There’s a mixed outlook for Australia’s agribusiness sector, with some positive influences on this part of the economy, combined with a number of negative forces.
On the positive side, the Department of Agriculture, Fisheries and Forestry (ABARE) forecast in its March 2012 outlook statement that total farm production volumes should increase by around 4.2 per cent in 2011-12 and by one per cent for 2012-2013.
Australia experienced its wettest ever two-year period in 2010 and 2011 and the start of 2012 was also extremely rainy. But this trend is not expected to continue. Based on available climate data that suggests wet periods last no longer than two years, ABARE expects drier or neutral conditions over the next few years.
Nevertheless, the uncharacteristically wet weather we have experienced in the first few years of this decade has been a boon for the agricultural sector, improving soil moisture levels and quality, as well as the volume of water stored on farms. This will help drive production in the farm sector over the next few years.
ABARE says this will result in a gradual rise in farm production in the next few years and beyond. The report notes “by 2016–17, the volume index of farm production is projected to be 5.4 per cent higher than the level forecast for 2011–12.”
In terms of possible dampening influences on the agribusiness sector, ABARE says the key risk is the uncertain global economic outlook and the potential for this to reduce demand for our commodities.
This will hit returns in the farm sector, with ABARE forecasting an aggregate drop in the index of unit returns for Australian farm exports of 4.1 per cent in 2012–13.
The reason for the fall in returns is reduced commodity prices for wheat, soybeans, cotton, dairy products, sugar, wool and rice. Should world economic conditions improve returns in the agribusiness sector should improve by 2016-2017.
Export value rises
The value of farm exports is, however, on the rise. ABARE is projecting farm exports of $35.1 billion in 2016–17, up from $32.3 billion in 2010–11. It’s predicting increases in exports of canola, raw cotton, grain sorghum, wine, beef and veal and sheep meat, with export volumes of the latter up 22 per cent.
Export earnings for crops are forecast to drop marginally this financial year to $19.8 billion, down from $20.7 billion in 2011–12. But exports of livestock and livestock should grow by 3.6 per cent in 2012–13 to $15.3 billion.
Commodities could come under pressure
Overall, the wet weather experienced across the continent over the past two years will support farm production in coming years. However, demand for Australian commodities could come under pressure as a result of turbulence in the global economy and the high cost of Australian farm products thanks to the elevated Australian dollar.