Reducing Australia’s reliance on China, recovering from the effects of the COVID-19 pandemic and adjusting to a new focus on sustainability will be the major challenges for Australian agriculture this year, a new Rabobank report suggests.
Agribusiness bank Rabobank is predicting Australian farmers will have plenty to smile about in the current financial year, according to its annual Agribusiness Outlook for 2021, released yesterday.
Report lead author and Rabobank head of Food & Agribusiness research, Tim Hunt, says high commodity prices, positive seasonal conditions and low interest rates will likely lead to a generally profitable season, putting the sector in a stronger position to navigate a series of major transitions in the year ahead.
“In a current global environment marked by the pandemic, political tensions and trade wars, demand for food and agri products has remained unexpectedly strong,” he says.
“And despite the punitive actions of China on Australian agriculture, high agricultural commodity prices, low interest rates and positive seasonal conditions are underpinning a positive outlook for most farmers in 2020/21.”
Turbulent place
The continuing impacts of COVID-19 pandemic and Brexit, as well as the USA’s transition into the presidency of Joe Biden and ongoing trade wars are making the world a “turbulent place”, the report says, as well as distorting the direction and price of traded goods.
“Market intervention is back in vogue, with grain-exporting countries reconsidering export quota and taxes as they fret over food security, while elsewhere port strikes have impeded trade flows,” the report says.
Rabobank says several major importing nations appear to be stockpiling agricultural commodities to mitigate the risk of shortages, and adds that spending on food is not substantially diminished, thanks to unprecedented support from governments helping to offset the impact of the pandemic.
Weather deals “winning hand”
Australia has been set up for a good winter crop by above-average rainfall across 2020, along with higher-than-usual moisture to open 2021 and significantly-increased storages across the Murray Darling Basin, Hunt says.
“This is improving broad-acre farm incomes, boosting locally-grown feed and underpinning better water allocations for irrigators,” he adds.
At the same time, the report says, while the La Niña weather conditions have been positive for much of Australia, they have “crimped the production prospects of competitors offshore”, with large parts of the US, Latin America and eastern Europe unusually dry.
This had helped to significantly tighten international markets and drive up global commodity prices, Hunt adds.
China tensions
While “mother nature” is supporting Australian farmers at the moment, the report says, “the Chinese government is in a less generous mood”, with tensions between the two countries showing no sign of easing.
“Australian barley, wine and timber exports into China remain effectively blocked as we enter 2021, while informal impediments appear to be constraining shipments of cotton and lobsters,” Hunt says.
The report says the loss of some of Australia’s agricultural trade with China is now evident in data, with November 2020 shipments to China falling 33 per cent below the previous year’s (albeit unusually large) value.
Although, Rabobank notes, a 10 per cent November month-on-month fall in shipments to China is probably more representative of the impact of the geo-political tensions.
That said, Hunt adds that “the data to date suggests that many products are still flowing through”, with A$800 million worth of food and agricultural products shipped to China in November last year and preliminary data showing exceptionally strong wheat exports, at least, in December.
Major transitions ahead
Reducing the sector’s reliance on the Chinese market is one of three major transitions the report identifies that will need to be negotiated by Australian agriculture in the year ahead. The others are recovery from the effects of the COVID-19 pandemic and adjusting to a market more focused on sustainability
“Whether China continues to reduce its purchases of Australian food and agricultural products in coming years – as we think likely – or not, the risks of supplying this market have definitely increased,” Hunt says.
“2021 will likely mark a watershed year, in which Australia starts to reduce its reliance on China, voluntarily or otherwise.”
Positively, the report says, prevailing global market settings – with strong demand, limited supply and high prices for agricultural commodities – make this challenge seem less daunting at the current time.
“But reorientation to reduce reliance on China is a multi-year challenge that will still be ongoing when the market cycle inevitably turns again,” he says.
The year ahead will also require a delicate transition as governments looked to withdraw assistance measures for consumers that had propped up end demand for food and fibre during the global pandemic.
“If this is messed up, we could easily see demand for food and agricultural products soften during this transition,” Hunt says.
An increasing focus on environmental sustainability also looms large in 2021, the report says.
“COVID-19 took the headlines from climate in 2020, but it didn’t alter the commitment of key players throughout the F&A (food and agriculture) supply chain to mitigate climate change, prepare for its risk and find mechanisms to reduce and/or recoup the costs of adjustment,” Hunt says.
“If the pandemic wanes in late 2021 as hoped, this quest will again rise to the fore, creating both opportunities and challenges. And it may prove to be the greatest of all the transitions facing the sector.”
Commodities
For specific commodities, the Rabobank’s 2021 Outlook finds:
Wheat – strong global demand set to keep prices firm through the year.
Feed grain – rising global feed grain demand and supply constraints to support prices in 2021.
Beef – a rebuild year, with favourable conditions triggering increased breeding numbers and reduced slaughter keeping cattle prices firm.
Sheepmeat – lamb prices expected to remain strong but fall short of recent record levels, given weaker demand and increasing lamb numbers.
Wool – a forecast recovery in global consumer demand set to lift prices.
Dairy – strong cause for optimism that profitable market setting will extend into the 2021/22 season.
Sugar – a balanced global 2021 supply forecast, but outlook subject to impacts of La Nina, trade flows and pandemic.
Cotton – production set for sharp recovery, as demand recovers post COVID-19.
Wine – pandemic-related disruptions to food service to continue to influence retail demand for wine, but geo-political tensions with China will put pressure on average export prices.
Horticulture – demand for quality, safe horticultural produce in key markets set to remain strong, but COVID-related labour shortages at home and China trade tensions to “take off shine”
While for agricultural land, the report says, “the big season will accelerate demand for properties and push up prices further in 2021”.