West Australian farmers and a falling dollar have saved the agriculture sector’s bacon as lingering drought threatens to undermine average farm incomes by almost 20 per cent in 2018-19.
Farm production in 2018-19 will likely be down about 6pc in volume and 4pc in value to $58 billion (from almost $60b last year), largely due to an 11pc slide in the value of the national grain crop after another droughty eastern states harvest and shrinking wool, meat and dairy output.
A year ago the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) had foreseen a lift in farm production value to $61b for 2018-19, assuming average seasonal conditions.
In reality, the drought’s expanded footprint has left half of all broadacre farmers with lower farm cash incomes than in 2017-18.
Farm exports are tipped to slip 6pc this financial year towards $45b by 2019-20, according to the national farm commodities forecaster.
That figure could have been far worse if not for the export-friendly fall in the Australian dollar helping returns on products sold offshore, and lifting ABARES’ farm export price index 12pc year-on-year by December 2018.
While grain prices were recovering, wool and sheep prices were strong and the exchange rate fell 6pc-11pc against the US, Japanese and Korean currencies in 2018, ABARES has tipped average individual farm cash incomes Australia-wide to drop from $201,300 last financial year to $173,000.
The national result is, however, still comparatively solid against the 10-year average, largely due to soaring average incomes predicted for WA farmers in 2018-19.
Broadacre WA farm incomes will average $490,000 after a phenomenal late season crop turnaround delivered the second biggest grain harvest on record, complemented by strong feed grain and fodder prices.
Releasing forecasts for this week’s agricultural Outlook 2019 conference in Canberra, ABARES economists also noted WA grazing conditions mostly escaped the big dry which had caned profitability in parts of Queensland, NSW, Victoria and South Australia.
Even those with access to irrigation water in the Murray-Darling Basin had their farm profitability hurt by high water prices.
Increasing competition from major exporters in grains and livestock markets is also expected to weigh on export earnings- ABARES
After a several years of rising farm sector results the latest numbers and farm trade projections have been sobering, even to the point of shaving 0.2 of a percentage point from Australia’s total real gross domestic product growth in 2018-19.
Given rural exports normally represented about 14pc of Australia’s total volume of goods and services exported annually, ABARES said reduced farm production could subtract about 1pc from goods and services exports growth in 2018–19.
The national forecaster is banking on improved seasonal conditions in 2019–20 to lift farm production to about $59b, reaching $61b in 2023–24.
However, it noted the volume of production would still be below the record achieved during the monster harvest and meat export year in 2016–17.
Sheep producers nationwide have been notable exceptions to the slipping income trend this year thanks to high prices for lamb and wool pushing national average earnings projections from $131,600 to $142,000 per farm.
Strong export demand for wool and sheep meat contributed to a small overall rise in the price of livestock and livestock products.
In the dairy sector, however, three quarters of farms were set to report lower farm cash incomes in 2018–19, with Tasmania the only state where lower milk production and higher feed and water costs were not expected to bite.
Average dairy farm cash income was likely to fall from $160,900 in 2017–18 to $93,000.
Meanwhile, risks to export earnings had increased on other fronts as trade tensions could cut income growth in Australia's largest agricultural export markets, while competition was also rising.
Trade tensions between China and the United States (our largest and third-largest export markets, respectively) could affect global income growth and reduce import demand from not only the
US and China but also from across Asia, ABARES warned.
“Increasing competition from major exporters in grains and livestock markets is also expected to weigh on export earnings,” said analysts Kirk Zammit, Matthew Howden and Peter Martin.
Low-cost wheat exporters, such as Argentina and the Russian Federation, are expected to compete strongly with Australia in price-conscious Asian grain markets- ABARES
“Increasing global supplies are reducing demand for Australian agricultural goods in some key export markets and are projected to exert downward pressure on export prices over the medium term.
“For example, increased US beef supply is forecast to reduce demand for Australian beef in the US and Japan in 2019–20 and 2020–21.
“Low-cost wheat exporters, such as Argentina and the Russian Federation, are expected to compete strongly with Australia in price-conscious Asian grain markets.”
At the same time new trade agreements between agricultural exporters and Australia's key trading partners, such as the EU–Japan Economic Partnership Agreement, were also increasing competition.
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