Australian barley farmers and Canadian canola producers are on opposite sides of the world, but share a common blight: China, once their best customer is now a hostile adversary, accused of letting geopolitical goals sideline international trade rules.
May 19 China, which accounts for two-thirds of Australia’s malting barley exports, imposed an 80.5 per cent tariff on Australian barley for five years — a move that’s expected to all but stop Australian malting barley exports to China worth between A$600,000 and A$1 billion a year.
In March 2019 China banned canola shipments from Canada’s two largest grain companies, resulting in a 30 per cent decline in exports to what had been Canada’s best canola seed market.
Why it matters: Trading nations like Canada and Australia depend on rules-based trading and farmers from both countries are hurt when geopolitics enters the equation.
While Canada is expected to export more malting barley to China because of the tariffs, China’s actions further weaken rules-based trading, say Canadian grain industry officials.
“Despite the fact that this might open a window for Canadian malt barley exports, ultimately moving to a system in the world where trade is based on politics and might is right, that is not good for Canadian agriculture across the board,” Cereals Canada president Cam Dahl said in an interview May 20.
“We’re seeing this more and more where decisions around trade are based around politics and because of the pandemic we are going to see more of that, we’re going to see more economic nationalism, more protectionism and that’s not good for Canadian agriculture.”
Supply and demand will determine malting barley prices. Currently the worldwide demand for beer, which includes malting barley as an ingredient, is down because of COVID-19.
China claims it blocked imports of Canadian canola because shipments were contaminated with weed seeds and a race of blackleg, a canola fungal disease, China doesn’t have.
The Canadian Food Inspection Agency said it found no evidence backing China’s claims.
Many observers believe China’s real motivation was to punish Canada for its December 2018 arrest of Meng Wanzhou, vice-president of Chinese technology firm Huawei, at the United States’ request.
China claims its tariffs on Australian malting barley are justified because it is subsidized and being dumped (sold under the cost of production) — an allegation the Australian government denies (see sidebar).
Observers think China is punishing Australia because last month its Prime Minister Scott Morrison called for an independent inquiry into the origins of the COVID-19 pandemic, which is believed to have started in China.
Canadian government officials initially downplayed the idea China was playing politics; the Australian government is now doing the same.
“There is no trade war — everyone needs to take a deep breath and a cold shower,” Australian Minister for Agriculture David Littleproud told reporters in Canberra.
Littleproud is one of two ministers who have tried unsuccessfully to contact their Chinese counterparts to smooth escalating tensions over the trade of barley and beef to China, Australia’s largest trading partner.
China refused to talk to Canada’s Agriculture Minister Marie-Claude Bibeau about its canola complaints.
Like the Canadian government, Australia is also under pressure to take the dispute to the World Trade Organization (WTO).
“We call on the Australian government to support Australia’s farmers and exporters… and immediately pursue the WTO Dispute Settlement process to the fullest extent possible,” Australia’s grain industry body, GrainGrowers, said in a statement.
An Australian government official said a WTO appeal would take at least two years, and risked escalating trade tensions with China just as Australia is facing its first recession in three decades because of the impact of COVID-19.
“How can we not go to the WTO? Their justification has so many holes, I’m sure we will win and we have a duty to the farmers, but at what cost?” said the government source, who declined to be named due to the sensitivity of the issue.
Canada launched a WTO complaint against China, but University of Manitoba agricultural economist Ryan Cardwell has said even if Canada wins it may choose not to impose retaliatory tariffs on Chinese imports because it could hurt Canadian consumers more than it hurt China.
But Dahl hopes Australia does go to the WTO.
Cereals Canada is also urging the Canadian government to do all it can to promote rules- and science-based trading.
“Let’s encourage countries around the world, including China, to stick to rules-based trade and let’s make sure the rules put in place are technically grounded,” Barley Council of Canada executive director Erin Armstrong added in an interview May 20.
Bruce Burnett is certain China’s tariffs are politically motivated.
“I don’t think you can get around it,” the director of markets and weather at MarketsFarm said in an interview May 20.
(MarketFarms is owned by Glacier FarmMedia, which owns the Manitoba Co-operator.)
“It’s a lot like the canola situation,” he said.
“They (China) picked a commodity they can find another sources for. They are hoping to, quote, unquote, make Australia pay for this.”
The tariffs will hurt Australian farmers, but they’ve already exported a lot of barley to China this year and supplies are down due to drought, he said.
China’s tariffs will disrupt world malting barley markets, says Peter Watts, managing director of the Canadian Malting Barley Technical Centre.
“Australia will have to look for different market opportunities,” he said in an interview May 21. “It creates opportunity for malting and feed barley suppliers like Canada, France and Denmark and maybe the U.K. to a lesser extent, and Argentina and even Ukraine, to supply the Chinese markets. Then Australian exporters need to look for other market opportunities for their malting and feed barley. To some it’s just changing trade flow patterns, rather than it being sort of a boon to one country or another.”
Australia will likely export less malting barley and have to sell some of it into lower-cost feed markets in South Asia, the Middle East and perhaps South America, he said.
Some Australian malting barley will continue to be imported by China at much lower tariffs to be malted and then exported, Watts said.
China is also Canada’s biggest foreign malting barley customer accounting for 85 per cent of Canadian exports, he said.
“So I think we will see a boost in demand in China for Canadian malting barley,” Watts said.
“The one market where we will probably see a lot more competition from Australia that has been a traditional market for Canada, is Japan. We sell mostly feed barley into Japan, but we sell some malting and food-quality barley.”
Prices will depend on supply and demand — and right now demand is down, he said.
“The COVID pandemic has really slowed down global beer consumption,” Watts said. “There has been a real negative impact on demand for malting barley and processed malt in the short term.
“I would say the additional opportunities in China that are created by this will hopefully offset the slowdown in demand for Canadian malt.”
— With files from Reuters