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NAVIGATING AUSTRALIA'S TRADE WAR WITH CHINA IN POST-COVID ERA


Since the days of the Trump presidency, references to China in mainstream media have often become a point of conversation in Australian political discourse. However, is this an advantage or disadvantage for Australia?


On 23rd April 2020, former Australian Prime Minister Scott Morrison launched an inquiry into the origins of the Wuhan Covid outbreak, perpetuating tense relations between the two countries. This has led to a succession of Chinese import duties imposed on the most affected Australian industries; wine and lobster. Other industries such as barley and timber are also impacted by the Chinese “anti-dumping” measures; however, their respective economic losses do not compare with that of the wine and lobster industries.


As of last year, Chinese tariffs have cost the Australian wine industry $1 billion in wine imports, while the prices for Western Australian live lobsters have plummeted to at least $35 a kilo for domestic consumption. With the ongoing trade block and ban after ban, Australians have been rewarded with these reasonably priced luxury goods. Conversely, the Australian coal, dairy, education, iron ore, liquified natural gas, meat and wool industries have flourished due to their necessity for the Chinese market. In order for wine and lobster trade to revert to pre-pandemic levels, diplomatic relations between the two countries will need to improve.

On 11th May this year, China’s Ambassador to Australia, Xiao Qian, wrote an opinion piece for the Australian Financial Review, detailing his thoughts on the 50th anniversary of Chinese-Australian bilateral relations. In the article, Mr Qian states that China-Australia relations will improve due to a history of mutual understanding, which in fact, stems from the Australian Prime Minister’s individual attempt to keep “in close contact” with Chinese leadership. The attempt to maintain a “healthy and stable relationship” is evident in the terms of former Prime Ministers Gough Whitlam - who first established the bilateral relations, Malcolm Fraser, Bob Hawke, Paul Keating and John Howard.


After Anthony Albanese was sworn in as the 31st Prime Minister of Australia, the Chinese Premier, Li Keqiang, sent him a congratulatory message, hoping that relations between the two countries would reset. Three weeks later, Mr Albanese had reportedly responded to Premier Li with an “appreciation letter” and refused to publish the contents, however, on the 30th June, he compared China-Taiwan tensions with Russia’s coup of Ukraine at a NATO summit in Spain, which prompted criticism from the China Daily news organisation.


Although there is some dialogue between China and Australia, it is difficult to determine whether diplomatic relations will thaw or not in light of current geopolitical shifts. In spite of this, there is some trade activity between the two countries as China is selective on resources since facing a national priority of self-sufficiency and food security.


As the Chinese population has reached 1.41 billion since 2020, President Xi Jingping has recognised China’s need to address food security and its need to become more self-sufficient in the face of Covid-19 and the impact of climate change on food production. In the summer of 2020, floods had washed away crop fields proportionate to the Yangtze River, while a year later heavy rainfall and flooding had destroyed the Henan province’s 2.4 million acres of crops, negatively impacting their corn and wheat production. This, coupled with rising sea levels, continues to threaten agricultural land along China’s coast. However, in light of climate change affecting production and the country’s loss of arable land which has led to a concern in regard to food safety, China continues to purchase Australian beef and dairy due to Australia’s high standards of quality control, resulting in their production of safe and premium products.


China is said to account for half the world’s total pesticide consumption and so it needs to reduce chemical activity such as the use of fertiliser in food production, since the supply of organic foods from other countries may not be sufficient in quantity to feed the Chinese populace. To simultaneously address both food security and the ecological crisis, Chinese farmers have cut down on fertiliser and pesticide usage due to soil contamination and heightened carbon emissions produced by these chemical-based products, which can cause health problems for local consumers and farmers. This has led to the Chinese demand for organic seaweed fertilisers and products like seaweed feed for cows to shift to more environmentally sustainable agricultural practices and initiate a domestic market for organically produced foods.


For almost two years, struggling Australian industries, caught in the crossfire of the China-Australia trade war, have had to rely on different business models in response to their current inability to export to China and the “anti-dumping” measures imposed on their products. For example, from a Western Australian point of view, the lobster industry has adapted their product distribution to the different phases of the pandemic. Furthermore, the Australian global wine brand Penfolds will produce an in-country China vintage and so this business model may set the precedent for other Australian wine companies.


BORN IN AUSTRALIA. MADE IN CHINA?


