Uncovering and minimising the impacts of - COVID-19 Medium-to-long-term logistics disruption report - AgriFutures Australia
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Uncovering and minimising the impacts of COVID-19 logistics disruption Medium-to-long-term logistics disruption report February – April 2022
Project scope and objectives Project objectives Minimise the impact of COVID-19 logistics disruption on agricultural export supply chains. Conduct ongoing analysis of logistics disruption by assessing market impacts and providing timely and accurate information to select rural industries. Improve the resilience of rural industries to logistics disruption by providing information to support businesses to make strategic decisions. Project scope Develop short-term logistics disruption assessment reports on a monthly basis, including general agriculture logistics information and three industry case studies. Develop medium-to-long-term logistics assessment reports on a quarterly basis, to investigate factors such as geopolitical impacts, customs and market access regulations. This report covers both short-term and medium-to-long-term logistics disruption insights for February-April 2022. 2
Cross-industry disruption insights
A summary of the logistics disruption insights in February to April 2022 that may impact Australian industries February-April 2022 logistics disruption insights may be used to guide industry participants with their supply chain strategic decision- making over the short, medium and longer terms. Container trade through major Australian ports increased month-on-month, barring the Port of Fremantle where throughput remained relatively unchanged. Strong export performance persists, however largely unchanged volumes of empty containers at each port demonstrates ongoing supply chain constraints. Volumes of air freight shipments in January 2022 decreased slightly on November and December 2021 levels, likely reflective of a decline in global demand in the post-Christmas period and an easing of congestion in some ports. Russia’s invasion of Ukraine is sending shockwaves through the global economy and threatens to further destabilise global supply chains still recovering from the COVID-19 pandemic. While Australian exporters stand to gain from increased commodity prices, including gas, coal, wheat, and gold, the conflict is also increasing freight costs, introducing new geopolitical risk and raising the cost of inputs, such as oil and fertiliser. COVID-19 outbreaks in many of China’s major port cities are increasing shipping congestion and weakening previously regained improvements to the reduction of global shipping delays made at the end of 2021. US West Coast (USWC) ports may experience upcoming delays caused by industrial action as employment contracts are negotiated. Global shipping companies are distributing more cargo to the US East and Gulf coasts to mitigate this risk. Freight companies expect the global supply chain crisis to continue in 2022 and are responding with innovative methods, such as expanding the use of inland and overland freight routes to circumvent disruption via sea. Many companies that rely on trade for key inputs are also moving from a lean toward an agile (“just in case”) supply model to adapt to the ongoing climate of uncertainty with global supply chains. The Australian Government continued to provide funding to support the recovery of Australian exporters from the COVID-19 pandemic in the 2022-23 Federal Budget. $267.1 million was committed to improve the competitiveness of Australia’s agricultural exports. $17.9 billion was allocated to infrastructure investment, with funding directed into improving key ports and intermodal transport hubs to strengthen Australia’s supply chain. The interim Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) has been signed between the two nations, reducing tariffs and increasing opportunities for Australian agricultural export growth. The deal is indicative Australia’s policy to diversify geopolitical risk through new diplomatic ties and trading relationships in Asia as tensions rise in the region. The trade deal has not been ratified by Parliament ahead of the May 21 election but is supported by both major parties, and is expected to be ratified by whomever is in power post the election. 4
Continued growth in container throughput and increasing supply of empty containers may expand freight capacity Key insights • The quantity of containers imported has decreased month-on-month at the ports of Melbourne and Botany in line with a post-Christmas decline in demand, however container throughput at the Port of Fremantle has remained relatively unchanged. • Largely unchanged volumes of empty containers at each port analysed below show that unwavering supply constraints still stand to threaten freight capacity out of Australia, however strong export performance persists. February 2022 Containerised exports and imports at major Australian ports Full vs empty containers at major Australian ports 000 TEU 000 TEU 115 118 195 120 107 200 Export 165 Full 100 Import 150 Empty 80 60 49 100 75 39 73 40 34 60 50 20 13 0 0 Port of Botany Port of Melbourne Port of Fremantle Port of Botany Port of Melbourne Port of Fremantle January 2022 Containerised exports and imports at major Australian ports Full vs empty containers at major Australian ports 000 TEU 000 TEU 150 250 118 122 Export 203 Full 107 200 Import 151 Empty 100 150 52 100 50 74 73 33 30 47 50 16 0 0 Port of Botany Port of Melbourne Port of Fremantle Port of Botany Port of Melbourne Port of Fremantle 5 1 NSW Ports, 2022. NSW Ports Monthly Trade Reports. 2 Port of Melbourne. 2022. Monthly Trade Reports. 3 Fremantle Ports, 2022. Trade Reports.
Air freight volumes appear to have slightly decreased from November and December 2021 levels Key insights • Volumes of air freight shipments in January 2022 appear to have decreased slightly on December and November 2021 levels, reflective of a decline in global demand in the post-Christmas period. • A decline in the volumes of air freight carried on the Sydney-to-Los Angeles flight route may be explained by shippers reverting some cargo to sea freight as congestion eased at US West Coast ports during late 2021 and early 2022. Meanwhile, the Sydney-to-Guangzhou air freight route has appeared in the top-five largest air freight routes, which may create opportunities for high-value Australian exports to China and surrounding regions. What does this mean for… Red meat Grains Citrus Cross-industry Decline in freight volumes Ongoing demand from South There is a slight decline in Evolving air freight capacity in line with the slow return to pre- between Sydney, Hong Kong and Asian and Southeast Asian air freight capacity into key pandemic commercial air travel levels will continue to be Los Angeles may indicate markets for Australian grain in markets, including Hong monitored by all exporting industry members in weighing up the contraction in export opportunities line with threatened global Kong and Singapore, for cost of air freight against the risk of disruption and delay via sea to typical premium Australian red supply continues to create premium citrus exports. freight. meat markets. export opportunities if freight Air freight capacity is expected to increase significantly in line availability challenges can be with travel activity and strong consumption levels across the circumvented. summer season in the Northern Hemisphere. Comparison of freight quantities carried on top Australian flight routes November 2021 – January 20221 000 tonnes 10 10 10 Nov 21 9 8 7 8 Dec 21 7 6 Jan 22 6 6 5 4 4 4 4 4 4 4 2 0 Sydney to Melbourne Sydney to Sydney to Sydney to Sydney to Singapore to Singapore Hong Kong Auckland Los Angeles Guangzhou 6 1 Bureau of Infrastructure and Transport Research Economics, 2022. International Airline Activity monthly publications, most recent available is January 2022.
