Case Study: Australia
- The case study provides information about possible changes in Australian market after agreement with China, especially in cattle trading. It is expected that the amount of export cattle will increase, which presents a benefit for Australian farmers. The possible alternative title for the case study may be: “Australian Cattle Goes to China”. The title fully captures the essence of the article.
- Australia is one of the most open economies in the world. However, despite the openness, international trade takes only 40% of GDP. Australian trade policy is based on the principle that open trade, economic growth and high living standards are interconnected. Therefore, Australia has signed a lot of regional, bilateral and multilateral agreements. The recent contracts were signed with Malaysia, Japan and Korea. Development in international trade is demonstrated by rising importance of the Chinese market (especially for mining products), the EU, the US and Japan, which are also major sources for investments. Moreover, Australia is an active member of World Trade Organization (World Trade Organization 2015).
Per DFAT (Department of Foreign Affairs and Trade of Australian Government) statistics, among main Australian trade partners are Japan, the US, Korea, Singapore, New Zealand, the UK, Thailand, Malaysia and Germany. The listed countries are in free trade agreements with Australia. China has joined the list in 2014. Main commodities included in country’s export structure are iron, coal, education-related travel services, gas, gold, petroleum and beef; among imported products there are travel services, petroleum, motor vehicles, transport services, telecom equipment, medicaments and computers (Department of Foreign Affairs and Trade 2015).
Thus, Australian government understands the importance of international trade and tries to develop it.
- Australia is the third largest beef exporter in the world after America and Brazil; and the first one of the most efficient cattle producers. It produces approximately 4% of the world’s beef supply. The major reason for export is due the small population and low consumption, which allows exporting big amounts of beef product. The gross value of Australian calf and cattle production was at $7.7 billion (Pricewaterhouse Coopers 2011).
The beef industry is a strong part of Australian economy, because it takes about 55% of all agricultural activities and employs about 200,000 workers. The beef industry is a great part of Australian farming export. In 2012, the country exported about 70% of its total beef inventories to more than 100 countries. The amount is estimated to be $6.45 billion in farming exports. The main export markets for such commodities are Japan (39%), the US (23%) and South Korea (14%) (Meat & Livestock Australia 2014). Based on the case study, China also is interested in purchasing Australian beef.
The Australian beef industry could be divided into two parts – northern and southern production systems. Southern areas are generally more intensive than northern ones, and produce meat of high-quality for exporting mostly to Europe. Northern areas produce beef of lower quality and targets Asian markets through live exports. Also, Northern areas sell to the American market as “hamburger meat”.
The perspectives of Australian beef industry include rising demand in the world for protein. The fact means that demand for beef will increase; thus, Australian beef industry future performance has potential (Pricewaterhouse Coopers 2011).
- The case study addresses the topic of international trade and relations occurred between countries on the example of trade relations between China and Australia. The article points the issues of international trade, which are potential raising demand for foreign commodities. It also presents reasons for an international trade, free trade rules, protectionism, and non-tariff trade barriers.
Rising demand for foreign products (beef from Australia) is caused by the fact the increased consumption cannot be fulfilled with national producers’ in China. Consequently, the country is interested in importing meat products.
Also, it is understandable from the case study that negotiations about free trade agreement between China and Australia continues for 10 years, and the “cattle deal” can become an important point in the discussions. Free trade is a policy which removes restrictions in export or import relations between countries after respective agreement conclusion.
The case study mentions protectionism through pointing out ban on live cattle exports to Indonesia from Australia in 2010-2011. Indonesia imposed weight limit on cattle export from Australia to protect national producers from rising competition. It is an example of using non-tariff barriers to guard national market from foreign products. Tariff barrier includes using taxes and duties for export commodities.
Finally, it is necessary to pay attention to the connection between rising export level and prosperity of the farmers and businessmen in Australia. In fact, their activities connect with beef market, and the new markets results in new sources of incomes.
- The main attention in the case study relates to the issue of trade regimes between China and Australia.
