The Trade Performance in the Australian Beef Industry - Assignment Example

Case Study Name Class Unit 1. Provide a suitable alternative title for the case study. A suitable alternative title to the case study is: Access to Chinese market set to recover Australian Northern Territory beef industry. 2. Examine the trade patterns of Australia. Since the trade was liberalised in the mid-1980s, international trade in Australia has experienced significant growth. Despite the distance, Australia has close trading partners such as Canada, China and other South Asian countries. Australia has been considered as a gateway to Asia which is one of the fastest growing economies. The trade with Asian countries has been a major cause of robust growth. As the country becomes more engaged with the European Economic Community, it has directed a lot of efforts towards Japan and Asia (Thorpe & Leitão, 2014). At the moment, China is the main trading partner in Asia. The trade between Australia and China have been expanding over the recent decades. Agricultural products have been the main exports to China. This is due to the Chinese growing economy, high rate of urbanisation and increasing incomes. Following the Australian China free trade agreement (FTA) in 2005, there have been an enhanced trade between the two countries. China main imports to Australia are labour intensive products such as speciality foods. Of late, China has increased their imports to include electronics among others. Since the trade between the two countries is not directly competitive, there has been cooperation between them especially in agriculture (Thorpe & Leitão, 2014). 3. Explain the trade performance in the Australian Beef Industry. Almost 55% of the Australian farms are engaged in beef farming. The country average financial performance of the beef sector declined in 2012-13. The number of beef cattle in the northern area increased over the same period due to low slaughter turns off and reduced live export. The northern Australian beef industry has been expanding and has been a major economic contributor (Martin, Phillips, Leith & Caboche, 2013). From 2009-10, the northern Australian industry contributed to over $5billion to the Australian economy (Gleeson, Martin & Mifsud, 2012). Live exports have been a major trade for the Northern Australian beef industry. This has been supported by the demand in South East Asia mostly Indonesia and Philippines. In 2011, Indonesia had set an objective of becoming self-sufficiency in beef. The country imposed weight limits as well as quotas on live cattle. The country also imposed quotas on boxed beef imports. The action by Indonesia was seen as a blanket ban and affected beef farmers in northern Australia negatively. It’s important tom note that Northern Australia beef industry relied on Indonesia as a single market that put them in jeopardy with the blanket ban in 2011 (Martin et al., 2013). The signing of the $1billion deal is a major relief for the industry (Yahoo News, 2014). 4. Explain the issues and concepts addressed in the case study. The case study is based on a new billion dollar live cattle export deal between Australia and China. The signed export deal is set to help the Northern Territory farmers who had been affected by the blanket ban on live exports to Indonesia. The northern territory beef producers had been suffering due to lack of market for the live exports leading to debts (Gleeson, Martin & Mifsud, 2012). The case highlights that Australia and China are major trading partners and are in the process of closing free trade agreement. It’s also evident that China growing economy can be a potential market for Australian beef. There have been a bilateral trade between the two countries where China has been buying dairy and beef breeder cows from Australia (Yahoo News, 2014). The positive effect of this deal is evident with the shares in the beef exporters surging. The trade relationship is very vital for the beef industry as it will revive it. 5. Critically analyse the linkage of the theories that best attempt to explain the trade in the case study. The trade explained in the case study can be looked on the basis of free trade. Most governments are open to trading with each other without restrictions. Despite the fact, that countries are committed to free trade, there are cases where they tend to intervene. This may be done with an aim to protect domestic firms or political groups. This is seen by the Indonesia blanket ban on live exports. Indonesia imposes quotas and limits the number of live beef imports from Australia (Yahoo News, 2014). It’s important to note that barriers to free trade include quotas, tariffs, subsidies and embargoes among others. Import quotas imposed by Indonesia hurts the Australian Northern Territory beef farmers since they mostly depended on the single market (Martin et al., 2013). There is also a bilateral agreement between China and Australia. This is a great step toward free trade between the two countries. The free trade agreement between the two countries is almost complete after years of negotiations. This is a major move towards economic integration between the two countries. The deal will lead to a Free Trade Area. Exporting to China is a significant opportunity for the Northern Territory farmers. They will have access to larger revenues and benefit from economies of scale. Doing a macroeconomic review on China, the