One year ago this week, Australia called for a global inquiry into the origins of the COVID-19 pandemic. This comment, as well as a range of other geopolitical factors, sparked a trade-war with China that has extended to affect major exports, including wine, coal, barley, seafood, lamb, and cotton. Alternative markets for Australian exports have become vital to these domestic industries, amid sustained trade hostilities. IBISWorld has examined the alternative markets for Australian products, which may become increasingly vital if trade hostilities continue in 2021 and beyond.
Vietnam
Vietnam was the best performing Asian economy throughout 2020. The country has been successful, relative to many other countries in the region and the world, at containing the spread of COVID-19. As a result, the Vietnamese government imposed very few restrictions, which allowed the economy to grow.
‘Vietnam’s general economic success revolves around its strengths as a manufacturing economy, which highlights the need for Australia to focus on expanding its natural resource exports, such as food, minerals and metals, to Vietnam,’ said IBISWorld Senior Industry Analyst, Matthew Reeves.
Mining and mineral exports from Australia to Vietnam have surged over the past five years. Coal exports have increased at an average rate of 88.9% a year over the five years through 2019-20, totalling $2.2 billion. Additionally, iron ore exports to Vietnam were worth $775.7 million in 2019-20, with none recorded five years prior. While the Chinese government has not directly targeted Australia’s iron ore, it placed a ban on Australian coal in October 2020. The growing demand for coal in Vietnam has helped support Australian coal miners in the wake of China’s ban. China has been the second largest importer of Australian coal over the past decade.
A range of other goods have seen strong growth in demand from Vietnam over the past five years, including several for which China is or was the major customer. These goods include fruit such as grapes, citrus and stone fruit. Vietnam is now Australia’s third largest overseas market for grapes, with a market share of just over 7%. Similarly, Vietnam accounts for the fourth largest share of stone fruit exports (6.2% market share). The value of citrus fruit exports to Vietnam has grown at an annualised 62% over the past five years, to reach $14.9 million.
India
Australia and India are currently negotiating a broadscale free trade and economic partnership agreement. While COVID-19 has been a setback, the Indian economy has grown strongly over the past five years, fuelling greater demand for imports. Furthermore, the Indian economy is expected to bounce back, with the International Monetary Fund forecasting GDP growth of 12.5% for India over the year to April 2022. India has already shown increased interest in Australian coal. Australia typically supplies around 4% of India’s thermal coal. However, in January and February 2021, this share jumped to approximately 20%.
‘Australian mineral exports may have more potential than food exports in India, due to the structure of the Indian economy,’ said Mr Reeves. ‘India’s large agriculture sector, including the number of jobs it supports, means substantial tariff reductions on those goods may be a sticking point in future trade negotiations.’
Mexico
Despite being a G20 economy, Mexico accounts for less than 1% of Australia’s exports. Mexico became an alternative market for Australian barley after China implemented 80% tariffs in May last year. Like Vietnam, Mexico is an emerging manufacturing economy. As a result, some of Australia’s best opportunities may lie in minerals and food, as suggested by the barley deal. Mexico is a significant agricultural producer and exporter in the Americas, highlighted by the fact that Australia’s number one export to Mexico is fertiliser.
Indonesia
Indonesia is another large, emerging economy that Australia has been focused on building a stronger economic relationship with. Australia has signed two free trade agreements with Indonesia over the past decade. In 2010, both countries signed up to the ASEAN-Australia-New Zealand Free Trade Area. However, tariff reductions did not begin coming into effect until January 2017. In July 2020, the Indonesia-Australia Comprehensive Economic Partnership Agreement entered into force. Both these free trade agreements helped expand beef and sheep meat exports, with most tariffs either eliminated or significantly reduced between 2017 and 2020. Meat exports have grown at an annualised 11% over this period.
‘Indonesia’s large population, growing middle class and close geographic proximity will likely make it a key destination for Australian exporters going forward,’ said Mr Reeves. ‘This includes greater demand for food, such as meat, dairy and grains, and for construction materials such as iron and steel.’
Opportunities for Australia
Mexico, Vietnam and Australia are among the 11 countries that have signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a multilateral free trade agreement.
‘Ongoing tariff reductions as a result of this agreement will likely bolster Australia’s economic relationship with these countries. While China accounts for under 20% of the world economy, it makes up 40% of Australia’s total exports, meaning there is significant room for Australia to diversify,’ said Mr Reeves.
China’s rejection of Australian exports in certain categories will in most cases mean the country will have to import from other suppliers. This factor is likely to create gaps in global supply chains, providing opportunities for Australia. For example, China is now importing a greater share of its beef from South American countries such as Argentina and Brazil. Consequently, Australia has an opportunity to expand its beef exports to markets that these countries previously served, such as Mexico and Egypt.
However, finding new export markets is not always a simple task, especially in the short-term.
‘The Australian barley industry’s progress since China introduced the tariffs last year reveals the resilience of Australian exporters, who have pursued diversification strategies. However, shifts to new export markets can take months to achieve, and will do little to ease disruption in the short-term,’ concluded Mr Reeves.
IBISWorld reports used to develop this release:
- Citrus Fruit, Nut and Other Fruit Growing in Australia
- Meat Processing in Australia
- Iron Ore Mining in Australia
- Grain Growing in Australia
- Coal Mining in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com
