Banquet ban grills Australian beef in Chinese market

Despite a recent downturn, the outlook for Australian beef sales into China remains positive according to a new report.
Despite a recent downturn, the outlook for Australian beef sales into China remains positive according to a new report. Contributed

MORE pork on the menu and fewer booze-fuelled banquets by Chinese government officials have apparently contributed to a further decline in Australian beef exports to the red giant during 2016.

Between 2011-12 and 2013-14, the Australian export of beef to China exploded, increasing by a factor of 13 to become Australia's fourth largest export market.

While China has always been a small but consistent net exporter of beef, in 2012 net imports grew to almost 300,000 tonnes (with another one million tonnes through informal channels).

It is now thought that one factor contributing to the ballooning of the trade was the habit of Chinese communist party officials to gather for massive and extravagant banquets.

According to a 2012 report in The Times, the lavish feasts were estimated to be costing the country up to £60 billion a year.

A stampede of expectations followed, culminating in wildly celebratory Australian forecasts of a $100 billion beef trade accumulating toward 2030.

However, beef exports to China fell by 28% during 2014-15, and slipped a further 33% during the first seven months of 2016, compared with the same period the previous year.

Thankfully, the bad news has been somewhat tempered by resumption of live cattle export to Japan, which lifted its three-month ban on August 26.

And as it turns out, the unexpected downturn in trade with China was not really so unexpected, according to a report released last week by the University of Technology Sydney (UTS), called the Sino-Australian Cattle and Beef Relationship.

The fluctuations in Chinese demand - both up and down - was a conspiracy of short-term and temporary factors.

"Don't panic yet” seems to be the take-home message from the report, which expects the Chinese market to remain important to Australian cattle production for some time, though not at the extraordinary rates of growth seen recently. Even China's own production of beef, which has long outstripped (read tripled) Australian production, is shrinking.

Recently, Australia signed a controversial China-Australia free trade agreement (which has worked to eliminate China tariffs on importing Australian beef), along with a live export protocol, which Federal Minister for Agriculture Barnaby Joyce expected to herald shipment of up to one million head per year.

Had Joyce's prediction been anywhere near realistic, it would have represented a significant increase on present levels of 120,000.

The UTS report says export at such levels is now unlikely.

The fluctuations in beef volume are explained by the normalised dietary habits of the Chinese, who quite simply are not acquiring an everyday hankering for beef.

Admittedly, another study in 2012 of food consumption trends for the federal Department of Agriculture had found that by 2010 the average urban consumer in China was eating 28% more beef than in 2000.

Tellingly, however, the study also found they were eating eight times more pork.

This aspect of Chinese food preference remains unchanged in 2016.

But it is the effects of the Chinese government's anti-corruption initiative begun in 2012 which are, on the other hand, now being well and truly felt.

In November 2012, President Xi announced a broad crackdown on corruption and decadence, including a ban on the use of luxury cars, scrapping of lavish gifts for government officials, and putting a broad lid on the budgets for galas and official dinners.

The change, designed to stem the growing popularity of government banqueting alcohol-fuelled events that were costing the country dearly, is thought to have accounted for at least some of the fall in beef consumption since.

Paired with a general slowdown in the China economy, the combined effect has been to limit growth of beef consumption and prices.

The report on the Sino-Australian relationship was commissioned by James Laurenceson, Deputy Director and Professor of the Australia-China Relations Institute (ACRI), at UTS.

Authors of the report are members of the China Agricultural Economics Group, at University of Queensland.

In the report, the UQ authors write that trade between the two countries should now normalise.

"The beef trade will fall back on a set of more fundamental, long-term drivers - which look strong under "normal” economic growth scenarios in China.

"On the supply side, Chinese cattle producers ... can be expected to continue to take up more lucrative opportunities in the economy, thus limiting domestic supply and capacity utilisation in China.”

It is on the demand side, however, where the trouble lies, but this must be put into perspective, considering that even at peak trade flows Australia only supplies about 3% of China's beef.

Prof Laurenceson expects the Chinese diet to continue to diversify without necessarily following Western patterns of consumption.

In fact, trade relationships are already diversifying, with a range of large and small beef producing countries expected to further erode Australia's share of the China market.

In 2012, Brazilian export of beef to China was suspended, but had resumed by 2015, quickly growing to exceed the Australian supply.

Prof Laurenceson warns that Australia should actually be worried about further competition from Uruguay, Canada, Argentina, the US and India. But the news is not all bad and the report remains optimistic overall.

Australia retains some unique policy-driven advantages, including long-term biosecurity, animal health programs, and live cattle export.

The effect of the free trade agreement remains to be seen, especially in relation to Chinese protection or otherwise of its domestic industry.

The report suggests a possible broadening of live cattle export to China and deepening of linkages and trade through Chinese investment in Australian farms and abattoirs.

At 157 million people, China's middle class is second only to that of the US, but tipped to grow into a more important market.

Figures from another report by the OECD Development Centre suggest China's middle class will grow by 850 million to 2030. While many are opposed to further Chinese investment in Australian pastoral holdings and abattoirs, Prof Laurenceson suggests money that could be helping the industry grow is now being held back.

He cites Australian treasurer Scott Morrison's recent rejection of the Chinese bid for S Kidman and Co as an example.

Topics:  beef china export free trade agreement

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