Australian agriculture looking good, for now

Australian agriculture looks positioned for an overall positive 2017, with a new report from Rabobank expecting relatively “smooth sailing ahead” for most commodities, but warning there are “potential storm clouds gathering on the horizon”.

In its flagship annual Agribusiness Outlook, the food and agribusiness banking specialist says “in most regards”, Australia’s agricultural sector is poised for a good year, with factors in its favour including a projected rise in global economic growth and farmgate prices for most livestock and crops expected to come in above their five-year averages.

Report lead author, RaboResearch Food & Agribusiness general manager Tim Hunt (pictured) said other positive factors included high dam levels, neutral climate indicators and strong on- farm confidence.

“Key dam levels are high following a wet 2016, ensuring good supply and lower pricing for irrigation water in most regions,” he said, “while El Niño–Southern Oscillation climate indications are at this stage neutral.

“While on-farm, confidence levels are strong among producers and their investment intentions are increasing.”

The report does qualify the optimistic view however, noting that the market for grains and oilseeds remains an exception, in particular for wheat.

“Ample global supplies look set to limit any improvement in wheat prices this year, though a large Australian 2016/17 crop has at least partly offset the revenue damage,” Hunt said.

And it’s not all positive news for the sector looking out further, with “some storm clouds gathering on the horizon that will bring at best uncertainty and at worst the prospect of significant turbulence in years to come, in particular on the economic and regulatory fronts”, the Agribusiness Outlook warns.

The Trump effect

The commencement of the Trump presidency brings with it some potential near-term benefit, but considerable uncertainty and concern for the medium-term, the report says.

“There is potential, particularly in 2017, for Australian agriculture to benefit in some regards from the new administration,” said Hunt.

But more generally, he said, the new US administration brings with it a “huge degree of uncertainty about what will be implemented, and its impact on the global economy and geopolitics”.

“The TPP in its current form is already dead, taking the incremental gains in market access it included for products like beef, dairy and sugar off the table,” Hunt said.

Protectionism and political tension

More broadly, the report says, the policies of the Trump administration may contribute to a rising trend in protectionism already evident in recent years in many parts of the world – from which Australia, as an export-oriented agricultural producer, has much to lose.

The potential for political tension between the US and China (two of Australia’s largest trading partners) is also high.

Well placed

Releasing the report, Rabobank Australia national manager Country Banking Todd Charteris noted that the Australian food and agri sector would need to work to ensure it managed this period of uncertainty and potential turbulence, as well as it could.

“As the report finds, this will include seeing if anything can be salvaged from the ashes of the TPP and advancing bilateral trade agreements (including positioning for a FTA with the UK when it leaves the EU). And beyond the trade realm, securing partnerships and stable routes to market will be more important than ever,” he said.

“At the very least, Australian agriculture should enter any potential storm in generally good shape. And turbulence can bring opportunities as well as threats.”

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