country has a high potential for the Australian beef exports (Yahoo News, 2014). Chinese economy is growing fast with rapid urbanisation that leads to high demand for beef. 6. Explain the potential benefits and costs in the economy of the main trading partners in the case study. The trading partners in the case are set to benefit though they will have to incur some costs. The export deal with China is a significant benefit to the Australian economy. Beef farming in Australia is a major source of revenue for the industry. The industry had been suffering due to the reduction of export markets (Gleeson, Martin & Mifsud, 2012). The benefits are evidenced by the rising stock market in beef exporters. As analyst says, the trade relationship between the two countries is crucial especially if there are reduced tariffs. The trade agreement being negotiated will benefit Australia as they will have unprecedented access to China economy that is world second largest. China has an enormous market for the Australia products. This is a significant boost to Australia agricultural sector that is a major competitive position for the country. Other areas such as energy and manufacturing exports are set to benefit from enhanced trade between the two countries. This is due to reduced tariffs based on bilateral agreement (Li, Wang & Whalley, 2014) China will also benefit from increased exports to Australia. In bilateral agreements, each country can produce what it can with the lowest cost. China will have a wider access to Australian market especially on electronics, clothes and vehicles. Despite this, Chinese products are cheaper and may hurt the Australian domestic market. This may lead to dumping unless it’s well monitored. 7. Explain implications and challenges for management that arises from the issues identified in the case study. The case highlights the issues that had hit the northern territory beef farming. With the deal with China, there is hope for the northern territory farmers. The export deal implies that the farmers will have access to the vast Chinese market that is a major step towards enhancing beef industry (Yahoo News, 2014). Despite this, the management has several challenges. With the Indonesia blanket ban on live beef exports, farmers may have already started diversifying into other agricultural activities. This may have reduced the quality of their beef production. Another challenge is determining whether the tariffs imposed on the deal are fair. As the analyst asserts, the trade relationship between the two countries is positive especially with reduced tariffs (Yahoo News, 2014). The management also have to consider the type of cattle required and whether they have the capacity to supply. It’s important to note that the 1 million cattle required are based on potential demand. 8. As a management team member, advise how management could face the above challenges. The management can face the above challenges by analysing the impact the current tariffs will have on the deal. The deal can only benefit the economy if the tariffs are reasonable and based on free trade. With the free trade agreement deal almost sealed, it would be vital to look at the effects it will have on beef exports (Yahoo News, 2014). With the optimism in the Chinese market, beef farmers must be encouraged to invest more in the beef industry. This is due to the fact that some of them may have been demoralised and started engaging in other activities with the Indonesia blanket ban (Yahoo News, 2014). The management should ensure farmers that the beef industry is going to become profitable again. This will make it possible for Australia to meet China demand. 9. Draw a suitable conclusion. Beef farming is one of the major economic activities in Australia. With the quotas imposed by Indonesia, the industry is highly affected especially in the Northern Territory since they depended on the single market. This case is an important indicator on how quotas can hurt international trade. With the deal with China, there is optimism on beef farming. The bilateral free trade agreement will also enhance the trade cooperation between the two countries. With globalisation, a country can access wider market. China presents an important market for Australia especially in beef products. There is a large and growing market that Australia can benefit from in China. With the deal complete, both countries are set to benefit. The Chinese market will benefit from Australian beef to cater for rising demand while Australia will benefit from access to the market. References Gleeson, T., Martin, P., & Mifsud, C. 2012, Northern Australian beef industry: assessment of risks and opportunities. In ABARES report to client prepared for the Northern Australia Ministerial Forum, Canberra. Li, C., Wang, J., & Whalley, J 2014, China's Regional and Bilateral Trade Agreements (No. w19853), National Bureau of Economic Research. Martin, P., Phillips, P., Leith, R & Caboche, T 2013, Australian Beef: Financial Performance of Beef Cattle Producing Farms, 2010-11 to 2012-13. ABARES. Thorpe, M., & Leitão, N. C 2014, “Economic growth in Australia: globalisation, trade and foreign direct investment,” Global Business and Economics Review, Vol.16, no.1, p.75- 86. Yahoo news 2014, China cattle imports boost NT confidence, Yahoo.com, Viewed 7th April 2015 from,https://au.finance.yahoo.com/news/china-cattle-imports-boost-nt- 115315625.html Read More