Australia China agri-relations: snap shot

The opportunities for Australian business in China’s agriculture sector are boundless but so are the challenges, reports Sophie Loras.

Currently, China’s agricultural sector contributes 11 percent of GDP but accounts for 40 percent of the country’s employment. But as China undergoes one of the world’s fastest rates of urbanization and deals with its aging population and the year on year depletion of arable land, more and more opportunities are presenting themselves for Australian agri-businesses to enter the Chinese market.

To counter these changes, the Chinese government has introduced regulatory changes to counter the heavy taxation of the country’s agriculture sector and changed land leasing rules and introduced subsidies to encourage bigger land holdings.

“Small food lots are not going to be able to feed the China of the future,” says Austrade Trade Commissioner Luisa Rust, who heads the organization’s China agribusiness team.

Another significant regulatory change has been the introduction of China’s food safety laws in 2009, in part in response to the country’s 2008 milk contamination scandal and other high profile food safety scares. Allowing China’s affluent consumers to now have the means and the education to choose produce based on quality as much as cost.

Market access improvements for Australian products over the past 12 months have included better access for red meat and Tasmanian apples, kangaroo meat, citrus and mangoes.

Where Australia is having particular success in China are in niche areas catering to China’s growing affluent society, agricultural products supporting existing commodity production in China – such as animal feed and dairy cattle – and products which compliment existing markets in China such as counter-seasonal fruits.

Australia’s dairy industry is also benefitting from increased dairy consumption in China – in some urban areas by as much as 25 percent a year since the late ‘90s.

In the past 12 months alone, Elders has exported more than 20,000 head of dairy cattle to China. This in turn is creating opportunities for technologies and management expertise from developed dairy industries in areas including animal livestock housing, animal comfort and welfare, waste management systems and ventilation and cooling.

There has been headway too in Australia’s equine sector. The country’s growing affluence is seeing resurgence in equestrian related pastimes – from polo to equestrians and non-commercial racing. China’s central city of Wuhan has had an operating racetrack since 2003 while in 2007, the Nine Dragons Hill Polo Club, near Shanghai, introduced China’s first international polo tournament, with many of the horses bred in Australia.

Ms Rust says ongoing regulatory issues and competition remain the key challenges to Australian agricultural exports to China but advantages include Australia’s close proximity to the Chinese market with Australians on the ground.

“Our quality standards also mean we have a quality of product we can compete on – Australia has exemplary traceability systems – from product straight back to the farm,” she says.

Ms Rust says education and training services around some agricultural sectors would have obvious benefits for Australia, but currently regulatory conditions in China restrict this.

Nicolas Hunt, the founder and CEO of Kirribilli Pastoral Company, says the biggest obstacle facing Australian agri-businesses in China is the lack of a free trade agreement between China and Australia.

Mr Hunt, who is currently based in Shanghai, says he is seeing first hand the ramifications for Australia, of New Zealand’s 2008 FTA with China.

Mr Hunt’s subsidiary company, Nick’s Meats, imports Australian wine, dairy, beef and seafood into China.

He estimates a New Zealand snapper costs less than half of the Australian snapper after duty.

“Australian snapper is just too expensive so we will be looking at New Zealand snapper in the future,” he says. “Crunching the numbers – for dairy, cheese, beer, meet pies, beef – and the early indicators are that New Zealand is way ahead.”

Mr Hunt says Australia faces competition from New Zealand in seafood, grain, wheat, barley and dairy and Brazil and Chile for beef.

“Saying we have a wonderful product is not enough,” he says.

“Australian agriculture should not get so comfortable and assume demand from Asia will increase. On face value that is true but we need to understand those markets and compete in an increasingly brutal market in the face of countries like New Zealand having an FTA with China.”

Mr Hunt says Australian agricultural companies tend to emphasise the opportunities in Asia while at the same time reducing their presence on the ground in Asia.

“You need people on the ground in Asia to know what consumers’ trends and tastes are,” says Mr Hunt. “Just producing a product and ramming it down throats is over, and Australia hasn’t quite got that.”

China snapshot

  • 15% of China’s 9.3 million km land base is arable and urban development is decreasing that amount by about one percent annually.
  • China has only 7% of the world’s cultivated land to feed 22% of the world’s population.
  • Agriculture in China accounts for 11% of GDP and over 40% of employment

Australia’s agri trade with China

  • Australia exported A$3.4 billion in agricultural goods to China in 2009 – a fall of 2.2% on 2008.
  • Wool is Australia’s largest agricultural export – worth A$1.38 billion in 2009 – accounting for 66% of China’s total wool imports.
  • Australian wheat exports to China tripled in the first nine months ending June 30 – totalling 740,000 tonnes of which 80% was in bulk and 20% in containers.
  • Australian dairy products in China are worth A$115 million per year.dairy_cows_thumb
*Source: Austrade

To read a profile on Australian dairy business Sustainable Soils and Farms recent joint-venture with a dairy farm in Henan province, click here.

To learn more about the opportunities for Australian businesses in China’s organics market, click here.

 

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