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There are few bigger success stories across the supplements and nutrition sector than Australia’s rise as an exporting powerhouse, largely thanks to soaring demand from China.
But an ongoing and increasingly bitter diplomatic spat over the handling of the COVID-19 pandemic, prompting allegations of ‘panda bashing’ from Beijing, could be set to put those hard-won gains at risk.
Just 12 months ago, back in the days when ‘social distancing’ was merely ensuring an adequate space between the BBQ and coolbox, the Australian industry was on a high after reporting recording export figures.
Aided by the US-China trade war and Chinese consumers insatiable appetite for finished products from ‘clean and green’ Australia, the nation’s industry usurped the US as the world’s biggest exporter to China.
The stats revealed it was responsible for 22.3% of all supplements and health foods imported into the country, with the US slipping to second place with a 20.4% share.
According to data from the China Chamber of Commerce for Import and Export of Medicines and Health Products (CCCMHPIE), Australian imports recorded growth of 60.8% year-on-year to US$660m.
And these are just the ones we know about.
What is harder to factor in is how much daigou traders – professional shoppers who stock up on goods in Australia to sell to their networks back in China – also contribute to the tally, but trade association Complementary Medicines Australia (CMA) estimated it could be a further US$800m.
The future looked rosey, so much so that CMA announced at its annual conference in October that it was targeting a doubling of exports over the next few years.
And while markets such as India, Indonesia and Vietnam have been touted as future hotspots, it doesn’t stand a chance of hitting those numbers if trade with China is to slump.
Which brings us back to today.
Ironically, it isn’t the COVID-19 pandemic that puts this growth at risk – many firms have actually seen a surge in demand for products, especially in the immunity category – but instead it is the increasingly hostile war of words between Australia and China over the latter’s handling of the outbreak.
Last week Australian PM Scott Morrison angered the Chinese by calling for a full investigation into the outbreak, arguing it was “entirely reasonable and sensible” to understand how it occurred in order to prevent it from happening again.
The Chinese, however, interpreted it as irrational and insensitive, with the ambassador to Australia raising the threat of consumer boycotts in retaliation, while state-run media accused Morrison of ‘panda bashing’ and potentially putting the extensive trade relationship between the two countries ‘beyond repair’.
Playbook intact
There have also been several other policy disagreements over the past year, including Australia’s refusal to allow Chinese mobile giant Huawei to take part in its 5G development, so where does this leave the Australian supplements sector if the two sides can’t brush aside their differences?
On the plus side, China isn’t yet singling out Australia for special treatment, instead it is sticking to its tried and tested playbook in response to what it perceives as undue criticism – by going on the offensive.
This is by no means the first incident, and you can bet your bottom dollar it will be far from the last.
Because of this, as Jeff Crowther, executive director at Health Products Association China confirmed, Chinese consumers typically ignore the political jousting with other nations.
But on the downside, they’ll only do so up to a point.
He added: “If these spats escalate, China will begin to stoke the nationalistic fire. If that happens, Australian brands better prepare for declining sales. This has happened in the past to South Korea, Japan and lately the US. China and its consumers can devastate a brand or an entire country’s imports when angered.”
Should this happen, Australian firms – most of which rely on cross border e-commerce trade for sales – can expected to see their surplus stock stuck in China’s vast bonded warehouses for quite some time, as export revenues substantially decline.
Under this worst-case scenario, there will also be a domestic economic impact, because demand from daigou shoppers would also suffer a slump.
Again, the extent of this damage very much depends on just how far the row escalates.
As Dr Mathew McDougal, president of the Australia China Daigou Association told me, these shoppers are motivated by one factor only – profits.
“Chinese daigou are motivated by making money, so as long as their buying networks in China remain supportive of Australian supplements, then daigou will continue selling.
“That said,” he added, “I worry about Chinese consumer sentiment turning negative on ‘Brand Australia’ should the Chinese government start to reduce support for our products.”
Peter Barraket, the Australian MD at Designs for Health concurred, warning borders could quickly tighten up for Australian exports into China
But he also raised another pertinent point, namely that the Australian industry relies heavily on raw material and ingredient imports from China.
“A lot of nutraceutical ingredients are only available from China and these are still flowing, albeit via a disrupted supply chain, and I do not see that closing up,” he added.
Quite how the Australian government – and indeed consumers – would respond to any curbs on exports while imports continued to roll in, remains to be seen.
But this does highlight the high level of trade interdependency between the two countries, especially in the supplements space. In a dispute like this, there will be losers on both sides.
Quality and safety
At this stage, Australia’s best hope of maintaining its exports success is to hope the rhetoric is toned down, while ensuring it keeps Chinese consumers on board by stressing the quality and safety of its products, and driving new demand through innovative NPD.
But it also needs to look to new markets too.
A common criticism in recent years is that China has been viewed as the be-all-and-end-all for some Australian firms, despite the inherent risks of such a strategy.
This include regulatory volatility in the e-commerce space and the arduous ‘blue hat’ approval process, which makes it very difficult for overseas brands to enter domestic offline retail channels.
As Crowther added: “In cases like this, China has a lot of power over international brands that place too much of their success in China. Unfortunately, most Australian brands fit this category.”
Despite this, don’t expect the Australian industry to be immediately cowed by threats to its trade.
As one industry heavyweight, with more than a passing interest in seeing exports continue to grow, told me: “This is an extraordinary time, with a new virus that has infected over three million people, and tragically 247,000 people have died worldwide.
“With economies and countries closed down, it should not be remarkable to understand how this virus started and learn what can be done for the future.
“Calling for an independent assessment is not ‘panda bashing’, it is a common sense approach.”
So that leaves us with only three certainties; Firstly, the risk of trade disruption at this stage is a threat, but past experience shows it is one China is willing to act upon.
The second is that Australia is not alone in calling for wide-ranging COVID-19 investigations, but it does have more to lose than most. At $200bn, China is its biggest trading partner, dwarfing the combined figure of $150bn from the US and Japan, which are second and third.
The final one, you’ll be more pleased to hear, is that no pandas were harmed in the production of this article.
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