China's 80.5% tariff on barley imports from Australia not seen hitting wheat

New Delhi — China's move to impose an 80.5% tariff on imports of barley from Australia is not expected to make a massive dent in Australia's wheat export market, sources say.

Some market participants in Australia were concerned after China announced the tariff on Monday. China has also suspended four major Australian abattoirs from selling red meat there.

China's Ministry of Commerce said it would start imposing the tariffs from Tuesday, citing its investigations of imported barley originating in Australia point to dumping of cheap barley onto its market, which has led to substantial damage to the Chinese industry.

The anti-dumping tax rate is 73.6%, while a countervailing subsidy margin of 6.9% has been also levied on the imports, according to the ministry. The import tax will be over a period of five years.

"It's a big blow to the barley industry and has caused quite a stir here," manager at Australian Crop Forecasters James Maxwell, told S&P Global Platts.

Around 70% of Australia's agriculture, fisheries and forestry production value is exported, with China being the single largest market for the products. China takes in more than 50% of Australian barley exports, most of which it is malted barley.

"Bulk grain terminal shipping stems show about 650,000 mt [of barley] shipped in April and May [to China], so season-to-date, Australia is estimated to have exported over 1.2 million mt of barley to China," Maxwell said.

A trader based in Australia said that "inquiries are already starting to come in from some buyers, who previously shunned Aussie barley due to the inflated prices."

The US Department of Agriculture forecasts Australia to export 5 million mt of barley in the 2019-20 marketing season (November-October).

Switching to other crops

The news of China announcing tariffs on barley comes at a time when significant progress has been made in barley planting on the East Coast and in South Australia, while due to late planting sessions in Western Australia, the biggest barley exporting state in the country, barley planting is only approaching the half-way mark.

Depending on Australia's response, local farmers, particularly those in the west, will likely be switching to other crops that have a better marketing prospect such as oats and wheat, sources said.

"We've heard anecdotal evidence of growers changing their planting program from barley to wheat, and while this won't be known until planting is complete, we're not expecting a massive swing out of barley," Maxwell said.

"The change will most likely be more significant in Western and South Australia, which are primarily export focused and will feel the impact more than eastern states where there is a large domestic market," the Australian-based analyst said.

Wheat may not make the list

Maxwell said he did not expect China to target wheat going ahead, as Australia does not really rely on China for export wheat demand.

However, China's accelerated purchase of Australian wheat at the beginning of the year surprised markets, as the wheat was trading $29-$65/mt premium over other competing origins.

China purchased 463,915 mt of wheat from Australia between January and March, according to Beijing-based Cofeed.

However, Maxwell said this meant China was still behind the Philippines to the end of March, and just in front of South Korea.

"China's five-year average market share of Australian wheat exports is 7%, or around 1 million mt, but they're very much an elastic buyer, jumping into the market when it suits them rather than a consistent demand point like North Asian or South East Asian countries," Maxwell said.

China only imported 182,969 mt of Australian wheat in 2019, according to Cofeed data.

"From an Australian point of view [China is] pretty replaceable [as a wheat export destination]," according to Maxwell.

ACF estimates around 1 million-1.5 million mt of wheat will go to China this season that started in October 2019 and will run through September 2020.

"There are currently some wheat boats on the water to China that suppliers are sweating on," a trader said.