By Ulf Bergman
The Australian government has asked the WTO to formally establish a dispute-settlement panel after the initial informal talks on the trade of barley with China have failed to gain traction. The informal consultations were the first steps following Canberra’s formal complaint to the international trade body after Chinese authorities imposed 80 per cent duties on imports of barley from Australia. According to the Australian Trade Minister, contacts have yet to reach ministerial levels and have only been between officials so far. The escalation from the Australian side also suggests that they do not see a solution to the trade dispute any time soon, as resolutions through the WTO usually take years to formalise. The diplomatic spat between the two countries has been going on since April last year, with Chinese imports of Australian goods, with the notable exception of iron ore, badly affected by an unofficial ban and tariffs. However, the bilateral relations have continued to deteriorate recently, with Beijing calling for the Australian offshore detention centres to be closed, alleging human rights violations, and Canberra reviewing the 99-year lease by a Chinese company of the Port of Darwin under new national security laws.
As Australian shipments of barley to China have become virtually non-existent, farmers have sought to find new export markets on shores further afield. During the first part of the year, Mexico and Saudi Arabia bought considerable volumes of barley from Australia. The year started with Saudi Arabian buyers purchasing 660,000 tonnes of feed barley. According to the US Department of Agriculture, Saudi Arabia, the world’s third-largest importer of barley, is expected to purchase 6.2 million tonnes from growers around the world. Australia’s largest grains exporter, CBH Group, is also, despite the trade restrictions with China, expecting the first half of the year to be very busy. After a record-breaking monthly trade volume in December, the company expects to export almost ten million tonnes of barley and other grains by June.
Notwithstanding the restrictions on Chinese imports of grains from Australia, the country’s appetite for agricultural commodities remains strong. A resurgent pig herd, following its culling in the wake of the African swine flu, is one of the driving forces behind the continued strong volume requirements. The surging Chinese feed grain use and high domestic prices could result in record barley imports, with some analysts expecting it to top 10 million tonnes in the 2020/21 marketing year. However, the forecasts for the year are varying quite considerably, with the International Grains Council and the US Department of Agriculture expecting imports at around six and seven million tonnes respectively.
With the Australian barley crops remaining off-limits for the Chinese buyers, substitutes have to be found elsewhere. Some of the main alternative sources of barley are Canada, France and Ukraine. France has shipped almost two million tonnes to China so far in 2020/21 and already surpassing the 1.5 million tonnes in the preceding marketing year. Full-year imports of French barley could potentially reach a near-record 2.8 million tonnes. Likewise, volumes shipped from Canada to China in the first half of the 2020/21 season have already matched last season’s total volume.
Large parts of the coming European and Canadian barley harvests have also already been booked by Chinese buyers, according to traders. Around one million tonnes of both Canadian and European new-crop barley are thought to have been sold so far, with shipments largely set for the July-September period.
The Chinese trade restrictions on Australian grains have created a situation that is perhaps not great for trade efficiency or indeed for some consumer prices. However, it is good news for shipowners in the dry bulk sector as cargoes have to travel further afield to find their buyers, with Australian farmers seeking new export markets and Chinese buyers forced to find substitutes for the next-door producer. In light of Australia’s move to request WTO to formally engage in the dispute, it would appear that Canberra sees the trade dispute dragging on and, hence, continuing to add to the global tonne-mile demand. The already strong mid-sized segments in the dry bulk market could therefore see continued support for healthy freight rates.