BEIJING/SYDNEY (REUTERS) – China’s wheat buyers are scrambling to source low-gluten wheat for the country’s booming fancy bakery market, traders said, as exporters in key supplier Australia shy away from striking sales deals amid escalating trade tensions.

The unusual move by Australian exporters to hold back from offering grain in the Chinese market comes even as the country harvests one of its largest-ever crops while demand from the world’s second-biggest economy has surged.

But after China blocked some imports of timber, and introduced high tariffs on wine and barley that immediately halted trade, exporters say the risk of political entanglements has simply become too high.

“Obviously China is a big market but no one in their right mind would be selling to them and putting new business into that market because of what is happening with barley and other agricultural commodities,” said Brett Donoghue, export manager for New South Wales-based grain marketer Agracom.

Australia’s ties with top trade partner China soured in 2018 when it became the first country to publicly ban Chinese tech giant Huawei from supplying equipment for its 5G network over data security concerns.

Things have gone sharply downhill since Canberra called for an inquiry into the origins of the novel coronavirus pandemic, first observed in central China late last year.

Tit-for-tat diplomatic reprisals have since followed, as well as a raft of trade measures imposed by China on Australian exports.

While China has in recent years been the dominant buyer of Australian barley, it typically purchases well under 10 per cent of Australia’s wheat exports.

But arrivals in the first 10 months of this year have surged to 385,259 tonnes, almost five times the level of the same period last year, amid favourable pricing and Beijing stepping up buying of grain to fulfil World Trade Organization obligations.

Australia’s low-gluten wheat is ideal for producing the flour used in white, fluffy cakes that have become popular among the fast-growing Chinese middle class, traders said.

Though China is the world’s top wheat producer, it does not produce enough high quality low-gluten wheat to meet demand for changing tastes.

China usually buys Australian wheat in the fourth quarter for shipment in January, said a manager with a Chinese buyer who declined to be identified because he was not authorised to speak with media.

But Beijing has already warned it would strengthen inspections on Australian wheat shipments, raising the chances that cargoes of grain could be rejected or stranded in China and prompting sellers to avoid the market.

“We bought US white wheat instead, for delivery in the first quarter next year. But there aren’t many other options left,” said the Chinese manager.

More on this topic

China has booked about 386,000 tonnes of American white wheat in the marketing year that started in June, the most since 2017, according to US Department of Agriculture data.

French wheat is too yellow for use in white cakes, and also pricey after demand surged for its use in animal feed in China, added the buyer.

Reluctance to enter deals for Australia’s wheat could also soon be felt in China itself.

“Going forward, no one in their right mind in China will buy Australian wheat,” said a senior trader at a leading wheat miller in China, speaking on condition of anonymity because he was not authorised to speak to media.

Pre-existing deals for Australian wheat are being executed without washouts, he noted. Still, he said, “Importers have to see what is going on and toe the line.”

More on this topic

Sign up for the ST Asian Insider newsletter to get exclusive insights into Asia from our network of overseas correspondents.

Source: Read Full Article