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Almond tariffs

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    2018 definitely looks like it is going to be remembered as the 'year of the tariff'.

    The Trump tariffs were followed by China's retaliatory tariffs earlier in the year, and now it seems India has joined the club.

    A number of Indian news websites have reported recently that the Indian government invoked 'emergency powers' last month to increase duties on a number of imported products, including almonds and walnuts.

    According to this report from an Indian news site, the duty on shelled almonds has been increased from 65 R per kilo to 100 R per kilo. This equates to an increase of about 0.69 Australian dollars per kilo, at the current rate.

    It appears that, unlike the Chinese tariff, the Indian tariff impacts all imported almonds and walnuts, although I should note that some of the reports on this topic are a little ambiguous.

    But I wouldn't be surprised if the increased tariff on almonds and walnuts by the Indian government was broad-based.

    You may recall that last year, the Modi Government introduced a GST, which could fairly be described as a dogs breakfast, as it hit seemingly comparable items at different rates in a rather haphazard fashion. For example, cashews were taxed at only 5%, but all other nuts at 12%.

    India is the largest cashew producer in the world, and the inconsistency in the GST rates on cashews compared to the other nuts last year is probably best explained as an attempt by the Modi government to appeal to local farmers.

    Thus, it looks like this so called 'retaliatory tariff' against walnuts and almonds by the Indian government is probably yet another attempt by the Modi government to appease local farmers and stimulate demand for the locally grown nut. Too bad for those who don't happen to like cashews.

    One critic of the tariff pointed out that the decision to increase the tariff on nuts imported into the country was rather odd for a country with the largest vegetarian population in the world, especially given that India's domestic production of almonds and walnuts is insignificant.

    Of course, this new tariff has the potential to be a headache for this company, as most of Select's almonds are exported to India, and the likely effect of the tariff is reduced demand for the nut in India.

    In the SHV announcement of 17/4/18, on page 21, a bullet point states that '80% of the crop delivered to Carina West processing facility, should be completed by mid-May', and another point states 'Inshell orders have commenced shipments to India'.

    So the question is, did the recently harvested almonds get to India before the tariff hit?.

    The tariff appears to have been implemented on 23 May, although again, there is conflicting information in various news reports on the exact date it was put into place.

    But it shouldn't take more than three weeks for a freighter to travel from an Australian port to India, and so I am sure that most of Select's crop would reached India before the tariff came into effect.

    If Select hadn't committed all of their crop to Indian buyers by the 23rd of May, the tariff shouldn't be too problematic. But if they had found Indian buyers for all of their crop, there could be some complications, given that it is unlikely that all of their almonds made it to India before the date the tariff increase came into effect.

    Normally, if your biggest customer slaps a tariff on your product, it would be unambiguously bad news.

    However, we live in strange times, and it looks like there might be promising new markets for the company to target.

    One such a market is Turkey, which like China, has imposed an additional import duty of 5% on US almonds and other nuts in a retaliatory measure, according to this news report from Istanbul.

    Turkey is a significant consumer of almonds: a graphic from the Select website shows that almond consumption in this country was around 3%, although the information is a little old.

    Turkey also produces almonds, but domestic production from that country is not nearly enough to meet the local demand.

    Although the current Turkish government is hostile to the US, I think Australia is viewed more favourably, so the Turkish market might be worth looking at, assuming the company is looking for more diversified export markets, which probably make sense in light of recent events.

    With both China and Turkey targeting US almonds with an increased tariff, Australian almond producers would enjoy a competitive advantage in both these countries, which should more than make up for any difficulties in the Indian market.

    But the situation is not so rosy for US almond exporters, who now face higher tariffs in the two most populous nations in the world.

    One article in the Fresno Bee yesterday seemed to suggest that there was a real possibility that the EU might also target Californian tree nut exports with retaliatory tariffs. As can be seen in the graphic above, the countries of the EU consume around one-third of global almond production each year, and so it isn't hard to imagine that a retaliatory tariff from the EU targeting US nuts could be a disaster for the Californian almond industry
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