Drought and the US-China trade war will knock the value of Australia’s farm production to $59 billion this year, its lowest level for four years, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).
- ABARES is forecasting a four-year low in agricultural production, predicting the smallest winter crop in a decade
- The forecaster says the US-China trade war is a double-edged sword and its benefits will be short-lived
- It is also calling for stocks reporting in the grains industry, following the shortage caused by the drought
The Government forecaster says the value of Australian farm production will fall by 5 per cent on last year, with the volume of production to hit its lowest level since the Millennium Drought.
In its latest agricultural commodity outlook, ABARES also anticipates that net farm incomes will fall by 12 per cent on last year, with export earnings expected to dip to $44 billion.
The latest figures fall short of the Government-backed National Farmers’ Federation target to grow Australia’s farm industry to be worth $100 billion by the year 2030.
Trade wars won’t help in the long run
The US-China trade war, according to ABARES, has created some opportunities for Australian farmers, but it has driven an economic downturn in Australia’s major markets and increased competition in existing export markets.
As China looks for suppliers outside the US, Australia’s fruit and nut farmers have been big winners — the value of almond exports to China grew by more than 100 per cent last year.
ABARES said the trade war, along with the spread of African Swine Fever, had benefited livestock producers already experiencing “unprecedented” global demand.
But the benefits will be short-lived and “are expected to be limited for Australian agriculture producers”.
“The trade war is likely to have longer-term implications that will outweigh short-term benefits,” ABARES reported.
About 25 per cent of Australia’s agriculture exports are sent to China, where the economic outlook is suffering due to the trade tensions.
“The risk is that consumers in these markets could react by substituting away from high-value agri-food products to lower-cost alternatives,” the report said.
“Beyond food, the US imports on Chinese consumer goods, such as clothing, could disrupt the global supply chain in these markets.
“This presents a significant risk for Australian fibre exports.”
Drought drags production down
Grain crops typically account for about 15 per cent of the value of Australian exports, but drought continues to hit the cropping sector hard.
While there are some hopes a good season in parts of western Victoria will help production this year, ABARES expects one of the smallest winter crops of the past decade.
“If drought conditions across south-eastern Australia were to extend into 2020–21, the national crop production and exports are likely to decline as they have for the past three years,” ABARES said.
“Historical rainfall records indicate that three consecutive failed crops in NSW would be unprecedented.”
Drought has also hindered the livestock sector, which is expected to continue destocking.
Case builds for grains reporting
ABARES has used its commodity outlook to signal support for stocks reporting in the grains industry.
This year, Australia permitted the imports of foreign grown grain for the first time in more than a decade, amid a struggle to source high protein grain.
In its report, ABARES said clear stocks reporting would help businesses that consume grain “assess returns from securing import pathways and meeting Australia’s rigorous biosecurity protocols”.
“The availability of grain stocks information helps market participants to ascertain their negotiation positions and assess the benefits and costs of trading in Australia’s grain market relative to other international markets,” ABARES said.
“Forthcoming analysis by ABARES found that improved public reporting of national grains stocks in times of drought complements the commercial knowledge of businesses to better evaluate the benefits and costs of these investments.”
Some farm groups have been calling for greater transparency around handlers’ grain stocks, arguing it would give the industry a clearer understanding of what grain was available.
“We know there’s grain on farms and we know there’s grain in the system in some respects, but we don’t know the total amount of grain,” Grain Producers Australia chairman Andrew Weidemann said.
“And that’s the value of having a more transparent grains system.”