China FTA safeguard sting...

WITH Australia now well advanced in its progression through the tariff reduction schedule for beef in the China-Australia Free Trade Agreement (ChAFTA), elimination of tariffs is now only five years away (Jan 1, 2024) but the little known sting in the tail is that the special agricultural safeguard measure will continue at least until 2031 and then there is the possibility of a further six-year extension after that.

This is highly significant because the trigger tonnages in the safeguard are not overly generous in light of the escalating beef trade to China.

If safeguard is triggered, tariff reverts to the lesser of WTO most-favoured-nation (MFN) applied rate of customs duty in effect on the date the safeguard measure is applied or the original base rate of the tariff reduction schedule.

In Australia's case the base rate for chilled or frozen bone-in or boneless cuts was 12 per cent, while chilled or frozen carcases/half carcases were 20 and 25pc respectively.

Tariff rates applicable this year under the FTA reduction schedule are 6pc for chilled or frozen bone-in/boneless cuts and 10-12.5pc for carcases. That could mean a 6 to12.5pc increase in tariff later this year for Australia's beef exports to China if safeguard is triggered.

The likelihood of this happening can be judged from recent export statistics. According to the Department of Agriculture and Water Resources, Australia exported 162,682 tonnes (shipped weight) of beef to China in 2018, a 48pc increase on 2017.

But that seems to have just been a warm-up, with the first three months of 2019 compounding that gain by a further 67pc increase period-to-period. That means the safeguard which is set at 174,454t this year could trigger by October if anything like the current flow of product is maintained.

Also, the current level of exports to China equates to a notional full-year figure of around 230,000t but the safeguard is not scheduled to reach that level until 2029. In fact it will be 2024 before the safeguard even reaches 200,000t. That suggests Australia may find itself constantly butting up against safeguard in the Chinese market from here on, much as happens in our beef trade with Korea.

Compare this to our near-neighbour and beef export competitor New Zealand who very cleverly got their FTA with China in place by 2008 and saw their beef tariffs drop to zero by 2016. Probably because a boom in beef exports was not on the radar at that time, China did not require a safeguard and none was written into the NZ-China FTA.

Clearly the Chinese saw things differently by the time they got into negotiations with Australia. Similarly, if and when China elects to engage in FT negotiations with the South American beef giants Brazil, Argentina and Uruguay, safeguard will undoubtedly be on the agenda.

In the meantime those countries remain the three largest global beef exporters to China and as WTO members attract the relevant MFN customs duty for the type of product supplied.

Latest information from WTO website indicates that current MFN rates remain the same as the base rates described above.

A WEEK ago the remnants of cyclone Trevor were playing out in western Queensland and the Northern Territory while the southern states progressed from showers associated with surface troughs to moderate rain and thunderstorms as a series of strong cold fronts extended across much of south east Australia.

Both weather systems have had a massive impact on slaughter markets in the eastern states. From the Barkly to Boulia consignments have been affected and more disruption is expected with major flood warnings current for the lower Warrego, Bulloo, Barcoo, Thompson and Georgina rivers, Cooper Creek and Eyre Creek. Moderate and lower-level flooding is also affecting the Paroo, Diamantina, Langlo, Ward, Suttor, Belyando, Flinders and Cloncurry rivers.

If not for the inclusion of a mob of 1700 store heifers off the stock route, Dalby numbers would have been down last week and this was evident in the smaller offering of medium and heavyweight cows. Prices jumped 17-27c/kg on top of a 37c rise the week before taking the best of the cows to 253c and an average of 235c.

Cows at Dubbo last Thursday experienced a 20-30c rise, while earlier in the week Wagga saw a massive 40-49c improvement. Wagga followed up again on Monday with a further 20c taking the heavy score 4 cow average to 229c. 

In Victoria the rain seems to have finally brought an end to the prolonged sell down of breeders that had been ongoing since the latter half of last year. There were only 300 at Barnawartha last Wednesday. The good heavyweights were 18-24c dearer to average 216c.

Meatworks supply pipelines have shortened up considerably putting grid rates under constant review. Adjustments in the past week have added as much as 40c/kg in places. In southern and central Queensland 4-tooth ox are quoted at 510-535 while heavy cows are attracting 435-440. One published grid for southern NSW has ox similarly priced at 525c but cow rate trailing at 380c.

Last week's slaughter figures from MLA showed a noticeable drop to 147,462 across eastern states, down from the mid-150s that had kept plants busy over the previous four weeks with the addition of Saturday shifts in places.

Not unexpectedly Queensland has been responsible for the bulk of this fall with last week's tally of 72,937 being 10,000 head down on the kill of just three weeks ago. Weather seems not to have affected NSW slaughterings with last week's 36,634 maintaining a consistent pattern since early in the year. Similarly Victoria's kill last week of 26,924 reflects minimal variation since return after the Christmas holidays.

In the short term supply will not get any easier for processors as the rain has effectively curtailed the drought-run of females and any opportunity turnoff resulting from the seasonal turnaround is some months away.