In the current globalized world, countries enter trade relations on the international level. Due to international trade, national economies interact with other ones. The relationship helps to regulate prices on the global level, create competitive environment in the country and all over the world, and make producers follow standards of production and quality.
Main reason for international trade development is that different countries have various structures of sources, and dissimilar natural conditions. Thus, it is more reasonable for them to produce some products for own consumption and export, and to buy another products from abroad, which has production capacities. The tendency could be traced from the proposed case. China has developed agricultural sector, which is more specialized on plants and cotton growing. It is possible to assume that cattle breeding industry in China is not sufficiently developed to provide necessary volumes of beef. China’s population is large, which leads to the interest in supplies of beef from nearby countries. The close location is Australia, which has necessary conditions and opportunities for producing beef for export.
Also, the case mentioned that “beef deal” is a good point for free trade start between the two countries. If trade volumes between China and Australia rise, it is obvious that both parties acquire benefits. Australian farmers will enter new market and China will get product of high quality. Free trade may become a tool to encourage the economic connections, because it helps to remove all barriers (both tariff and non-tariff) on the way of commodity exchange between countries. It will have only positive results for both seller and buyer.
- As any process in country’s economy, international trade has positive and negative results for both parties. In the current case, Australia is a seller (exporter) and China is a buyer (importer).
On the one hand, there is a need to review benefits and costs for a buyer (China) and compare it to possible conditions of free trade. Firstly, China consumers will have access to the demanded product of high quality. Secondly, Chinese producers will face competition, which may encourage them to improve the production and cut prices to be more preferable for national consumers. On the contrary, using export products may lead to decline in similar industry if national producers will become uncompetitive. If to compare normal and free trade regimes, the main point is duties, which the state establishes during normal trade and drops in the free trade contract.
On the other hand, the seller (Australia) also will receive both costs and benefits from trade with China. The main benefit is that Australian producers will increase beef sales, which has a direct impact on their incomes and prosperity. Australian producers and farmers will have more opportunities for development. Costs for producing goods will rise, but incomes will increase too mainly due to volumes. The major problem which may occur for the seller is dependence on one market, so it is necessary to consider expansion to other markets. Possible free trade will remove all restrictions and encourage exporters to develop and sell more.
- New consumer market and rising external demand for products manufactured nationally is beneficial for every country. Australia is not an exception. As it is stated in the article NT (one of the production systems in Australia) farmers have experienced challenges recently. After signing the agreement, the agriculture has a chance to successful development and recovery. To get maximum benefits from the new market, it is necessary to meet rising challenges.
The main challenge is lack of knowledge about new market. In the case study, it is stated that there is no information about necessary volumes for future shipping and supplies structure. It may have negative effect on the trade results and future relations. Also, it is necessary to know the products in demand, learn the market, and choose appropriate logistics strategies. Thus, the main challenge for managers facing with entering new market is the knowledge acquisition about the market.
- As it was described in previous sections, the main challenge for producers is becoming familiar with new market to understand the demand. A good tool for obtaining the understanding is marketing research.
Marketing research has to take into account all possible aspects of consumption. Firstly, it is necessary to analyze the consumption during several previous years, it will help to predict tendency for the future. Also, it is important to analyze volumes of consumption depending on the season, as some seasons may be slower. Secondly, it is necessary to build realistic expectation based on the country’s population. China is a very populated country, and the fact should be considered. Finally, it is important to pay attention to consumption structure and analyze it in terms of time, target market, and demand. Entering a new market requires a clear plan with defined steps and understanding of potential occasions.
- After 10 year-long negotiations, China and Australia entered free trade agreement. The deal was completed in July 2015. The fact proves that the two countries are interested in each other’s markets and potential benefits of free trade agreement. Due to agreement, 95% of Australian products are tariff free, mostly it relates to agricultural industry (beef and dairy). China will export to Australia electronics and cars. The country expects rising demand due to lower prices because of no tariffs policy (Australian Trade Commission 2015).
Thus, the predictions in the case study about free trade agreement signing are realistic, because if countries benefit from partnership in the long-term.