China-Australia trade: knitted together

Mark Bennett

Head of Aus Agribusiness, ANZ

China and its international trade relationships are often misunderstood.

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It’s tempting to generalise and judge a nation from afar but when spending time in China to examine its history, industries and consumer trends, there actually are many shared ambitions across the region, from Inner Mongolia to Shanghai.

Peace, shelter, safety and health, alongside traditional values, are growing in importance in China - and influencing the demand for Australian produce.

"Australian agriculture’s ability to reach $A100 billion in output largely depends on China.”

China has only been open to the global market since 1949 and today it’s the fastest growing and second largest economy in the world. It’s also heavily reliant on millions of tonnes of fresh produce imported from across the world to safely feed a population of 1.4 billion which is expected to grow to 1.9 billion by 2050.

This is a serious and complicated exercise and Australia can play an important role.

Fine wool

Of the $A48 billion generated from Australian agriculture exports, China represents almost $A12 billion, 24 per cent. It’s our most valuable export market for sheep and wool, dairy and fresh produce, and a significant trading partner for beef and grain.

Australian agriculture’s ability to reach $A100 billion in output largely depends on China. One commodity benefiting most from our trade relationship with China is sheep meat and wool. Chinese consumption of sheep meat is growing at more than 4 per cent per annum.

Similarly fine wool - wool up to 24.5 micron - is finding its way into the hands of a greater number of consumers who are more attuned to the quality of natural fibres. Once found only in high-end suits, fine wool is now being used to produce premium sportswear, active wear and lightweight weatherproof casual wear.

Australia is the only country which can realistically meet China’s future supply demands. However, like with other commodities, China is working to bolster its domestic sheep industry. With a delegation of Australian producers, we toured the region last month and saw improved genetic breeding and feeding programs benefiting from Australian collaboration.

Meat focus

With meat, the Sino Sheep Company in Hohhot is a fascinating story of a project creating financial returns for nomadic Mongolian herdsmen by delivering quality meat to local consumers while carefully managing the environment.

It is unlikely Inner Mongolia will need to grow its flock beyond the current 78 million sheep and the local industry is focused on meat. This emphasis on meat is mirrored across global sheep production which anchors demand for Australian wool and means strong prices are likely to continue.

It will be important for the industry to recognise emerging interests across the supply chain. During discussions in China, land management and animal welfare practices were high on the agenda and we expect to see greater demand in China for wool that has been sourced from non- mulesed sheep (which now comprise around 9 per cent of Australia’s total wool production). This is something that the industry must carefully consider and manage.

China and Australia’s trade relationship should be viewed as a positive interdependency. However we must continue to listen to our international customers to better understand their supply chains dynamics and their considerations when sourcing international goods for local consumption.

Mark Bennett is Head of Australian Agribusiness at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.