ABARES says weather conditions improve but prices fall for farmers amid coronavirus fallout

As damaging as COVID-19 has been for Australian agriculture, the drought continues to have a bigger impact on farm economic output, according to new data released by ABARES. 

Australia’s agricultural commodity forecaster said the sector’s biggest challenge would be recovery from drought, but coronavirus impacts would cause prices to fall.

The ABARES June commodities report indicated farm production values would be $61 billion, the third year above $60 billion.

Chief analyst Peter Gooday said widespread rain had helped the grains industry increase in value by 15 per cent to $30.8 billion.

For livestock, the rebound from drought looked different, with better conditions expected to encourage herd and flock rebuilding.

“We’re expecting livestock slaughter to fall and the value of livestock production to come down by about 10 per cent to just above $30 billion which ends a very strong run of growth for livestock, but after three years of drought we do need some rebuilding,” he said.

Red meat prices a bright point

Meanwhile, Mr Gooday said livestock prices went against the trend for most other commodities due to offshore factors including African swine fever still driving high protein demand in Asia.

“At home, we are also seeing good demand from re-stockers expecting to keep saleyard prices high,” he said.

“Saleyard cattle value is forecast to increase in price by four per cent and saleyard mutton up one per cent.”

Oil prices impacting other commodities

Mr Gooday said wool, sugar and oilseeds were all being flagged as industries that could expect to continue to take price hits due to low global oil prices.

“In wool, you get a demand impact because synthetic fibres are a lot more attractive than natural fibres,” he said.

“There is a similar thing happening for sugar and oilseeds with Brazil canegrowers pushing cane into sugar production with ethanol demand low.”

“That will be pushing the price of sugar down pretty significantly,” he said.

Mr Gooday said people were also substituting out of vegetable oils as the price of oil falls.

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ABARES report finds that step up in global agricultural protection will cost Australian farmers

Australian farmers are among the least subsidised in the world, according to a new report from the Federal Government commodity forecaster ABARES.

Support for Australian farmers sits at just two per cent of revenue, second only to New Zealand, and well below countries like Norway, where subsidies account for around 60 per cent of farmers’ revenue.

It is for this reason, the report said, that Australia’s agriculture industry has flourished, with over 70 per cent of production now exported, and nearly half of the employment in the industry coming from international trade.

For that reason, the report warns that “creeping protectionism in agricultural markets” puts Australian farmers at risk.

“The use of export restrictions and increases in support during COVID-19, along with the initial signs of a trend to rising overall levels of support brings into focus the need for an effective international system to ensure agricultural markets continue to address food security concerns and drive economic development,” report author Dr Jared Greenville said.

Direct support stripped away

The United States has introduced a Coronavirus Food Assistance Program that includes $16 billion in farm aid, adding to the billions the US Government was paying farms to support them through the US-China trade dispute.

Australia and New Zealand have very low levels of farmer support, compared to other OECD countries.(Supplied: ABARES)

In the past, Australian commodities like wool and dairy were heavily protected.

Wool was subject to floor price, and when that scheme collapsed in 1989 it nearly destroyed the industry, and racked up billions in government debt.

But since the early 1990s, Australia has steady stripped away direct support for Australian farmers, something that has spurred “overall sector growth, increasing participation in global markets and the contribution that agriculture makes to the rural and national economy,” the report said.

Global production and trade support measures are costing Australian farmers between $8–$10 billion a year in lost exports.

What support do Australian farmers get?

In announcing hefty tariffs on Australian barley, the Chinese government claimed Australia had ‘dumped’ the grain, by selling it for less than the cost of production in 2016.

It also argued that Australian Government initiatives in the Murray-Darling Basin, which paid farmers to upgrade water infrastructure in return for giving up water rights, were a form of subsidy.

Nearly 60 per cent of support for Australian farmers comes in the form of funding for R&D.(Supplied: ABARES)

In the USA, the government directly subsidies crop insurance, which reduces the risk for farmers from storms, drought or hail wiping out crops.

The European Union’s Common Agricultural Policy is an elaborate and expensive series of direct payments to farmers, which in 2018 paid out nearly $70 billion in income support for farmers.

Drought assistance measures, on-farm water infrastructure investment, allowing farmers to even out their income and tax over a number of years, and the use of farm-managed deposits are all features of the way Australia indirectly subsidises farmers.

But since these measures do not directly impact how much of a commodity is produced, or distort the prices, they are not considered the same as subsidies, production quotas or export taxes by the World Trade Organisation, according to ABARES.

The government also matches research and development spending by industry groups.

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