Five key factors to determine industry’s fate

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The weather and exchange rate are among the top key factors predicted to shape Australia’s agricultural industry in 2015, according to a new report released last week.

Five key factors to determine industry’s fate
Weather conditions remain top of the list of key factors predicted to influence Australia's agricultural industry in 2015.

The Agribusiness Outlook 2015, compiled by agribusiness banking specialist Rabobank, lists weather conditions, exchange rate, oil prices, trade policy and the Chinese economy as the top five factors that will influence Australian agriculture in the coming year.

The weather, not surprisingly, has emerged top of the list.

Rabobank analyst Georgia Twomey says drought will remain a significant issue for the industry in the coming year, particularly in northern Australia.

 "Despite falls in early 2015, the Bureau of Meteorology (BOM) has forecast a drier than normal first quarter over parts of Australia," she says.

"While the BOM has just revised down the likelihood of an El Nino event, many areas of the country will require wetter than normal conditions in order to fully recover."

In regards to the exchange rate, Twomey says a weaker Australian dollar appears likely to lend considerable support to Australian food and agricultural exporters in 2015, but is not all good news altogether for the sector.

"The appreciation of the US dollar is expected to continue in 2015, something that is positive for Australian food and agricultural exports," she says.

"However, it can be a double-edged sword for Australian agriculture with a weaker Australian dollar likely to increase the cost of imported inputs and machinery, while a strong US dollar can lead to lower global commodity prices."

Lower oil prices are also generally expected to be a boon for farmers, lowering input prices and stimulating global economic growth, but the report cautions the factor could have a "sting in its tail" effect.

"Lower oil prices may result in negative currency fluctuations and an increase in political risk for exporting countries," Twomey says.

"And sustained lower oil prices could ultimately impact the competiveness of bio fuel and natural fibre sectors, limiting upsides for come commodities.

While Australia recorded a trifecta of big ticket Free Trade Agreements (FTA) with China, Japan and Korea last year, - Rabobank notes that there is always a potential for barriers to be thrown up in other parts of the world that will impact global markets and demand for Australia’s agricultural exports in 2015.

"Interventionist foreign trade policies and technical barriers are often unpredictable," Twomey says.

"Some watch areas are Indonesian import quotas for sugar and beef, the continuing Russian trade sanctions and any changes to Chinese import policies, particularly in relation to dairy and live export."

According to the report, China appears to face structural challenges that may act as a drag on growth in 2015 and beyond.

"If there is a serious slow down in Chinese economic growth, this will have broader and negative effects for the global economy," Twomey explains.

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