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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A record number of Australian companies are participating in the third China International Import Expo (CIIE), open from 5 to 10 November 2020. The annual event is hosted by China in Shanghai and is the world’s first import-themed trade fair.

Despite the challenges posed by COVID-19 and trade tensions between Australia and China, more than 180 Australian firms are exhibiting, with a third of these coming from Victoria. This is despite the state coming out of its second COVID-19 lockdown in October.

For the first time, the Victorian government has a pavilion at CIIE, and 25 of the 60 Victorian exhibitors are jointly promoting products in the food and agricultural hall.

The majority of Australian exhibitors are showcasing products and services under four main categories: food and beverage, agricultural products, consumer goods, medical equipment & healthcare products.

Strong demand for Australian products from Chinese consumers

During an interview, Shanghai-based Austrade Trade Commissioner Esther Sun told Dynamic Business that Austrade continues to see strong demand for Australian products and services from Chinese consumers.

“We know that Chinese consumers continue to value Australian products such as health and well-being supplements for their high quality, particularly our food and beverages and horticulture products for their freshness and excellent provenance, and we envisage this continuing,” said Ms Sun.

Austrade data shows a steady 20 per cent annual increase in the number of Australian companies participating in the CIIE over the last two years.

Ms Sun said the number speaks for itself. “Businesses are deciding themselves that CIIE is a good platform for them to showcase their products to the Chinese business communities and Chinese consumers.”

Online business matching program brings businesses together

Because of the challenges presented by the pandemic, this year Austrade is running an online business matching program.

The digital marketing campaign promotes Australian businesses to Chinese businesses and consumers where they can browse Australian product catalogues online on WeChat, the social media platform widely used in China. 

And it also helps to connect businesses virtually across borders.

Ms Sun said the program facilitates real-time online matching through the WeChat platform.

It enables Chinese businesses to request virtual meetings with Australian business owners.

“The feedback so far has been quite incredible,” said Ms Sun. “We have facilitated over 150 business dialogues within a week, and we are encouraged to see that the Chinese buyers are interested in Australian products.”

Advice on trading with China in the long term

Ms Sun said China remains an important market for Australia and noted that there are still opportunities for Australian businesses, based on the positive first-hand feedback from Chinese consumers.

“Acknowledging the current disruptions and issues around a number of our key product lines, it’s important that government and industry continue to work closely together,” she said. “It’s also important that businesses keep the communications channels open with frequent dialogue with their China partners and importers.”

She stressed that Austrade can support Australian businesses on their journey and alleviate some of the challenges they potentially face when entering the market.

“We do have offices and staff on the ground that will be able to provide businesses with insights and information around the (Chinese) market, so that they will be informed and make better business decisions on when, where and how they should enter the market.” 

Graham Fletcher, the Australian Ambassador to China, has travelled from Beijing to Shanghai to support the Australian exhibited team during the third import expo.

The fourth China International Import Expo for 2021 is open for registration, and more information can be found from: https://www.ciie.org/zbh/en/.

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