Australia / Coronavirus Insights
The Outlook for Australian Agriculture: Part Two

What information do you want to see from IBISWorld on COVID-19? We'd love to hear from you

by IBISWorld
Jun 10 2020

This article explores the outlook for grains, fruits, fibres, dairy products, and other agricultural industries. To read more about the outlook for livestock industries, click here.

The COVID-19 pandemic has disrupted the agriculture sector, which had already encountered significant performance setbacks following a period of sustained drought and damaging bushfires. At the height of the COVID-19 pandemic, concerns were raised over Australia’s capacity to feed itself. These concerns were misplaced, with 88.9% of Australian food supply coming from domestic sources, and 71% of total agricultural production being exported to foreign markets in 2017-18.

Despite the hindrance of bushfires and the COVID-19 pandemic, agricultural crop industries are generally expected to recover in 2020-21. Total rainfall between February and April was above average in most cropping regions, providing much needed assistance following an extended period of drought. The three-month rainfall outlook issued by the Bureau of Meteorology in June 2020 has indicated winter rainfall is likely to be above average in most cropping regions, further supporting a rebound in crop yields in 2020-21.

Grains

Revenue for the Grain Growing industry is expected to decline by 17.6% in 2019-20, following a severe deterioration in operating conditions. In addition to a decline in demand associated with the COVID-19 pandemic, China’s introduction of an 80% tariff on Australian barley in May 2020 has further hindered industry performance. Barley accounts for approximately one-third of local grain production and China accounts for about 13% of total grain exports.

Two consecutive years of drought in eastern Australia have reduced coarse grain production in 2019–20 to its lowest level in 13 years. Reduced pasture availability has driven livestock farmers to purchase more feedstock for herds, causing a surge in demand for coarse grains. The domestic price of coarse grain rose by 46% in 2018-19. However, grain growers have been unable to benefit from this surge in price, as the same drought conditions have restricted their ability to maintain supply.

The Grain Growing industry is expected to recover by 19.9% in 2020-21. However, this recovery is highly reliant on sufficient rainfall. If adequate rainfall is received over autumn 2020, widespread planting is anticipated in response to high domestic feed grain prices.

Fruits, vegetables and nuts

Demand for fruits and nuts has been weak in 2019-20. The Citrus Fruit, Nut and Other Fruit Growing industry is expected to decline by 10.7%, while the Outdoor Vegetable Growing industry is expected to decline 5.0% in the current year.

Most of the demand decline in these industries can be attributed to falling output due to drought conditions and the 2019-20 bushfire season. Extreme heatwaves and low water availability in major growing regions reduced Australian summer fruit and vegetable production. These conditions affected the size and quality of some produce harvested in summer and increased the prices of most vegetables.

The COVID-19 outbreak has also limited revenue generation in 2019-20. Reduced demand from the hospitality sector has weighed on the industry's performance, although this trend is anticipated to be partly offset by greater demand from supermarkets. Export revenue in the Apple, Pear and Stone Fruit Growing industry is expected to fall by 14.5% in 2019-20, due to the impact of COVID-19 on Chinese seasonal demand for horticultural products during the Chinese New Year period. Exports of fresh produce have also been disrupted by a significant reduction in commercial air freight volumes, due to quarantine restrictions.

In 2020-21, revenue for fruit and vegetable growers is anticipated to partially recover. Ongoing water availability shortages in the Murray Darling Basin are expected to limit vegetable supply and place upward pressure on prices. However, the economic effects of COVID-19 are expected to weigh on consumer confidence over 2020-21. This trend is likely to reduce household expenditure, especially on more expensive fresh produce.

Grapes and wine production

As with many agricultural industries, weather conditions dictate production in the Grape Growing industry. Low rainfall has created difficulties for some operators, particularly those growing grapes in warm climate zones. The Barossa Valley's 2019 crop harvest was the lowest in a decade, falling by 48%. Bushfires that spread through the Adelaide Hills in December 2019 affected around 60 grape growers, burning over 1,100 hectares of vineyards. Australian wine grape production in 2019-20 is estimated to be around 1.4 million tonnes, the smallest harvest since 2013-14.

As wine grapes account for an estimated 60.3% of industry revenue, the industry is highly dependent on the downstream Wine Production industry. Revenue for the Wine Production industry is expected to fall by 5.0% in 2019-20 due to a combination of initial slowing growth and the COVID-19 outbreak reducing exports to China. In response to COVID-19 social distancing requirements, Chinese consumers have avoided congregating in bars, restaurants and hotels, which are the major outlets for the sales of imported Australian wine. China is estimated to account for just over 36.0% of export revenue in the Wine Production industry in 2019-20.

The domestic price of wine grapes is expected to total $650.70 per tonne in 2020-21, a 3.3% increase from the previous year. Some grape growers are likely to be discouraged from growing grapes due to the high irrigation costs, preferring instead to sell their water allocations. This trend will constrain supply of wine grapes and exert upward pressure on prices.

Cotton

The COVID-19 pandemic is expected to have a minimal impact on the Cotton Growing industry. However, revenue is still expected to decline by 68.8% in 2019-20 as drought conditions continue to limit cotton production. Australian cotton production is anticipated to be 600,000 bales in 2019-20, equivalent to 13% of the production achieved in 2017-18. Many farms have transitioned to less water-intensive crops in the current year, amid low rainfall in late spring and early summer. At just over 60,000 hectares in 2019-20, the area of cotton planted is the lowest since the emergence of Australia's cotton industry in the late 1970s.

Cotton producers are also at risk from being replaced by substitute fibres, such as polyester. The price of synthetic fibres is linked to crude oil prices, which have fallen significantly as a result of the COVID-19 pandemic. If crude oil prices remain low over the short to medium term, textile manufacturers are likely to choose substitute materials in place of cotton.

Revenue in the Cotton Growing industry is projected to grow over the two years through 2021-22, as the industry returns to normal output levels. Water availability and annual rainfall will be the crucial factors determining domestic cotton production. Weather conditions are forecast to return to near the long-term average over the next five years, consequently helping the industry recover from the expected decline over the two years through 2019-20.

Dairy

Dairy producers have been hindered by the COVID-19 pandemic in 2019-20. The Milk and Cream Processing industry is expected to decline by 2.1% this year, due to reduced demand from the food-service sector in China. Although export revenue is expected to decline in 2019-20, the depreciation of the Australian dollar is anticipated to insulate Australian dairy product processors from any major fall in export revenue.

The domestic price of milk is expected to rise by 5.4% during 2019-20, as drought conditions constrain milk supply output. In 2020-21, milk output from dairy cattle farms is expected to fall by 1% despite an expected improvement in rainfall conditions. The recovery of dairy cattle herd sizes is expected to lag behind improvement in rainfall, as dairy farms gradually rebuild herds. The Dairy Cattle Farming industry is forecast to grow at an annualised 1.2% over the five years through 2024-25.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com