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Ukraine situation has implications for Australia

Opinion: Agsecure principal Andrew Henderson, March 3, 2022

THE unfolding emergency in the Ukraine has deep implications for a heavily trade-exposed Australia, which is torn between powerful friends and grappling with the challenges of a post-COVID world.

This emergency is the tip of a geopolitical iceberg that has long-term ramifications for our nation and our agriculture and agrifood sector, which is a foundation of the Australian economy and is key to our post-COVID economic recovery.

The increasing alliance between Russia and one of our most valuable trading partners, China, is resulting in the rebalancing of power and influence from West to East. We are perhaps bearing witness to the single biggest re-distribution of power and geopolitical influence since the Second World War. The Wests economic sanctions activity against Russia in response to the Ukraine emergency brings this alliance into laser focus.

Australian agriculture has fared well throughout the pandemic, with a record forecast gross value of $78 billion in 2021-22. The sector has overcome a great deal to achieve that result, but new challenges exist with the cost of key inputs like fuel, fertiliser, labour, and equipment all increasing. Fertiliser alone has skyrocketed with a 74 percent increase in the cost of urea from 2020 to 2021 and a 102pc increase for monoammonium phosphate (MAP) in the same period.

Supply chain disruption and trade volatility has had tangible impacts on farmers from lobster producers, wine grape and grain growers facing market closures, chemical shortages and increasing input costs. The digital disruption of JBS, the largest meat processor in the Southern Hemisphere, COVID furloughs and livestock processors haemorrhaging money through shutdowns have been a feature. Our response, and the actions we have taken to diversify, to become more resilient and regionally self-reliant, will be crucial as China and Russia deepen their economic and security cooperation. What we have experienced to date could be a precursor of what’s around the corner.

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In 2020 Russia was Australia’s 48th largest trading partner, China is our biggest two-way trading partner. Thomas Elder Markets highlights that Australia is strategically less directly reliant on Russia with trade inflows and outflows accounting for 0.1pc and 0.2pc of our total trade respectively. It’s Russia’s deepening relationship with China, who accounts for 31pc of our trade with the world that catches our attention.

In December, President Xi of China stated during a video call with Russia’s President Putin that their countries are “setting an example of a new type of international relations and the community, of a common destiny for humanity.” In turn, President Putin exclaimed that “Russia and China’s close co-ordination in the world arena, and their responsible joint approach to current global problems have become a significant factor of stability in international relations.”

This combined vision of a ‘new type of international relations’ poses a clear threat to the liberal, rules-based world order that Australia’s agricultural trade has thrived under. This compounds China’s increasing influence in our region which has clear implications for the agriculture sectors capacity to import key inputs, and export what we produce. Thomas Shugart highlights that risk in his recent Lowy Institute analyses; “In fact, the PLA (China’s People’s Liberation Army) is on track to gain the ability to threaten Australia’s access to international markets and energy sources and thus obtain direct coercive power over Australia’s economic wellbeing.”

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Despite the national security rhetoric of the last fortnight, the Prime Minister has stated that we must strive for peaceful coexistence. It is true that we must hope for continued mutually beneficial trade relationships while protecting our sovereignty and playing our part in feeding and clothing the world. But our trade exposed agriculture and agrifood sector must prepare for increased disruption and volatility.

Since the onset of the pandemic, we have initiated trade diversification programs and returned greater focus to our region but this redistribution of power from West to East prompts several questions;

Have we done enough to diversify, become more resilient, and do our ties with our nearest neighbours have enough depth for Australia to be regionally self-reliant?

Are our digital systems cyber resilient? Are individual agribusinesses and exporters prepared to pivot quickly, how much exposure do businesses have to a single supplier or customer?

Economic sanctions are being ramped up by the West against Russia every day and if successful, Russia will temper its posture and the world will find an uneasy balance, for now. But if economic sanctions don’t work I see two options; 1. Russia continues to carry out its territorial ambitions in Eastern Europe, China is emboldened – the US and its allies back down and a new era dawns with China and Russia sharing more dominant influence in a new world order or, 2. The US and its allies hold the line and engage Russia militarily, which likely leads to conflict, and potentially conflict with China.

