in half this year, though he cites crop rotation and soft prices for the change.

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

Another tactic employed by Australia’s barley industry has been to cultivate markets from the Middle East to Japan to Southeast Asia, and even as far away as Mexico, reducing its vulnerability to future trade disputes even if China’s tariffs are removed. The Saudi Arabia merchant project will become Australia’s largest market this year.

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

Barr wants the industry to seek out 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 that transportation costs would be lower.

There are already signs that other industries are copying those moves. Treasury Wine Estates Limited.

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

“We spoke directly to the Barley Boys on the phone to talk to them about their experiences, get their advice on how to deal with it, and the approach to follow,” Tony Battaglene, CEO of Australian Grape & Wine Inc. Vintners and wine producers said about China’s tariff on Australian wine.

Even industries that have so far freed themselves from Chinese restrictions are responding. Huon Aquaculture Group Limited.

, an Australian fish farmer, decided early last year to ship salmon to the United States that had been destined for China and said he hopes to further cut sales to China to diversify beyond that market.

These strategic changes will not be easy or quick as exporters face stiff competition and not all companies can adopt an identical manual. Farmers can switch crops with relative ease.

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

For Australia, a commodity like barley constitutes a piece of its economy. “It’s huge for a barley farmer,” AMP Capital chief economist Shane Oliver said of the fee. “But it has not been a disaster for Australia.”

Mr. Sattler with the dog Copper. The farmer said he will cut his barley program in half this year.

So far, China’s target markets account for only about 1% of Australia’s gross domestic product, he said.

For many, the reordering of markets outside of China has been long overdue, even if it brings short-term problems for exporters.

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John Blaxland, professor of international security and intelligence studies at the Australian National University, said Australia’s trade relationship with China had reached a turning point reminiscent of the UK’s decision in the 1970s to join the Union. European. Back then, Australia had been forced to redirect its business efforts away from Great Britain.

“We have gravitated toward the biggest prize in the last two decades: China,” said Professor Blaxland. “In doing so, we have overlooked the opportunities closest to home.”

Write to Rhiannon Hoyle at [email protected]

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