Inflation from China-Australia trade deal could temper benefits

By RJ Whitehead

- Last updated on GMT

Related tags International trade

Inflation from China-Australia trade deal could temper benefits
The China-Australia free-trade agreement might significantly improve market access for Australian processed foods to China but, according to one minister, it could also prompt price inflation to hurt domestic consumers.

The Australian Food and Grocery Council (AFGC) singled out Andrew Robb, the trade minister, for praise after his delegation secured substantial tariff reductions across most food and grocery categories this week.

Gary Dawson, chief executive of the AFGC, said he was impressed by the government’s efforts to have now secured its third major liberalisation deal with one of Australia’s biggest trading partners in a single year.

Time to seal the deal

After 10 years of on-again off-again talks, it was vital that the China deal be sealed​,” said Dawson.

In that time, countries as diverse as New Zealand, France, Indonesia and Brazil have all been increasing their share of China’s food imports while Australia’s share has halved from 6% to 3%​.

Failure to reach a comprehensive free-trade deal with China risked Australia falling further behind in the race to get on the plate of Chinese consumers​.

The agreement enables Australia to play to its strengths in international trade to secure maximum value for high value-add exports as well as commodities​.”

China’s market is worth A$9bn (US$7.9bn) to Australian agrifoods companies, with the benefits supporting food and grocery, Australia’s biggest manufacturing sector, according to government figures.

Tariffs on processed food exports from Australia to China run as high as 30%. Under the terms of the deal, tariffs will be removed for honey, pasta, grains, various fruits and vegetables, soft drinks and juices, and some confectionery. The removals will take place over proscribed periods of time.

Not only does this FTA significantly reduce tariffs but has also established a platform for further trade liberalisation through a three year review of market access outcomes​,” continued Dawson.

Inflation fears

However, not everybody was so supportive of the free-trade agreement, with agriculture minister Barnaby Joyce even admitting that Australian food prices were likely to rise as a result of it.

Joyce told Fairfax radio that the agreement would mean farmers could demand higher prices as they would have more potential buyers.

"Another market means competition, and competition means that you're going to get a better price. And we've got to do that—we’ve been asking the supermarkets for so long... well now they've got somewhere else to go​," Joyce said.

Later on in an apparent U-turn, Joyce was forced to calm fears of food price inflation, saying that prices wouldn’t grow by a significant amount as the farm price only accounted for 10-15% of a product’s retail price.

"If the farmer is getting paid more at the farm gate, it is not actually going to make an awful lot of difference to what you pay at the supermarket because the vast majority of the return of agricultural produce is not actually earned by the farmer. It's earned by all the people post the farm gate.

"I am happy about the competition that will come into the marketplace, I am happy people will get a fairer price and I don't necessarily believe that that is going to bring about a form of food inflation because the vast majority of the return right now is not being made by the farmer, it is being made by the retailer and processor​."

Related topics Markets Oceania Industry growth

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