Page 11 - Australian Pork Newspaper

Pork wars – what do global trade tensions mean for Australian industry?
THE possibility of a trade war between China and the US is all over the news.
Though it’s not certain if measures have yet been implemented, pork has been identified as a key target in the dispute.
If Trump’s promised trade war eventuates, what will be the effect on world pork markets?
Australian Pork Lim- ited has been watching this closely and trying to anticipate the impact on Australia’s pork sector under a range of possible scenarios.
To recap – President Trump was elected prom- ising to address the trade imbalance between the US and China, call out China’s unfair trade prac- tices and strengthen do- mestic industry.
In March 2018, the US Government announced plans to impose tariff du- ties on imported steel and aluminium.
This move was inter- preted as targeting China specifically, and Beijing responded with increased tariffs of its own.
These tariffs would ap- ply only to US-originating products, including a 25 percent increase to tariffs levied on pork.
The next day, the US doubled down with a list of China-specific tariffs on 1300 imported prod- ucts worth $US50 billion.
Only a few hours later, China published a corre- sponding list of tariffs on 106 US-originating prod-
Policy
ucts covering a similar value of imports.
This list included a pro- posed 25 percent tariff on soybeans, which is by far the largest agricultural commodity exported by the US to China, rep- resenting 60 percent of overall agricultural export value.
President Trump has asked his administration to come up with yet an- other list of $US100 bil- lion in Chinese imports to hit with tariffs in re- sponse.
So, things appear to have escalated quickly.
We hear China has be- gun to implement the promised tariffs on pork.
In relation to the soy- bean tariffs, China’s Ministry of Commerce has said they would only take effect after the cor- responding US measures were implemented.
At this point, the tariff announcements can be seen as a series of threats forming the backdrop for some hard-headed nego- tiations between Wash-
ington and Beijing. Senior officials from
both sides are frantically engaged in talks.
Washington wants Chi- na to exercise some self- restraint in exporting to the US to reduce excess capacity in steel produc- tion, to grant reciprocal access for US investment in China, and to cease practices the US views as unfairly acquiring Ameri- can technology.
Perhaps the two sides can clinch a deal – this is Trump’s self-proclaimed forte, after all.
But if they can’t, then we enter the unknown.
China is levying an ad- ditional 25 percent duty on all imported American frozen and chilled pork cuts, carcasses and offal.
The new tax greatly im- pairs US competitiveness in the China market, with Rabobank – a leading agricultural finance com- pany – predicting that US exports of pork to main- land China could drop from an expected 300,000 tonnes in 2018 to as little
as 120,000 tonnes.
A question on the minds
of many Australian pork producers is: where does all that extra product go?
Could it end up dumped in our market?
Let’s remember that about half of US pork ex- ports to China are offal.
So, we’ll assume this product will not end up in Australia, no matter how cheap.
That leaves us with a theoretical volume of about 60,000 tonnes.
Most analysts think the US domestic market should be able to absorb most of this excess vol- ume after discounting.
The Economist maga- zine has predicted US hog prices will drop by $US6- 8 per pig if the tariff is implemented.
If we then consider ex- port markets to take up the remainder, there are other candidates, closer to the US, with stronger domestic pork prices (that are more attractive to ex- ports).
For example, Mexico and Japan, the largest US pork customers by volume and value, respectively, are both well-placed to take on some additional US supply, as both mar- kets have been perform- ing well.
We conclude that the likelihood of an over- whelming surge of cheap US pork finding its way to Australian shores due to Chinese tariffs is small.
Having said that, there will likely be an impact
on global prices, and that might have indirect ef- fects for Australia.
On the other hand, some Australian agricultural commodity exporters have expressed cautious optimism over the pros- pect of a trade war.
They believe it might improve their position in China relative to the US.
Australian wine, dried fruit and nuts, and some grains and pulses, all stand to gain market share against US competitors in China.
Australian pork, howev- er, is unable to capitalise on any similar opportu- nity due to the absence of export protocols with China.
This means there is no immediate benefit for Australian pork from the lowered competitiveness of US-originating product in China.
Most analysts expect any gaps in that market will be filled by increased EU and Latin American supply in short order.
Longer term, the trade tensions will encour- age China to accelerate its process of diversify- ing trade relationships to avoid reliance on any one partner – especially one that seems increasingly erratic.
This could provide ad- ditional incentive for Chi- na to accept Australia’s market access request for pork.
Overshadowing this, un- fortunately, is the political relationship between Can-
berra and Beijing.
There is little prospect
for accelerated progress on any significant bilat- eral initiatives in the cur- rent climate.
APL is not expecting any sudden impact on the domestic pork market if an actual China-US trade war materialises.
There may be some downward pressure on global prices, but we as- sess the risk of a flood of cheap American imports being diverted to Aus- tralia as a result of tariff increases to be low.
Likewise, we do not ex- pect any significant move- ment on our China market access request related to these events.
But we need to be vigi- lant.
These are very uncertain times in global trade, and Australia must be prepared to overcome any challenges that head our way.
This is one reason why APL is increasing our ef- forts to address structural problems in Australia’s trade remedies system.
Anti-dumping investiga- tions and countervailing duties are one mechanism
by which Australian in- dustries can be defended against sudden waves of under-priced, imported goods.
But the record of this sys- tem in preventing harm to primary producers is not good because – for legal- istically technical reasons – most farmers are exclud- ed from seeking an anti- dumping investigation.
APL has long believed this system to operate un- fairly, providing assurance to manufacturing, while leaving farmers exposed.
Together with the Na- tional Farmers’ Fed- eration, A PL has asked the International Trade Remedies Forum (which oversees the anti-dumping system) to review the rel- evant legislation with a view to opening access to anti-dumping investiga- tions for farmers.
Developments in the global trade environment underscore the urgency of addressing this issue.
My second article in this month’s APN ‘Making Australia’s anti-dumping system work for farmers’ provides more background on this initiative.
by ANDREW ROBERTSON Senior Policy Analyst
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Australian Pork Newspaper, June 2018 – Page 11