Adverse weather conditions caused by a stronger than usual El Niño remain the biggest issue facing the Australian agricultural sector.
This is despite the fact that authorities have posted positive forecasts for the coming year, in which Australian agricultural production is set to top A$60bn for the first time in its history.
“Total farm production is forecast to rise by 3% to reach A$60.3bn in 2016/17, following a forecast increase of 9% to A$58.7bn in 2015/16,” reads a report from the Australian Bureau of Agricultural and Resource Economics (ABARES).
El Niño 2015 was the strongest since 1997. Along with that year’s phenomenon and that of 1982, they are the three worst instances of the past 50 years. Drought and heat waves hammered the yields of many crops, with the wheat harvest cut by 5.1%.
Delegates and speakers at GTR’s Australia Trade and Supply Chain Finance conference in Sydney this week were united in the view that this was the biggest challenge facing the sector.
The slowdown in China has not had the same impact on agricultural commodities as it has had on energy and metals, said John Reeve, director at AgRee Commodities, although general export levels are down across the board.
Meanwhile the series of free trade agreements the Australian government has been signing and negotiating will eventually have a positive impact on the market, but it will take a number of years for this to trickle down, given the progressive nature of the tariff removal.
Across Asia, Australian livestock in particular is viewed as being the blue riband product. In restaurants from Indonesia to Singapore, from India to Hong Kong, Australian steak is notably higher priced than local meat, demonstrating the high regard for Australian agriculture.
Tobin Gorey, director of agri-strategy at Commonwealth Bank of Australia said that this will continue as consumers in Asia graduate to middle income levels, in a trend he coined “the dining boom”.
Late last year, the Australian government intervened to stop a group of mainly Chinese investors from buying a portfolio of farmland the size of Kentucky.
This will be particularly keenly seen in China, with which Australia has recently agreed a free trade agreement. According to research by PwC, consumption of meat in China has quadrupled since 1971.
Previously a rural economy, China’s scale of urbanisation in recent decades has been astronomical, meaning the government has had to forget about self-sufficiency and look to imports to feed an increasingly insatiable appetite for meat.
The ABARES report reads: “China is venturing overseas to bolster its food security through investments in foreign farmland and the acquisition of companies across the broader food value chain. This is where the global impact of China’s increasing food needs will be felt most acutely.”
This issue is already being borne out in Australia, much to the chagrin of certain political factions.
In February, the Chinese company Moon Lake Investments bought Australia’s biggest dairy farm, the huge Van Diemen’s Land Company estate in Tasmania. Late last year, however, the Australian government intervened to stop a group of mainly Chinese investors from buying a portfolio of farmland the size of Kentucky, citing national interest.
Bob McKay, a veteran of the Australian soft commodities scene and current director at Full Profile, an agricultural commodities solutions provider, reflected the views of many when he said that for the most part, investment is welcome, but that the Australian government needs to tread carefully in order to avoid a dilution of ownership, which would lead to much of the capital generated by foreign-owned farms leaving the country.