February 09, 2015
Five key factors will be critical in shaping the outlook for Australian agriculture through 2015, according to a recently-released report from global agribusiness banking specialist Rabobank.
In its Agribusiness Outlook 2015
, Rabobank says – along with weather conditions – the exchange rate, oil prices, trade policy and the Chinese economy will be the key influences on the fortunes of agriculture in the coming year.
Rabobank analyst Georgia Twomey says a weaker Australian dollar appears likely to lend considerable support to Australian food and agricultural exporters in 2015, but is not all good news for the sector here.
“The appreciation of the US dollar is expected to continue in 2015, something that is positive for Australian food and agricultural exports,” she says. “However, it can be a double-edged sword for Australian agriculture with a weaker Australian dollar likely to increase the cost of imported inputs and machinery, while a strong US dollar can lead to lower global commodity prices.”
Lower world oil prices are also generally expected to be a boon for farmers, lowering input prices and stimulating global economic growth. However, the report cautions, this factor could also have a “sting in its tail”, given many agricultural commodity prices often tend to track in a similar direction to oil.
“Lower oil prices may result in negative currency fluctuations and an increase in political risk for oil exporting countries,” Ms Twomey says. “And sustained lower oil prices could ultimately impact the competitiveness of bio fuel and natural fibre sectors, limiting upsides for some commodities.”
While Australia recorded a trifecta of big ticket Free Trade Agreements (FTAs) with China, Japan and Korea in 2014 – there is always potential for barriers to be thrown up in other parts of the world that will impact global markets and demand for Australia’s agricultural exports in 2015, the Rabobank report notes.
“Interventionist foreign trade policies and technical barriers are often unpredictable,” Ms Twomey says, “though some ‘watch’ areas are Indonesian import quotas for sugar and beef, the continuing Russian trade sanctions and any changes to Chinese import policies, particularly in relation to dairy and live export.
“Lower global commodity prices can also encourage government intervention to protect domestic industries.”
Meanwhile, the Chinese economic growth is forecast to slow to 6.8 percent in 2015, below the five-year average of close to 8.5 per cent.
China appears to face structural challenges that may act as a drag on growth in 2015 and beyond, the report says
“If there is a serious slow down in Chinese economic growth, this will have broader and negative effects for the global economy,” Ms Twomey says.
Weather though, not surprisingly, remains top of the list of key factors to shape agriculture in the coming year, according to the report.
“There has been some much-welcome rain across Australia in recent weeks, but dry conditions continue to be on the horizon for 2015 and drought remaining a significant issue, particularly in northern Australia,” Ms Twomey says.
“Despite falls in early 2015, the Bureau of Meteorology (BOM) has forecast a drier than normal first quarter over parts of Australia. And while the BOM has just revised down the likelihood of an El Nino event (the system which typically brings dryer conditions to eastern Australia), many areas of the country will require wetter than normal conditions in order to fully recover.”
With many parts of Australia already experiencing drought, further prolonged dry conditions during the year would significantly impact Australian livestock and cropping production in 2015.
Rabobank Australia & New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 115 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 41 countries, servicing the needs of approximately 10 million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia & New Zealand is one of Australasia's leading rural lenders and a significant provider of business and corporate banking and financial services to the region's food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.
Rabobank Australia & New Zealand
Phone: 02 8115 2744 or 0439 603 525
Rabobank Australia & New Zealand
Phone: 07 3115 1832 or 0418 216 103