A new secure database of Australian farms has been constructed as part of a multi-year collaboration between the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) and the Australian Bureau of Statistics (ABS).
New South Wales is on the verge of a record-breaking winter crop, with forecast production of more than 17.6 million tonnes driving near all-time high production prospects for Australia overall.
The Australian Bureau of Statistics recently released data that proved that COVID-19 hasn’t destroyed our global trade, even though it has definitely complicated things due to geopolitical developments. Supply chain dependencies and priorities within countries changed and restrictions were placed on the export of critical items as countries began to navigate the spread of COVID-19.
In 2020, food and beverage exports have increased 5.8 per cent, led by seven per cent year-on-year increase in food product manufacturing. The results are in – demand for safe, high-quality, Australian-produced food still remains strong in these uncertain times. This is great for our food manufacturers and growers, the essential businesses keeping the supermarket shelves stocked.
Trading in the current environment
A strong international trade system is crucial to maintaining global food security. The fact is that trade stabilises food prices and supply volumes and thereby helps improve social stability, particularly in countries with higher levels of poverty, or where there are more variable agriculture production conditions. During the 2007-08 food price crisis, restrictions by countries on exports of certain commodities led to increases in world food prices and intensified the impact on food insecurity and poverty. So far, during the current COVID-19 pandemic, such crises have been averted and the trade flows have continued.
According to an ABARES study, Australia is ranked among the most food secure nations globally and as one of the top 10 countries for food affordability and availability. It should also serve as some comfort to Australian consumers that we are not going to run out of our everyday supplies and food that we need. About 11 per cent of the food and beverages Australians consume by value is imported. Many of these are ingredients that Australia is unlikely to produce in any quantity for the foreseeable future. Cocoa, for example, which is used in making chocolates. For Australians to continue to have a Tim Tam with their tea or coffee, the country must continue to trade and import those key ingredients.
As the pandemic continues, some grocery shortages might occur, but this isn’t a sign of a lack of food. For example, in Victoria the shortages are due to temporary disruption to logistics and operations to ensure compliance requirements set out by authorities. Australia produces enough to feed the entire population three times over – Australians do not need to panic.
Global challenges and what we should do?
What can we do to make sure Australians continue to be spoilt for choice and have access to our preferred grocery products? We can learn. The first step is Australia must continue its efforts in strengthening global trading systems and work with international trading partners to achieve resolutions to interruptions to global supply chains. Special arrangements need to be secured for two-way trade under crisis conditions.
When Australians refer to business as usual and the future hopefully waiting for us post COVID-19, the country needs to remain committed to working on securing trade agreements with a focus on getting equivalent access. In any future, a secure, rules-based international trading system backed by reliable supply chains is a must for stability and security of food supply.
A new study examining the impacts of water recovery in the southern Murray-Darling Basin has found both buybacks and on-farm efficiency programs result in higher prices.
ABARES Executive Director Dr Steve Hatfield-Dodds said the study separates the effects of water recovery on water allocation prices from seasonal variations in water supply and expanding perennial crops.
“Seasonal conditions are the primary driver of annual variation in water prices,” Hatfield-Dodds said.
“Both direct water buybacks and on-farm infrastructure programs put upward pressure on water prices. ABARES finds that total water recovery to date, on average, has added around $72 per megalitre to allocation prices.
“On-farm infrastructure programs provide significant benefits to the farmers that participate through better productivity and profitability. That means they want more water and will pay a higher price.
“This extra demand puts more upward pressure on allocation prices than an equivalent amount of water buybacks. ABARES finds the price effect of on-farm irrigation infrastructure projects is about double that of buybacks, per unit of water recovered.
“If the water recovered through on-farm programs had instead been recovered through buybacks, then the total price effect would be an increase of around $63 per megalitre, rather than $72 per megalitre.
“The study also found that off-farm infrastructure projects and rationalisation of irrigation networks are best placed to avoid price effects, but are typically more expensive than buybacks and may be difficult to negotiate.”
Other factors putting pressure on water market prices include the expansion of high-value, water-intensive crops such as almonds.
“High-value crops are estimated to add $25 per megalitre to allocation prices—likely to increase a further $15 per megalitre as those plantings mature in coming years,” Hatfield-Dodds said.
“Estimated price effects are sensitive to assumptions about seasonal conditions and wider economic drivers.”
An Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) analysis of government support for Australia’s farmers has found they are among the least subsidised in the world.
Australia has one of the lowest levels of agricultural support across the 37 Organisation for Economic Co-operation and Development (OECD) member countries – and when compared to other emerging economies.
