Key ways to play China FTA

About the author:

Author name:

By Belinda Moore

Job title:

Senior Analyst

Date posted:

19 November 2014, 9:57 AM

Sectors Covered:

Agriculture, Food & Beverage, Travel and Chemicals

The Australian agricultural industry is a key beneficiary of the Free Trade Agreement (FTA) with China which will result in the elimination of tariffs over the medium to longer term.

The deal follows FTA agreements earlier in the year with Japan and South Korea. The China deal is the most important given China is our major trading partner with Australian farm exports doubling in the five years to 2013 and were valued at over A$7bn in 2013.

As many commentators have said, the future in Australia is about the "dining boom". The National Farmers Federation (NFF) said the three FTA agreements pave the way for the "golden age of Australian agriculture in the Asian century".

The ag sectors which are a key beneficiary of the FTA are dairy, beef, wine, horticulture and live exports. Unfortunately, wheat, rice, sugar and cotton were excluded from the agreement, however these industries will be reviewed in three years' time.

The FTA will help the farmers and listed companies over the medium to longer term given the elimination of tariffs will occur over a 4-11 year period depending on the industry.

A summary of the tariff removals and time frame can be seen below: 

• Dairy – removal of all tariffs, of up to 20pc, in four to 11 years
• Beef – removal of tariffs of 12 to 25pc over nine years
• Wine – removal of all tariffs, 14 to 20pc, over four years
• Horticulture – removal of all tariffs, up to 30pc, in four years
• Live animal exports - removal of tariffs of 10pc in four years
• Wool – Australia-only duty free quota for wool

ASX companies to benefit from China FTA

Beef/live exports

• Australian Agricultural Company (AAC)
• Elders (ELD)
• RuralCo (RHL)

Dairy

• Bega Cheese (BGA)
• Warrnambool Cheese & Butter (WCB)
• Fonterra Shareholders' Fund (FSF)
• Bellamy's Australia (BAL)
• Freedom Foods (FNP)
• Elders (ELD) supplies inputs to the dairy industry and exports dairy heifers to China

Wine

• Treasury Wine Estates (TWE)
• Australian Vintage (AVG)

Horticulture (nuts)

• Select Harvests (SHV)
• Webster (WBA)

Our key pick of the ag sector is Elders (ELD). Morgans clients should login to view our price target. 

More information

If you are interested in finding out more please contact your Morgans adviser or nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.