WAFarmers grain boss Mark Fowler warns risk premium likely amid hopes of barley return to China

WA’s peak farming body warns barley sellers will price a risk premium into future Chinese sales after being bruised in a three-year tariff attack. With news of a breakthrough in a top-level trade dispute and hopes of a crippling tariff being removed, traders tip China will resume its former role as the major buyer of Australia’s malting barley and feed barley. WAFarmers grains section president Mark Fowler said Australian barley sellers would be a “little more careful about having all our eggs in one basket again”. “At the end of the day, farmers will always sell to whoever has the best price,” Mr Fowler said. “But because of what happened, Australian grain sellers will price a risk premium into our pricing to China because they can pull it so quickly.” Risk premiums are a concept in commodity trading theory where producers and other sellers demand a bonus for the risk that they will be left holding the baby if a particular market goes bad. WA barley farmers faced losses of around $200 million after China slapped a crippling 80.5 per cent tariff on Australian barley imports in May 2020 amid a diplomatic spat between Canberra and Beijing. Market group Grain Trade Australia said Australia’s exports to China fell from around 6.3 million tonnes in 2016-17 to negligible levels after the tariff was imposed. Barley prices fell more than 10 per cent after the Chinese attack on Australian farmers and did not fully recover until Russia’s invasion last year of major grain producer Ukraine, when prices hit around $350/tonne. Prices for malting and feed barley have recently languished around $300/t. Grain market analyst Andrew Whitelaw, head of advisory group Episode 3, said Australian grain traders might try to gain a risk premium from China given the events of the past three years. But Mr Whitelaw said a premium would not last long with such a massive buyer like China, particularly given the grain market was highly competitive among sellers. If one firm tried to impose a $20/t risk premium on a Chinese buyer and priced the barley $320/t, then the next rival might offer a tonne for $319 and it would quickly be back to $310/t or less. “Eventually that risk premium will erode and it will be back to commercial reality,” Mr Whitelaw said. Australian traders were forced to find new markets in mid-2020 after China virtually killed barley sales from Australia. But it was particularly tough to find replacement buyers for malt barley, used for making whisky and beer. The proposed settlement unveiled on Tuesday will be see the Chinese Government choose over the next three months to either end their row before the World Trade Organization or face a full-blown legal battle. Australia’s Federal Government and farming and trading groups are hoping China’s review will lead to a return to normal trading later this year. Grain Trade Australia chief executive Pat O’Shannassy said he hoped to see Australia’s barley trade relationship with China resume in coming months. Mr O’Shannassy said there was considerable co-operation between industry players in plant breeding and technical support to meet China’s needs. Mr Whitelaw tipped China would be buyer of a majority of Australia’s barley after its first full season back buying our malt and feed grains. He said the smaller markets developed over the past three years would be forgotten as China’s state-owned food processor COFCO came back into the Australian market. “It will be down to traders’ decisions,” he said. “The notion of diversification will be out the window — they won’t give a monkey’s.”