By Mark Bennett - Head of Agribusiness @ ANZ Bank
Surging demand in Asia, the adoption of new technologies, and favourable outlooks for commodities – established and emerging – have materialised.
“Horticulture is the most exciting space in Australia’s food, beverage & agribusiness arena. Production value to grow 18% in the next 2 years with exports adding $500 million over the same time.” Michael Whitehead, Head of Agri Insights, ANZ Bank
Australian horticulture is also experiencing enviable momentum, driven by productivity gains and unprecedented domestic and global demand. New capital is also entering the sector and investment must continue as the industry seeks to satisfy global demand, which requires significant production increases and supply chain improvements.
Today, horticulture makes up 19 per cent of Australian agricultural production and is the largest employer within Australian agriculture. However, Australia’s exports constitute only 1.2 per cent of global fruit exports and 0.3 per cent of global vegetable exports, so considerable prospects remain as long as producers can align production with demand from
our nearest neighbours.
Already, fruit exports to China have increased more than 500 per cent in the past four years, helping Australian horticulture to become the fourth largest export group for Australian agriculture (after meat, cereals and wool) and worth almost $3 billion in 2016. Following improved market access to China, further growth is being seen for Australian citrus, table grapes, Tasmanian apples and stone fruit.
Locally, fresh fruit and vegetable prices remain more volatile than most food items, due almost exclusively to a reliance on local supply. However, while vegetable prices are less volatile than fruit, prices for vegetables are growing at a higher rate than fresh fruit retail prices. At the farmgate, the dynamic shifts with the price of fruit increasing at around the same rate as the retail prices, while the farmgate price for vegetables is actually in decline. This disparity, in some part, can be attributed to the growing global demand for Australian fresh fruit which has seen Australia become a net exporter of fresh fruit while remaining a net importer of fresh vegetables.
But what impact will an increase in exports of fresh fruit and vegetables have on Australian consumers and retail prices? Analysis of current trends show a significant impact from increased exports of domestic fresh produce on both retail prices and the prices received by Australian producers – such that on current trends retail fruit prices would increase by 30 per cent, and farmgate prices would almost double, while retail vegetable prices would increase by over 30 per cent but farmgate prices would increase only 2 per cent by 2030.
Questions also remain for growers around the viability of capital intensive undercover production systems. Similarly, for farmers with access to irrigated land, horticulture typically returns more per hectare and per megalitre than any other agriculture, but experience on the Murray-Darling shows that on a return on capital basis, horticulture has been far lower than cotton, rice or even dairy farming.
Although opportunities for Australia’s horticulture industry are becoming clearer, growers need to grapple with unique challenges: a highly volatile environment, production and income lags in new development, and careful management of resources required to produce the food that our local consumers – and, increasingly, global consumers – have come to appreciate and expect. However, Australian agribusiness has traditionally responded to challenge and opportunity with adaptation and innovation, and we see this playing out already. Ongoing investment remains critical, as does careful consideration of both domestic and international demand. On balance, it feels like an exciting time in Australian fresh produce.