Impact of China's 80% Tariff on Australian Barley Trade
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Business & Industry Services**We aren't endorsed by this school
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ECONOMIC MICROECONO
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Economics
Date
Dec 10, 2024
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Jtf217Candidate number jtf217Title of article China's 80 per cent barley tariff a 'lose-lose situation' for Australian grain growers, Chinese consumersSource of article ABC news https://www.abc.net.au/news/2021-10-23/barley-tariff-the-true-cost-of-losing-china/100558454Date of publishOctober 22nd2021 Date of commentaryDecember 28th2021 Word count 786Section of syllabus related to article Global EconomyKey concept Intervention Commentary Number 3
Jtf217Article China's 80 per cent barley tariff a 'lose-lose situation' for Australian grain growers, Chinese consumersLast year, China slapped an 80 per cent tariff on Australian barley, which effectively ended the trade. Since then, Australia has managed to find alternative markets such as Saudi Arabia and Mexico. But new data by AgFlow and Thomas Elder Markets shows the true costof losing China, which was Australia's biggest customer for barley. "What we're finding is that even though we're getting good prices [for barley], because the entire tide has lifted for grain prices, in reality it's not as good as it could be," analyst Andrew Whitelaw said. "Australia is very cheap compared to other barley- producing nations. "France is almost another world away in terms of shipping freight, but it's passing our boats as we go to Saudi Arabia and it's going to China."Lose-lose situation Mr Whitelaw estimates Australian grain growers are getting $30 to $40dollars a tonne less than what they should be for feed barley, and the discount is even higher for malt. He said China was not winning either. "Chinese consumers are paying a higher price for the barley; whether they're a consumer for feed or a consumer for malt, they are paying more," he said. "It's a kind of lose-lose situation that China has enacted this tariff. It costs us, but it also costs them." On Twitter, WA farmer Scott Bowman said highlighting the discount was important.
Jtf217"When barley gets to $280 [a tonne] we say that's decent. If it brushes $300 we think it's great, but if it could be $320 we should be vocally upset about [losing] that $20. "The next drought might have already begun," he said. Australia is expected to harvest 11.7 million tonnes of barley this season. (ABC Rural: Jo Prendergast)Mr Whitelaw said globally high grain prices were masking the true pricepenalty of China's barley tariff. "If Canada had a huge crop and China wasn't importing as much, thosetwo factors alone would probably have meant that we'd be looking more like a barley price with a one in front of it [under $200 a tonne]. ""We just have to be aware that losing China is a big thing and it's impacting our prices already." Barley crop forecast down In its 2021-22 winter crop forecast for Australia, Rabobank is expectingbarley production to be down 10 per cent on last year to 11.7 million tonnes, which it says is still up on the five-year average by 7 per cent. Rabobank said it "did not expect China to return as a market to a material degree even in the mid term, [but] the tight global corn market is set to support [feed] barley demand over the coming year". "Malt barley demand is also improving, with recovering beer demand globally as the world opens after COVID-19," Rabobank's Kalisch Gordon said. According to Grain Research and Development Corporation (GRDC), China's 80 per cent tariff on Australian barley exports has stopped an annual trade flow worth $1.2 billion.
Jtf217CommentaryThe article in hand discusses a tariff placed on Australian barley as a form of protectionist policy. After several months of investigating, the Chinese ministry of commerce decide to interveneand impose several tariffs on Australian goods, one of which was an 80% tariff on Australian barley. These tariffs have resulted in the trade between the countries reaching an end in addition to Australia having to finding other alternative markets. Tariffs are taxes that are placed on imported goods. According to Mr. Whitelaw stated that the Tariffs placed have had a significant on both Australian grain growers and on Chinese consumers, as the growers are selling a tonne for a cheaper price compared to what they sold it for before, in addition Chinese consumers have been paying a higher price for the amount that they usually receive due to this intervention. This commentary will discuss the consequences of the Chinese tariffs on Australian Barley. Starting with; the effect of the tariff set by the Chinese government onthe price of Australian barley. P barley ($)S P2S Aus (tariff)P1S AusDQ1 Q3 Q4 Q2 Q barley (tonne)
Jtf217Before the tariff, (Q2) of wheat was being consumed at the price of P1, the output of domestic producers was (Q1) where imports were (Q1Q2). After the tariff was imposed S aus shifts up to the amount of tariff (S Aus+tariff). Hence, the market price increases from P1 to P2 meaning that the total quality that is demanded decreases from (Q2) to (Q4) due to the fact that the price has increased. This interventionhas resulted in domestic producers increasing their production to become (Q3) which in turn increased their revenue from (P1Q1) to (P2Q3) making domestic producers better off since they gain more revenue for the same quantity. On the other hand, Australian producers’ and the Chinese importers are worst off since their revenue has decreased. Since, their revenue has decreased as part of it is paid to the Chinese government as a form of tariff. Furthermore, Chinese consumers are also affected by the interventionas they have to pay higher price for barley wither it is imported or domestically produced. A different protectionism policy that the Chinese government could use against Australian producers’ is implementing a Quota.
Jtf217A quota is a government-imposed limit on the quantity (or value) of goods that can be imported into a country as a form of intervention, in this case being China. Quotas helpprotect domestic producers when facing a lot of foreign competition which saves them from going out of business.The diagram above shows the effect of a quota on both countries. Before the quota is imposed consumers are able to buy (Q2) at the price of PAus, where domestic supply is (Q1) and imports are (Q1Q2), which shows that most supply is met by foreign producers; negatively affecting domestic producers as their revenue would decrease.P barley ($)S (Domestic)S (Domestic +quota) P quota S (Aus +quota)P AusS AusQ1 Q3 Q4 Q2Q barley (tonne)
Jtf217If the government sets a quota of (Q1Q3) worth of goods; it would lead to excess demand which results in an increase of price levels. Since importers can’t supply the market domestic producers would start more in the market which in result shifts the supply level to the increase from S(domestic) to S(domestic+quota) in addition to the increase in price levels, from PAUSto P quota, which puts domestic consumers at a disadvantage as they would have to pay a higher price for the same quantity. Domestic producers’ supply has now increased at the price of P quota meaning that revenue has increased. Foreign producers now supply (Q1Q3) at the price of P quota due to the quota’s restrictions. Hence, their revenue changes from PAUS(Q2-Q1) to PQuota(Q3-Q1) which in most cases would result in a decrease in revenue. Both graphs discussed above show the effect of two protectionist policies on both parties of this trade. Due to China’s government interventionthe ministry of commerce implemented a Tariff on Australian barley and many other Australian goods, which in return led to the end of trade between the two countries. The interventionwas useful tothe Chinese domestic producers as without at the domestic barley industry could have collapsed as Australia was the main source of barley for China, this will help increase the revenue of barley producers and potentially lead to economic growth. However, protectionist policies implemented by China could also have a negative effect on local consumers; as it reduces the choices they have, alongside an increased price for barley. On the other hand, the interventionhas caused economic problems for
Jtf217Australia as they were the main importers of Barley to China. The tension between the two parties icould be solved if the two parties decide to negotiate a solution.