Jun 03 2020
The COVID-19 pandemic has further disrupted the agriculture sector, which had already encountered significant performance setbacks following a period of sustained drought and damaging bushfires. Although demand for agricultural products was supported throughout March and April 2020 due to consumers panic buying, this behaviour has now ceased. A decline in global consumer sentiment and household incomes is expected to weigh down demand for luxury food products in export markets, such as premium meats. Australia’s reliance on Chinese market demand is particularly threatening to the Agriculture division, given the escalation of trade tensions between the two countries in May 2020.
In part one of this series, IBISWorld will examine the outlook for beef, lamb, pork, seafood and poultry products through to 2020-21. Part two of this series will explore the outlook for other agricultural commodities, including grains, fruits, fibres and dairy products.
The COVID-19 pandemic is anticipated to constrain international trade volumes, weighing on export demand for Australian beef in 2019-20. Although domestic panic buying supported beef prices from February through to April 2020, the surge in consumer demand has faded and is expected to be replaced by the negative impact of reduced household incomes across most of the world.
The domestic price of beef is expected to increase by 7.3% during 2019-20, as supply shortages outweigh the fall in demand caused by COVID-19. Beef supply to meat processors has fallen as farmers have reduced slaughter rates to rebuild their herd sizes. Slaughter rates for female cattle reached record highs across parts of the country in 2018-19 as a result of an extended period of drought. However, many farmers are now looking to rebuild their herds. This is especially the case following the extensive rainfall in New South Wales and Queensland in early 2020, which has increased pasture food supply for cattle. As a result, beef and veal production is expected to fall, leading to higher prices.
China suspended export licences of four large Australian beef processing plants on 12 May 2020. These four plants represent a large proportion of Australia’s beef cattle slaughter and contribute a substantial volume of Australia’s exports to China. Australia's meat processors exported 69.6% of production by value in 2018-19, with beef accounting for most industry exports. The Beef Cattle Farming industry is expected to grow by 4.1% in 2019-20. High beef prices and China’s export ban is expected to hinder the performance of the Meat Processing industry, leading to a revenue decline of 6.3% in 2019-20.
The domestic price of pig meat is anticipated to rise by 29.7% in 2019-20, providing significant assistance to the Pig Farming industry. Pig meat prices are expected to increase strongly for the second year in a row, with a contraction in both domestic and global supply. Global supply has been affected by the outbreak of African swine fever (ASF) in China since August 2018. ASF is a highly contagious virus, which resulted in the death of over 120 million hogs in China. This number is equivalent to half of China’s national herd, and a quarter of the global hog population. Consequently, demand for pork imports in China has risen substantially, and is expected to continue rising in the current year. This trend is expected to outweigh any loss in demand for pork in 2019-20 due to the COVID-19 pandemic and associated slowdown in economic activity. Overall, revenue for the Pig Farming industry is expected to increase by 17.0% in 2019-20.
The domestic price of lamb is forecast to increase by 12.0% during 2019-20. Sheep slaughterings are projected to decline, contributing to lower supply and an increase in price. In 2019-20 the national sheep flock is expected to contract to a 115-year low, with the flock expected to shrink to core breeding stock. This will limit turn-off and support elevated saleyard prices for sheep. An end to drought conditions in 2019-20 has enabled flock rebuilding. The national flock is expected to remain near century lows in 2020-21.
Lamb prices have been supported by the surging price of pork, which has incentivised Chinese consumers to swap to sheep meat products, causing sheep meat prices to also rise. Similarly to beef cattle farmers, turn-off rates for sheep are expected to decline by 8.5% as farmers rebuild sheep herds amid above-average rainfall. The Sheep Farming industry is expected to generate $4.7 billion in revenue in 2019-20.
The Fishing and Aquaculture industries have been substantially disrupted by COVID-19. Reduced demand from export markets and food-service businesses has significantly affected rock lobster sales, with prices falling as producers attempt to sell their catch to other domestic markets. A downturn in demand from the Chinese market has had a significant impact on industry performance, with China placing a ban on seafood imports in January 2020. China is the major export destination for Australian seafood products and accounted for 58% of Australia's total fisheries exports in 2018-19. These exports primarily consist of rock lobster, abalone and salmonids. China accounted for 94% of the $752 million of Australian rock lobster exported in 2018-19. The rapid spread of COVID-19 during the lunar new year period in China has been particularly harmful for Australian seafood exporters, given that this period is normally associated with a surge in demand for seafood products.
As fresh fish and seafood items are highly perishable, reduced demand and freight availability have significantly affected commercial fishing operations. Prior to the COVID-19 pandemic, seafood was commonly transported to Asian markets through airfreight. However, Australian border closures have reduced airfreight capacity, leaving domestic agricultural producers without a channel to deliver their products to export markets. To address this problem, the Australian Government has created an International Freight Assistance Mechanism (IFAM) to aggregate cargo loads, negotiate with airlines, and work with partner governments to facilitate clearances. In addition to seafood producers, the IFAM facility is also available to meat, dairy and horticulture producers.
The domestic price of poultry is expected to decrease by 0.7% in 2019-20. COVID-19 restrictions on restaurants and other food-service establishments have led to a significant oversupply of poultry since April 2020, and a fall in prices. While demand from supermarkets surged due to panic buying in March and April, consumer purchasing behaviour has now normalised as pandemic fears have eased. Prior to the emergence of COVID-19 in February 2020, rising health consciousness and growing animal welfare concerns had boosted demand for higher-priced free-range and organic poultry products, placing upward pressure on prices. The Poultry Meat Farming industry is expected to generate $603.9 million in revenue in 2019-20.
IBISWorld reports used to develop this release:
- Beef Cattle Farming in Australia
- Meat Processing in Australia
- Pig Farming in Australia
- Sheep Farming in Australia
- Fishing in Australia
- Aquaculture in Australia
- Poultry Meat Farming in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647