The historic free trade agreement signed between Australia and China last week will signal the reduction in a huge range of tariffs currently applied to Australian exports. One of the largest beneficiaries is set to be Australian agriculture and dairy companies that provide fresh or long-life products to the country.
The agreement will come into effect in around 60 days and the majority of benefits will be seen over a two-year phased introduction period. The major tariff cuts are to:
- Dairy products (up to 20% tariff)
- Beef products (up to 25%)
- Sheep meat and wool (up to 38%)
- Seafood (up to 20%)
- Wine (up to 20%)
- Fruits and vegetables (up to 15%)
Interestingly the impact of the change is unlikely to be sector-wide as not all companies export to China, but an interesting side-effect could be that more privately held companies list in the coming year.
8 agriculture companies set to benefit the most are:
Freedom Foods Group Ltd (ASX: FNP) has a number of agreements to supply milk and related products to Chinese companies, and also has a strategic holding in New Zealand-listed A2 Milk Company Ltd (NZE: ATM), which does similar.
Australian Agricultural Company Ltd (ASX: AAC) produces beef and crops for international and domestic markets. The tariff reduction may well result in greater volumes of Australian beef being sold to Chinese consumers.
Bega Cheese Ltd (ASX: BGA) will benefit from a reduction in dairy tariffs, which should allow Australian cheese to be more competitively priced.
Wine producer Treasury Wine Estates Ltd (ASX: TWE) already generates around 12% of premium wine export revenue from China. A boost in margins or more competitive pricing should allow Treasury to shift more volume in the country.
Similarly, almond company Select Harvests Limited (ASX: SHV), Atlantic salmon producer Tassal Group Limited (ASX: TGR), Clean Seas Tuna Limited (ASX: CSS) and diversified food producer Goodman Fielder Ltd (ASX: GFF) could all be big winners over the long term.
The most important factor to remember here is that the free trade agreement is not going to suddenly cause a poor company to become a quality company. Many of the concessions will be phased in over two to three years, and the companies that are already market leaders will benefit the most.
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Returns as of 6th October 2020
Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie
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