Australia’s agricultural sector is set to enjoy a generally profitable year ahead – underpinned by high commodity prices, positive seasonal conditions, and low-interest rates, and despite expected continuing trade tensions with China – according to Rabobank’s Agribusiness Outlook for 2021.

The report says a largely profitable 2020/21 season for most Australian farmers will not only kick start recovery from the recent severe east coast drought but also put the sector in a stronger position to navigate several major transitions it will face in the year ahead – the pandemic recovery, reducing reliance on China and increasing sustainability. 

Report lead author, Rabobank head of Food & Agribusiness Research Tim Hunt said despite the turbulent environment facing the world as 2021 gets underway, global demand for food and agribusiness products remained “surprisingly firm”, while weather patterns were also favouring Australia ahead of competitors when it comes to production. 

“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 said. 

“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.” 

Credit: Rabobank

Turbulent place 

The world is a “turbulent place” as Australia’s agricultural sector enters 2021, the Rabobank report says, impacted by factors including the continuing COVID-19 pandemic and lockdowns, the completion of Brexit and the emergence of the US from a tumultuous presidency, as well as continuing trade wars, which are 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. 

Demand for agricultural commodities though is being supported, with several major importing countries appearing to be stockpiling to mitigate the risk of shortages and by unprecedented support from governments helping to offset the pandemics impact on employment and incomes, and therefore spending on food. 

And while foodservice channels remain compromised in many markets due to pandemic lockdowns and restrictions, the otherwise strong demand for food and agri commodities is seeing global prices supported – which is good news for Australian farmers, Mr Hunt said. 

Weather deals “winning hand” 

The weather has also finally turned in favour of Australian farmers, the report says, “with mother nature dealing Australian farmers a winning hand”. 

Above-average rainfall in 2020 had set up a good winter crop along with higher-than-usual moisture to open 2021 and significantly increased storages across the Murray Darling Basin. 

“This is improving broad-acre farm incomes, boosting locally-grown feed and underpinning better water allocations for irrigators,” Mr Hunt said. 

Simultaneously, the report says, while the La Nina 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 increase global commodity prices, Mr Hunt said. 

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,” Mr Hunt said, “while informal impediments appear to be constraining shipments of cotton and lobsters.” 

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 geopolitical tensions. 

However, while the spectre of further loss of access to China hangs heavily over the Australian agricultural industry, Mr Hunt said, “the data to date suggests that many products are still flowing through”, with AUD 800 million worth of food and agri products still 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 agri products in coming years – as we think likely – or not,” Mr Hunt said, “the risks of supplying this market have definitely increased.” 

“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,” Mr Hunt said. 

The year ahead would 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,” Mr Hunt said. 

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 agri) supply chain to mitigate climate change, prepare for its risk and find mechanisms to reduce and/or recoup the costs of adjustment,” Mr Hunt said. 

“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.”

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India is currently witnessing one of the world’s largest planned strikes in human history.

Protestors are agitating against new farming laws that would deregulate crop prices and leave farmers vulnerable to large corporations. The protests involve around 250 million people, with many more standing in solidarity with Indian farmers globally.

On Tuesday, India’s highest court temporarily suspended the implementation of these laws and mandated a court-appointed committee of experts to examine the farmers’ grievances. However this has not halted the strike, as protest leaders refuse to relent until the laws are completely repealed.

For the past six weeks, hundreds of thousands of Indian farmers gathered in the Punjab and Haryana regions, blocking the main roads leading to the Indian capital Delhi. 

Farmers protesting in the Punjab region

Men, women, and children are enduring tear gas, water cannons, severe cold, and rain, but have indicated that they are not ready to go home without meaningful government action.

Indian diaspora worldwide are also supporting this cause, and an online campaign using the hashtag #istandwithfarmers is gaining momentum. 

The issue has sparked protests in the UK, including London, Leicester, and Birmingham.

Police using water cannons to disperse the crowd 

Protestors are demanding Prime Minister Narendra Modi revoke the new agricultural reforms approved in September 2020. Several rounds of negotiations between farmers and government ministers have failed.

The plight of Indian farmers

More than 50 per cent of Indian workers are dependent on the agricultural sector for their livelihood. 

This dependency on agriculture has increased after the collapse of the urban economy due to COVID-19. Millions of laid-off factory workers have gone back to their villages and joined the agriculture sector as a last resort.

According to the 2018 Report of the OECD (Organisation for Economic Co-operation and Development), Indian agricultural household income was only one-third of a non-agricultural household. 

During the election campaign of 2016, Mr Modi promised to double farmers’ income by 2022. 

However, data shows that agricultural income declined between 2014 and 2019.

There are many reasons for India’s ongoing agricultural crisis. These include low productivity due to fragmented land grabbing, lack of storage and transportation infrastructure, high debt, and extreme weather conditions in recent years. 

Endemic poverty and the government’s unfulfilled promises of Minimum Support Price (MSP) have pushed the farmers to the brink of suicide. 

In the past two years, 20,000 farmers have committed suicide due to economic hardships. 

The new laws and farmers’ concerns

Indian farmers have been demanding more assistance from governments for decades. Instead of protecting these farmers, the government has passed three new laws that will strip them of existing protection.

The farmers’ stance is that these reforms will eventually dismantle the system of MSP and the government wholesale market locally named “Mandi,” leaving them at the mercy of big corporates. 

The three new farming laws, which have caused this unrest, are explained below:

  • The first law creates free, unregulated trade spaces outside the “mandis”. Farmers fear that they will be exploited in the absence of benchmark prices set by the “mandis”.
  • The second law allows business agreements between farmers and private investors without much government intervention. In this scenario, small farmers will suffer in any dispute with big corporations and have no choice except to agree to their terms and conditions.
  • The third law permits unlimited storage, which was previously prohibited. Using this law, big players can stock up and dictate market prices.

The government’s stance

The government’s stance is that new laws will boost productivity and are beneficial for farmers and traders. Under the new system, private companies and buyers can enter the market without red tape and farmers can benefit from many customers.

India has liberated its economy in recent decades and is experiencing good growth. Mr Modi has ambitious plans for the Indian economy and wants to double the economy by 2024. 

The government says that the current agricultural system is not sustainable and efficient. To boost agricultural growth, they need to free the market.

Many economists also note that there are many benefits of liberating the agriculture market. 

Private investment can revitalise India’s run down agriculture sector and farmers can sell their crops directly to different businesses, supermarket chains, or online retailers and can get higher prices. 

In the current system, they sell to the “mandis” at low prices, and most of the profit is taken by middlemen who have the license to buy from these “mandis”.

On the other hand, farmers fear that big companies will control the prices in the long run by using the new laws. They already struggle to make a living and survive even with the existing protections. The new laws were made without considering all stakeholders.

Mobile shelters for the protesters

The government says that the “mandi” system will continue along with other private markets and MSP will continue. However, farmers are not convinced that these reforms will bring any benefits to them.

A decade ago, in the Bihar state, the Indian government ended the “mandi” system and let private investors enter the market. 

Today, a handful of retailers control the market prices. Moreover this deregulation has resulted in Bihar’s farmers having the lowest income among all Indian states.

The government should have gained the confidence of all stakeholders before changing the agricultural laws. 

There are many problems in the current system, like corruption and red tape, which need to be fixed however replacing one failed model with another is not the solution.  

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