Both scenarios where sanctions fail are bad for Australia. The first presents a reality that will challenge our sovereignty and the right to our own self-determination.

The conditions that our agriculture and agrifood sector have thrived under will be redefined and how we do business will be informed by the degree to which we are allowed to determine our own role in international trade.

From the second, I cannot see anything other than chaos.

These themes are big and seem far away, but they are acutely relevant to all of us involved in agriculture because we export 70pc of what we produce. While we hope that economic sanctions work, tensions ease and peaceful diplomatic relations prevail, we need to redouble our efforts in preparing for the alternative. We need to increase efforts to build the resilience and efficiency of our agriculture and agrifood supply chains and digital systems. We need to increase our efforts to diversify market access and spread risk for exporters. We need to build on our focus of becoming regionally self-reliant and work to ensure that our key strategic inputs are not unduly exposed.

Australia’s influence in the Ukraine emergency may be minimal, and even less so on the broader rebalancing of power, but the impacts on Australian farmers, food processors and exporters are clear. So too is the narrative from the Australian government, Australia’s sovereignty is not negotiable, and nor should it be. It is sadly reasonable then to expect that we will see an increase in activities aimed at disruption and coercion, and agriculture is one fundamental means by which that aim can be achieved.

Victor Frankl said that when we can no longer change a situation, we are challenged to change ourselves. For Australian agriculture that challenge is upon us.

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Comments

  1. Andrew Farran, March 5, 2022

    As for the dislocation of the once global trade system; it’s undoing can be attributed firstly to former President Trump, who advocated its dismantling, presumably to make America great. He did his best also to put an Exocet missile through the World Trade Organisation by crippling its dispute settlement facility. China itself has acted as if international trade law doesn’t exist and anything goes.

    After Ukraine, the Russian Federation will be a global pariah and its trading place will diminish further, unless the Russian people wake up and depose its government. Putin by then at the least will be before an international criminal court.
    Nothing Russia produces will be missed, including its oil and gas, which will be redirected to China. The assumption that Russia will after Ukraine move on to eastern Europe at large is false. NATO has been revived with Germany within it. If Russia did so move there would be a short and sharp nuclear exchange to Russia’s disadvantage. There is a real red line here.

    China will go on buying what they need regardless of political considerations. Nothing new in that). As a trader Australia has been flat footed and complacent at times. A successful trader has to take the world as it finds it and be resourceful and adaptive when circumstances change.

    The world is big enough and still sufficiently underdeveloped and needful for product. There will be no shortage of markets as long as basic trading rules are sustained and respected among those who trade, along with the availability of required funding and financial services.

    Yes, in one respect Australia’s trade is vulnerable and that is for wool. But China will still want our wool to keep faith with its numerous domestic industries in the field and those dependent on them. In time iron ore exports may become problematical if African sources come to the fore too soon. But with clever diversification meanwhile that should not be a problem.
    China won’t move on Taiwan before the end of the decade and by then there will be mutual pressure on and within both to resolve the issue amicably.

    The world is clearly demonstrating that WW2 methods of aggression at the global level is beyond the pale and will be resisted by global consensus, on the field if necessary.

  2. Peter Small, March 5, 2022

    Andrew Henderson correctly alerts us to the rebalancing of power that is taking place in the world. Globalization of the world economy has gathered pace in the last 40 years and the whole world is now interconnected. To attempt to disconnect what has been achieved creates enormous risks and may well result in a much poorer world community and one without the resources to tackle climate change and many other things like poverty in our inner Western cities.
    Australians need to be encouraged to be realists when they look at the world and not get bogged down, as we tend to do, in rhetoric and ideology.
    With the rise of China, we must understand that the hegemony enjoyed by the United States of America since the collapse of the Soviet Union is coming to an end. All of our futures will depend on how wise the US is in sharing power with China.
    The Ukraine situation is a serious failure of European and American diplomacy. It should not have happened and the implications of this failure are impossible to predict or comprehend.

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