'Dragon' market firing up our farms

China is Australia's biggest farm export market, although our agribusiness traders appear to be lagging in their ability to supply products direct to Chinese shoppers, according to a trade report released this week.

Australia's overall two-way trade relationship with China has now well and truly surpassed Japan and the US in its contribution to gross domestic product (GDP), to be equivalent to about $17,000 for every household, says the Australia China Business Council (ACBC).

That followed a 17 per cent jump during 2012 alone, and compared to a modest decline in the trade contribution from our next biggest export-import partners, Japan and USA which injected an average $8000 and $6000 respectively into household earnings.

China also ranks as the sixth biggest investor of overseas business capital in Australia, and until 2012 the Chinese invested more money here than any other country on the planet.

Farmers and agribusiness entrepreneurs working with Chinese businesses are also enjoying new market access and value chain opportunities, leading to greater profits.

About 52pc of agribusinesses investing in China or exporting to China reported higher profitability than those primarily investing in Australia or importing from China, the ACBC study found.

"Despite the entry barriers and risks, China offers considerable opportunities for profitable growth," its report noted.

Almost 90pc of agribusiness firms surveyed in the ACBC's National Australia Bank (NAB)-sponsored study, were optimistic about their two year business outlook with China.

Virtually all ranked the powerful market as important to their global expansion plans.

But while 57pc of all exporters said Chinese contacts provided access to value chains for new markets, only 37pc of agribusiness traders had formed partnerships with state-owned enterprises.

NAB agribusiness general manager Khan Horne said there was clearly still a lot of potential for better and more rewarding supply chain partnerships involving farm exports, given this figure was as high as 83pc in other industry sectors.

He said considerable growth potential also existed for Australian agribusiness to do more in the processed food space to take advantage of rising Chinese incomes.

The ACBC found most agriculture, fishery and forestry exports to China went for processing, including our grain, wool, cotton and even much of the ballooning meat segment.

However, arch trade rival New Zealand, for example, had "a better penetration of Chinese consumer markets and occupies a stronger position in the higher value consumption segment of the Chinese market", the report said.

Mr Horne noted 24pc of NZ's ag exports sold direct to final consumption markets compared with just 3pc of Australia's.

"That points to a lot of untapped market opportunity for us," he said.

"An encouraging development is represented by Chinese plans to invest in the agricultural sector such as the recent announcement by the Beijing Agricultural Investment Fund to invest $3 billion in an agribusiness supply chain stretching from Australian farms to Chinese consumers."

Mr Horne said global value chains stretching over different countries were traditionally difficult for Australian businesses to infiltrate but relationships with Chinese trade partners were now opening doors into previously untapped global networks.

ACBC president John Brumby said agricultural and food products exports from Australia to China had risen dramatically since 2009, with demand for premium and high quality lines such as oilseeds, beef and other meats, doubling year on year.

Direct trade from Australia to China was now worth 5.5pc of Australian GDP - about $80b a year.

Across all export businesses about 200,000 people were estimated to be directly employed in selling to China - twice as many as in 2007.

The ACBC report, part-funded by Australia China Council and the federal government, was the only one of its kind providing such a deep analysis of benefits to agribusiness from trade with China.

However, its findings also identified increasingly fierce global competition in the Chinese marketplace, which meant Australian companies who were not yet closely integrated with Chinese partners faced mounting competition from local and foreign competitors.

It highlighted tariffs barriers as still a major concern for agricultural and manufactured product exporters, despite the promise of easier market access from the recent free trade agreement (FTA).

The FTA's benefits would "only unfold over time" the ACBC said.

"Businesses also recognise longer term challenges beyond the FTA's reach, such as the ability to deal in RMB (the Chinese currency) and the opening up of Chinese industries for foreign participation," its report noted.

"Physical infrastructure is a still a barrier for Australian agribusiness exporters, too," said NAB's Mr Horne.

"About 50pc of respondents cited this as an impediment to dealing with China."