The unfolding emergency in Ukraine has profound implications for a trade-heavy 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 agribusiness sector, which is a foundation of Australia’s economy and is key to our post-COVID economic recovery.
The growing alliance between Russia and one of our most valuable trading partners, China, is leading to a rebalancing of power and influence from West to East. We are witnessing perhaps the greatest redistribution of power and geopolitical influence since World War II. The West’s economic sanctions activity against Russia in response to the Ukrainian emergency puts this alliance in the spotlight.
Australian agriculture has performed well throughout the pandemic, grossing a record $78 billion in 2021-22. The sector has overcome a lot to achieve this result, but new challenges exist with the cost of key inputs like fuel, fertilizer, labor and equipment all rising. Fertilizers alone have skyrocketed with a 74% increase in the cost of urea from 2020 to 2021 and a 102% increase for monoammonium phosphate (MAP) over the same period.
Supply chain disruption and trade volatility have had tangible effects on lobster, wine grape and grain producers facing market closures, chemical shortages and increased input costs. Digital disruption at JBS, the Southern Hemisphere’s largest meat processor, COVID furloughs and livestock processors bleeding cash from shutdowns have been a feature. Our response and the steps we have taken to diversify, become more resilient and regionally self-sufficient will be crucial as China and Russia deepen their economic and security cooperation. What we have experienced so far could be a precursor to what lies ahead.
In 2020, Russia was Australia‘s 48th largest trading partner, China is our largest bilateral trading partner. Thomas Elder Markets points out that Australia is strategically less directly dependent on Russia, with inward and outward trade flows accounting for 0.1% and 0.2% of our total trade respectively. It is the deepening of Russia’s relations with China, which accounts for 31% of our trade with the world, that holds our attention.
In December, Chinese President Xi said in a video call with Russian President Putin that their countries were “setting an example of a new kind of international relations and community, of a common destiny for mankind. “. In turn, President Putin exclaimed that “the close coordination of Russia and China on the world stage and their responsible joint approach to current global problems has become an important factor of stability in international relations.”
This combined vision of a “new kind of international relations” poses a clear threat to the liberal, rules-based global order in which Australia’s agricultural trade has thrived. This compounds China’s growing influence in our region, which has clear implications for the agriculture sector’s ability to import key inputs and export what we produce. Thomas Shugart highlights this risk in his recent analyzes of the Lowy Institute; “In fact, the PLA (Chinese People’s Liberation Army) is well on its way to acquiring the capability to threaten Australia’s access to international markets and energy sources and thereby gain direct coercive power over the Australia’s economic well-being.”
Despite the national security rhetoric of the past fortnight, the prime minister said we must fight for peaceful coexistence.
It is true that we should look forward to the continuation of mutually beneficial trade relations while protecting our sovereignty and playing our part in feeding and clothing the world.
But our trade-exposed agriculture and agri-food sector must prepare for increased disruption and volatility.
Since the start of the pandemic, we have launched trade diversification programs and renewed focus on our region, but this redistribution of power from west to east raises several questions, including:
Have we done enough to diversify, become more resilient and are our ties to our closest neighbors deep enough for Australia to be regionally self-sufficient?
Are our digital systems cyber-resilient? Are agribusinesses and individual exporters ready to pivot quickly, how exposed are companies to a single supplier or customer?
Economic sanctions are being tightened daily by the West against Russia and if successful, Russia will temper its stance and the world will find a precarious balance, for now.
But if economic sanctions don’t work, I see two options:
1. Russia continues to realize its territorial ambitions in Eastern Europe, China grows bolder – the United States and its allies retreat, and a new era dawns with China and Russia sharing more dominant influence in a new world order; Where,
2. The United States 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 under which our agriculture and agri-food sector has thrived will be redefined and the way we do business will be informed by the extent to which we are allowed to determine our own role in international trade.
From the second, I see nothing but chaos.
These themes are vast and seem distant, but they are extremely relevant to all of us involved in agriculture, as we export 70% of what we produce. While we hope economic sanctions will work, tensions will ease, and peaceful diplomatic relations will prevail, we must redouble our efforts to prepare for the alternative. We must redouble our efforts to build the resilience and efficiency of our agriculture and agrifood supply chains and our digital systems. We must redouble our efforts to diversify market access and spread risk for exporters. We must build on our goal of becoming regionally self-sufficient and ensure that our key strategic contributions are not unduly exposed.
Australia’s influence in the Ukraine emergency may be minimal, let alone on the broader rebalancing of power, but the impacts on Australian farmers, food processors and exporters are clear. The same goes for the Australian government‘s narrative, Australia’s sovereignty is not negotiable and neither should it be. It is therefore unfortunately reasonable to expect an increase in activities aimed at disrupting and coercing, and agriculture is a fundamental means by which this can be achieved.
Victor Frankl said that when we can no longer change a situation, we are challenged to change ourselves. For Australian agriculture, this challenge is before us.
- Andrew Henderson is the founder and director of Agsafe and Agsecure Investment and Chairman of the SAFEMEAT Advisory Group.
Related articles by the same author:
Biosecurity = food security = national security – July 2021
The Case for Australia to Pursue “Regional Autonomy” – Sep 2020