Australia inks trade deal with Indonesia to consolidate grain supply
The signing of the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) on Monday in Jakarta is likely to consolidate Australia’s position as a principle grains supplier to one of the most populous nations on earth.
The deal was signed by Australia’s trade minister, Simon Birmingham, and his Indonesian opposite, Enggartiasto Lukita, and now heads back to the respective parliaments for final approval.
It comes after a drawn out negotiating process stretching back to 2010.
Indonesia is the second largest wheat importer in the world, and Australia’s biggest wheat customer, according to a report from Rabobank. Indonesia takes 20% of Australia’s exports with the free trade deal coming as trade relations between the government in Canberra and their counterparts in Beijing have deteriorated in recent months.
“Amidst global trade tensions and uncertainty regarding Australia’s barley trade with China, the signing of the… agreement in Jakarta yesterday is great news for Australian grains,” said Rabobank’s senior grains and oilseeds analyst Cheryl Kalisch Gordon.
The IA-CEPA agreement includes a 500,000 mt feed grain export quota for Australian feed wheat, barley and sorghum, which has the provision to grow unfettered by 5% per year and could prove to be valuable according to market sources.
“There won’t be a significant improvement (from the current arrangement), but if the Indonesian government moves to restrict feed wheat, then the allocation will be very valuable,” one Australia-based market source said.
Indonesia recently imposed a stringent phytosanitary regime on Ukrainian feed wheat imports, while Russian wheat has also fallen foul of the country’s standards.
But at the same time Indonesia has increased the wheat import from Argentina from 620,000 mt last year to 1.6 million mt this season, becoming the second biggest importer for that origin after Brazil, making harder competition for Australia.
Australia already has the option to export milling wheat into Indonesia at a zero duty rate, versus 5% imposed on other exporters, but Indonesia typically bans the import of barley, wheat and sorghum for feed purposes.
The agreement also makes provision for a joint grains market development initiative intended to develop the Indonesia-Australia supply route.
“These provisions offer important avenues to… compete more strongly with cheaper Black Sea or Argentinian origin wheat, which may have been used for feed (even though imported as milling),” Gordon said in an emailed statement.
While Indonesia hasn’t typically used sorghum or barley – the subject of China’s ire in its Australian anti-dumping investigation – in its feed mix, the agreement may encourage some outlet, according to the market source.
“Maybe it opens up Australia barley and sorghum into Indonesia when it prices competitively versus wheat into the feed ration,” the source said.
Finally, the agreement also includes eliminating tariffs on frozen beef, potentially boosting domestic Australian feed demand.
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