Australia learns there is no replacement for Chinese consumer

Australia learns there is no replacement for Chinese consumer

(Bloomberg) – Australia has spent big to lure crowds of Indian tourists to its shores, signed a post-Brexit free trade deal with Britain and discovered new markets in the Middle East over the past its 30-month trade break with China.

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Yet, outside of iron ore and other key commodities, exporters have faced considerable difficulties. For a small open economy like Australia’s, moving away from the emerging global superpower is easier imagined than done.

China’s inability to source iron ore from outside Western Australia’s Pilbara region means it remains Australia’s largest trading partner by far, despite the diplomatic freeze.

But for other key industries, there has been no simple substitute for China’s consumers of quality lobster and wine or its spendthrift tourists and students, who have also been sidelined by Covid restrictions. -19. Although there are signs that tensions are easing – new Prime Minister Anthony Albanese met President Xi Jinping last week, the first face-to-face meeting between the countries’ leaders since 2019 – Australian businesses are not counting on an easing of restrictions anytime soon. Here’s how six key sectors — tourism, seafood, wine, education, barley and coal — at the heart of China’s trade retaliation fared.

Wine

Two years after China imposed tariffs of up to more than 200% on Australian wine, winemakers are still dealing with the messy break with what was its most lucrative export market, previously worth around 1.2 billion Australian dollars ($802 million) per year.

Mitchell Taylor, who runs Taylors Wines in South Australia, said the scale of the adjustment required could not be underestimated.

“While we have found new, small opportunities, nothing has ever been able to replace a market of this size and scale, especially in the luxury sector,” he said. Previously, Taylors Wine derived around a fifth of its annual export revenue from China alone.

“With some of the snacks we get, we’ve probably got about half that back.”

Taylor is considering destinations such as Singapore, South Korea and North America. While India could one day become a big market, it’s likely to be at least a decade away due to access and tariff issues, he said. has now overtaken China to become the premier destination for premium Australian wine.

“We are now getting our feet back on the ground,” he said. “It’s not all bleak, there are definitely those opportunities to build on.”

Other luxury wine producers have taken a different approach to being excluded from China. Treasury Wine Estates Ltd., best known for its Penfolds brand, began production in China in September – a move that allowed it to circumvent restrictions on Australian-made drinks.

While Taylor hopes relations improve, betting on China alone is too risky a long-term strategy, he said.

“I think we have to be very realistic and careful about China,” he said. “We would need a lot of reassurance and we would want to hear a lot of positives.”

Tourism

The absence of high-spending Chinese visitors is still keenly felt by the tourism industry, with numbers down 92% in September from the same month in 2019, before the pandemic. Operators cannot afford to wait and see when China’s Covid Zero policies ease, so to try to close the gap, Tourism Australia is counting on a revival from other countries, including India.

As part of its recent ‘Come and Say G’Day’ campaign, it hosted Indian cricketers ahead of the 8:20 p.m. World Cup in Australia.

The sports stars took a yacht to Rottnest Island, just off the coast of Perth, and posted their eventful day on social media, from celebrating a birthday and having a lawn party to meeting with quokkas, a native marsupial the size of a domestic cat. The posts generated one billion impressions, according to Tourism Australia.

While India has great potential as a market – the Indian diaspora in Australia has grown by 40% over the past five years, opening up huge opportunities for visiting friends or relatives – it is far from be as lucrative.

Before the pandemic, Chinese visitors spent an average of AU$215 per night. That compares to just AU$84 per night for Indians, according to figures from Australia & New Zealand Banking Group Ltd.

“In terms of export expenditure or revenue, the tourism sector needs almost twice as many visitors from India as from China to generate the same revenue,” said ANZ economist Madeline Dunk.

Education

Australia’s international education system is also still grappling with the double whammy of tensions and the consequences of border closures.

According to government data, enrollment from China, Australia’s biggest source of international students, is still less than 70% of pre-pandemic levels.

Offering some relief is a more robust return from students from India and Nepal, the next two leading nations. At the end of August, 110,000 Indian students were enrolled in Australia, down about 15,000 from 2019 figures.

For the wider economy, however, a permanent change in the student mix would be significant, as Chinese students typically spend more money on consumer goods while in Australia than other nationalities.

Barley

The timing of Chinese anti-dumping tariffs of over 80% on Australian barley in 2020 couldn’t have been worse. The move came just weeks after many growers put seeds in the ground, leaving farmers unable to alter planting schedules.

Australia has found a new home for the grain by diverting much of its bumper crop to Saudi Arabia, which is jostling with China for the position of the world’s biggest barley importer.

But the pivot hurts. Saudi Arabia typically uses most of the grain for animal feed, which meant that high-quality Australian malting barley, which previously fetched an attractive premium in China, was sold at a very good price.

Fortunately, there was a solution: plant something else. “Farmers are already working on a rotation,” said Zach Whale, managing director of policy and advocacy at GrainGrowers. “At the farm level, if it wasn’t for those malt premiums, you’d just be planting feed barley.”

Farmers are also now planting crops like canola and wheat, both in high demand after Russia invaded Ukraine.

Seafood

The Australian seafood industry, which exports almost half of its production, is also looking for new markets around the world.

While China is still the top destination, Hong Kong has gained significant market share as demand from the United States, Vietnam and Taiwan has increased, according to Seafood Industry of Australia.

“China remains our main commercial market. It’s a relationship where we know each other well,” said Veronica Papacosta, managing director of SIA. “We find great buys in other markets, but that takes time.”

The trade body will take about 20 suppliers to a major show in Boston for the first time, said Papacosta, who is also managing director of Sydney Fresh Seafood. Earlier this month, it also collaborated with the wine and dairy industry to introduce a range of premium products in Thailand, she added. Other events are planned from South Korea to Indonesia.

Coal

Unlike other industries, fossil fuel revenues are booming.

Coal exports to China fell from almost 100 million tonnes in the 2019-20 financial year to around 20 million tonnes, a blow to the sector in its second-largest market. Yet, from July 2020, coal purchases by Japan, South Korea and India increased as exports destined for China were diverted to other markets. By the end of 2021, the economic surge caused by the end of Covid-19 restrictions had pushed coal exports to new heights despite the ongoing embargo imposed by China, according to government data.

The boom only increased in 2022 as demand for fossil fuels sparked by the invasion of Ukraine put Australia’s coal industry on track for one of its most lucrative years. At the same time, China is reportedly considering removing its restrictions on Australian coal to ensure it has sufficient supply as demand for fossil fuels rises around the world.

Experts now suggest that the biggest threat to Australia’s coal exports is not China’s continued ban, but the steady march towards renewables in some of the country’s biggest commodity markets.

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