A surplus of full containers persists at most global ports as they are slow to recover from logistics disruption Key insights • A high Container Availability Index (CAx) at the Port of Los Angeles persists, indicating a significant backlog of ships waiting for containers to be cleared. • Container throughput at the ports of Singapore and Shanghai is slowly nearing a balanced level, in line with a minor decline in air freight volumes across major supply chain routes into 2022. Container Availability Index (CAx) Inbound and outbound air freight movements in Australia January 2022 to December 20201 March 2022 CAx = 0.5 same • Shanghai Port: Weekly average Inbound number of containers 0.6, 14% increase on January Outbound leave and enter the 000 tonnes 2022 levels port 80 • Singapore Port: Weekly CAx > 0.5 more average 0.59, 5% decrease on 60 51 49 containers enter than January 2022 levels 44 43 43 41 38 39 leave 40 • Los Angeles Port: Weekly CAx < 0.5 more average 0.9, no change on 20 containers leave than January 2022 levels 0 enter Jan 22 Dec 21 Nov 21 Dec 20 7 1 Bureau of Infrastructure and Transport Research Economics, 2022. International Airline Activity monthly publications, most recent available is January 2022. 2 Container Availability Index, 2022, January 2022 latest report available. .
While the conflict in Ukraine raises concerns for the stability of global trade, Australia’s exports remain strong Key insights • Russia’s invasion of Ukraine is sending shockwaves through the global economy and threatens to further destabilise global supply chains still recovering from the COVID-19 pandemic. The conflict adds to the increasing freight costs and introduces new geopolitical risk for exporters. • The conflict could increase export revenues for Australian exporters given a surge in the price of key export commodities, including gas, coal, wheat, and gold. However, these gains are being diminished by the rising cost of freight and key inputs, such as oil and fertiliser. • Shipping giants including Switzerland-based MSC, Denmark’s Maersk, and France’s CMA CGM, have halted cargo bookings to and from Russia until further notice, joining the growing list of companies to shun Moscow over its invasion of Ukraine.1 • Shipping congestion in Europe increased following Russia’s invasion of Ukraine. Average dwell times, the amount of time a container waits to get picked up at a marine terminal after being unloaded from a vessel, have increased 40% since the beginning of the conflict.2 Ukraine- Russia • The International Chamber of Shipping warns that current supply chain disruptions are set to be worsened by a shortfall in shipping crew conflict: due to the war. Ukraine and Russian seafarers account for 14.5% of the global shipping workforce, according to the Chamber.3 Impact on • March 2022 saw a record high bunker fuel price (BAF), the amount charged by shipping companies to compensate for fluctuating fuel global trade prices, as the price of oil soared due to the ongoing conflict in Ukraine. The BAF in early April 2022 was 195% higher than a year earlier, with prices expected to remain high for months to come.4 Insurance costs are also rising due to increased geopolitical uncertainty.5 • The impacts of sanctions on Russia, European shipping congestion, a reduced maritime labour force, and rising BAF is increasing freight costs for Australian exporters. These costs will likely remain high in the short term, reducing profitability over 2022 and some of 2023. • Australian exports hit a record high of $50 billion in January and will likely exceed this level in the coming months as the conflict in Ukraine boosts prices for key Australian export commodities. Natural gas and coal prices have risen as the world ceases business with Russian organisations and industries. Geopolitical uncertainty is pushing up the price of commodities such as gold, considered a safe haven investment in times of economic crisis, a key dynamic for Australian exporters to monitor.6 Ukraine- • Given Russia and Ukraine collectively make up 29% of the world’s wheat production, the conflict has increased the Chicago Board of Russia Trade (CBOT) futures price of wheat to a 14-year high, benefitting Australian exporters. conflict: • However, the prices of Brent Crude Oil and Average Sydney Diesel spiked following Western sanctions on Russia, which previously Impact on supplied 10% of global oil production. Average Sydney Diesel has increased approximately 50% year-on-year, despite the Australian Australian Government cutting fuel excise in half for six months, which is increasing transport costs and reducing profits for Australian industry.7 industry • Farmers also face fertiliser shortages and a year-on-year tripling of prices given that Russia is responsible for about 20% of key fertiliser chemical inputs and has all but ceased exports of the product.5 • The cost of oil and fertiliser is expected to remain high for the rest of 2022, due to limited spare oil refining capacity in the US and Europe, and the difficulty in finding vessels and insurance for fertiliser shipping from Eastern Europe. 8 1 Supply chains: 'Complete chaos for the shipping industry' amid Russia-Ukraine war and China lockdowns | Yahoo Finance 5 Rabobank Australia Agribusiness Monthly April 2022 | Rabobank 2 Russia-Ukraine Conflict Supply Chain Impacts | FourKites 6 Ross Stitt assesses Australia's strong rhetoric on the Russian invasion of Ukraine | Interest.co.nz 3 Russian and Ukrainian seafarers make up 14.5% of global shipping workforce, according to ICS | International Chamber of Shipping 7 Budget 2022: Fuel excise slashed to ease Australian petrol prices for six months | Sydney Morning Herald 4 Ship fuel spikes to historic $1,000/ton mark as war fallout worsens | American Shipper
COVID-19 outbreaks in China, industrial action in USWC ports and rising fuel prices raise supply chain concerns Key insights • COVID-19 outbreaks in many of China’s major port cities, and resulting labour and trucking shortages, are increasing shipping congestion and unleashing a fresh wave of supply chain shocks, reversing some of the gains made with the reduction to supply chain delays as experienced at key global ports during the tail end of 2021. • Shippers importing goods into the US are distributing more cargo at the US East and Gulf coasts to avoid shipping congestion at US West Coast (USWC) ports and diversify their risk ahead of potential industrial action at USWC ports. • A wave of COVID-19 outbreaks in the Chinese manufacturing export hubs of Shanghai, Shenzhen and Qingdao have resulted in strict lockdowns as the government continues to pursue its zero-COVID strategy.1 While China’s ports and transport operations are allowed to continue operations, a lack of manpower and trucks is reducing container loading capacity and worsening shipping delays.2 • For example, one weekend in April 2022 saw more than 90% of trucks supporting freight shipping in Shanghai out of action. In the city’s port, which is the largest in the world, import dwell times for containers increased by almost 75% to eight days.3 Following this, Danish Shipping delays in shipping giant Maersk announced plans to omit calls to Shanghai, with other lines expected