A NEW study by well credentialed academics with a particular interest in agricultural economics in China has looked at the short-term drivers that led to Australia’s huge surge in beef exports to China in 2012-2013 and concluded they are unlikely to be repeated.
But as those drivers recede and give way to more fundamental dynamics, there is still room for optimism in the trade despite considerable challenges that lie ahead.
The study titled ‘The Sino-Australian Cattle and Beef Relationship’ is the combined work of Brooke Edwards, Scott Waldron, Colin Brown and John Longworth of the China Agricultural Economics Group, School of Agriculture and Food Science, University of Queensland.
The study was funded and published by the Australia-China Relations Institute (ACRI), an independent, nonpartisan research think-tank established by the University of Technology, Sydney, in 2014.
While being in the right place at the right time may have conferred an element of good luck on Australia (as well as New Zealand and Uruguay), good management was an essential component in the mix.
Australia had long anticipated a rise in Chinese beef consumption and through established trade protocol and approved processing facilities was in position to respond when the time came.
According to the study, that happened in 2012 when China went from being a small but consistent net exporter of beef to a major importer.
Unprecedented economic growth had a profound effect on the Chinese beef sector. Chinese beef consumption, especially out-of-home banquet consumption, had increased dramatically but domestic production had gone into decline as small-holders abandoned cattle production to take up more lucrative jobs in factories and the cities. As a result, Chinese domestic abattoirs struggled to source cattle and domestic beef prices escalated making imported beef economically competitive.
With three years of outstanding seasons enabling massive herd rebuilding, Australia had beef to sell. As well, it had the advantage of being one of few global exporting countries left standing with legal access to China after the trade-restricting effects of BSE or FMD on competitors such as Brasil.
When Australia’s beef exports to China soared from 33,000 tonnes (shipped weight) in 2012 to 154,000t in 2013, commentators ran out of superlatives in describing the event.
This led to speculation that Australia would become the ‘food bowl of Asia’ despite Australian agricultural exports having the capacity to feed about 60 million people, less than 1 per cent of current Asian population.
These optimistic hopes received a further boost in 2014 and 2015 with the finalisation of the China-Australia Free Trade Agreement (ChAFTA) and the long awaited announcement of a live cattle export health protocol.
Fervour reached a new pitch when claims appeared in the media that the live cattle export trade to China would grow to one million head annually worth $1 billion.
As with the ‘food bowl of Asia’ speculation, this sort of exaggerated rhetoric created concern in China as it reinforced ill-informed perceptions of Australia’s ability to swamp Asia with agricultural products and subsequently damage the livelihoods of millions of small domestic farmers.
Industry in Australia moved quickly to smooth over the excitement but in many quarters high expectations remained.
These are probably summed up in the following questions:
Are the heights of export in recent years sustainable or re-attainable?
Did we get into this position due to good luck, good management or both?
Overall the authors conclude that the beef trade will fall back on a set of more fundamental, long term drivers which look strong under a ‘normal’ economic growth scenario.
On the supply-side, Chinese cattle producers can be expected to continue to exit the industry to take up more lucrative opportunities in the economy thus limiting domestic supply and capacity utilisation.
On the demand-side, Chinese diets could be expected to diversify, though incrementally and not following Western consumption patterns.
But the general slowdown in the Chinese economy and government limits on banqueting has limited growth in both beef consumption and prices.
At peak trade flows, Australia only supplies about 3pc of China’s beef which barely registers as a contributor to China’s price and food security concerns.
As a result, the liberalisation of cattle and beef trading polices has been extended to a wide range of large and small beef producing countries that can be expected to erode Australia’s market share into the future.
On the issue of good luck versus good management, the authors make the point that while coincidence of factors in 2012-2013 amounted to a lot of good luck, Australia had to be in a position to take advantage of opportunities through good management.
In that regard it is Australian animal health and biosecurity systems that have proven robust over extended periods particularly in regard to FMD and BSE.
However the Australian relationship with China on these and related issues has been put to the test. In particular there were the 2014 HGP concerns, the 2013-14 chilled/fresh beef trade suspension and ongoing issues with plant export audit and accreditation.
That these issues were able to be worked through and largely resolved satisfactorily reflected well on the relationship.
This is no doubt helped by long-standing technical cooperation and communication between government agencies (in agriculture, quarantine and foreign affairs) and at industry, company and personal levels.
The authors believe Australia’s long-term biosecurity and animal health programs coupled with ChAFTA and the live cattle export protocol bestow some important policy-driven competitive advantages in China which place Australia in pole position in the formal market.
They identify a more liberal animal health protocol for live cattle exports from north of the Bluetongue line and facilitation of Chinese investment in the Australian beef industry as measures that would deepen the trade.
In conclusion they say that as trade falls back on more fundamental drivers, as new international competitors enter the Chinese market and as new and unforeseen challenges arise, trade will depend increasingly on good management.