Horticulture: September quarter 2021

Charley Xia, Fred Litchfield & Aruni Weragoda

Retail prices expected to remain high in 2021–22 due to labour shortages

In 2021–22 retail prices of fresh fruit and vegetables are expected to remain at high levels similar to those seen in 2020–21. This is despite improved winter growing conditions boosting Queensland production and improving yield prospects over spring and summer in southern states. The high costs of getting produce to market and elevated household demand are expected to affect consumer prices. A significant decrease in the number of working holiday makers continues to contribute to farm costs of securing seasonal labour and to production losses. The wholesale and retail sectors have also experienced increased labour demand and rising overheads during the COVID-19 pandemic.

Farms and supply-chain participants adapting to labour availability and costs have become an increasing feature of horticultural markets in Australia during the COVID-19 pandemic. Rising labour costs, along with normal volatility due to seasonal conditions, have contributed to sustained year-on-year retail price changes in 2020–21. These price changes have remained largely within the range experienced by Australian consumers and are likely to remain so during 2021–22 (Figure 1). Retail fruit and vegetable prices rose around 5% in June 2021 due to a shortage of pickers, extreme rainfall on the east coast of Australia and Cyclone Niran affecting banana crop yields. Most retail fruit and vegetables are expected to be similarly priced compared to 2020–21. Ongoing labour shortages along the supply-chain are expected to contribute to higher supply costs and largely offset price falls typically seen during times of favourable seasonal conditions.

Farmgate value to reach record high due to high prices and production

The value of horticultural production is forecast to reach a record $12.4 billion in 2021–22. High labour costs and elevated demand from households are contributing to the forecast of higher farmgate prices. Growers are responding by paying higher wages, as well as providing better employment conditions and bonuses to attract new workers and retain existing personnel. High production is forecast for most commodities because of improved seasonal conditions, but crop losses are expected to occur in some industries because of labour shortages. These losses are expected to be localised and small relative to total forecast production. Losses are also more likely to occur in fruit industries where growers are less able to control their output potentials and have made substantial longer term orchard investments.

Farmgate prices of fruit and vegetables that are more labour intensive to harvest are forecast to remain at highs seen during 2020–21. Horticultural production requiring less labour will benefit from economies of scale facilitated by favourable growing conditions and cost-saving farm innovations. Improvements to labour productivity in those cases are expected to buffer some of the increase in production costs, taking pressure off further price rises. Harvest seasons of a few products have also been lengthened due to labour shortages, which is extending their period of availability in retail markets. This is likely to limit price growth if an increasing number of substitutes have to compete for consumer demand.

Favourable production prospects to lift labour demand

In 2021, favourable conditions during winter and early spring have benefitted seasonal production in Queensland and improved yield prospects of most summer fruit in southern states. This will contribute to high demand for seasonal labour throughout 2021–22 and place further pressure on farms to pay higher wages or offer better employment conditions.

Growing conditions have been favourable in Queensland during autumn and winter, especially in the Southern Downs. This has provided ideal conditions for vegetables grown in Queensland that are supplied to much of the country. Vegetables that are more labour intensive to harvest, including broccoli and tomatoes, are reaching markets at prices previously seen in drought years (Figure 2). These high prices reflect the additional effort and costs incurred by growers to secure seasonal labour needed to deliver produce to market. Growers are implementing measures to ensure harvest while controlling for costs, including increasing staff retention, lengthening the harvest season and changing work processes to increase output per hour.

In the winter and early spring of 2021, prices of fruit have also remained high due to seasonal conditions and labour costs. Favourable growing conditions in Queensland have benefited strawberry and mandarin production, but labour costs and demand affected by lockdowns have contributed to their prices (Figure 3). Winter supplies of blueberries have been reduced by flooding in northern New South Wales in early 2021. Prices of bananas have also been affected by significant damage to crops caused by ex-tropical cyclone Niran in March. Mangoes from the Northern Territory are beginning to reach markets at prices that reflect increased supply due to improved seasonal conditions and higher labour costs.