Report author and ABARES’ Head of Forecasting and Trade Dr Jared Greenville said keeping subsidies low was important for both Australian producers and international markets.
“Australia’s reform experience shows that deregulating the agriculture sector and removing distorting forms of support spurs overall sector growth, increasing participation in global markets and the contribution that agriculture makes to the rural and national economy,” Dr Greenville said.
“Recent OECD research also points to the fact that countries that have lower subsidies have agricultural sectors that perform better, seeing farm incomes grow faster over time than heavily subsidised ones.
“The costs of increasing distortions to trade and subsidies are also felt more in countries that implement these policies than elsewhere.”
Dr Greenville said there were no targeted subsidies provided to Australian producers of our most traded products—beef and veal and grains (which includes barley).
“In contrast, global levels of support for beef and veal were around 13 per cent of farm revenues, on average,” Dr Greenville said.
“Grains markets other than rice are relatively free from market distortions—on average three per cent and six per cent for wheat and barley, respectively.”
The ABARES Analysis of government support for Australian agricultural producers also examined the potential impacts of creeping protectionism in a post-COVID-19 trading environment.
“The use of export restrictions and increases in support during COVID-19, along with the initial signs of a trend to rising overall levels of support brings into focus the need for an effective international system to ensure agricultural markets continue to address food security concerns and drive economic development,” Dr Greenville noted.
He added that “governments will need to make investments in agriculture to help meet global development goals, but it is important that these investments do not harm producers elsewhere.
“Future trade rules will need to be set to help achieve this outcome.”
Australian Bureau of Agricultural and Resource Economics and Sciences’ (ABARES) latest Insights report provides analysis of Australia’s food security.
ABARES Executive director Dr Steve Hatfield-Dodds said that despite temporary shortages of some food items in supermarkets, caused by an unexpected surge in demand, Australia does not have a food security problem.
“The COVID-19 pandemic has taken Australia and the world by surprise. Coming after severe drought conditions in eastern Australia, concerns have been raised about Australian food security. These concerns are understandable, but misplaced,” Dr Hatfield-Dodds said.
“Australia does not have a food security problem, with Australia exporting about 70 per cent of agricultural production.
“Australia produces substantially more food than it consumes, even in drought years. Some of our largest industries, such as beef and wheat, are heavily export focused. Other industries like horticulture, pork and poultry sell most of their production into the domestic market, with an emphasis on the supply of fresh produce,” Dr Hatfield-Dodds said.
Australia imports only about 11 per cent of our food by value.
“These imports play an important role in meeting consumer preferences for taste and variety,” Hatfield-Dodds said.
“Australian agricultural production and food supply chains are adapted to cope with our very variable climate. This results in stable supply for domestic consumption, while exports absorb the ups and downs associated with wet and dry periods,” Dr Hatfield-Dodds said.
Australians are wealthy by global standards and can choose from diverse and high-quality foods from all over the world, at affordable prices, regardless of seasonal conditions or changes in world prices.
“Most Australians can afford to purchase healthy food that meets their nutritional needs,” Hatfield-Dodds said.
“Global food supplies and access has improved dramatically over the last 70 years, driven primarily by increased physical productivity and crop yields.
“Recent rain and a positive seasonal forecast make it more likely that production volumes will increase, providing the best outlook in several years. Global grains stocks are also abundant. The International Grains Council is forecasting that world wheat, rice, maize (corn), and soybean production will all reach record levels in 2020–21,” Steve Hatfield-Dodds said.
Australian agricultural producers do rely on global supply chains and imported inputs. Shortages or disruptions to these inputs have not yet been widespread but could impact on profitability.
“While action is already in train to address key issues, it will be important for business and government to continue to actively monitor and manage these emerging risks,” Dr Hatfield-Dodds said.
The latest Water Market Outlook report from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) indicates that water allocation prices in the southern Murray-Darling are likely to remain high in 2020-21.
“In 2019, rainfall in the Murray-Darling Basin was the lowest on record. These dry conditions have resulted in water allocations in NSW and Victoria being well below average in 2019-20,” said ABARES head of farm performance and resource economics David Galeano.
“Current water prices reflect those low allocation levels with prices across the sMDB in 2019–20 averaging $673 per ML to February 2020.
“While prices are high, the volume of carryover water available has helped to keep prices below the highs of the Millennium Drought in 2007–08 and 2008–09.”
The latest ABARES Water Market Outlook provides a range of possible allocation prices for 2020–21 under wet, average, dry and extreme dry seasonal condition scenarios.
