Barley trade routes redrawn as China tariff hits Australian farmers

China's barley purchases from Canada more than double last year's

Barley south of Ethelton, Sask. in early August 2017. (File photo by Dave Bedard)

Sydney/Paris | Reuters — Out in Australia’s grain fields, farmers have started harvesting one of their biggest-ever barley crops, after drought-relieving rains convinced many to plant to the edges of their paddocks.

Yet the tractors are working under the cloud of a new tariff imposed by China — seen widely as retaliation for Australia’s push for a UN probe into the origins of the coronavirus pandemic — that has all but halted barley trade between the two countries.

The diplomatic row between a major exporter and the world’s second-biggest importer is prompting a rapid reconfiguration of global trade in the grain used primarily in beer production and livestock feed.

“As an industry we became too reliant. We had a neighbour happy to pay for our good-quality grain, we did probably get complacent,” said Lyndon Mickel, a grains farmer in Western Australia’s southern grain belt.

“This has taught us a lesson to have plenty of diversity in the market to make sure we don’t fall into that situation again,” he said.

Diplomatic and trade relations between Australia and China have deteriorated rapidly this year, with several categories of Australian goods now subject to Chinese trade restrictions or probes.

Australia typically accounts for up to 40 per cent of the world’s malting barley trade, used in beer production, and 20 per cent of feed barley. Well over half its total exports, around six million tonnes in a good year, go to China, the world’s biggest beer maker.

This will now either be stored, sold domestically or sent to alternate markets, such as top buyer Saudi Arabia, if new deals can be negotiated.

Pressure on barley supplies

China, meanwhile, is seeking alternate supplies, benefiting grain farmers as far away as France, Ukraine, Argentina and Canada.

Brent Atthill, managing director of RMI Analytics, a Swiss consultancy that specialises in brewing ingredients, said the barley supply chain has been put under strain.

“There’s a liquidity issue in the market and when China comes in with additional requirements that pushes prices up,” said Atthill, who expects the buying pressure to remain for at least another three months.

Barley prices around the world have risen strongly — except in Australia, where prices are down more than 10 per cent this year.

French farmers are responding to the Chinese demand, with high barley volumes flowing to China despite France’s smaller-than-usual harvest this season.

Chinese buyers have more than doubled their purchases from Canada from a year ago, and now take more than four-fifths of the country’s barley exports.

This is helping lift domestic prices, said Peter Watts, managing director of the Canadian Malting Barley Technical Centre in Winnipeg.

Barley shipments from Argentina have also started streaming toward China after a three-year lull, which includes malt barley usually provided by Australia.

Bumper harvest

China’s effective ban on Australian barley has come at a difficult time for the rural sector. After a prolonged drought, many Australian grain fields have turned golden, raising hopes that farmers can restock both their silos and bank accounts.

The country is set for an 11.2 million-tonne barley crop, the second biggest in the past 30 years.

“A lot of people in this district have not harvested a worthwhile crop since 2016 so there’s a lot riding on this particular crop,” grains farmer Matthew Madden told Reuters at his family farm near the town of Moree in New South Wales.

Helping farmers, Australia is also predicting a bumper wheat crop, where the tariffs don’t apply.

And the drought has created more demand for barley locally, as farmers replenish depleted stores, while China’s buying may open up export opportunities elsewhere.

“Australian barley should be attractive for export to the big Saudi Arabian market, so pushing out EU and Black Sea exporters,” a leading barley trader in Germany told Reuters.

With China’s tariff on Australian barley — an anti-dumping and anti-subsidy tariff totalling 80.5 per cent — due to run for five years, the disruption to trade routes could be long-running.

“The fact is they put it on, we’ll have to live with that and continue to try explain we are not subsidized — we don’t believe it is fair,” Madden said.

“In the meantime, we’ll try to diversify markets and … use it domestically.”

— Reporting for Reuters by Jonathan Barrett in Sydney and Gus Trompiz in Paris; additional reporting by Rod Nickel in Winnipeg, Michael Hogan in Hamburg and Colin Packham in Sydney.



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