The relationship between China and Australia continues to deteriorate, after a year-long escalation of veiled accusations, decreasing mutual trust and strangled trade agreements. Now, the Australian cotton industry faces the potential loss of its 611 million Australian dollars cotton trade to China.

Australia’s cotton industry is fully reliant on exports and China is one of the country’s major markets. Indeed, the cotton industry is one of Australia’s most significant contributors to the agricultural sector, with exports worth around 2 billion dollars each year. Australia is one of the world’s top four cotton exporters, competing in a heavily subsidised international market.

Australia’s cotton industry needs reinvigorating

In a recent opinion piece for ‘Queensland Country Life’, Michael ORielley, Chairman, Australian Cotton Shippers Association, argues that the industry needs to move on, which “means reinvigorating established markets and growing markets where consumption of Australian cotton is smaller.”

ORielley highlights the opportunities that markets such as South Korea, Japan, Indonesia and Thailand yield, recalling that “Australian cotton has been sold into most Asian and sub-continent markets for a long time and it is these traditional Asian markets where Australian cotton earned its reputation as a reliable supplier of high quality fibre - and it’s a reputation that still holds firm today.”

Unlike China, India or Pakistan, those traditional markets for Australian cotton do not have their own source of supply of local production, what makes them totally reliant on imported cotton. Japan and South Korea, for example, remain influential purchasers of Australian cotton, according to ORielley, even if they have seen their respective spinning companies relocated to other more competitive markets including Indonesia, China and Vietnam.

Indonesia, the check mate piece for the Australia-China cotton’s game

While the number of spinning companies in Indonesia and Thailand demanding Australian cotton has declined since the late 1990s, these markets still recognise Australian cotton’s quality. Indeed, Indonesia was Australia’s largest market before it was overtaken by China. As a net cotton importer, the Indonesian market continues to be primarily a yarn producer and exporter as opposed to a fully integrated garment producer. “Indonesia as a potential growth market will certainly be on our radar for more bales to flow into,” advanced the chairman of the Australian Cotton Shippers Association.

Noteworthy, Australian cotton must compete with Brazil and US cotton not only in Indonesia, but also in Vietnam, another potential expansion market. The U.S. remains the dominant cotton supplier to Vietnam, with more than a 48 percent share of Vietnam’s total cotton imports. Brazil, India and Australia, in that order make up another 40 percent of the cotton imports.