Motley Fool Australia

China free trade agreement special: 8 agricultural companies ready to surge

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.

This Tiny ASX Stock Could Be the Next Afterpay

One little-known Australian IPO has doubled in value since January, and renowned Australian Moonshot stock picker Anirban Mahanti sees a potential millionaire-maker in waiting...

Because 'Doc' Mahanti believes this fast-growing company has all the hallmarks of genuine Moonshot potential, forget 'buy now pay later', this stock could be the next hot stock on the ASX.

Doc and his team have published a detailed report on this tiny ASX stock. Find out how you can access what could be the NEXT Afterpay today!

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

Related Articles...