Fears of US dairy glut
SUBSIDIES aimed at cushioning American farmers from the US-China trade war could have surplus product looking for new markets, putting global trade under pressure.
Dairy Australia trade manager Charles McElhone said the industry was closely watching the impact of US President Donald Trump’s $12 billion farm support program, which is being rolled out as the US-China trade war escalates.
The majority of subsidies have been allocated for direct payments to farmers as compensation for income losses due to higher tariffs imposed by China, including about $127 million for the US’s 41,000 dairy farmers.
It means US farmers will be insulated against the effects of the trade war, and could keep producing the same or a larger amount of product despite lower demand, amid a presumed drop in input costs.
“The net impact for the US dairy farmer could be a net positive, as they get these direct payments and the cost of production goes down,” Mr McElhone said.
“It creates a concern for Australian dairy because that surplus product will have to find a home elsewhere and other markets will come under pressure as a result.”
Mr McElhone said while it was too early to tell the impacts of the trade war, the US would likely look to Australia’s key markets of South-East Asia, Japan and Korea to find a home for its excess stock.
The US-China trade war shows no sign of resolution any time soon, with Mr Trump this month announcing another $200 billion in tariffs on Chinese goods, meaning more than half of Chinese imports will be subject to extra taxes.
China retaliated by announcing another
$60 billion in tariffs on US goods, subjecting about
90 per cent of all American imports to new duties, while also announcing a cut in tariffs for non-American goods from November 1.
Mecardo market analyst Matt Dalgleish said Australia needed to balance its strategic relationship with the US and its trading relationship with China – the nation’s biggest agricultural export market by far, hitting
$12 billion in 2017-18.
“If we can remain open to free trade and are able to keep negotiating worthwhile trade relationships, Australia could come out reasonably well,” he said.
Mr Dalgleish said Australian beef could benefit, as the US had only just received access back into China last year and trade protocols were not in place before the trade war kicked off.
“It was a concern when the US got access as that was another competitor in the high-value end, but this has certainly delayed that, so it’s a net result in favour of Australia,” he said.
❝Australian It creates a concern for dairy because that surplus product will have to find a home elsewhere. — Charles McElhone