By Mark Bennett & Madeleine Swan - Head of Agribusiness & Associate Director Agri Research, ANZ
The COVID-19 pandemic and its impact on supply chains, retail spending, travel and work life in general has been the defining feature of one of the most tumultuous years in the recent memory.
However, for Australian agriculture 2020 has strangely been a year of positives for many, despite the global upheaval. Although the year started under the heavy shadow of drought and bushfires, considerable rain across eastern Australia set up a strong season and booming livestock prices.
"Regional Australians experienced a much smaller decline in their ability to meet financial commitments compared those living in capital cities.”
Reflecting on 2020, Australian agriculture will be best remembered as one of the most resilient industries in the face of global shutdowns. While isolated impacts were felt throughout some sectors, including meat processing in Victoria, fruit picking and air travel-reliant exports, the overwhelming story has been one of flexibility and adaption to new constraints. The move to online livestock auctions, accommodating staff on-farm, managing shift rotations and ensuring contact-free goods transfer are all examples of a strong and resilient supply chain.
The strong season for farmers was reflected in a recent ANZ Roy Morgan Financial Wellbeing Indicator which found, in the midst of the COVID-19 pandemic lockdowns, the financial wellbeing of farmers and farm managers improved 4.3 per cent to 62.8 (as a score out of 100) compared with the national average which declined 6.4 per cent to 56.8. The report also found regional Australians experienced a much smaller decline (0.7 per cent) in their ability to meet financial commitments compared with a decline of 8.6 per cent experienced by those living in capital cities.
On the downside, the escalation of China-Australia trade tensions continues to make many in the industry nervous. Developments in this key market are likely to remain unpredictable. The message being heard at the farm-gate is far more straightforward however with some in the industry now questioning the long-term value of some markets and certainly the concentration risk that has emerged.
Australian agricultural exports will always be closely tied to export markets across Asia and China remains one of the most important of those markets. But it makes sense to pursue opportunities for expansion and to diversify into new markets through additional trade relationships. The China demand story will continue to be an enormous influence on global demand and represents a net positive opportunity for Australian agriculture. However, we do need stability in order to maintain confidence and investment at the production level.
The current Australian wheat harvest is shaping up very well, with prices holding firm despite strong domestic and global supply. Livestock prices are also strong with cattle prices continuing their rise despite queries of ‘how high can they go’ and sheep prices recovering to sit above levels at the same time last year despite falls earlier in the year. Global dairy prices are up on last year across most commodity sectors except butter and even the struggling wool sector is showing solid signs and after finding its floor level, now appears to steadily improving.
Looking forward to 2021, there are clearly a number of hurdles for both the agriculture industry and the global economy as a whole to clear. First among them are the continuing waves of COVID-19 outbreaks and the impact on global economic growth and confidence. Second is the impact of the new Biden administration on global trading systems and stability. As Australia continues to navigate through trade with China, the overarching influence of a more moderate US administration is likely to set the scene for ongoing negotiations.
Having said all that, Australian farmers can look to 2021 with a strong sense of optimism and with a generally strong 2020 under their belt. This marks a monumental shift from the world this time last year.
Mark Bennett is Head of Australian Agribusiness and Madeleine Swan is Associate Director, Agri Research Australia at ANZ
Click here to read the full Agri InFocus report
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.