On 18th May 2022, Treasury Wine announced that Penfolds will make their own wine in China for Chinese consumers by Autumn as an alternative method to bypass the “anti-dumping” measures imposed on Australian wine exporters.


Last year, the Chinese government introduced import duties of 116 - 218% on Australian bottled wine imports up until 2026.

It is expected that other Australian winemakers may follow this trend since Chinese consumers give preference to the quality and taste of Australian wines, and China’s market offers increased profitability in comparison to other overseas wine markets. However, not all wine professionals agree with Treasury Wine’s response to Chinese tariffs.


Rob Geddes is one of twenty-four Australian individuals in the world to hold the title Master of Wine. Before the Covid-19 pandemic, he used to travel to China frequently to consult with local wineries to help improve their wine quality and viticulture. During the interview, Mr Geddes revealed that he is adamant that the Penfolds premium Chinese label will not live up to its Australian counterpart due to the length of time it will take for Chinese winemakers to comprehend Penfolds’s wine practices.

“They [Chinese winemakers] are going to have to learn all of Penfolds’s technologies, techniques and ideas, which could be considered a loss of intellectual property.”

In 2018, Rob Geddes was interviewed in his Shanghai office by the Shanghai Eye about his passion for wine and his contributions to China’s industry as a wine critic.




This view is echoed by the Chief Executive of Australian Wine and Grapes, Tony Battaglene, who told the ABC that he is not confident in the quality of Chinese winemaking: “China is a really difficult place to grow grapes and make good wine.”

The Penfolds China vintage is said to contain grapes from Ningxia, located in China’s north west, and Shangri-La, located in Southwestern Yunnan province. Both Ningxia and Shangri-La have their respective varieties of cabernet and merlot.

It can be thought that due to the lack of knowledge of the terroir and the age of the grape vines, Penfolds China will be unable to produce the quality and consistency of premium wines for quite a number of years until they become more familiar with the characteristics of the local grapes.

Despite a Penfolds vintage now being produced in China, it is likely that local Chinese consumers will take an interest as Penfolds is one of the most reputable brands in China, and so the name commands a premium price resulting in higher profitability.



THE WORLD IS YOUR LOBSTER


Indian Ocean Rock Lobsters, a processing facility in Cervantes, Western Australia, has created different business approaches in order to sell their product and sustain their business as a response to the Chinese sanctions on the Australian lobster industry.

For many years China has been the top buyer of Australian live rock lobsters until the pandemic coincided with increased political tensions in Australian-Chinese relations in November 2020.

Supply and Distribution Manager for Indian Ocean Rock Lobsters, Joe Watson mentioned in this interview that he has spent the last three to five years searching for different international markets for exporting Western Australian rock lobsters.

“We sell to Malaysia, Singapore, Hong Kong, Taiwan, South Korea, but the actual industry is changing. If you went back to three or four years ago there has been a 97% change and now, we are also selling to Coles and Woolworths but domestically we are mainly selling frozen and fresh chilled.”

Since the pandemic, Lobster Shack, a restaurant owned by Indian Ocean, has served their menu items to Perth locals, interstate travellers and international tourists, allowing their business to adapt to different levels of pandemic control. However, this means that Indian Ocean Rock Lobsters may sell their product at different margins in comparison to the profitable China market.

“We have the sustainability to keep providing exports but we just don’t see the value”, says Joe.


Lobster Shack menu in Mandarin. Image: Indian Ocean Rock Lobsters


Before the Covid outbreak, Chinese tourists were a target clientele of Lobster Shack as the restaurant used to accept Chinese credit cards and had a dining menu written completely in Mandarin.

As soon as China’s international borders re-open, Lobster Shack will be in a better position to return to profitability as a result of business diversification.




CHINA NEEDS OUR KELP

Since the Paris Accords, the Chinese government has increasingly emphasised environmental cleansing and organic agricultural production as a national priority, which has created demand for clean and safe agricultural commodities.

Particularly, Chinese companies are looking at Australia as a potential source for supply of environmental technology and resources.


An Australian organic fertiliser company called Vitec Organics is exploring making a deal with the Xi’an-based Jibainong Biotechnology Co to supply Chinese farmers seaweed fertilisers.

According to a study conducted by Fertilisers Australia, Vitec Organic’s liquid seaweed concentrate contains growth hormones that help plants with their root development and ability to build resistance to dry weather. This fertiliser can also improve the soil quality without affecting the environment.

