Thursday 25th Apr, 2019

Australian agriculture set to benefit amid considerable risks in 2019 – report

Rising offshore demand and improved market access is set to benefit Australian agricultural industries, but downside risks are expected to be considerable in 2019, according to a new industry report.
Tim Hunt

Rising offshore demand and improved market access is set to benefit Australian agricultural industries, but downside risks are expected to be considerable in 2019, according to a new industry report.

The report, Agribusiness Outlook 2019, written by food and agricultural banking specialist Rabobank, said there are many cyclical and short-term factors which may be less favourable for Australian Agriculture in 2019, including climate and global economic outlook.

It finds positive factors for the industry include a weak and falling currency, combined with strong local price basis.

The report’s lead author RaboResearch general manager Tim Hunt said barriers to China will continue to be removed under the free trade agreement and recently negotiated protocols, while the trade benefits under the Trans Pacific Partnership will start to come into play, especially with Japan.

“We expect that a slowing global and local economy, combined with concerns over downside risk, will see Australian exporters enjoy the lowest annual average exchange rate against the greenback in a decade in 2019,” Hunt said.

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“Meanwhile, the poor 2018 grain harvest, and low beef and sheep herds, will keep the prices for Australian crops and livestock higher than usual compared with world prices over most or all of 2019.

“And with dairy and sugar markets also tightening globally, and wool markets only likely to see a slow retraction from record levels, price will be the industry’s friend in 2019.”

Climate factors are one of the most obvious problems for the sector in 2019, according to the report, with the majority of eastern Australia in the midst of long-term rainfall deficiencies.

“For winter production to return to average on the east coast this season, above-average rainfall is required in coming months. At present, climate indicators provide mixed signals as to whether that is likely or not,” Hunt said.

Locally, Australian consumers also face rising economic pressures as east coast housing prices enter what looks like a major corrects, mortgage rates rise, and wages growth remains absent, Rabobank reports.

Hunt says the slowing Chinese economy and escalating international trade tensions are concerns for Australian agriculture, with Brexit also having a potential major impact in two key markets for Australian agricultural products.

Overall, the report said if Australia sees a return to something approaching average rainfall, 2019 will bring a decent year for Australian agriculture, with improved production conditions offsetting what is expected to be less favourable conditions.