to follow suit.4 China due • Outbreak-induced delays in mid April 2022 saw 477 bulk cargo ships waiting to deliver resources into Chinese ports, with the backlog to COVID- continuing to worsen. This included 222 bunkers waiting off Shanghai (15% higher than a month earlier), 134 at Ningbo-Zhoushan (0.8% 19 impacts higher), and a combined 121 vessels at Rizhao, Dongjiakou, and Qingdao (33% higher).5 • By early April 2022, 10% of the global container-ship fleet was gridlocked due to congestion at ports in China. In the coming months, this will likely cause fresh global supply chain shocks and undo much of the progress made in reducing shipping delays during late 2021.1 • As China grapples with maintaining its zero-COVID policy, continued labour shortages at ports will likely cause shipping delays and higher freight costs across the globe for both Australian exporters and importers over the next few months.6 • The risk of disruptions to shipping at USWC ports is increasing as the labour contract for 22,000 dockworkers approaches its July 1 expiry Industrial date. Contract negotiations, due to begin on May 12, are expected to be turbulent and likely to result in industrial action.7 action • Three of the last four negotiations between the union and its employers resulted in work stoppages, with the last contract expiration in threatens 2014 causing months-long negotiations. Services did not return to normal until late 2015, creating an unfavourable outlook for the impact US West of upcoming negotiations. Coast port capacity • Despite USWC shipping congestion dropping 70% since January 2022’s peak, exporters in Asia and Australia are looking to continue to diversify their risk by moving more cargo via East and Gulf coast ports.8 9 1 China’s Port Bottlenecks Slow Ships, Delay Supply-Chain Recovery | Bloomberg 5 China port congestion leaves everything from grains to metals stranded | MINING.COM 2 China Port Jams at Five-Month High Pose Risk to U.S. Deliveries | Bloomberg 6 COVID curbs bite at Chinese ports, threatening global supply chains | Reuters 3 Shanghai lockdown delays perishable imports | FreightWaves 7 Maersk Logistics Chief Sees Bumpy West Coast Labor Process | Bloomberg 4 Lines start to omit calls to Shanghai, the world’s largest container port | Splash247 8 CONTAINER QUARTERLY: Shippers look to USEC gateways amid USWC congestion, uncertainty | S&P Global Commodity Insights
Global companies predict supply chain complexities to continue and are changing their logistics strategies Key insights • Companies expect the global supply chain crisis to continue during 2022 and are responding with innovative approaches, such as expanding the use of inland air and rail freight routes. • Companies continue to move toward an agile “just in case” supply model to become more resilient during a climate of ongoing uncertainty and volatility in global supply chains. • New data from project44 shows that system-wide transportation choke points and the inability of inland trucking and rail networks in key global trade markets is showing limited signs of relief in 2022. • With demand still strong and virtually zero excess capacity, companies such as Airbus, Hermes, Nestle and Michelin have all reported that 2022 will not look any different to 2021 with regard to supply chain complexities. Many anticipate concerns will continue into 2023, as well as warning of an ongoing decline in profitability. • Shipping companies are continually seeking to respond to the ongoing crisis is innovative ways. Some are launching more targeted freight routes. For example, Hapag-Lloyd has implemented a 27-day express service between China and Germany that started on April 1. Companies’ updated • Similarly, Maersk is circumventing disruption in ocean freight by leveraging intermodal freight services through inland routes, such as response to using the Trans-Siberian railway, to connect countries such as South Korea to the Baltic region.1 the global supply chain crisis • The New York Times reported that time alone will not provide relief to global supply chain complexity, that shipping will not see a return to pre-pandemic levels until more ships, additional warehouses and an influx of truck drivers across key export markets are implemented.2 • Many Australian businesses are moving from a lean “just in time” inventory and supply model to an agile “just in case” model to mitigate risks from continued supply chain issues in 2022, according to the Commonwealth Bank of Australia’s Head of Small Businesses Banking.3 The Freight & Trade Alliance has also noted that some Australian importers are holding upwards of four times the normal inventory to provide reliable supply of goods.4 • The move by Australian businesses to “just in case” supply chains is reflective of a worldwide trend from lean to agile planning as organisations adapt to the new status quo of high uncertainty in the post-pandemic global economy. This trend will likely tie up working capital and require a greater level of warehousing for Australian industries.5 1 Europe’s Ports Rival U.S. for Congestion and Delays | Bloomberg 3 Australia’s supply chain issues likely to continue despite drop in Covid cases | The Guardian 2 A Normal Supply Chain? It’s ‘Unlikely’ in 2022. | New York Times 4 Australia's Maritime Logistics System - Submission to the Productivity Commission | Freight & Trade Alliance 10 5 Road transport: wheels keep turning | ANZ
Australian ports are under review by the Productivity Commission as disruptions to operations continue Key insights • The Productivity Commission has announced a review into the Australian maritime logistics system and connected supply chains. Initial submissions have highlighted that a range of dysfunctions at domestic ports is adding to business costs and fuelling inflation. • Australia’s ports will continue to see disruptions from industrial action and COVID-19 outbreaks, and some are attempting to counteract global disruption by making plans for future investments. • The Omicron variant and associated isolation requirements continue to impact labour allocations throughout Australian port terminals. Labour shortages are combining with existing shipping delays and congestion to put strain on the supply chain.1 • On December 1, the Australian Productivity Commission announced that it would review the maritime logistics system and connected supply chains in Australia. This report will review whether domestic issues such as industrial action are compounding the problems caused by global supply chain disruptions under surging global demand for goods since the start of the COVID-19 pandemic.2 • The Commission is seeking information and feedback, with an expected release of a draft report in late May 2022.3 Submissions from National dozens of the nation’s biggest port users have criticised dysfunction in ports, surging port access costs, rising union power, and poor transport links to ports. These issues are adding to higher prices and reduced competitiveness of Australian exports.4 • The Fair Work Commission has suspended a series of attempted strikes over January-February 2022, including stoppages planned for Botany, Brisbane and Fremantle. The planned industrial action was expected to