China might discover different sources, however Australian merchandise can nonetheless compete, says S&P World Platts
SINGAPORE – Australia is in an unfavorable position in a trade dispute with China which S&P Global Platts says has found alternative sources such as the US for supplies.
China currently imports many products from the United States, including wheat, corn, and soybeans. Andrei Agapi, Associate Pricing Director of Agriculture in Asia Pacific at Platts, told CNBC's "Squawk Box Asia" on Tuesday.
The purchase comes after Beijing agreed to make "substantial purchases" of US manufacturing, agricultural, energy products and services under the "Phase 1" trade agreement between the two economic powers.
The analyst said China has "the potential to buy more" as the country looks to replenish its inventories and reserves. Agapi stated, "There is room for more suppliers, it is not exclusively a US game."
"China doesn't necessarily need wheat and barley … from Australia. It's more Australia that needs the Chinese market," said Agapi.
A farmer operates a combine harvester while unloading wheat into a grain wagon during a harvest on a farm near Gunnedah, New South Wales, Australia on Tuesday, November 10, 2020.
David Gray | Bloomberg via Getty Images
One factor increasing the appetite for farm shopping is China's recovery from African swine fever, which decimated the country's pig herds and skyrocketed pork prices for months through November. The economy has also largely recovered from the coronavirus. As a result, Agapi said, "The demand for feed is going pretty aggressively online."
"Whatever the cheapest and most plentiful supply will be priced in," he said.
This could bode well for Australian farmers emerging from three consecutive years of drought and "pretty good moment to be competitive" when crop yields improve, Agapi said. This gives farmers more flexibility to value their products more competitively.
But in May, China imposed a heavy tariff on Australian barley to get the crop out of the Chinese market. That episode highlighted the importance of diversifying their markets for Australian exporters, Agapi said.
The trade dispute between the two countries widened over the weekend when China again imposed tariffs on Australian products, this time with the country's wine exports in mind.
"Australia had to mix it up to find a home for these loads, some of which were already afloat and on the move … for China," Agapi said of the barley levy. "When a decision comes from China to hold imports – if there is no diversification – exports are suddenly stranded."
That doesn't necessarily mean that there are no buyers for the crop elsewhere. The analyst said Australia's barley and wheat have been "historically very competitive" in countries like Indonesia and the Philippines, in Southeast Asia and even the Middle East.
"You can always find buyers," said Agapi. "It's essentially a question of price."