China Probes Australian Barley as Trade Tensions Simmer

(Bloomberg) -- China is starting an anti-dumping investigation on imports of Australian barley, sending a signal the world’s top commodity buyer may be increasing scrutiny of one of its most important suppliers.

The one-year probe will start on Monday, and could be extended to May 19, 2020, according to a statement on the Ministry of Commerce’s website. Australian barley is being sold at “lower than normal” prices, and China’s domestic industry has suffered as a result of the cheap supply, it said.

China Probes Australian Barley as Trade Tensions Simmer

China is Australia’s biggest buyer of barley, purchasing about $1.28 billion worth of the commodity last year. While iron ore, coal and wool are more significant for Australia’s exports, the investigation into barley is a sign China is willing to strain a traditionally strong trading relationship amid sharpening political tensions with Australia and the trade war with the U.S.

“It’s more about political relations” than economic concerns, said Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Co. The move almost immediately follows Australia’s decision with the U.S. to jointly redevelop a naval base in Papua New Guinea and is likely in retaliation to that, he said. “Based on our calculations, there is no dumping of Australian barley on the domestic market.”

Australia’s minister for trade, tourism and investment, Simon Birmingham, said Australia is committed to maintaining a respectful relationship with China.

“People shouldn’t read any more into this than regulatory authorities doing their job, with whom we will of course cooperate,” he said in a statement to Bloomberg News. “Australia will mount the strongest possible case to uphold the integrity and market access of our world leading agricultural producers against these unsubstantiated allegations.”

Click here for more: China Targets Australia Barley With Rare Probe Amid Tensions

The investigation has come as a drought ravages Australia, bruising its barley business. Imports of the grain doubled on the year to 6.5 million tons in 2017, China’s official customs data showed. However, Australia’s output this year is likely to sink 7 percent to 8.3 million tons, reducing total exports by almost 40 percent in the 2018-19 season, according to the nation’s government forecasts. A survey by industry group INTL FCStone Inc. predicts this season’s crop may be as low as 6.6 million tons.

“Australia does not dump barley,” said Tony Russell, executive manager at Grains Industry Market Access Forum, which represents the industry and works with the government in Australia. “It is not dumping but we are perplexed as to what it might be. We are quite confident we can justify our trading position and our position in relation to dumping.”

Meanwhile, China may struggle to meet its brewing industry’s burgeoning consumption of barley. Given concerns over quality, China can’t fill that demand domestically, and the anti-dumping investigation may raise domestic beer prices, Beijing Orient’s Ma said. China needs to import 2 million to 3 million tons of brewing-quality barley a year, said Cherry Zhang, an analyst with Shanghai JC Intelligence Co.

The probe may have little impact on barley used in animal feed. China’s mills are reducing shipments because import prices are already higher than the cost of domestic corn, Zhang said. When prices were cheaper, Chinese feed mills had used imported barley as a substitute for corn, she said.

CBH Group was named as one of the exporters in the probe. The Perth-based company declined to comment when asked about the investigation. CBH is Australia’s largest exporter of grains, according to the company. Cao Huijun, secretary general of China Food Industrial Association’s beer committee, declined to comment.

China’s agricultural trade is already in turmoil this year as a result of the trade spat with the U.S., with the country all but cutting off American soy imports -- a market that was previously worth more than $12 billion a year to U.S. farmers. China’s probe on imports of U.S. sorghum was one of its first shots in the trade war this year.

©2018 Bloomberg L.P.