have significant potential impact on shipping operations.5 • With limited signs of agreement in negotiations between the three labour unions representing port workers and different port labour groups, announcements of planned industrial action are expected to continue in coming months. • The Port of Newcastle continues to look to diversify from its status as the world’s largest coal port. Origin Energy announced in February that it would bring forward the closure of Australia’s largest coal-fired power plant to 2025, an indication of the rate at which circumstances in the region are changing.6 • The port continues to plan for its diversification, including investment in a hydrogen hub as well as plans for a $2.4 billion multi-purpose NSW deep water container terminal. • Protests at Port Botany caused short disruptions to operations over four days in late March. In response, the NSW Parliament passed legislation that enables tougher penalties to be handed to protestors who block operations in NSW ports. According to the NSW Government, this law will reduce the risk of disruptions to supply chains and economic activity.7 • The Port of Melbourne has announced a project to extend Webb Dock East, the largest automotive terminal in Australasia, by 71 metres.8 VIC The upgrades will reduce port congestion and improve efficiency. The project is scheduled for completion by Q3 2023. 1 Port of Melbourne Stakeholder Update 25 | Port of Melbourne 5 FWC ORDER ENDS SVITZER TUGBOAT CAPTAIN STRIKE | Daily Cargo News 2 Productivity Commission review into Australia’s maritime logistics system | Treasury 6 Port of Newcastle looks to a future after coal – and it’s coming soon | The Fifth State 11 3 Australia's Maritime Logistics System | Productivity Commission 7 NSW parliament passes new laws bringing harsher penalties on protesters | ABC News 4 Australian ports 'close to breaking point' as costs surge | The Australian 8 Port of Melbourne announces Webb Dock East Extension Project | Port of Melbourne
Medium-to- long-term logistics disruption insights
The 2022-23 Federal Budget committed large investments to agricultural trade and infrastructure, however transport costs remain unabated for exporters Key insights • The 2022-23 Federal Budget aims to improve the competitiveness of Australia’s agricultural exports, with $267.1 million over four years pledged towards modernising and improving Australia's trade system and supporting exporters to expand their presence in global markets. • The Budget’s investment in technology and infrastructure will aim to streamline export processes and strengthen Australia's supply chain by reducing congestion. Key investments in improving export regulation aim to safeguard Australia’s global reputation as a reliable, high-quality exporter. • Transport costs for agricultural exporters to transfer goods to international markets will likely be largely unaffected by cuts to fuel excise and customs duty in the Budget. • Agricultural exporters will benefit from an additional $80 million provided to small and medium-sized exporters to re-establish their presence in overseas markets through the continued funding of the Export Market Development Grants program. $27.4 million has also been committed to promote agribusiness and large trade events, including $6 million for Beef Australia.1 These allocations will support Australian exporters to promote their goods in new markets and likely improve export opportunities in the agriculture industry.2 • The Federal Budget has also committed $127.4 million to an initiative to provide digital services to ‘take farmers to market’, which aims to transform the delivery of government agricultural export systems and services and improve the competitiveness of Australian exporters in international markets.3 This program aims to modernise the export system by reducing annual government fees and 2022-23 charges, developing more efficient regulations, using new technology and improving market access. Federal Budget delivers • The Federal Government’s infrastructure investment will see a share of $17.9 billion going towards strengthening Australia's supply medium-to- chain, which will help move Australian products to ports for export.4 This includes $3.1 billion set aside for the Melbourne Intermodal long-term Terminal Package to improve the connection of Inland Rail to the Port of Melbourne,5 a key investment given more than one-third of investments Australia’s container trade comes through the Port of Melbourne and container trade is expected to triple over the next 30 years. for trade and Improving transport links for terrestrial and sea freight through this project will help improve supply chain efficiencies and reduce costs agriculture for exporters. • The Budget also allocated $7.1 billion to infrastructure in four ‘regions of national importance’, including $6.6 billion for water infrastructure in Queensland to “facilitate the development of a new food bowl in Australia’s north and unlock new agricultural export opportunities”.6 • The Federal Budget has halved the fuel excise along with the excise-equivalent customs duty rate that applies to petrol and diesel, for six months, commencing March 30. 2 While this benefits agricultural producers through lower diesel costs on the farm, the omission of a reduction in road user charges means that only a marginal decrease in logistics costs is expected.7 1 Five Federal budget sweeteners and what it means for agriculture | Clayton Utz 5 Port of Melbourne welcomes Federal commitment to Victorian Intermodal Terminals; believes priority should go to Western Intermodal 2 Federal Budget 2022 | Budget insights and analysis | KPMG Australia terminal | Port of Melbourne 3 2022-23 Budget backs farmers and Northern Australia | Ministers for the Department of Infrastructure 6 Budget overview | 2022-23 Budget 13 4 $17.9 billion boost for infrastructure across Australia | Prime Minister of Australia 7 Budget draws tepid response from transport, ag | Grain Central
As geopolitical tensions in the Asia-Pacific region rise, Australia strengthens ties with alternative trading partners Key insights • Geopolitical tension has risen in the Asia-Pacific region between February-April 2022, creating fresh geopolitical risk for exporters and demonstrating the ongoing trend of uncertain trading relationships. • Australia is expanding and deepening its economic and diplomatic ties with a wider variety of nations in the region, such as India and Vietnam, in order to diversify trade and mitigate geopolitical risk for exporters. • The improvement of diplomatic and security ties between certain nations in the Asia-Pacific region, accusations around the stance of nations in the region on the Russia-Ukraine conflict, and non-violent military confrontations in the Arafura Sea are all increasing the risk associated with trade in the region for Australian exporters.1 Western sanctions on Russia have also changed the status quo on global trade, increasing the risk exposure of Australian exporters to geopolitical instability. Asia-Pacific • While discussion persists on the desire to re-establish strong trade relationships, there has been limited diplomatic exchanges to trade tensions are on the rise