BMI View: The Australian agriculture sector is 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 2013/14, largely supported by export demand from Asia and higher prices for grains and oilseeds. In the longer term, we see major export growth opportunities in the sugar and livestock sectors. Although Australia will face stiff competition from Asian countries such as Thailand for sugar, and from the US and Brazil for meat, the country will remain a key player in those industries. As well as growing competition in its own region, Australia will have to face high production costs and a vulnerability to extreme weather events.
- Beef production growth to 2016/17: 9.0% to 2.3mn tonnes. We expect Australia to remain a strong exporter of the meat over the long term despite growing competition from the US.
- Sugar production growth to 2016/17: 31.5% to 4.9mn tonnes. Industry consolidation will encourage economies of scale and should boost output over the forecast period. Export opportunities to Asian countries will also support investment in the sector.
- Poultry consumption growth to 2017: 16.8% to 954,000 tonnes. We hold an optimistic view domestic demand for poultry as consumers continue to choose the meat as a healthier alternative to beef.
- BMI universe agribusiness market value: US$24.4bn in 2013; down from US$27.5bn in 2012; growth expected to average 0.3% annually between 2012 and 2017.
- 2013 real GDP growth: 2.1%; down from 3.2% in 2012. Forecast to average 2.6% from 2012 to 2017.
- 2013 consumer price index: 1.7%; similar than in 2012. Forecast to average 2.2% from 2012 to 2017.
- 2013 central bank policy rate (average): 2.50%; down from 3.00% in 2012. Forecast to average 3.92% from 2012 to 2017.
Key Industry Developments
We forecast Australia's wheat production to rebound strongly in the 2013/14 season, for which the planting period will start in March 2013. Sowings will remain strong, largely driven by elevated world grain prices.
We see downside risk to our production forecast, given the current parched weather conditions. Australia was hit by a heat wave over the summer, and record high temperatures are depleting soil moisture ahead of the planting season. Warm conditions are forecast by the Australian Bureau of Meteorology to continue until the end of March. A continued lack of rain and moisture could hamper the sowing and growing prospects.
Australia, which exports around 60% of its production, should maintain high export volumes in 2012/13 due to rising production and strong external demand. Exports should be boosted by increased demand from the United States and emerging markets. Indeed, the US beef and veal production will drop in 2012/13, as the drought and resulting poor pasture conditions and high feed prices led to a steep increase in cattle slaughtered in 2011/12, deteriorating the 2012/13 production outlook. This decrease in export capacity of the US will also benefit Australia in its other traditional export markets, Japan and South Korea, where Australia has been facing stiff competition from the US in recent years.
Australia milk production is likely to record mild growth in 2012/13, due to a combination of higher input prices and lower farm gate prices. Grain prices skyrocked in June-September 2012, on the back of a drought in the US. Although we see prices moderating in 2013 and averaging lower, they should remain historically high. In 2011/12, purchased feed accounted for approximately 25% of total costs, which is the highest single category of expenditure. Meanwhile, the ABARES forecasts lower farm gate milk prices in Australia in 2012/13, at AUDc39.0/litre, compared to AUDc42.1/litre in 2011/12. Finally, despite Australia's modern dairy industry, there was an outbreak of Bovine Johne's disease in Queensland in December 2012.