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Australia’s agriculture industry heads for bright future in China

Source: Weekly Times

China’s slowing economy may not be good news for Australia’s mining industry, but agriculture commodities still have a bright future in China. That’s according to NAB senior Asia economist Gerard Burg, who said Chinese economic growth would continue to fall but changing Chinese diets would boost food demand.

China’s gross domestic product growth has slowed from a peak in 2007 of 14% a year to 7% in the first quarter of this year. Mr Burg forecast growth would continue to slip — NAB predicts China will achieve 7.1% growth this year but will fall to 6.9% next year and 6.5% in 2017.

This was just an indication China’s economy is in transition. In the past month, China’s stock market has fallen 30 per cent, leading to intervention by the government. Burg predicted the Chinese economy would change its composition from one invested in heavy industry to be more ­focused on the services sector. “From an Australian perspective, it means a slowdown in our key exports of iron ore and coking coal,” he said.

China was likely to become more of a consumption economy, which was good news for agriculture commodity exporters, he added. “The diet changes in China have been a long-established pattern, and there is potential for Australian agriculture to fill this need.”

NAB Agribusiness economist Phin Ziebell said government intervention in China was designed to boost domestic consumption, so they expected increasing demand for high-quality foods. China played a role in the wool market coming off its peak in June but other commodities had not been affected by the Chinese slump, he maintained. “We haven’t seen it flow through to grain, and beef is driven by US market conditions.”

China took 23% of all Australian agricultural exports in 2013-14, up from 11% five years ago, making the Asian nation an important market.

“In the long term, demand will be good, but that’s contingent on a transition to a consumption based economy,” Burg concluded.

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