improve the situation. This delay suggests an unfavourable outlook for a potential recovery or expansion in trade opportunities in the region for Australian exporters in the near term.2 • Trading relationships between some nations in the Asia-Pacific region are worsening, along with the threat of new trade barriers in the form of further tariffs and export bans. This is causing concern and increased risk for Australian exporters with exposure to the region.3 • On April 4, the interim Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) was signed by the two nations, an instrumental achievement for the trading opportunities of both nations.4 • It is expected that the AI-ECTA will almost double bilateral trade from $27.5 billion in 2021 to about $45 billion or $50 billion in the next five years. The deal eliminates tariffs on more than 85% of Australian exports to India, rising to 91% in a decade.5 As explored in this report, AI-ECTA will reduce tariffs for key agricultural exports, including sheep meat, wine, wool and a range of horticulture Australia looks products. to alternative trade partners • The new trade agreement will be a key means of reducing the concentration of Australia’s economic ties in the Asia-Pacific region in Asia on any single nation by offering exporters new opportunities to diversify trading partnerships. While the trade deal has not been ratified by Parliament ahead of the May 21 election, it is supported by both major parties and is expected to be finalised following the election. • Meanwhile, Australia-Vietnam economic ties continue to strengthen since the signing of the Australia-Vietnam Enhanced Economic Engagement Strategy on November 1, 2021.6 In March 2022, Vietnam signed up to the Australian Agriculture Visa Program, reflecting the commitment of both nations to deepen cooperation under the new trading partnership. 1 Why is Australia so concerned about China's planned security agreement with Solomon Islands? - ABC News 6 Vietnam joins the Australian Agriculture Visa Program | Australian Minister for Foreign Affairs 2 China's new ambassador says Beijing willing to go 'halfway' to repair diplomatic relations with Australia | ABC News 3 China-Australia relations: Ukraine war clouds efforts to repair trade ties after PM Morrison warns Beijing of sanctions | South China Morning Post 7 Australia’s goods and services by top 15 partners 2020 | DFAT 14 4 India, Australia trade agreement rooted in desire to limit dependence on China | ANI News 5 India-Australia trade pact pushes back against 'panda in the room’ | Nikkei Asia
Alternative proteins conference signals rising demand for plant-based meat alternatives and potential future export opportunities Key insights • Melbourne will host the first-ever alternative proteins conference for Australia and New Zealand on May 17, 2022, demonstrating the trend of rising demand for plant-based meat. • While alternative proteins aren’t likely to completely replace animal proteins in the near term, rising global demand for alternative protein presents opportunities for Australian exporters that move early. • Hosted by an independent think tank on alternative proteins, Food Frontier, and supported by the Victorian Government, ‘Alt Proteins 22’ will bring together industry figures, policy experts and researchers to explore the future of plant-based meat products.1 • The conference will discuss a range of topics, including emerging opportunities for the agriculture sector, new Australian consumer insights, cultivation paths to market and the Asian export opportunity.2 • Research conducted in 2020 on the future of protein production in Australia estimated that there will be an additional opportunity of $19.9 billion for the sector by 2030, of which $3.1 billion is likely to be filled by alternative protein categories.3 A report released in April 2022 by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) also supports this indication.4 Alternative proteins • Global demand for alternative proteins is on the rise, including in China where in March 2022, President Xi Jinping told his conference agriculture officials to pursue protein sources outside traditional livestock industries as a way of securing the country's food supply.5 shows rising demand for • Despite Australia’s current uncertain trade relations with China, well-established bilateral trade networks present a significant plant-based opportunity for Australian exporters to diversify production and tap into growing demand for alternative protein imports in China. meat • Alternative protein production could provide an opportunity for Australian agricultural exporters to use existing production assets to supplement revenue streams through diversified product offerings.3 As global demand for alternative protein rises, Australian agricultural producers that build capacity in this area may increase exports and gain market share.7 • Australian producers would be well positioned to monitor the outcomes of the alternative proteins conference in May 2022 to understand potential opportunities around export as well as government support to diversify the Australian supply chain trade agenda. 1 Spotlight on alternative proteins | Country News 5 China's hunger for alternative proteins led by President Xi | Farm Online - Australia 2 First fake food summit to drive alternative protein industry | Farm Online - Australia 6 Mission Impossible: Persuading meat lovers to buy fakes | Sydney Morning Herald 3 Traditional and alternate proteins both have role in filling future food demand | Beef Central 7 Meat the Alternative – Australia’s $3bn Opportunity | FoodFrontier.pdf 15 4 Australia's Protein Roadmap | CSIRO
Red meat: Industry snapshot
Producers are impacted by suspensions and extreme weather, while the Federal Budget delivers labour support Update Extreme flooding reduces beef exports in parts The Federal Budget will support workforce China suspends another Australian meat of Australia, while dry conditions will reduce training and upskilling to meet labour abattoir due to a COVID-19 outbreak exports in other parts in coming months shortages Context • A 10th Australian red meat abattoir has been • Flash flooding in February-April 2022 caused • Beef processors say the latest Federal Budget temporarily suspended from exporting to significant road closures in northern NSW and will support several key areas for the meat China. Chinese authorities informed the southern Queensland, impacting producers’ supply chain as it recovers from the impacts of processor of the temporary suspension on ability to send cattle to saleyards or COVID-19.6 January 29 due to a high-profile COVID-19 processing.3 Further, fires caused by hot and outbreak at the Naracoorte plant of Teys. dry conditions in Western Australia destroyed • The government has boosted spending for significant volumes of farming infrastructure industry training, including $2.8 billion over five • There has been no official reason for the and livestock.4 years to upskill apprentices; a $3.7 billion suspension, nor any indication on when it will increase to the new National Skills Agreement; be lifted. Australian red meat exporters to • Beef exports were down due to low abattoir a 20% tax deduction