The Agribusiness Bulletin
The Agribusiness Bulletin focuses on national and local industry, as well as cross-industry insights and trends. This includes some of the drivers we expect to shape the future of the industry and potential challenges that may arise.
Impact of the China-Australia Free Trade Agreement on Australian agribusiness
Australian food and fibre exports to China have risen dramatically in recent years, and there is great optimism it will continue to do so. Indeed, rising demand from China was a pivotal reason why agribusiness was recently identified by Deloitte as a key growth area of the Australia economy in coming decades. However, until now, Australian producers and exporters have faced competitive disadvantages in penetrating the Chinese market versus nations that already have an FTA with China, such as ASEAN, New Zealand and Chile. A bilateral Free Trade Agreement (FTA) with China will not only put Australia on a level playing field with these nations, it will put Australia at an advantage over some of the other major food and fibre competitors into the Chinese market, such as the US, European Union and Canada.
A focus on beef
Deloitte Access Economics modelled the economic impacts of the China-Australia FTA on the Australian economy, including on different parts of agriculture. As one of the sectors of Australian agriculture that are expected to benefit the most from the FTA, this article takes a closer look at the impacts on the cattle and beef industry.
The existing tariff on Australian beef imports into China is between 12 and 25 per cent and our modelling is based on complete tariff removal as at a decade from now. There is also an existing 10 per cent tariff on live cattle. However, according to the Department of Foreign Affairs and Trade, much of the Australian live cattle imports into China are pure bred, and this type of live cattle import does not currently attract a tariff. As such, it is the removal of the tariff on beef (as opposed to live cattle) that has the largest direct impact on the Australian cattle and beef industries.
Whilst there is a danger in modelling such complex systems, our modelling based simply on the removal of Chinese tariffs on Australian beef throw up some interesting results including:
Many other sectors of Australian agriculture will also benefit from the FTA. However, it is not all a good news story for Australian agriculture. For agricultural industries that either do not export to China, or are not in line for tariff reduction, there are may be small declines in output. This reflects both exchange rate effects (the overall impacts on Australia from the FTA are dominated by the benefits to the coal industry), and a general switch of activity, including land use switching, to those sectors that have become relatively more profitable because of the tariff removal.
These results quantify impacts on two parts of the beef supply chain – on farm and processing. How the impacts flow through the supply chain will be an interesting point to watch. Given the recent challenges in the Australian beef sector there may well be an opportunity for debt reduction, investment in innovation, accelerating farm succession plans, and some welcome tailwinds for those graziers looking to expand their business.