Under the dry and extreme dry scenarios, total water availability in the southern basin in 2019-20 would be below levels observed during the worst of the Millennium Drought, with ABARES estimating average annual water prices of between $735 and $776 per ML.
In the average and wet scenarios, a shift to better seasonal conditions will improve the total volume of water availability, with ABARES estimating average annual water prices of between $293 and $435 per ML.
“While the current Bureau of Meteorology climate outlook suggests an almost equal likelihood of rainfall above or below median levels, it’s important to remember there’s still much uncertainty. Conditions better or worse than the scenarios tested are possible – and hence water prices could be higher or lower than those estimated in our latest outlook.
“A significant determinant driving prices in 2020–21 will be where water is located, compared to where water demand is highest with recent increases in demand for irrigation water in regions below the Barmah choke.
“This along with water trade limits, including the new water trade limits for the Goulburn-Broken catchment, is expected to result in price differences between regions above and below the Barmah choke,” Galeano said.
ABARES has released the data behind the Water Market Outlook, along with an accompanying dashboard visualisation, allowing users to explore in depth some of the key data underpinning the water trade model.
Reaching the target of $100 billion in agricultural output will require industry to take a long term view, and continue to take hard choices that lift farm productivity and keep Australian exports competitive against rivals, ABARES executive director Dr Steve Hatfield-Dodds told the 2020 ABARES Outlook Conference in Canberra recently.
“We have enjoyed a run of favourable output prices, particularly for livestock products. These higher prices have accounted for about 90 per cent of the increase in output value over two decades,” Hatfield-Dodds said.
“While we all hope prices stay favourable, which ABARES considers likely for livestock over the next few years, getting to $100 billion will require hard work and tough choices.”
Hatfield-Dodds listed several steps that would be vital to meeting the National Farmer Federation’s goal of lifting the value of Australian agricultural production to $100 billion over the next decade, including maintaining the trend towards larger farms, as well as improvements in harnessing data and managing precious natural resources.
“Increased farm scale has accounted for more than two thirds of the growth in average broadacre farm income since 1990. Indeed, without this increase in scale is not clear that farming would be financially attractive to the next generation,” he said.
“Farm consolidation helps diffuse better management practices, and many technologies and capital equipment have economies of scale.”
While farmers were already adapting to drier conditions over the past two decades that were impacting on farm profits, Dr Hatfield-Dodds said more challenges lay ahead.
Australia has one of the world’s most sophisticated water trading markets, designed to ensure water on the driest inhabited continent was put to best economic use.
“ABARES finds water trade delivers an average of $150 million in increased output value in the Murray Darling Basin each year – and four times that amount in a very dry year,” he said.
“Some communities are concerned about water trade moving water out of their region, and water recovery feels very here and now, while the benefits of a healthy working river feel distant – particularly in times of drought.
“We know that water markets are complex, and can be difficult to understand. ABARES analysis finds a combination of factors are putting upward pressure on price of water allocations.
“The fundamental driver is that water markets have unlocked new opportunities. People see these opportunities and are willing to bid for water to take advantage of them.
“Moving from old patterns of water use to new ones can be disruptive. But it is also what puts food on the table, and keeps industry profitable.
“Recent perennial plantings, particularly of almonds, will help boost the value of Australian agriculture. That is important. These same almonds will also require more water as they come to maturity.
“This and other factors will see an ongoing trend towards higher average prices – benefiting entitlement holders, but adding to the pressures on some farms and sectors.”
In an increasingly connected and competitive world, Dr Hatfield-Dodds said the producers and exporters of tomorrow must continue to focus on understanding consumers’ wants and needs, including being ready to substantiate claims around clean, healthy, and sustainable food.
Farmers in the future could also benefit from being paid to deliver conservation and ecosystem services alongside existing agricultural production, potentially boosting landholder incomes substantially.
“I think the stars might be aligning to make this practical at scale, delivering a new source of income for farmers and a range of public good benefits to the wider community,” Dr Hatfield-Dodds said.
“The future will not be like the past. We will need to anticipate, innovate and collaborate to stay ahead of the curve.”
The value of Australian agricultural production is forecast to remain high despite bushfires and prolonged drought, with overseas demand balancing drought-related falls in farm output and incomes.
ABARES’ chief commodity analyst Peter Gooday said the value of farm production in fiscal 2019-20 was expected to fall slightly to $59 billion, down on the previous year’s $62 billion and above the 10-year average due to higher prices for livestock and some other agricultural commodities.