boost for employee China should continue to monitor the situation throughput as a result of flooding and training by registered providers for small and assess their own risk of suspension.1 pandemic-related workforce shortages, with a businesses; and expanding access to trade 11% year-on-year drop in March 2022 export support loans. volumes.5 • Worldwide, there are now almost 150 meat processing and cold storage facilities • Parts of northern Queensland and Northern • According to the Australian Meat Industry suspended from trade with China. None of the Territory have seen poor pasture growth due Council (AMIC), this funding for national skills Australian plants suspended have had their to below-average rainfall. As a result, many training and apprenticeship programs will help trade access restored.2 As trade uncertainty producers in these areas are offloading cattle the industry overcome ongoing labour continues to rise, Australian red meat early. This has hampered herd growth amid shortages that are impacting the meat supply exporters should plan ahead for the possibility Australian producers’ herd rebuilding, chain. This may improve the industry’s ability to of their trade with China being suspended. reducing availability of product available for take advantage of more trade opportunities export. and increase exports. Insight Meat exporters need to ensure strict COVID- Beef exports will likely continue to be down Increased federal funding will support 19 measures and mitigation strategies are in year-on-year as a result of dry conditions and industry to upskill its existing workforce to place to mitigate against suspension by China reduced herd growth meet labour shortages and secure trade 1 China bans meat from tenth Australian abattoir in response to media reports, says analyst | ABC News 5 Rabobank Australia Agribusiness Monthly April 2022 | Rabobank 2 Teys Naracoorte added to China’s list of beef plant suspensions | Beef Central 6 Where the budget delivers for meat processing | Farm Online - Australia 3 Flooding brings disruption for the red meat supply chain | Meat & Livestock Australia 17 4 Rabobank Australia Agribusiness Monthly March 2022 | Rabobank
Trade agreement with India opens up new markets for sheepmeat, while beef exporters look to Mexico Key insights • The interim Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) will cut import tariffs for sheepmeat, both raw and processed skins and hides, boosting trade opportunities for Australian exporters to the world’s second-largest market. • Mexico has emerged as a new export market for Australian red meat producers, offering the opportunity to diversify against geopolitical and supply chain risks. Flow-on impacts and minimising disruption Australia-India trade agreement will expand export opportunities for sheepmeat producers • The interim AI-ECTA has cut the current 30% import tariff levied by India on Australian sheepmeat. The agreement also binds the zero tariff on raw skins and hides and eliminates the 10% tariff on processed skins and hides.1 • India is the world’s second-largest market for sheepmeat, with 728,225 metric tonnes consumed in 2021. This consumption is expected to rise to 788,879 metric tonnes by 2029, according to the OECD.2 Australia has only exported about 111 tonnes of sheepmeat to India in the past five years, primarily premium cuts serving five-star catering and high-end retail segments.1 This access will provide further opportunity to meet untapped demand for high- value Australian exports. • According to the CEO of Sheep Producers Australia, the removal of the tariff will provide more certainty for sheepmeat exporters and allow the industry to better meet Indian demand for high-quality products, boosting export earnings. Red meat exports to Mexico increase, opening up diversification opportunities • Austrade reports the recent success some Australian red meat exporters are having to Mexico, adhering to the demand of a growing class of young, high- income earners leading a trending preference for premium beef consumption at home and in restaurants. Australian meat exports to Mexico have risen significantly in the last five years. From January to July 2021, Mexico imported 603.84 tonnes of Australian beef, a 26% year-on-year increase.3 • Mexican demand for imported food is anticipated to rise in coming years in line with income levels and increasing GDP, economic growth and declining domestic food self-sufficiency. • Australia is well placed to compete in the market, particularly in chilled and grass-fed beef. Australia boasts a competitive advantage for these products given Mexico does not currently import beef from low-input-cost countries Brazil and Argentina due to the threat of foot-and-mouth disease incursions. • While currently a niche player in the global red meat market, Mexico could serve as a valuable diversification strategy for Australian high-value red meat exporters, mitigating risk against geopolitical or freight challenges experienced in other major export markets. 1 India – enhanced trade on the horizon for Australian sheepmeat | Meat & Livestock Australia 2 Agricultural output - Meat consumption | OECD Data 3 Love meat tender: Australian producers feed Mexico’s growing appetite for premium beef | Austrade 18
Grains: Industry snapshot
Grains exporters are supported by tariff cuts and favourable weather, but are hampered by fuel prices Update India cuts lentil tariffs to zero from a number of La Niña boosts Australian grain crop outlook Elevated and volatile fuel prices increase countries, including Australia and deteriorates yields in the Americas logistics challenges for the grains industry Context • Effective from February 13 to September 30, • The extended La Niña weather pattern has • Domestic grain transport costs have jumped by 2022, India’s cut to tariff on lentils1 will likely provided excellent planting conditions and approximately 25% in recent weeks as trucking increase the competitiveness of Australia increased confidence for Australia’s 2022 companies push up rates to compensate for a lentils and enable Australian exporters to have winter grain crop.4 diesel cost of about $2 per litre.7 more confidence on securing trade.2 • Grains producers are also scrambling to adapt • Supply chain margins for grains exports to rapidly changing fuel prices. Some • In line with a strong lentil harvest, this move continue to hold strong, driven by two companies have been quoting grain with a also frees up storage capacity for other consecutive bumper crops in the Australian clause to adjust transport prices to fuel costs Australian grains exports given lentils can be east coast and supply shortages in the as they fluctuate.8 sent in the short term. Australian grain Northern Hemisphere.5 growers hope this move will also help capture • The latest Federal Budget cut fuel excise to increased export value given the potential • La Niña has also caused extended hot and ease the pressure on transport operators, demand an increase in Australian lentil dry weather conditions in Argentina and however costs remain high as a result of rising exports may generate.3 southern Brazil, damaging corn and soybean global prices due to the conflict in Ukraine. crops