As relations between China and Australia hit their lowest point in more than half a century, industries including honey, fruit, dairy and vitamins producers could be next in line to be hit with tariffs, according to research firm IBISWorld.
In recent months, China has been slapping tariffs on a range of goods and services from Australia, creating havoc for local businesses.
In November, China put tariffs of up to 200 per cent on Australian wine.
And this week China suspended the importation of more Australian beef.
IBISWorld expects Australian mining commodity exports, including iron ore, will likely be safe from any potential trade restrictions.
But in a research note released on Tuesday, it said agricultural and pharmaceutical manufacturers could be next affected by the souring relationship between the two countries.
China has ‘significant leverage’ over Australia
IBISWorld senior industry analyst Liam Harrison said China had “significant leverage” over Australia in many industries.
While local businesses were “on high alert” for additional tariffs from China, Mr Harrison said, many were unable to diversify their markets in the short term due to the COVID-19 pandemic.
This, he said, may mean business will have to rely on government subsidies and/or support from the international community.
Australian industries have expanded their trade with China since the China-Australia Free Trade Agreement was signed in December 2015.
China was Australia’s largest individual two-way goods and services trading partner in 2018-19, accounting for 26.4 per cent ($235 billion) of total trade.
Department of Foreign Affairs and Trade data shows China was Australia’s largest export destination (valued at $153.2 billion) and import source (valued at $81.8 billion).
China could block Aussie honey, turning to NZ instead
IBISWorld says Australian honey is a popular commodity in the Chinese market, with honey consumption in China exceeding 300,000 tonnes per year.
Australian honey exports have grown at an annualised 4.1 per cent over the past five years, driven by the China-Australia FTA, which lowered trade barriers for honey exporters.
While China accounts for more than a quarter of Australian honey exports, China could easily block Australian honey due to readily available alternative suppliers.
Mr Harrison said the trade tiff could particularly hit premium manuka honey.
“For Chinese consumers, plentiful supply of cheaper honey would likely replace the lower availability of manuka products,” Mr Harrison said.
Manuka honey is harvested from a type of tea tree only found in New Zealand and south-east Australia.
“The beekeeping industry in NZ will stand to benefit from reduced competition if China imposes tariffs on Australian honey,” he said.
Tariffs on dairy products would represent escalation in tensions
The dairy industry, especially the milk and cream-processing industry and the milk powder industry, were “highly vulnerable” to shifts in Chinese tariff policy, IBISWorld said.
Chinese consumers have demanded Australian milk powder for more than a decade, particularly baby formula products from companies like A2, sending their share prices soaring over the years.
Last year, sales of whole milk powder to China were worth about $156 million.
And dairy exporters have hit record milk powder sales to China this year but are about to face a doubling in tariffs under the China-Australia FTA.
Australian milk powder exports to China have surged amid the COVID-19 pandemic, reaching 19,726 tonnes over the nine months through to September 2020.
“Tariffs on Australian dairy products would represent a fairly significant escalation in trade hostilities,” Mr Harrison said.
“Australian dairy products are highly popular, and there are few substitute markets for baby formula that Chinese parents are willing to trust.
“Action against this market would likely cause significant backlash from Chinese consumers and could result in weakened support for continuing trade restrictions against Australia.”
Fruit industry already weakened, could face more pain
China has also become an increasingly important market for some fruit industries, with the citrus fruit, nut and other fruit-growing industries sending more than 45 per cent of their total exports to China.
Apple, pear and stone fruit growers also send a significant amount of produce to China, with more than 30 per cent of industry exports destined for Chinese markets.
“Losing China as an export market could be devastating to an already weakened industry,” Mr Harrison said.
“Fruit farmers across Australia have already suffered major setbacks, including sweltering heats early in the year, severe bushfires and now a shortage of fruit pickers due to COVID-19 travel restrictions.
“Discussions for fruit juice to be lowered in health rating, which have now been pushed off until February next year, also weigh heavily on the industry’s future.”
Pharmaceuticals, especially vitamins, under threat
Australia’s pharmaceutical product manufacturing industry has also become more reliant on China as an export market.
Australian pharmaceutical manufacturing revenue is expected to rise by 5.8 per cent in 2020-21, to $12.8 billion.
More than half of this revenue is expected to be derived from export markets, including China.
Prescription and non-prescription medicine, and supplement products such as vitamin and mineral supplements, are also highly popular items in Chinese markets.
In 2018-19, exports of vitamins and supplements to China increased threefold to more than $680 million.
Australian vitamin supplements accounted for more than one-fifth of Chinese imports, as Chinese consumers favoured Australian brands including Blackmores and Swisse.
China is expected to account for 62.2 per cent of export revenue in Australia’s vitamin and supplement manufacturing industry in 2020-21.
“However, many of these items have alternative markets, and could come under serious threat of restrictions or sanctions from China,” Mr Harrison said.
“Although Australian pharmaceuticals are highly popular in China, our largest advantage in providing to this market is our relative geographic proximity,” Mr Harrison said.
“Many industry products have a range of alternative suppliers, such as the United States, Canada and various markets across Europe, leaving the Australian industry particularly vulnerable to trade restrictions.”
Iron ore exports likely to remain safe
Australia’s mining sector has become highly reliant on China as the largest market for Australian resources, particularly in areas such as bauxite mining and iron ore.
But IBISWorld says mining commodity exports are “anticipated to be relatively safe from any potential Chinese trade restrictions”.
“Despite the high reliance on China as a market for Australian resources, these are highly valued commodities with few alternative markets,” Mr Harrison said.
“Australian iron ore is very high quality, and there are currently few markets which can produce the quality, and particularly the quantity, of resources needed to fuel China’s steel manufacturing industry.”
He added that a recent downgrade in production by Brazilian producer Vale has also weakened China’s potential for alternative markets for iron ore.