IT MAY just be that alcohol is the thing to “soften the blow” on the Australian grains industry from the increasingly likely trade war fallout.
If the Chinese instigation of a barley dumping investigation is not enough to demonstrate the increasingly fine line that Australia must tread to steer clear from being hauled into global trade tensions, the halt on coal exports at the Chinese port of Dalian certainly is.
Amid this, we need to hope Chinese alcohol demand is maintained to soften the impact of this increasing risk on Australian grains.
At risk, if the broadening trade tensions include Australia, is that China is a key export market that accounts for 24 per cent of our grain and oilseeds annually.
Not in the current drought, but over the five years from 2013-14 to 2017-18, Australia exported an average of seven million tonnes of grains and oilseeds to China.
Five-year average exports of canola sit at 440,000t, but that belies the fact that in more recent years, our exports to China have been low to non-existent.
Our exposure in wheat is greater, with an average of 1.3 million tonnes - seven per cent of our wheat exports – finding its way to Chinese ports.
The stakes are much higher when it comes to barley, because a massive 4.5 million tonnes of our barley production is exported to China – accounting for 62 per cent of Australia’s barley exports and 45 per cent of production.
Though lower in volume terms, with just 770,000t of Australia’s sorghum exported to China, the stakes are highest because China accounts for over 90 per cent of our exports and close to 50 per cent of production.
If tensions escalate, the impact on Australian grains will be driven by how easily China can go without the grains, and if they can be substituted for alternative origin grains.
For wheat, assuming Canada is not in the same camp as the US and Australia, Canadian wheat could potentially replace our share of wheat exports to China.
Even if Canada is “on the outer” too, there is now more Russian wheat of better quality, on global markets, that might be used to replace Australian wheat in China.
For barley and sorghum the stakes are indeed high, but for both, their use in alcohol means that imports of Australian grains cannot easily be eliminated – at least in the short-term.
Exports of Australian feed barley and sorghum for feed to China would stop, being replaced by alternative feed products.
Malting barley, which Australia is a leading producer of globally and Australian sorghum, which is typically superior to other origins for baiju production (due to higher tannins), can be expected to continue.
The volumes would likely be lower as China looks to domestic and other origins so as to lessen their reliance on Australian supply, but nonetheless the trade would still continue.
Chinese demand for beer and baiju would soften the impact of widening trade war tensions on Australian grain exports.
That however, should not take away from the fact that the downside for barley and sorghum is still immense.
Until we see a return to average seasonal conditions, and export capacity, we’ll have to wait and see just how large.