Has Australian Dairy been impacted by the trade war?
Team Veye | 01-Jul-2019
In the aftermath of the melamine milk scandal in 2008, China’s global imports of dairy products soared, especially after FTAs had been established with Australia and New Zealand. The dairy products of the two countries have had a unique competitive trading advantage in the Chinese market.
Few farm export industries have reaped as much value from the past decade of booming Chinese food trade with Australia as our dairy sector. China, now our biggest offshore dairy market, is worth close to $1 billion a year to farmers and processors, or 30 per cent of our total dairy export earnings.
While unease about an all-out “east-west” cold trade war is undermining some exporter confidence in Australia’s strong trade ties with China, it should be noted that our total share of China’s dairy market was barely 5pc. Europe, New Zealand were big suppliers, and potentially more vulnerable to trade tensions.
We still export to a diverse spread of more than 100 markets around the world, and dairy is very much central to the changing diet and protein demand picture in other parts of Asia, and the Middle East. South East Asia has a lot of developing income and economic growth happening and we see these markets bolstering dairy demand significantly.
US dairy exports to China were worth about $800 million last year, making it America’s third biggest market. US exports now have been subjected to tariffs of 20pc-plus imposed by Beijing in response to tariffs on Chinese dairy equipment selling to America.
More immediate concerns have centred on what might happen to US dairy stocks normally sold to China, particularly if American farmers maintain production, insulated by President Donald Trump’s $6.6 billion subsidy package released in September. It could see a product, particularly milk powder, butter and cheese, offloaded into new markets and weighing down global prices.
But, overall the signals and investment coming into Australia in the past five years suggest the global companies are excited by the growth on our doorstep and they want to be part of our predominantly pasture-based dairy industry’s diverse export opportunities.
Australia was also fortunate to have a diverse portfolio of exports, not weighted heavily towards bulk commodity products such as milk powder – a mainstay for NZ.
One of our biggest growth areas, aside from nutritional formula products, was the market for pizza cheese and other cheeses generally.
Japan, already Australia’s biggest cheese buyer, is our second largest dairy customer worth $430 million. Despite being a developed economy Japan still had plenty of growth potential for exporters. Its domestic dairy herd production was declining and national dairy consumption, at 85 litres per capita, was still well behind Australia at 300 litres.
Thus we can say that there is going to be a minimal impact on Australian Dairy industry as such and something we can easily ride.
Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.