Australia — COVID-19 to dent agricultural exports despite easing drought
Agricultural exports are expected to fall 10% to $43.5 billion this financial year. Overall, while crop production volumes are forecast to grow strongly after prolonged drought, COVID-19 will weigh on commodity prices and livestock production will be lower as depleted herds and flocks are rebuilt.
On the demand side, the economic disruption caused by COVID-19 containment measures has reduced consumer confidence and global demand for some agricultural products. Global demand for non-essential agricultural goods—such as wool, some dairy products and rock lobster—will continue to underperform food staples such as milling wheat and vegetable oils. Red meat demand will prove resilient given the impact of African swine fever on Chinese pig numbers. On the supply side, grain production is forecast to rebound this financial year to the highest level since the record harvest of 2016–17, but falling livestock production is expected to almost entirely offset this increase.
In a modelled downside scenario by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), periodic COVID-19 outbreaks and lockdowns in Australia and overseas weighs on consumer spending, and disrupts domestic and international supply chains and production in the highly labour-intensive horticultural sector. Further, increased US stimulus spending puts upward pressure on the AUD. In this scenario, agricultural exports fall by an additional 11% to $38.9 billion in 2020–21; the worst result in a decade (Chart). Deteriorating conditions would spill over to exports of grains and oilseeds, sugar, meat, dairy and live animals. The pandemic may also exacerbate risks associated with highly concentrated supply chains. China—Australia’s largest agricultural export market—recently announced anti-dumping and countervailing-duty investigations into Australian wine exports after imposing anti-dumping and countervailing duties of 73.6% and 6.9% respectively on Australian barley imports. Comprising 10% of Australia’s total merchandise exports, agricultural commodities face a challenging outlook despite benefiting from more stable demand than discretionary goods and services.