John Kelly, an agricultural scientist and Managing Director of the Tasmanian-based company Lenah Game Meats, is a business consultant and distributor for a number of Australian producers including Vitec Organics. This interview revealed that John understands the Chinese demand for seaweed fertilisers.

“The majority of Chinese farms are small plots owned by private individual farmers and these smaller plots are more suitable for intensive farming. In this case, the seaweed fertiliser is very suitable as it boosts the harvest and quality over a short period of time.”


Vitec Seaweed Fertilisers. Image: Vitec Organics


Amongst his many trade negotiations, Mr Kelly is also collaborating with the CSIRO affiliated company Future Feed to help export their Asparagopsis seaweed livestock feed into China, which is said to reduce carbon emissions by 80-98% and improve longevity for cows.


On the 17th of February this year Angus Taylor, Minister for Industry, Energy and Emission Reductions, made a media statement indicating that Future Feed had been awarded a grant of $500,000 by the Australian Government to test their Asparagopsis feed with cattle.

This is despite the tariffs imposed by China on particular Australian commodities as relations between the two countries continue to deteriorate with Australia choosing to support a WHO inquiry into the origins of the Covid-19 outbreak two years ago.

Lecturer in Marketing and International business at Marcus Oldham College based in Geelong, Victoria, Campbell Jeffrey Burchett used to take his students to China on study tours to better understand Chinese agricultural practices. Through a Zoom interview, Campbell Jeffrey, a member of the Australia-China Business Council (ACBC), understands the Chinese Government’s priority in developing its agricultural industry.

“The imposition of duties on products like lobster and wine is not super critical to “the Chinese equation” and therefore it is relatively easy for China to impose import duties on those products without making a significant impact on the people in China.”

Mr Burchett also recognises how the country has become more environmentally aware in recent years.


“The interest of doing things differently, more sustainably with less negative impact to their natural environment is possibly more due to wider China community concerns about environmental degradation rather than food security. China is embracing sustainability issues better than people might give them credit for.”

Other Australian knowledge-based farming enterprises are seeking Campbell Jeffrey’s assistance in accessing the Chinese market for their value-added products.

Despite China’s interest in Australian agricultural commodities, it is expected that disruptions to international freight and logistic services will continue due to Covid-19.

“The impact of Covid on the fertiliser trade restricts availability of seaweed packaging and access to sea containers. Most exporters are really struggling to get enough physical containers in order to get their products onto ships and into export destinations,” says Mr Kelly.

He adds that the interruptions to freight and logistics “will not interfere” with his objective to promote Future Feeds through licensed production in China.

LOOKING TO THE FUTURE


In spite of China’s “anti-dumping” measures and minimal diplomatic dialogue between the two countries, the industries most affected, wine and lobster, have managed to adapt to different methods of profitability in order to sustain their business.


As Australian wine companies are unable to export their wine into China, Penfolds has created a China grown brand for local Chinese consumers as an alternative business method. This approach is expected to pave the way for other prominent Australian wine brands since the value of exports of Australian wine to other countries does not compensate for the lost exports to China.


While China’s trade ban still looms on the Australian live lobster industry, the Western Australian based Indian Ocean Rock Lobsters, who used to rely on the Chinese market during pre-pandemic times, is sustaining their business by adapting to different levels of pandemic control and exporting their live lobsters to other international markets. This approach taken by Indian Ocean can be considered an economic advantage as the diversification of export markets is critical for the long-term stability of economic growth, which demonstrates that Australia is not over reliant on one export market.


In the case of organic resources such as seaweed feed for cattle and seaweed fertilisers, Chinese-Australian trade is still operating as China prioritises the need for organic products to address self-sufficiency and food security in light of growing environmental concerns in China.

 

Christopher Lo is a recent Communications and International Studies graduate at the University of Technology Sydney with Australian born Chinese heritage who is majoring in Journalism and French. Stemming from his French language studies and experiences living in France, Christopher wants to use his existing intercultural skills to rediscover his Chinese heritage and is keen to learn more about other Asian cultures in order to become a more culturally enriched global citizen. During his leisure time, Christopher likes to immerse himself in cinema and watch indie, retro and newly released films at the movies, and also likes to try a variety of international cuisines.

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