Aus agri: expanding relationships in India

Agriculture is a unique industry. There is real satisfaction that comes with producing and delivering essential and premium food and fibre for domestic and global consumers.

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But while farming can provide such gratifying rewards, it is also arguably an industry where so many of the results of a farmer’s work - particularly their production levels and the prices they receive - will be impacted by factors way beyond their control.

“Importantly for the agricultural sector, while free trade agreements come with export benefits, they are not a one-way street.”

Some of these will be global factors – whether this is barley production in Canada, the biosecurity of cattle in Brazil or the trade policies of China – so many variables from across the world will indirectly, but potentially strongly, impact the fortunes of Australian farmers.

For the moment, almost all Australian agri commodity prices continue to sit at relatively strong levels, buoyed by strong global demand, production and export challenges to some of Australia’s major competitors and strong local production levels following two years of good seasonal conditions.

Moreover, there are positive signs for the immediate seasonal outlook but it’s never over until it’s in the bank. Regardless, the success of Australian producers will often stem from vigilant preparation.

Australia and India, working together

The announcement of the signing of the Australia-India Economic Cooperation and Trade Agreement (ECTA) between Australia and India at the start of April 2022 brings with it a range of new opportunities for Australian agri exporters, although they won’t come without some follow-up hard work.

As with all free trade agreements (FTAs), the many finer details will need much examination and the final agreement won’t necessarily provide great news for all agri sectors. The Aust/India ECTA seeks to make certain exports between two countries more attractive by reducing or eliminating some of the barriers on trade as well as investment.

Most commonly, the major outcome of an FTA will be in reducing the tariffs on specific products being traded between the countries. This has the intended effect of making them ultimately cheaper to the buyer in the importing country, both increasing sales as well as making them more competitive, particularly against similar products from other countries which may still have high tariffs.

Importantly for the agricultural sector, while FTAs come with export benefits, they are not a one-way street. Both countries will negotiate hard for new opportunities for their exports and the trade-offs for new market access are not always universally popular with a home market. In addition, the negotiations will often be impacted to some degree by the domestic political considerations of each country, which can result in some products not receiving increased access if this would cause political sensitivities.

The ECTA with India is the latest signed by Australia over the past two decades, often after years of negotiations. The FTA with New Zealand was signed in 1983 and since 2003 Australia has ratified around 16 FTAs including with US, China, Japan, and South Korea. Each has subsequently seen important benefits for certain agri exports, particularly beef.

For Australian agriculture, India provides a massive, evolving and unique marketplace. With a population of 1.4 billion, an eclectic mix of cultures and religions, and an increasingly affluent middle class, the Indian market provides opportunities for a range of products.

Clearly, the market is also not without its challenges. The country’s infrastructure, particularly for reaching internal metropolitan markets, is different from what many Australian exporters may have experienced before while the country’s bureaucratic process could also potentially be more elongated than Australia’s.

Importantly, the prospect of India as a major export destination for Australia’s agri products would be an important step in diversifying the number of export markets and reducing concentration risk. With a number of agri commodities having only a small number of major export destinations, this would reduce the potential for agri exports to be hit hard if an issue impacted any one market.

Outlook for commodities

In terms of individual commodities, the exports which could initially feel the greatest benefits from this FTA include sheep meat, wool, lentils, horticulture and wine.

For wool the current tariff of 5 per cent will be slashed to zero by the end of this year. At the moment, India buys around 7 per cent of Australia’s wool production, ranging from the superfine to the coarser wools. While China has long been the largest market for Australian wool, the potential for processing to increase in markets such as India and across the sub-continent will continue to grow.

For sheep meat producers, the Indian market has proved challenging to penetrate until now, due to a 30 per cent import tariff. As a result, Australia has exported only 111 tonnes of sheep meat to India over the past five years. With this tariff now forecast to be cut to zero, Australian exporters will be able to explore new opportunities in the Indian market, particularly for the Muslim population.

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At the same time, given the growth of the Indian middle class, Australia will also be able to seek to market the premium qualities of Australian lamb and mutton, similar to the trend which has seen exports grow to the US.

For grain producers, the announcement brought mixed reactions. While pulse producers had hoped the hefty 30 per cent tariff on chickpeas would be reduced, it remains in place. This move could be seen partly to protect India’s domestic production sector both in terms of farmer incomes and domestic prices.

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For other pulses, the tariff on lentils will be cut from 30 per cent to 15 per cent while the tariff on faba beans will be cut to zero over the next seven years.

The news was better for Australian horticulture producers who will see tariffs cut to zero over the next seven years on a range of products including blueberries, avocados, onion, cherries, asparagus, lettuce and celery. In addition, tariffs will also be reduced on apricots and strawberries while quotas will be reduced for almonds, oranges, mandarins and pears.

The Australian wine industry will also be looking to take advantage of the agreement, particularly as it continues to seek additional markets following the imposition of prohibitive import tariffs by China. Australian wine imports to India are currently subject to a high 150 per cent tariff. Under the agreement, the tariff for wine valued at over $US5 per bottle will be reduced to 100 per cent, with a further reduction of 5 per cent per year over the next 10 years, ultimately to 50 per cent. For wine valued at over $US15 per bottle, the tariff will be cut further, falling to 75 per cent immediately, then gradually down to 25 per cent after 10 years.

Mark Bennett is Head of Australian Agribusiness and Michael Whitehead is Head of Food, Beverage and Alcohol (FBA) Insights at ANZ

You can read the full April 2022 Agri InFocus report here

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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