Australia seeks FTA's with Asia

by Chris Gillies
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According to a panel of experts, the Australian grain industry will need free trade, investment and an efficient supply chain if it is to capture the full potential of neighboring Asia over the next decade.

Speaking at the Australian Grains Industry Conference in Melbourne on July 28, the panel included Andy Crane, chief executive officer (CEO), CBH Group; Yasushi Takahashi, Chairman and CEO, Mitsui & Co. Australia; and Peter Roberts, Department of Foreign Affairs and Trade. They spoke to delegates from many different parts of the Australian grain industry including growers, traders, buyers and supply chain operators.

The session, titled “Benefits of FTA’s and Expected Outcomes,” provided conference delegates an opportunity to learn about trade negotiations and how this plays out in terms of the supply chain, investment and meeting demands of a growing Asian population.

The general consensus was that free trade with Asia will provide Australia with economic benefits that arise from market access and investment. Among Australia’s advantages are its geographic location to Asia and reputation for a clean and green product that an emerging middle class will gladly pay a higher premium.

Trying to overcome shortcomings

Crane, CEO of Australia’s largest grower cooperative, CBH, said his organization handles 90% of Western Australia’s grain production, which it achieves by operating 195 grain storage sites and four export terminals.

Crane spoke of Australia’s weaknesses which include declining productivity and competitiveness when compared to other countries. One such example was a comparison of Australia’s and Canada’s grain supply chains. Using his example, a 60,000-tonne bulk vessel requires 5.5 trains in Canada to load compared to 16 in Australia. This is because of wagon size and track capacity lag well behind Canada.

In addition, investment in Australian agriculture is at the mercy of variable weather, high labor costs, taxes, government decisions and regulations and a lack of opportunities to invest. Crane believes trade agreements can overcome this by unlocking foreign capital that will improve and ultimately benefit the grain industry.

Crane believes foreign or domestic investors will be attracted to the Australian grain industry, because it offers security of supply, its geographic proximity to Asia, food safety standards, innovation and well-known brands.

To overcome the inefficient Australian supply chain, Crane called for investment to improve or build infrastructure to move grain from up-country to port at the lowest costs. Doing so, he said, would unlock the Australian economy’s full potential and benefit the community over the long term.

In addition to investment, he also said the Australian government must reduce “red tape” and improve market access and trade through additional trade agreements (multilateral, plurilateral and bilateral). Not leaving it solely at the feet of the Australian government, Crane said further work was needed to remove or minimize tariffs and quotas globally as well as the removal of “murky” trade barriers.

In shifting his focus to trade agreements and global trade, Crane spoke of the difficulties associated with agriculture in negotiated trade agreements. “Agriculture is often seen as the problem child in these trade negotiations. The risk for us is when trade negotiations get stuck that agriculture and some of those key agricultural issues can be put aside,” Crane said.

The answer, he said, is to provide a strong and united voice that outlines the issues industry wants addressed when approaching the Department of Foreign Affairs and Trade (DFAT).

“We as an industry need to represent agriculture strongly when government and the DFAT come and ask, ‘What examples have you got of stuff that is getting in the way?’ We need to have a strong voice. If we don’t make those submissions right at that moment, we get left off the agenda.”

Crane praised Grain Trades Australia’s (GTA) contribution in this area.

“GTA has a really strong and ongoing role in making sure we are well represented at those important stages in negotiations when they are looking for practical examples,” Crane said.

Scope of the Asian market

Following Crane was Takahashi, Mitsui & Co., Australia, who started his presentation with the company’s history in Australia from its office opening in 1901 to today where it is the third largest grain exporter on the east coast and second largest on the west coast. Traditionally, Mitsui & Co. was a FOB buyer of grain, but after the deregulation of the wheat industry it has diversified to acquire grain from up-country with a mixture of collaborations and a 25% stake in Plumgrove.

The company is a global grain trader, exporting a combined 16 million tonnes of grain from major production areas in South America, North America, Russia and Australia into Asian markets as well as emerging markets in the Middle East, Africa and Europe.

Takahashi spoke of Australia’s role within the company’s portfolio.

“Asia is our focus. Considering the proximity of this growing and emerging market, Australia is very well positioned, and that’s why we are intending to and planning to expand our businesses here in Australia,” Takahashi said.

This fits neatly into the importance of FTA’s for Mitsui & Co., naming China, Japan and South Korea as three key North Asian partners for Australian grain. Talking about the Japanese economic partnership agreement in particular, Takahashi said the country was one of Australia’s largest buyers of its produce with a long and stable trading relationship, referencing the country’s importation of 1 million tonnes of grain each year, primarily for the manufacture of udon noodles.

“Our Japanese wheat customers are always saying, ‘Don’t forget old friends like Japan,’ when there are so many new friends looking to supply grain from Australia,” Takahashi said.

Takahashi added that the most significant part of the Australia/Japan agreement was that Australia was the first major agricultural exporter to secure an agreement of its type with Japan.

“Australia secures the first-mover’s advantage in various export commodities like grains or agricultural products. That’s the most important thing,” Takahashi said.

Takahashi believes this first-mover advantage will be very beneficial for the Australian grain industry and leaves the door open for a greater share in the Japanese wheat market.

China-Australia FTA

During the question-and-answer session, the panel was first asked whether they thought China would eventually open up its wheat and canola market to Australia. Both grains are exempt from tariff reductions as China argued they have already conceded this to the WTO.

According to the panel, it was unlikely China will hold this position, as a growing population will pressure the country to feed a growing middle class.

In addition, the panel discussed how other markets like Japan would also open up further and potentially reduce or remove tariffs.

The panel said there must be increased investment in the agricultural supply chain that includes a holistic look at how grain is moved from up-country to port to ensure Australia was competitive.

They also said foreign investment should not be viewed in simple dollar value but also the benefit it can bring to the industry. The panel suggested investment in the supply chain should be encouraged to ensure the industry improves its competitiveness.

Taking questions from the audience, the panel discussed a range of issues, with one audience member asking for a greater industry voice to address issues that arise from trade agreements.

Australia’s trade agreements with South Korea, Japan and China have, or will have, a clause that allows for a committee to discuss these agreements. Roberts, of the Department of Foreign Affairs and Trade, said there might be an opportunity for the industry to get involved, depending on the agreement.

“(The DFAT) wants to use all those processes to make the most of the agreements,” he said. “There’s been discussion lately about whether these FTA’s are being used as much as they should.”

Referencing the Japanese and Korean agreements, Roberts said the countries were responsive when it came to fixing a problem or issue when they’ve been approached.

Panelists also spoke of the ability for an agreement to facilitate the efficient trade between two countries.The China-Australia Free Trade Agreement (ChAFTA), at time of writing, had yet to be ratified by the Australian parliament with strong debate among special interest groups who have concerns about how it will impact local jobs. Others are arguing the economic benefits for exporters should not be lost, urging for the immediate ratification of the agreement.

Chris Gillies is a freelance writer based in Sydney, Australia. He may be reached at chris@jamtincopy.com.au.
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