Ag industry growing quicker than carrots off the back of record year
After weathering fires, floods and the impacts of COVID-19, the gross value of Australia’s agricultural production is forecast to reach $80.4BN in 2022-23, the second highest on record following a high of $83.1BN in 2021-22.
Upward swings are not new to Australia’s diverse agricultural sector, with its gross value increasing by 7% over the past 20 years (adjusted for inflation). Despite an expected increased output by farmers, the forecast is attributable to a combination of factors including an improvement in growing conditions but also to trade restrictions that have resulted in an increase in commodity prices. This has created high demand for Australian-located agricultural assets that are needed immediately to keep up with growing production demands. This machinery is becoming increasingly difficult to access as lead times on internationally-produced equipment continues to be blown out.
Globally, food prices are at their highest levels in more than 10 year, and this trend is set to continue into 2023. Ongoing worker shortages and rising input costs, including energy, machinery, freight, increased labour costs and poor overseas growth seasons, have heightened supply concerts. The resulting increase in food costs has pushed inflation higher and poses a risk to global economic recovery.
The impact of the Russian invasion of Ukraine is also making an indirect contribution to food prices, not only due to the pressure being placed on energy prices. In 2020, Russia was the world’s second largest exporter of crude oil, third largest coal exporter and fourth largest liquified natural gas exporter. Sustained conflict and resulting global sanctions on Russia are likely to lead to further price increases across all.
Russia is also the world’s largest global producer of fertiliser, and while Australia’s direct fertiliser imports from Russia are relatively low, flow-on effects of continuing conflict will have an impact on prices and supplies. The back-to-back issues of energy and fertiliser prices are bound to affect profitability for Australian farmers.
As well as these global pressures, Australian farmers are also having to deal with managing the evolving issues of soil erosion and biodiversity loss. Unfortunately, government subsidies for Australian farmers is amongst the lowest of the countries of the Organisation for Economic Co-operation and Development (OECD). The added input costs are therefore passing down the chain, and many farmers have warned that fruit, vegetable and meat prices will likely rise further.
The good news
Australian agriculture accounts for 55% of Australian land use, which equates to 427 million hectares (excluding timber production). This resulted in 12% of all goods and services exports in 2020-21 and 25% of all employment in 2020-21.
While ongoing disruptions to global supply chains and shipping will continue to challenge Australian exports, their value in 2022-23 is still forecast to reach a record $64.9BN, driver by a boom in crop exports that saw Australia ship a combined average of 3 million tonnes of wheat, barley and canola, in each of the 12 months to March 2022.
High global grain prices are expected to continue, and while Australia’s grain production is forecast to fall slightly from last year’s record levels, it is still expected to be the second most valuable winter crop on record.
A slight decrease in domestic livestock prices is expected in 2022-223, following a fall in the average saleyard prices of cattle and sheep, due to the easing of herd rebuilding following successive seasons of above average rainfall. Despite this, global red meat prices are expected to remain elevated, and a lower exchange rate will see Australian livestock products stay competitive.
Innovation will also strengthen bottom lines this financial year as many ag businesses restructure operating costs and debt, adapt new business strategies and invest in technologically driven business practices including new automation and digital products to improve productivity.
Despite the challenges, there are plenty of reasons to be optimistic. OVer the past 15 years, Australia’s trade agreements have provided access to new and growing markets and with a strong output of globally in-demand products, large areas or arable land, high biosecurity status and strong competitive advantages, Australian Agribusiness has the potential to take over from mining as a key driver of the Australian economy.
Using factors such as cost of supply, market access, natural resources, supply chain efficiency, innovation, education and skills, a report from Deloitte Access Economics identified beef, land, aquaculture, diary and oilseeds as the top contenders for Australian agricultural growth.
Incomer growth, predominantly in Asia, has seen an increased demand for Australian protein. This, despite a slight decline in red meat consumption domestically, should be a boon to the livestock sectors of beed, lamb and dairy. Aquaculture is another area of growth due to the increased demand for protein from rising income markets as well as the widely acknowledged health benefits of fish. Compared to other animal proteins, fish require relatively little land area making it an efficient source of protein and a sustainable alternative to decreasing wild fish stocks.
The strong global demand for oilseeds as both a more sustainable alternative for animal-based oil consumables and biofuels continues, and a surge in the demand for rapeseed by health-conscious consumers, is providing another agricultural growth opportunity. Australian farmers are well placed to take advantage of this as the country has a high biosecurity status, the necessary availability of large land space for broad acre cropping thanks to heavily mechanised production, and oilseeds are less impacted than many agricultural industries by Australia’s high labour costs. Research by Mordor Intelligence confirms the opportunity, predicting the Australian oilseed market could be set to grow at a compound annual growth rate of 5.6% during a forecasted period until 2025.
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