Movement of seasonal labour key to reducing farm costs

The mobility of seasonal workers along harvest trails spanning different regions within a state or between state jurisdictions will be key to reducing farm costs, especially over spring and summer. Industries and governments are working collaboratively to provide the certainties and safety protocols needed during the COVID-19 environment to ensure that growers are able to see through with their harvests at lower costs. Farm work being considered as essential services, special work permits allowed for seasonal workers and other business exemptions will contribute to meet those goals.

ABARES farm survey data for 2018–19 indicates the trends in demand for seasonal labour on horticultural farms across jurisdictions. Focusing on farm use of overseas casual and contract labour provides the best guidance as to when and where the highest cost pressures will be felt because of the fall in the number of working holiday makers this year compared to 2018–19. At a national level, those data show that there is a noticeable step increase in the employment of overseas casual and contract labour on horticultural farms in November and February (Figure 4). However, there are state and industry details that are worth emphasising for alleviating farm cost pressures.

Demand for seasonal labour on vegetable farms in Queensland is expected to remain high from July to November before falling during summer (Figure 5). Demand for seasonal labour on vegetable farms in other states is expected to be more stable. In Victoria, the increase in labour demand on vegetable farms during the second half of the year through to summer is concentrated in the pre-urban areas of Melbourne and the Gippsland region. Vegetable farms in southern New South Wales, South Australia and Tasmania experience noticeable increases in labour demand during late spring to summer.

Seasonal labour demand on fruit farms in Queensland stays at a consistent level through winter and spring in line with harvests of strawberries, mandarins, melons and tropical fruit (Figure 6). Demand in the Northern Territory and northern Western Australia also increases over late winter to early summer for the harvests of mangoes and other tropical fruits. The sharp increase in demand occurring over warmer months in southern states, especially in Victoria and Tasmania, coincides with the harvesting of stone fruit, pome fruit and table grapes.

Large farms have the highest labour costs

Horticultural production, in both the fruit and nuts and vegetables industries, is extremely skewed by farm size. Over the 5 years to 2018–19, large farms (with turnover of more than $2 million) accounted for around 10% of all farms but contributed to the majority of horticultural production. Labour expenditure as a share of total costs was highest for large farms across the horticultural sector (Figure 7). The ability of large farms to adapt and respond to labour shortages has a much greater impact on aggregate production levels compared to the adaptation ability of small farms.

A major reason for the difference in labour cost shares by farm size is that small horticultural farms rely heavily on unpaid family labour. This is an opportunity cost rather than a financial cost. In response to the current horticultural labour shortage, small farms are likely better able to mobilise family labour. Large farms have higher incomes and resources on average, which gives them greater capacity to attract workers by paying higher wages. Higher input costs for these businesses are likely to have a stronger effect on wholesale market prices for fruit and vegetables, due to large farms accounting for the majority of horticultural production.

High labour demand across entire supply chain

Recruitment activity for workers during the COVID-19 pandemic remains elevated throughout the supply chain (Figure 8). Internet advertisements for labourers to work on crop farms (including horticultural farms) have increased significantly since before the pandemic, along with those looking for staff needed in the wholesale and retail sectors.

A tight labour market in the first half of 2021, especially during the June quarter, would have contributed further to recruitment and wage costs for growers. Cost pressures are providing incentives for large farms to invest in labour-saving processes and re-structure their workforces, including by recruiting more workers from the Pacific Islands through Australian Government programs.

During the first half of 2021, the total number of Pacific Island workers recruited through the Seasonal Worker Programme increased noticeably (Figure 9). The Prime Minister announced that between August 2021 and March 2022, Australia will double the number of Pacific workers in Australia under the Pacific Labour Scheme and the Seasonal Worker Programme, bringing an extra 12,500 workers. The initiative is part of a range of industry assistance from the Australian and state governments that aims to improve labour supply for the agricultural sector.

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