and threatening the upcoming wheat • High and volatile fuel prices are increasing • The new interim Australia-India trade planting in the region. Crop ratings are also transport costs for the grains industry and will agreement is expected to continue this tariff deteriorating in both wheat and corn-growing likely erode any profit increases driven by reduction past September 30, when the deal regions of the US due to drought.6 higher prices from the favourable export expires for other nations. Australian growers outlook for the remainder of 2022. are well-placed to develop India as a key • Earning projections are being upgraded as export market and boost earnings. Australian grain exports continue to perform. Insight Australian lentil producers will likely see Australian grains producers may see strong Grains producers need to employ strategies to increased demand from India and a rise in exports due to deteriorating crop yields in the mitigate against rising and volatile fuel prices export earnings after the tariff was cut to zero Americas and favourable local conditions and reap the benefits of increased exports 1 Insight – Export opportunities increase as India reduces tariff on lentils | Austrade 6 Rabobank Australia Agribusiness Monthly April 2022 | Rabobank 2 India cuts lentil tariff to zero | Grain Central 7 Heavy rains return to southern Queensland | Queensland Country Life | Queensland 3 India drops tariffs on lentils, paving the way for Australian farmers to cash in after a bumper harvest | ABC News 8 Transport scrambles to adapt to volatile fuel prices - Grain Central 20 4 Global demand lifts GrainCorp's profit outlook | Grain Central 9 Some other things to watch | The Land - NSW 5 GrainCorp shares hit a record high on profit upgrade | Herald Sun
Australian producers may see benefit from the Russia-Ukraine conflict as global supply falls and prices rise Key insights • Russia’s invasion of Ukraine has caused all export terminals along the Black Sea coast to close, severely disrupting Eastern European grains exports. • Russia and Ukraine combined accounts for 29% of global wheat exports,1 and the conflict between the two has caused the price of wheat to skyrocket, boosting export earnings for Australian producers. • New markets in Southeast Asia are opening up for Australian grains exporters as nations look for alternative suppliers. Flow-on impacts and minimising disruption Eastern European wheat exports heavily impacted • Ukraine exports almost 25 mmt of wheat (12% of global trade), 35 mmt of corn (16%), and 6 mmt of barley (18%) annually, and has a strong impact on global prices for these commodities. Exports from Ukraine are heavily disrupted or completely halted due to Russia’s invasion.2 • A direct ban by Western nations on Russian grains exports is unlikely due to humanitarian reasons, however indirect disruptions are occurring. Western sanctions on Russia’s ability to access the Society for Worldwide Interbank Financial Telecommunication (SWIFT) international payments system is cutting into its ability to receive international payments for its exports and pay for imported inputs for grains producers. Australian grains producers see increased prices and overseas confidence • Over the three months prior to April 8, 2022, the Chicago Board of Trade (CBOT) futures prices for wheat, corn and soybeans have risen 35%,3 18%,4 and 7%5 respectively. At one point in March 2022, the CBOT wheat price was up 70%, reflecting the current volatility in the market.6 Price rises and volatility has primarily been driven by uncertainty over trade and sanctions associated with the Russia-Ukraine crisis, however a shortage of supplies in global markets and deteriorating crop prospects in some regions is also contributing and will continue to do so in the short term. • Australian grains producers stand to benefit from increased prices for grains and a positive outlook for crop yields, if they can circumvent ongoing freight disruption. Confidence in Australia’s grains among overseas importers remains high, with Australian wheat labelled a ‘safe haven’ by some traders.7 New markets open up for grains exporters in Southeast Asia • Australian grains exporters will likely see an increase in demand from Southeast Asia as Russia’s invasion of Ukraine disrupts usual import channels for these nations. Australian producers may be able to improve profitability by taking opportunities to fill the new gaps in Asia-Pacific export markets.7 • While Indonesia typically relies on Ukraine and Russia for wheat shipments in the second half of the year, Australia has become known as a safe supplier for wheat imports for this time period and is well-placed to continue meeting the demand of the world’s third-largest importer of wheat in 2020. 1 We're Not Facing a Global Food Crisis | UC Davis - Aaron Smith 5 Soybeans - 2022 Data - 1977-2021 Historical - 2023 Forecast - Price - Quote - Chart | Tradingeconomics.com 2 Rabobank Australia Agribusiness Monthly March 2022 | Rabobank 6 Rabobank Australia Agribusiness Monthly April 2022 | Rabobank 21 3 CBOT Wheat Futures - Price & Chart | MacroTrends 7 Australian wheat seen as 'safe haven' amid Russia-Ukraine tensions | S&P Global Commodity Insights 4 Corn (Globex) Daily Commodity Futures Price Chart : CBOT | Tradingcharts.com
Citrus: Industry snapshot
New market access is widening opportunities for citrus growers, though input costs continue to rise Update New opportunities are being explored by Strong demand growth for citrus in Indonesia Australian Government grant supports HIA to Australian citrus growers in Korean markets presents opportunity for Australian exporters conduct global export market research Context • The Australia-Korea Business Council • A recent report released by the Australian • The Australian Government has awarded a launched a new report on February 16, 2022 Bureau of Agricultural and Resource $2.04 million Agricultural Trade and Market aiming to provide the next generation of Economics and Sciences (ABARES) exploring Access Cooperation (ATMAC) grant to Australian exporters with ways in which they future trade opportunities to Indonesia Horticultural Innovation Australia (Hort can capitalise on the market’s strong demand identified changing consumer preferences, Innovation).4 potential. Australian citrus was flagged as an which has led to strong growth for citrus important product given existing export imports into the market.2 • The funding will support an Australian relationships with the market. horticulture international demand creation • The report investigated the pressure felt by project and deliver targeted research and • The report identified e-commerce and Indonesia to open its market to more diverse export plans for 13 markets across East Asia, premium branding as strong potential market food products, noting that three-quarters of the Middle East, the US and the UK. These entry pathways for Australian products. It also the value of food consumption growth to 2050 plans will cover 20 product categories of fruit, highlighted the need for exporters to conduct will be supplied by imports. This is a strong vegetables and nuts.5 further market research to understand Korean indicator of potential