November 19, 2018 / 2:48 AM / a month ago

In dumping probe, China spooks Australia grain trade already sweating out drought hit

BEIJING/SYDNEY (Reuters) - China on Monday launched a probe into whether Australian barley suppliers dumped cheap imports into their biggest market over the past year, catching the grain trade on the hop just as drought shrivels Australian crops and drives prices higher.

Imported barley is transported from a cargo ship at the port of Nantong, Jiangsu province, China February 21, 2014. Picture taken February 21, 2014. REUTERS/Stringer

Coming amid strained diplomatic ties between Beijing and Canberra, the move by Beijing’s commerce ministry comes after the China Chamber of International Commerce complained that Australian barley was sold at lower-than-normal prices for the 12 months through September 2018, hurting domestic suppliers.

Australia is by far China’s top supplier of barley, used both in brewing and livestock feed. It exported 6.48 million tonnes in 2017, close to three-quarters of China’s roughly 8.86 million tonnes of imports of the grain, worth about $1.5 billion, according to Chinese customs.

The timing of the move left grain analysts and traders scratching their heads for an explanation, with some among the latter suggesting it may be politically motivated: Australian barley has now become expensive as supplies have dwindled amid extreme drought.

“It’s a bit odd to take this moment to ask the (Chinese) state to put safeguard measures in place,” said Even Rogers Pay, an agriculture analyst at China Policy, a Beijing-based consultancy.

The probe follows a period of tense relations between Australia and China. Former Australian prime minister Malcolm Turnbull accused Beijing of interfering in its domestic affairs while in office, and the two countries have been jostling for influence in Pacific island countries that control swathes of resource-rich ocean.

“Australia will mount the strongest possible case to uphold the integrity and market access of our world-leading agricultural producers against these unsubstantiated allegations,” said Australia’s Minister for Trade, Simon Birmingham, in a statement issued later on Monday.

Birmingham said regulatory authorities were simply “doing their job” by investigating claims made by local business. He said the application for the probe had been lodged “many weeks ago” and that in the last two weeks the Prime Minister, Foreign Minister and Trade Minister have had “positive engagements” with Chinese counterparts.

The probe starts on Monday and will end within one year, with an option for an additional six months of investigation.

‘POLITICAL STUNT’?

The Chinese commerce chamber’s request for an investigation said the volume of barley imports from Australia jumped 67 percent from 2014 to 2017 while prices slipped to $198.05 per ton, nearly a third below their 2014 level.

As part of its probe, the ministry will also look into whether domestic suppliers’ business was damaged in the period from Jan. 1, 2014 until Sept. 30, 2018. China produced 1.66 million tonnes of barley in 2017, according to the commerce chamber, down from 1.81 million tonnes in 2014.

“It’s a political stunt,” said one Melbourne-based grains trader who declined to be named because he wasn’t authorized to talk to media.

“It is true that Australian production has grown in recent years, but this reflects the seasonal conditions and strong demand from China from its malting sector and livestock industry.”

High prices have recently curbed demand from China’s animal feed makers: Australian barley currently costs about $275 per ton including freight, about the same price as Chinese corn.

But China’s brewing industry typically pays more for higher grades of the grain, and is likely to be significantly impacted as importers hold off booking new cargoes, said analysts.

There are currently about 10 to 20 barley cargoes booked for China, said a trader based in southern China who imports Australian barley, declining to be identified as he is not authorized to talk to the media.

At China Policy, analyst Pay said, “It will put a huge amount of pressure on the industry, especially brewers, to forgo or pay higher prices for Australian barley.”

“But this past year has made it pretty clear that there’s a willingness to take steps that will have short-term consequences [on domestic industry],” Pay said, referring to China’s decision to impose 25 percent duties on soybeans from the United States, its No.2 supplier.

Reporting by Dominique Patton and Hallie Gu in BEIJING and Colin Packham in SYDNEY; Editing by Kenneth Maxwell

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