Australia-China food fight: part of a bigger battle

Frosty trade relations between Australia and China thawed further in February¹, but tariffs and trade bans remain in place on a range of goods including beef, barley, and wine.

On the one hand, both countries have been moving on from each other, meaning that the impact of these tariffs and trade bans is perhaps less punitive than in years gone by. But the dispute is also taking place against the backdrop of a much larger game of food security in Asia-Pacific (APAC) and globally, which promises to redraw the regional map and reframe the Australia-China relationship both directly and in the wider APAC context.

Discover how Asia can address its looming food crisis.

China has for some time been Australia's largest export market for many agricultural products but, in early 2020, Beijing imposed import sanctions on a wide range of Australian goods – including coal, barley, wine, beef, and seafood – and Australia took the issue to the World Trade Organization².

Australia looks to other markets

Australia's government estimated that the tariffs cost its economy about AUD 20 billion a year and, as a result, other Asian countries such as South Korea, Taiwan and India last year overtook China as Australia's biggest export destination, while exports to Japan also grew strongly³.

The export bans might end up benefiting other markets in Asia. The top three Southeast Asian destinations for Australian agricultural exports – Indonesia, Vietnam, and Singapore – are, in combination, second only to China⁴. Considering the seemingly fragile nature of food security in the region (e.g. supply chain issues, the regional impact of climate change, Malaysia's chicken export ban and Indonesia's brief palm oil export ban), China's loss may end up being Southeast Asia's gain if Australia leans more toward Southeast Asia in response.

China seeks self-sufficiency

The flip side is that the standoff dovetails with a push by China to be self-sufficient in various food products, including seeds, grains, and soybean.

The country is the world's biggest importer of agricultural products⁵ and the Chinese government has set various targets to increase domestic production, including lifting domestic soybean production to 23 Mt by 2025, up from 19.5 Mt in 2022, through an increase in the land area used for growing soybeans⁶.

In any case, Australia is only one of China's many sources of imported food, all of which suggests that Australia's leverage is not as strong as it once was. Building self-sufficiency in China is nevertheless a tantalising prospect for what is undoubtedly one of the key issues facing the world's burgeoning population.

Push for new food systems

The standoff between Australia and China is taking place amid a global push to develop new food systems to produce more sustainable supply chains, which is already transforming agricultural production, consumer behaviour, investors' decision-making, and government policy.

The current food system is built on a damaging and inefficient model in which almost 80% of all agricultural land is used to produce meat and dairy products⁷. Furthermore, we have cleared about 50% of all habitable land for agriculture⁸, which is the leading cause of deforestation. This is unsustainable, untenable and poised for significant disruption.

On top of the need to minimise the impact of the way we produce food today, we need to return 1 billion hectares of land to nature by reducing total agricultural land area by 20% by 2030⁹ in order to halt climate change and start to restore global biodiversity.

This need to create a more sustainable food system, combined with the need to address food security and minimise the impact of supply chain issues resulting from the Ukraine crisis, Covid-19 and other shocks, is creating a pressure cooker for food system innovation.

Thus, in future, we will need to produce more plant-based foods and fewer animal-based foods, or change whom we produce foods for, focusing on feeding humans first, rather than feeding animals in order to then feed humans. We also need to explore how producing foods will change, as conventional agriculture is replaced with regenerative methods, and our distribution systems are transformed to eliminate food waste.

Investment needed

At Davos 2023 in January, transitioning away from conventional agriculture was a key area of the discussion around achieving food security. As part of this, speakers called for urgent investment in rural food systems¹⁰.

According to the UN International Fund for Agricultural Development, small-scale farmers feed two out of three people on the planet, but face the brunt of climate change and lack financial support¹¹.

Financial support is crucial to managing the balance between food consumption and production, which includes adapting to the impacts of climate change, identifying food-borne viruses, managing crop protection, and using land responsibly.

A feedback loop is arising, as new thinking and a proliferation of investment opportunities spur innovation and economies of scale, across not just the food industry but sectors such as energy, infrastructure and biochemicals.

Reframing the Australia-China spat

Food security may be a pawn in a larger diplomatic game between Australia and China, caught in a mire of defence contracts, mineral exports, and security worries but, amid these larger concerns of sustainable food solutions, the food industry is not waiting around for progress.

As prime food consumers and producers, the two countries have a vested interest in food systems transformation, with both facing their own supply chain issues brought about specifically by the effects of climate change.

Read Lombard Odier's views on Asia's supply chain challenges of the sustainability transition.

Australia's beef exports reached just 854,592 tonnes in 2022, the lowest since 2003, as farmers struggled to rebuild livestock numbers after years of wild weather, inflationary pressures, and labour shortages¹². Meanwhile, China's campaign to transform domestic food production requires the repurposing of huge swathes of land, along with the innovation of new processes and production technologies.

So, whenever the trade issues are fully resolved both countries will need to show maturity and play a leading role in reshaping the food supply chain. Not only is this vital as China and Australia face their own challenges, but APAC's hungry mouths stand to benefit greatly from the applied wisdom and experiences of both.

[1] https://www.reuters.com/world/asia-pacific/china-willing-restart-trade-exchange-mechanism-with-australia-after-talks-2023-02-06/

[2] https://www.china-briefing.com/news/china-australia-bilateral-ties-50-years-in-2022-future-prospects/

[3] https://www.abc.net.au/news/2023-01-30/china-australia-trade-isolation-embargo-sanctions-verrender/101905194

[4] https://www.internationalaffairs.org.au/australianoutlook/australias-critical-role-in-promoting-food-security-in-southeast-asia/

[5] https://www.spglobal.com/commodityinsights/en/market-insights/blogs/agriculture/111722-china-food-security-xi-jinping#:~:text=As%20a%20result%2C%20China%20has,beef%2C%20palm%20oil%20and%20pork.

[6] https://www.graincentral.com/markets/tempered-chinese-soymeal-demand-buoys-canola-outlook/

[7] LOIM analysis based on (Ritchie & Roser, 2013)

[8] https://www.fao.org/3/cb4476en/cb4476en.pdf2021 (fao.org)

[9] https://wedocs.unep.org/bitstream/handle/20.500.11822/37946/UNEP_AR2021.pdf

[10] https://foodtank.com/news/2023/01/world-economic-forums-davos-conference-talks-food-systems/

[11] https://foodtank.com/news/2023/01/world-economic-forums-davos-conference-talks-food-systems/

[12] https://www.theguardian.com/australia-news/2023/jan/12/australian-beef-exports-slumped-to-19-year-low-in-2022-after-wild-weather-and-labour-shortages