The agriculture sector in Australia has been significantly affected by the global outbreak of COVID-19, and rising diplomatic tensions with China. However, improved conditions are supporting an optimistic outlook for 2021.
‘Improved weather conditions after a prolonged period of drought are expected to boost production and offset lower prices, supporting the Agribusiness industry. Grains and fertiliser producers are expected to post a strong performance in 2021, while wool producers will struggle,’ said IBISWorld Senior Industry Analyst, Matthew Reeves.
Growth in the grains industry
Domestic grain production is expected to skyrocket in 2020-21, off the back of high rainfall levels. According to the Australian Bureau of Agricultural and Resource Economics and Sciences, wheat production is expected to reach 31.2 million tonnes in 2020-21, an increase of 106% on the previous year. The barley crop is also anticipated to expand by 33%, to reach 12 million tonnes.
‘Following severe drought conditions over much of the prior three-year period, greater rainfall levels in key growing areas have improved crop yields. The expected level of output in 2020-21 is a near-record, second only to the highs achieved in 2016-17,’ said Mr Reeves.
Favourable climate conditions and higher export prices are expected to support a 44.4% rise in revenue in the Grain Growing industry in 2020-21. However, domestic grain prices are expected to fall substantially.
‘The domestic price of wheat is forecast to fall to $266.54 a tonne in 2020-21, a decline of 19.7%. Similarly, the domestic price of coarse grains, which includes barley, sorghum, maize, oats and triticale, is expected to fall by 17.4% in 2020-21, to $234.90 per tonne,’ explained Mr Reeves.
Global demand for grains is expected to rise during the year, supporting higher world prices. Despite this trend, the economic impact of the COVID-19 pandemic has created demand deficiencies for premium wheat products and downstream dairy foods. Additionally, high rainfall has limited demand for grain feed from Australian livestock farmers. This weaker demand and increased supply will place downward pressure on domestic prices.
Although barley production has surged, it has come at an inconvenient time for Australian producers. In May 2020, China imposed an 80.5% tariff on Australian barley, largely cutting off the largest export market from local farmers. China accounted for 30.3% of Australian barley exports in 2019-20.
‘In response to China’s trade barriers, barley growers have adapted by finding new export markets for their produce, such as beer manufacturers in Mexico and India,’ said Mr Reeves.
Japan-based beverage manufacturer, Asahi, has announced it will be sourcing barley for its Australian beers from farms in Victoria, as part of a greater focus on the provenance of its supply chain.
Fertiliser prices on the rise
Due to the improvement in rainfall and the associated increase in the total crop area planted, demand for fertiliser is expected to increase. This trend is expected to put upward pressure on prices. Revenue in the Fertiliser Manufacturing industry is expected to rise by 11.6% in 2020-21, to $4.2 billion.
‘Higher fertiliser prices, improved seasonal conditions and a significant increase in cropping area relative to the historical lows recorded in 2019-20 are likely to bring industry revenue back in line with historical averages,’ said Mr Reeves.
The prices of key inputs into fertiliser, such as natural gas and ammonia, are expected to increase from the lows caused by supply-demand disparities due to the COVID-19 pandemic. As a result, the domestic price of fertiliser is expected to rise by 7.2% in 2020-21.
‘Rising fertiliser costs are a hindrance for domestic agricultural producers. However, as most fertiliser used in Australia is imported, the rise in the Australian dollar against the US dollar is expected to mitigate some of the forces that are driving growth in global fertiliser prices,’ said Mr Reeves.
Wool woes
The recent prolonged drought conditions have also had a negative impact on the national sheep flock, limiting wool production. With flock numbers yet to recover, wool production in 2020-21 is set to remain at a similar level to 2019-20. Despite this constrained supply, prices are expected to fall substantially in the current year, as global demand falls at a greater rate. China, the largest textile and apparel manufacturer in the world, is the largest market for Australian wool. China accounted for 96.8% of Australian wool exports in 2019-20.
‘Global consumer demand for these wool-based products is expected to continue to be constrained by falling incomes as the COVID-19 pandemic continues to rage,’ said Mr Reeves.
Overall, the domestic price of wool is forecast to fall by 22.6% in 2020-21 to 1,120.0 cents per kilogram. Partially due to this trend, revenue in the Sheep Farming industry is expected to fall by 12.1% in the current year, to total $3.0 billion.
IBISWorld reports used to develop this release:
- Agribusiness in Australia
- Grain Growing in Australia
- Fertiliser Manufacturing in Australia
- Sheep Farming in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: jason.aravanis@ibisworld.com
