What China-EU dairy trade battle means for Aussie farmers

China is laying the groundwork for a dairy trade wall with Europe. But what does it mean for Australian dairy?

China is laying the groundwork for a dairy trade wall with the European Union, offering pluses and minuses for Australian farmers.

Beijing opened an anti-subsidy probe into dairy imports from a grab-bag of eurozone nations this week, stepping up tension with Brussels after the EU announced a tariff plan on Chinese-made electric vehicles.

The announcement by the Chinese government was triggered by a complaint submitted by the Dairy Association of China and the China Dairy Industry Association.

Rabobank dairy analyst Michael Harvey said China was a major consumer of European dairy, so the ramifications on international cheese trade would be sizeable.

“Chinese tariffs can up-end whole industries, given it’s huge buying power. It’s a significant move by China,” Mr Harvey said.

“It’s early days about how this plays out, but there are upsides and downsides for Australia.

“On the plus side, China will be looking to other international sources for dairy and naturally Australia and, to a greater extent New Zealand, will play a part in filling that demand gap.

“On the negative side, that European cheese, milk and cream will need to find new destinations. There may be more produce coming directly into Australia and more EU produce going into Aussie dairy destinations like South-East Asia.”

China will examine 20 subsidy schemes from across the 27-strong bloc, with produce from Austria, Belgium, Croatia, Czech Republic, Finland, Italy, Ireland and Romania under the microscope.

Ireland is under particular Chinese opprobrium for dairy equipment subsidies and is likely to hurt the most from a trade war, given last year it was the biggest single dairy exporter to China with €423m, or $700m (AUD) worth of sales.

“You only have to look at the Australian experience with barley to note these trade stand-offs can last years,” Mr Harvey said.

The Chinese trade announcement coincides with a lift in the latest fortnightly session of the Global Dairy Trade.

The GDT headline figure jumped 5.5 per cent at the August 20 auction to reach $US3920, or $5818 AUD, the largest percentage rise in three years.

Whole milk powder prices lead the way with a 7.2 per cent rise while the butter category rose by 3.7 per cent.

Fonterra global markets president Richard Allen noted the previous fortnightly session also surprised market watchers.

“Certainly another strong result for where we are in the season. It’s still early days but it’s great to see (buyer) participation from right around the world,” Mr Allen said.