Agriculture’s silver lining for Australian economy

By Gavin Clancy

With Australia about to record its first economic recession, it’s worth remembering that not all industry sectors are suffering.

While the hospitality, retail and education sectors have been particularly hard-hit, the agricultural sector is poised for a rebound after a savage drought.

First, rain has arrived, at least through much of the graingrowing belts in eastern Australia. In the Murray-Darling Basin alone, the Bureau of Meteorology says this year’s autumn rainfall figure was 22 per cent above the mean seasonal rainfall.

That will revive economic confidence through much of New South Wales and southern Queensland, and their towns and regions that rely on agriculture for investment and employment.

Timely autumn rains have resulted in a 25 per cent increase in winter crop plantings to 22.5 million hectares, according to agribusiness financier Rabobank.

Given a favourable winter and spring, that could mean a 26 million tonne wheat harvest in 2020-21.

Rabobank says areas planted to cropping are forecast to soar by up to 95 per cent in NSW and 44 per cent in Queensland; both states were severely blighted by drought in 2019.

It says that the volume of wheat exported could rise to 17.5 million tonnes – up 110 per cent on 2019-20.

In this scenario, farmers won’t be the only beneficiaries. A strong cropping outlook presents opportunities for service industries such as chemicals and fertiliser manufacturers, machinery dealers and farm merchandise suppliers.

It will also help to inject investor confidence in the rural property market.

Meanwhile, many graziers will be restocking their properties after being forced to cull cattle herds or sheep flocks over the past year. 

Those graziers with arable land may find it easier and cheaper to boost cash flow by stepping up their cropping footprint, given the cost of buying livestock.

Of course, the path of sustained profitability for agriculture is never straightforward.

According to the National Farmers Federation, Australia in 2018-19 exported around 79 per cent of its gross value of agriculture of $62.2 billion. In 2019-20, total gross value was expected to fall to around $59.3 billion because of the drought.

Lower exchange rates lift the competitive of exports, so there is some anxiety that the Australian dollar has rebounded from around US57 cents in March to US70 cents in early June. 

And of course there is China, which has dented the hopes of barley growers by applying an 80 per cent import tariff on Australian barley.

Prospects for another agricultural staple, wool, are also subdued, as the state of the world economy depresses demand post the COVID-19 outbreak. In early June, wool’s Eastern Market Indicator benchmark price was 1183 cents/kg, well below the 12-month high of 1864 cents/kg. 

But the emergence out of drought is positively good news for the Australian economy, and a reminder of the nation’s capacity to produce food and fibre for world supply chains.

Strong export performance promises to lift and keep Australia out of a prolonged recession and pour investment back into regional economies.