BMI View: The Australian agriculture sector is still recovering from a decade of subdued production growth due to extreme weather and a lack of investment. The industry is expected to remain buoyant in 2015, largely supported by export demand from Asia and elevated grains and oilseeds prices. In the longer term, we see major export growth opportunities in the sugar and livestock sectors. Australia will face stiff competition from Asian countries suc h as Thailand for sugar and from the US and Brazil for meat, but it will remain a key player in those industries. Apart fro m growing competition , Australia will have to face high production costs and a vulnerability to extreme weather .
|Agribusiness Market Value|
|BMI Market Value By Commodity (2005-2019)|
|e/f = BMI estimate/forecast. Source: FAO, BMI|
Beef production growth to 2018/19: -8.8 % to 2.4mn tonnes. The negative growth over our forecast period is mainly due to high base effects (production reached a record in 2013/14) and because output will decrease over 2014/15-2016/17, as farmers rebuilt their herds.
Sugar production growth to 2018/19: 12.5% to 4.9mn tonnes. Industry consolidation will encourage economies of scale and boost output. Export demand from Asian countries for Australian sugar will also increasingly be a factor behind production growth in the coming years.
Poultry consumption growth to 2019: 17.9% to 1.2mn tonnes. Poultry consumption will prove to be the strongest over the coming years, as consumers continue to choose the meat as a healthier alternative to beef. As such, we forecast consumption per capita to rise to 47.7kg in 2019, compared with 34.1kg back in 2005.
2015 BMI universe agribusiness market value: USD35.1bn; down from USD36.1bn in 2014 ; growth expected to average 1.4% annually between 2015 and 2019.
2016 real GDP growth: 2.3%; the same as we expect for 2015. Forecast to average 2.4% from 2015 to 2019.
2016 consumer price index: 2.0% ave chg y-o-y; up from 1.6% expected in 2015. Forecast to average 2.3% from 2015 to 2019.
2016 central bank policy rate (average): 2.00%; same than what we expect for 2015. Forecast to average 2.45% from 2015 to 2019.
Key Revisions To Forecasts
2015/16 wheat and barley production forecast revised up: we now see wheat production growing by a strong 6.0% y-o-y to 25.1mn tonnes and barley output to grow by 7.2% to 8.6mn tonnes, compared with previous estimates of 23.7mn tonnes and 8.3mn tonnes respectively.
Key Industry Developments
Amidst growing competition in the global agribusiness sector from lower-cost exporters, the various free trade agreements (FTAs) signed by Australia with key agricultural importers (Japan, South Korea and China) will prove beneficial. Regarding the Australia-China FTA, which will come into force once the two countries complete their domestic treaty making processes, will benefit the dairy and beef sectors the most. Wheat, sugar and rice were left out of the deal. Australia will remain one of the largest agricultural suppliers of China in the coming years, banking on China's growing appetite for value-added food products.
Australia is now negotiating over the Trans-Pacific Partnership (TPP), a very ambitious free trade zone across 12 countries (including Australia, the US, Malaysia, Japan, New Zealand, Mexico, Peru, Vietnam and Chile). Our view is that it will take many years to complete the negotiations and implementation process and some sectors may be left out of the deal, as beef and sugar are proving to be sensitive topics for several countries. The sugar sector, which has been left out of most of the major trade agreements signed recently, is expected to be included in the TPP, in order to gain greater market share to the US and Japan.
The outlook for the ongoing 2015/16 grain crop has improved over the past quarter thanks to favourable rainfall. The crop will be quite strong. Over the forecast period, we expect Australia to maintain its position as a global leader in wheat exports. However, output will grow only moderately in absolute terms in the coming years, due to limited area and yield expansion. Indeed, we believe production expansion will be limited by severe constraints of resource.
Australia's livestock and dairy sectors experience boom years in 2014 and 2015 as production reached record highs. Farmers are benefiting from record high prices (beef over the two years, 2014 for dairy) and strong export demand (beef). Output will slow down in 2016 (it has already started for beef in 2015), as the cattle herd decreased significantly with elevated slaughter rates, and farmers will start rebuilding their herd. Regarding dairy, the decrease in external demand in China and Russia and low prices and income will be behind the decrease in output in 2016.