Export

China targets Australian cotton in latest trade action

Grain Central, October 16, 2020

AUSTRALIAN cotton could be the latest target in the ongoing trade tensions with China with reports that Chinese mills have been discouraged from buying Australian cotton.

There is speculation China could impose a 40 per cent tariff on Australian cotton imports.

In a joint statement issued by Cotton Australia and the Australian Cotton Shippers Association, Cotton Australia chief executive officer, Adam Kay, said the Australian cotton industry was working to understand apparent changes to export conditions for Australian cotton to the People’s Republic of China.

“It has become clear to our industry that the National Development Reform Commission in China has recently been discouraging their country’s spinning mills from using Australian cotton.

“Our industry is working with the Australian Government, including the Trade and Agriculture ministers’ offices, to investigate the situation and fully understand what is going on.”

Mr Kay said the Australian cotton industry had earned a reputation as a reliable international supplier of cotton with fast shipping times to export destinations and reliable delivery.

“Our crop is in strong demand internationally and can attract a price premium due to its high quality, excellent sustainability credentials, reliability and a proven track record in meeting manufacturer and consumer needs, including in China.

“Our industry’s relationship with China is of importance to us and is a relationship we have long valued and respected. To now learn of these changes for Australian cotton exports to China is disappointing, particularly after we have enjoyed such a mutually beneficial relationship with the country over many years.”

Mr Kay said despite the changes to the industry’s export conditions, Australian cotton would find a home in the international market.

“The Australian cotton industry has long enjoyed positive relationships with the many other countries we export to, and we look forward to continuing and developing those other relationships further.

“The Australian cotton industry will continue having meaningful conversations with stakeholders to fully understand this situation, and we will continue working with the Australian Government to respectfully and meaningfully engage with China to find a resolution.”

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Comment

By Thomas Elder Markets agricultural market analyst, Andrew Whitelaw

THERE were news reports this morning of China disrupting the cotton trade with the potential implementation of a tariff (40pc) on Australian cotton.

This is a big hit to an industry recovering from recent droughts. I thought it was worthwhile taking a deeper look into cotton as a sequel to yesterday’s ‘World cotton stocks on high’ (article in Grain Central) with a specific look at China.

Generally, nations do not make trade decisions which will be contrary to their self-interest, as the old saying goes ‘Always back the horse called self-interest’.

Up until August, China had imported 17pc less cotton than the same time last year. This is in contrast to other agricultural commodities (ex barley) which are all firmly up. The export number is a sign of reduced demand for imports, in part due to CV-19 reducing apparel requirements.

You will hear this a lot from us, but the numbers tell the real story. At the start of this season, China had stocks which equated to 98pc of a year’s domestic demand. This is a huge stockpile, which when domestic production is added to the equation is pointing towards reduced import requirements.

The supply and demand picture (if USDA data is correct) points towards a scenario where China is well stocked for cotton. This would make cotton an easy target to attach a target for two reasons.  Firstly, as political manoeuvring with the recent tensions, and secondly to assist the prices provided to local farmers.

We have seen the second reason in recent times with pulse tariffs into India. The reality though is that China can apply a tariff, and not materially impact upon their own industries.

If this was going to hurt China, they wouldn’t target this commodity. It is political, but it is more than a political gesture. The government should be looking at all export produce to determine which ones that China can get by without.

Let’s hope that cooler heads can prevail and that the two governments can get to the negotiating table.

This article was originally published on the Thomas Elder Markets website. https://www.thomaseldermarkets.com.au/

 

Sources: Cotton Australia, Australian Cotton Shippers Association, Thomas Elder Markets

 

 

 

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Comments

  1. Roger Crook, October 16, 2020

    This one is easier to answer. Stop buying cotton products from China and increase from India and other dev countries.

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