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 (2011-2019)|
|e/f = BMI estimate/forecast. Source: FAO, BMI|
Beef consumption growth to 2019: 2.7% to 817,000 tonnes. Demand growth will be largely driven by population growth, as consumption per capita will decrease over time due to health consciousness.
Sugar production gro wth to 2018/19: 14.0 % to 5.0mn 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.
Wheat production growth to 2018/19: 10.6 % to 2 8 .0mn tonnes. The low growth rate will come from high base effects, as Australia recorded a good crop in 2013/14. Output will grow only moderately in absolute terms in the coming years, due to limited area and yield expansion.
2015 BMI universe agribusiness market value: USD34.5bn, down from USD36.4 in 2014. Growth expected to average 2.1% annually between 2015 and 2019.
2015 real GDP growth: 2.3%, down from 2.8% in 2014. Forecast to average 2.6% from 2015 to 2019.
2015 consumer price index: 2.1% average, down from 2.4% in 2014. Forecast to average 2.5% from 2015 to 2019.
2015 central bank policy rate: 2.50% average, stable from 2014. Forecast to average 2.65% from 2015 to 2019.
Key Revisions To Forecasts
2015 /1 6 wheat production forecast revised down to 23.7 mn tonnes, compared with a previous estimate of 26.3mn tonnes. Australia's grain production is set to record another disappointing year because of unfavourable weather linked to the re-emergence of El Nino in 2015.
Key Industry Developments
The free trade agreement (FTA) signed in November 2014 between China and Australia will prove beneficial to Australia's agribusiness sector and exports. China is already one of the largest destinations for Australia's agricultural products and exports will grow further in the coming years as tariffs decrease. Moreover, the FTA will ensure strong export demand for Australian agricultural products, which will boost sector investment in production capacity, new products and technology. As such, agriculture is one of the main beneficiaries of the bilateral agreement. The dairy and beef sectors will benefit the most, while wheat, sugar and rice were left out of the deal. Australia will remain one of China's largest agricultural suppliers in the coming years, banking on the country's growing appetite for value-added food products.
Dairy farms' profitability will weaken significantly in 2014/15 after a strong 2013/14, which will weigh on investment and dairy production in 2015/16. Although international grain prices generally tumbled over H213-H114 and remained low over 2014, feed costs in Australia are still elevated as domestic grain production will drop in 2014/15 due to unfavourable weather. The ongoing depreciation in the Australian dollar will only partially offset the negative impact of low dairy prices on income.
Following two years of strong production growth, beef output will decline in 2014/15 but remain above the 10-year average. Cattle slaughtered will decrease, as weather conditions have improved over 2014. Moreover, live cattle export demand will remain strong, especially from Indonesia. Australia and China are also on the verge of signing an agreement on the export of live cattle to China which, once signed, will lead to a boom in Australian cattle exports to the country. Beef meat exports will also increase, partly thanks to the FTAs signed in 2014 with Japan, South Korea and China, three large beef importers.
We believe Australia's global market share of wheat exports will broadly stagnate in the coming decade. The country boasts a competitive edge regarding grain exports because of the quality of its production and the freight advantage to Asia. However, international competition from low-cost producers in the Black Sea region will only grow from now. Australia will need to improve its supply chain infrastructure, which has been neglected for years, if it is to maintain its position as a leading player in Asia. On the domestic marketing side, competition is also becoming fiercer, with the aggressive development of foreign trading houses into Australia's traditional grounds. This could help inject much-needed investment in infrastructure and improve supply chain efficiencies.