Agricultural overview: June quarter 2021

Andrew Cameron, Rohan Nelson, Peter Lock and Charley Xia

Record production for 2020–21 confirmed

The gross value of agricultural production is expected to reach a record of over $66 billion in 2020–21. This is an upward revision of $400 million from the March edition of Agricultural commodities, driven by livestock prices remaining at high levels, and is an 8% increase from the drought-affected 2019–20 level. Faster than expected grain exports following a near-record winter crop have also seen an upward revision in agricultural exports of $400 million. Exports are still forecast to fall by 3% to just under $47 billion in 2020–21. This is mostly due to falling livestock export volumes as a result of herd and flock rebuilding reducing meat production to historically low levels. World beef and lamb prices have also fallen slightly from the peaks of 2019–20.

Value of production down and exports up in 2021–22

In 2021–22 the gross value of agricultural production is forecast to fall to $65 billion. This is an upward revision of $1.7 billion from the March edition of Agricultural commodities, driven by upward revisions to crop and livestock production. Seasonal conditions in the autumn of 2021 have remained favourable, supporting crop prospects and pasture production. Prices are generally forecast to fall, although livestock prices will remain at historically high levels. Despite rising input costs, total sector wide farm net cash income is forecast to remain historically high in 2021–22 at $21 billion (down from $23.8 billion in 2020–21).

Australia's agricultural exports are forecast to grow by 6% to $49.7 billion, driven by increases in beef, wool and dairy exports, as well as a sharp recovery in cotton exports. The recovery of Australia's agricultural sector from the lingering effects of drought will see the first year-on-year increase in exports since 2017–18.

Mouse plagues damage grain and hay stocks

Areas of New South Wales and Southern Queensland are currently experiencing a mouse plague. There has been localised damage to summer crops and initial winter planting. However, the impacts have varied paddock-by-paddock with reports that the most significant impact of the mouse plague has been the contamination of grain and hay stored on farms in New South Wales. Contamination of summer crops such as grain sorghum harvested during the plague has reduced returns to some farmers due to quality downgrades and extra costs involved in cleaning grain. Farm management has so far minimised damage to winter crop plantings in affected regions, although some risk remains if warmer weather in spring results in a resurgence of mice.

Risks mostly on the upside

Global demand for Australia's agricultural commodities continues to be strong and the market outlook is mostly positive.

Initial disruptions to exports and food demand during the onset of the COVID-19 pandemic, such as the shift away from food service-based consumption, were managed and resulted in relatively minor impacts on the sector. The largest impacts on commodity prices during 2020–21 were unrelated to the pandemic and occurred as a result of reduced market access to China and the continuation of the effects of African swine fever on Chinese pork production. Exceptions included a fall in demand for textiles and travel which reduced demand for wool, cotton and vegetable oils. As the global economic outlook continues to improve, markets for wool, cotton and vegetable oils are forecast to continue recovering.

Labour supply continues to be a vulnerability for the sector as the COVID-19 pandemic extends through 2021. Initial effects from social distancing requirements and lockdowns were seen in labour-intensive industries such as shearing, meat processing and fruit picking. Later, additional vulnerabilities emerged as measures to contain the spread of COVID-19 interrupted the flow of labour across state and international borders. Many of the more significant potential consequences, including sharp increases in fruit and vegetable prices, have been avoided because favourable seasonal conditions increased production and changes to farm management made more efficient use of labour.

The pace of recovery from African swine fever in China and other pork-exporting countries continues to create uncertainty for global meat markets. The balance of evidence suggests that recovery in China's pig herd is well underway. The rate of recovery has been subject to recurring outbreaks and complicated by an accelerated transition from small-scale to industrial pig production in China.

Australia's agricultural industries have responded to disruptions of exports to China by diversifying markets. No additional change to China's tariffs on Australian barley and wine are expected during 2021–22, and supply chains are expected to continue to adapt to alternative markets. This transition has been faster and lower cost for barley exports than for wine, because wine takes time and investment to tailor to the tastes of new consumers.

Australia's highly variable climate also presents risks to production in 2021–22. The livestock sector is currently in a rebuilding phase and record prices have been paid for animals to rebuild herds and flocks. If a rapid deterioration in seasonal conditions were to eventuate, the contribution of livestock to the 2021–22 gross value forecast would most likely fall. The same risk applies to forecasts of above average crop production, especially in regions with sandy soils including parts of Victoria, South Australia and most of Western Australia's cropping regions. However, livestock numbers are recovering from historic lows, global demand for livestock products remains strong and prices are set to remain historically high.

 

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