“Widespread bushfires over the 2019–20 summer are not expected to have had a significant impact on the agricultural sector on the whole,” said Gooday, launching the latest Agricultural Commodities report at the ABARES Outlook 2020 conference in Canberra.
“The bushfires and smoke impacts in some areas were locally devastating. The majority of Australia’s agricultural production and exports, however, takes place outside the affected areas.”
This year, Gooday said, was another drought impacted one, with many regions having experienced their driest 12 months on record, even as others – particularly in Victoria — saw improved conditions, making for an uneven national outlook.
“Farm production and average farm incomes are estimated to have fallen for a second straight year in drought regions, with incomes for all broadacre farms projected to fall 8 per cent to $153,000 per farm in 2019–20 – around 4 per cent below the 10-year average,” he said.
“In NSW we are expecting farm cash incomes to be close to zero this year. As bad as things have been at a state level in the last 20 years – and some regions are substantially worse than the average.”
“For dairy farmers, average farm cash incomes nationally should increase from $120,100 per farm in 2018–19 to $165,000 per farm in 2019–20, with modest improvement for around 73 per cent of Australian dairy farms due mainly to higher farm gate milk prices.
“Those gains come from comparatively low levels in Queensland, parts of Victoria and New South Wales, and drought-related falls in milk production plus high feed and irrigation costs are constraining improvement.
“Meat and livestock prices have stayed high as African swine fever (ASF) has decimated China’s swineherds, driving red meat prices up and requiring Chinese consumers to look elsewhere. Without those good prices, this year would look a lot worse.
“Livestock prices medium-term are expected to soften but remain high, although coronavirus poses a significant risk as Chinese demand for agricultural products has declined under restrictions put in place to contain the outbreak, particularly for items like seafood and wine.
Gooday said that in 2019–20 Australia would have the lowest number of beef cattle since 1990 and lowest sheep flock since 1904, with production 12 per cent lower than five years ago.
“Over the medium term to 2024–25, a gradual recovery in the production of livestock and livestock products is expected to follow herd and flock rebuilding, although recovery will take several years and livestock related production in 2024–25 will still be 8% below the 2014–15 peak,” he said.
“The value of Australia’s agricultural exports overall is forecast to fall by 11% to $43 billion in 2019-20, which in real terms is 16% below the record value of exports in 2016–17, reflecting 3 consecutive annual falls in crop exports.
“We can expect grains and oilseeds exports to rebound quickly, but livestock numbers will take some time to recover and for cotton the speed of recovery will depend on how quickly irrigation storages are replenished.”
“The signing of phase one of a trade deal between the United States and China is a welcome sign of easing tensions. But the deal contains some very ambitious targets for agricultural imports, and the implications of that for Australian agriculture are not yet clear.
Winter crop production is forecast to fall by 3 per cent in 2019–20 to 29.4 million tonnes, down 13 per cent from the production forecast in September.
ABARES acting executive director, Peter Gooday, said the revised forecast reflected early spring conditions that were poorer than expected in most cropping regions, particularly in Western Australia and southern New South Wales.
“Forecast winter production is around 27 per cent below the 10-year average to 2018–19 and is set to fall for the third consecutive year since record high production was achieved in 2016–17,” Gooday said.
“Below-average rainfall and above-average temperatures during spring reduced winter crop prospects in most cropping regions—but the changes in Western Australia and southern New South Wales had the biggest impact on national production prospects.
“High fodder prices and unfavourable seasonal conditions caused some crops planted for grains and oilseeds production to be cut for hay in regions with low levels of soil moisture at the beginning of spring.
“For the major winter crops, wheat production is forecast to decrease by 8 per cent to around 15.9 million tonnes, 35 per cent below the 10-year average to 2018–19. Barley production is forecast to increase by 4 per cent to around 8.7 million tonnes, 3 per cent below the 10-year average to 2018–19. Canola production is forecast to fall by 4 per cent to around 2.1 million tonnes, 35 per cent below the 10-year average to 2018–19.”
Gooday said according to the latest three-month rainfall outlook issued by the Bureau of Meteorology, summer rainfall is likely to be very much below average in most parts of Queensland and northern New South Wales.
“A combination of the unfavourable summer outlook and very much below average levels of soil moisture at the end of spring means summer crop production is forecast to decline by 52 per cent to around 1.2 million tonnes, which is 69 per cent below 10-year average to 2018-19
“Area planted to summer crops is forecast to fall by 49 per cent in 2019–20 to around 535,000 hectares, driven by significant expected falls in area planted to grain sorghum and cotton.”