future demand for customers. Australian citrus exports, a valuable • According to the Minister for Agriculture David opportunity given Australia’s geographical Littleproud, the grant will support the industry • Launching the report, Federal Trade Minister supply chain advantages to the market.3 to identify global opportunities and increase Dan Tehan reported that the Commonwealth exports.4 Government was eager to further assist Australian food and beverage exporters to • Hort Innovation is a not-for-profit industry expand and diversify into Korea.1 organisation that conducts research and development, marketing, and trade programs on behalf of the industry.6 Insight Australian citrus growers will continue Australian citrus growers continue to explore Growers in the Australian horticultural identifying new customers in the Korean distribution channels to Indonesia to harness industry will be supported to harness export export market as opportunities expand growing demand among its population opportunities through new market intelligence 1 Moves to nurture food and beverage exports to Korea | The West Australian 4 Grant to strengthen horticultural exports | Minister for Agriculture 5 Hort Innovation to track export market trends | Produce Plus 2 Indonesia will be an important market for Australian exporters in coming decades | Fresh Plaza 6 The Company | Hort Innovation 23 3 Insight – High-value food products to drive food demand in Indonesia | Austrade
Trade agreement with India will boost citrus exports as agriculture visa eases labour shortages Key insights • The interim Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) will reduce import tariffs for Australian citrus and increase export opportunities across the subcontinent for Australian growers. • A federal grant will enable the leading domestic citrus industry body, Citrus Australia, to undertake targeted development of the Indian market and increase export opportunities for growers. • Vietnam is the first and only nation to sign up to the Seasonal Workforce Agriculture Visa, however it is unclear when the first Vietnamese workers will arrive or how many will be employed within Australia.5 Flow-on impacts and minimising disruption Australia-India trade agreement opens up new markets for citrus growers • The interim Australia-India trade agreement will allow the entry of 13,700 tonnes of Australian citrus into India at a reduced tariff of 15% (currently 30%), opening up a potentially significant growth area for Australian citrus exports.1 • While the deal is yet to be ratified and full implementation is expected to take about four months,2 Citrus Australia is hopeful that the date of implementation of the new agreement could be as soon as July 2022, expanding potential benefits and opportunities for the 2022 season. • Reduced tariffs for Australian citrus will significantly reduce the cost of exports, provide access to more diverse customer groups, and mitigate risk by diversifying distribution streams. Citrus Australia looks to develop the Indian market through a federal grant • The Australian Government has provided a $485,711 grant to Citrus Australia to increase export opportunities to India for Australian growers through targeted development of the Indian market, to build the foundations for exports of class-1 Australia citrus to grow to 30,000 tonnes by 2030.3 • The industry body will use this grant to conduct detailed research into the India market, increase engagement with those along the Indian supply chain, dedicate additional resources to build relationships and capability, and conduct study tours and inward trade missions with Australian citrus businesses. New agriculture visa will open the door for citrus growers to access labour from Vietnam • While Vietnam’s commitment to the agriculture visa is a positive step, the Australian Government has made no announcement as to when industries can expect to leverage this access. The visa is expected to be implemented in full by September 30, 2022, however this will depend on the willingness of nations invited to join and the speed of negotiations. Ten Southeast Asian countries, India, and the UK have been invited to join the agreement.4 1 Citrus Australia welcomes reduced tariffs with India under Free Trade Agreement negotiations | Citrus Australia 2 India-Australia sign trade pact; bilateral trade to reach $45 bn in 5 years | Business Standard News 3 Citrus Australia’s export strategy receives $485,771 boost to expand in India | Citrus Australia 24 4 Citrus Australia welcomes new Agriculture Visa | Citrus Australia 5 Australia looks to Vietnam for farm workers as first MOU under agriculture visa is signed | ABC News
References
References (1/6) Page References (1) NSW Ports, 2022. NSW Ports Monthly Trade Reports. https://www.nswports.com.au/resources-filtered/trade-reports 5. (2) Port of Melbourne. 2022. Monthly Trade Reports. https://www.portofmelbourne.com/about-us/trade-statistics/monthly-trade-reports/ (3) Fremantle Ports, 2022. Trade Reports https://www.fremantleports.com.au/trade-business/trade-reports (1) Bureau of Infrastructure and Transport Research Economics, 2022. International Airline Activity monthly publications. 6. https://www.bitre.gov.au/publications/ongoing/international_airline_activity-monthly_publications [most recent available] (1) Bureau of Infrastructure and Transport Research Economics, 2022. International Airline Activity monthly publications. 7. https://www.bitre.gov.au/publications/ongoing/international_airline_activity-monthly_publications [most recent available] (2) Container Availability Index, 2022. January 2022 latest report available. https://container-xchange.com/features/cax/ (1) Yahoo Finance, 2022. Supply chains: 'Complete chaos for the shipping industry' amid Russia-Ukraine war and China lockdowns. https://au.finance.yahoo.com/news/supply-chains-chaos-shipping-russia-ukraine-china-133728251.html (2) FourKites, 2022. Russia-Ukraine Conflict Supply Chain Impacts. https://www.fourkites.com/russia-ukraine-conflict- tracker/?fbclid=IwAR1FSzRaHyvqAjeDt8mGwdn-fWsdSEDv6SBYEFzr9d9Ng8pmG6ZYwY3z-Es#content (3) International Chamber of Shipping, 2022. Russian and Ukrainian seafarers make up 14.5% of global shipping workforce, according to ICS. https://www.ics- shipping.org/press-release/russian-and-ukrainian-seafarers-make-up-14-5-of-global-shipping-workforce-according-to-ics/ 8. (4) American Shipper, 2022. Ship fuel spikes to historic $1,000/ton mark as war fallout worsens. https://www.freightwaves.com/news/russian-invasion-propels- price-of-ship-fuel-to-historic-high (5) Rabobank, 2022. Rabobank Australia Agribusiness Monthly April 2022. https://www.rabobank.com.au/agribusinessmonthly/ (6) Interest.co.nz, 2022. Ross Stitt assesses Australia's strong rhetoric on the Russian invasion of Ukraine. https://www.interest.co.nz/property/114766/ross-stitt- assesses-australias-strong-rhetoric-russian-invasion-ukraine-noting (7) Sydney Morning Herald, 2022. Budget 2022: Fuel excise slashed to ease Australian petrol prices for six months. https://www.smh.com.au/politics/federal/fuel- excise-slashed-to-ease-petrol-prices-for-six-months-20220324-p5a7mp.html 26
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