Agricultural overview: September quarter 2021

Andrew Cameron

Record gross value of production for 2021–22

The gross value of Australia’s agricultural production is forecast to reach a record $73.0 billion in 2021–22. If realised, this would be the first time that agricultural gross value has surpassed $70 billion (Figure 1 ). The value of crop production is forecast to increase by 7% to a record $39.5 billion because of strong price increases for grains, cotton and sugar. The value of livestock production is forecast to increase by 8% to $33.5 billion, driven by higher volumes. This is a $8.0 billion upward revision from the outlook issued in June, and the largest upgrade in a single quarter in at least 20 years (see Box).

The sector stands poised to capitalise on a remarkable combination of events. Both seasonal conditions and prices are forecast to be much better than earlier expected. In Australia, the continuation of widespread favourable seasonal conditions means another near-record harvest is forecast. This has also contributed to continued optimism in the red meat industry, leading to record prices being paid for young cattle by both restocking graziers and processors. Overseas, key competitors are suffering poor growing seasons, which is pushing up international grain prices. Further, the ongoing recovery from the depths of the global COVID-19 recession is leading to a resurgence in demand for travel and in discretionary spending. This is increasing demand for fibres, oilseeds and sugar.

Looking beyond 2021–22, Australia’s agricultural production is likely to fall, and elevated crop prices are unlikely to persist if seasonal conditions improve overseas.

Strong growth in exports forecast

The value of agricultural exports is also forecast to be a record, increasing by 12% to $54.7 billion in 2021–22. Growth is forecast for most of Australia’s major export commodities (Figure 3).

Crop exports are forecast to make the largest contribution to growth (Figure 4). The value of crop exports is forecast to increase by 17% to $30.0 billion, the highest since 2016–17. This is being driven by higher forecast prices for most crops, combined with continued high export volumes. Poor growing conditions in key grain exporters including the United States, the Russian Federation and Canada have resulted in sharp increases in world prices, which will benefit Australian growers. The value of canola exports is forecast to increase by 50%, due to higher prices and an expansion in planted area to record levels. This expansion in area has come partly at the expense of barley – down 5% on the 5-year average – due to tariffs imposed by China.

The value of livestock exports is forecast to increase by 7% to $24.7 billion, driven by higher wool, beef, lamb and dairy exports. Wool exports are expected to record strong growth in 2021–22, as the global economic recovery increases demand for natural fibres, pushing up prices. Beef export volumes are forecast to grow 8% in 2021–22 after falling by 24% the previous year, driving the value of beef exports above $9 billion. High livestock feed costs in China are also increasing demand for Australian exported dairy products.

Risks to the outlook remain

Risks remain to agriculture realising a record year – with the most salient risks posed to commodity prices. The speed of COVID-19 vaccine distribution is the key downside risk, especially in emerging and developing economies. Continued outbreaks increase the risk of further virus variants, which could be more resistant to vaccines, more infectious, or more likely to cause death or serious illness. This would slow the recovery in travel and discretionary spending, and lead to reduced prices for agricultural products.

High international freight costs and the availability of shipping containers will also present challenges, particularly for exporters of cotton, pulse and horticultural goods. The prospect of further deterioration in trade relationships also merits consideration. While agricultural exporters are proving adept at diversifying into new markets or taking advantages of changes in trade flows, this does come with transition costs and lower prices as has been seen for barley.

Mice present management challenge

The effects on national agricultural output of increased mice populations are expected to be limited in 2021–22. Mice can have serious effects on production at the individual property or region level, but their effect on national production is not likely to be significant (see the Australian Crop Report). They can also damage and contaminate grain stored on farm and in bulk storages. Baiting and other pest management practices are well understood and widely practised, and the availability of free monitoring and management tools such as MouseAlert and GRDC’s mouse management resources mean the industry is well prepared.

Managing mice introduces additional costs for farms and supply chains. Bulk grain handlers are already expanding storage capacity and streamlining screening processes to reduce the amount of grain stored on farm in potentially higher-risk storages. The prospect of high-yielding crops and increased grain prices provide a clear incentive for farms and supply-chain participants to proactively manage mice this season.

Seasonal labour pressure continues

The limited availability of seasonal harvest labour will continue to present challenges for Australian agricultural businesses, particularly horticultural businesses (see Horticulture). Australian consumers are likely to see higher fruit and vegetable prices than would otherwise be the case in 2021–22, although well within typical variation. Demand for unskilled labour is elevated across the economy, adding additional pressure to businesses looking to secure temporary workers. A new Agriculture Visa has been announced, to commence in late 2021. This will make more overseas workers available to agricultural businesses. However, businesses will remain largely reliant on domestic labour supply and existing seasonal worker programs for immediately upcoming harvests.

The free movement of available harvest labourers within and between key growing regions, including across state borders, will remain critical in coming months. Agricultural activities are considered an essential service in all states and territories, which allows movement across borders. Differences in state requirements for vaccination of essential workers may introduce frictions. Outbreaks of COVID-19 in regional centres could also present additional complications for securing labour into or out of those regions.

Revisions to value of production and exports forecasts, 2000 to 2021

Each quarter ABARES revises agricultural forecasts based on analysis of new information. In September 2021, the gross value of agricultural production is revised up by $8.0 billion. This 12% upward revision is the largest revision made in a single quarter in at least 21 years. This is primarily due to a $5.6 billion upgrade to the forecast value of grains, oilseeds and pulses. This revision stems from upgrades to both the volume of production (due to favourable domestic seasonal conditions), and the prices that this production will be valued at (due to unfavourable seasonal conditions overseas).

Revisions of a similar scale are rare but not unprecedented. The next largest revisions to gross value of production occurred in December 2006 (a 10% downward revision) and in September 2010 (an 8% upward revision). In both cases, very large revisions were made to Australian winter crop production.

The December 2006 revision saw Australian wheat production slashed by 40% from 16.4 million tonnes to 9.7 million tonnes due to very poor growing conditions in the eastern and western wheat belts of Australia. The revision of September 2010 was due to a similar situation to September 2021. It combined very large upward revisions to both crop production and prices. This flowed from favourable domestic growing conditions coinciding with unfavourable conditions in several major export competitors. As a result, Australian wheat prices were revised up by 52% and wheat production was revised up by 14% to 25.1 million tonnes.

In September 2021 the value of exports is revised up by $4.9 billion (a 9.9% upward revision). This is also the largest upward revision in at least 21 years in real dollar terms, and among the largest in percentage terms. The largest revision over the period from 2000 to 2021 was a $3.9 billion downgrade (in real terms) in December 2006. At the time this was a 10.1% downward revision to exports.

References

ABARES 2006, Australian Commodities: September quarter 2006 (pdf 1.4MB), vol. 6 no.3, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, accessed 6 September 2021.

ABARES 2006, Australian Commodities: December quarter 2006 (pdf 2.0MB), vol. 6 no.4, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, accessed 6 September 2021.

ABARES 2010, Australian Commodities: June quarter 2010 (pdf 2.0MB), vol. 17 no.2, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, accessed 6 September 2021.

ABARES 2010, Australian Commodities: September quarter 2010 (pdf 1.2MB), vol. 17 no.3, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, accessed 6 September 2021.

ABARES 2021, Historical agricultural forecast database, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra, accessed 6 September 2021.

 

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