Deloitte - What are the next opportunities in Ag
- By: "Farm Tender" News
- Hay & Fodder News
- Jul 04, 2018
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This edition of the Agribusiness Bulletin takes a look at where the next opportunities are in agribusiness and which sub-sectors still offer the greatest growth opportunities for the Australian economy.
The Agribusiness Bulletin focuses on national and local industry, as well as cross-industry insights and trends. This includes some of the drivers we expect to shape the future of the industry and potential challenges that may arise. To get more articles like this delivered straight to your inbox, subscribe to the Agribusiness Bulletin.
The next opportunities in Agribusiness
In 2014, Deloitte nominated Agribusiness in Building the Lucky Country: Positioning for Prosperity (BTLC#3) as one of the ‘fantastic five’ industry sectors which had the potential to take over from mining as a key driver of growth opportunities for the Australian economy. Of all the industry sectors, agribusiness was identified as having the strongest combination of factors playing to Australia’s competitive advantages, and being a sector producing what the world increasingly wants.
Employing the same framework used in BLTC#3 and tailoring for sub-sectors of agriculture, Deloitte Access Economics in 2015 identified the ‘fantastic five’ sectors: beef, lamb, aquaculture, dairy and oilseeds.
Four years down the track, the optimism for Australian agribusiness overall still holds. The question posed here is, “do the sub-sectors identified in 2015 as having the greatest growth potential, namely beef, lamb, aquaculture, dairy and oilseeds; still offer the greatest growth opportunities?”
The next opportunities in agribusiness – which sub-sectors have moved?
In our 2015 article, we discussed the framework used for this prosperity assessment. Each sector is
* placed on the vertical axis according to its agriculture-relevant global ‘demand drivers’;
* positioned on the horizontal axis according to the agriculture relevant ‘factors of advantage’;
* sized based on the value of output.
The chart above highlights those sectors whose global demand drivers have changed since 2015, with arrows indicating the direction of those movements. The size of each sector has also been updated to reflect the value of primary production in 2016-17.
As noted previously, Australia’s key comparative advantages lie in its large area of arable land, relatively low land use conflicts, its high biosecurity status, relative ease of doing business, technological readiness, high education levels, innovative culture and close proximity to export markets. The ongoing removal of trade barriers over recent years further contribute to Australia’s competitiveness. Australia’s key disadvantages are its regulatory burden, rainfall, water availability and cost, water reliability, low soil fertility, ageing workforce and high labour costs. As with the demand drivers, these advantages and disadvantages have very different implications for different parts of Australian agriculture.
In the case of some sectors – including pulses, nuts, vegetables and wool – we see more reason for optimism than we did three years ago. For others, including sugar, beef and lamb, we see less reason to be optimistic. Here we take a look at these sectors, and outline some of the reasons why the outlook has changed.
The positive movers – where has the opportunity grown?
Pulses
The Australian pulse industry includes commodities such as chickpeas, lentils, field peas, faba beans and lupins. Pulses are valued for their high nutritional value through being high in protein and fibre, and low in fat. Pulses are consumed as a food and are also used in stockfeed rations. Since our 2015 review, the pulse industry has continued to grow with new varieties being released and production increasing to more sustainable marketing levels. This growth has seen the pulse industry progress into one of Australian Agriculture’s most promising opportunities for future growth.
The market fundamentals for pulses remain strong, largely due to economic growth in India (the largest pulse market) providing more disposable income for the poorer quartile, driving increased in-home and snacking pulse consumption. Despite the introduction of a 30 per cent tariff on imports of chickpeas and lentils by the Indian Government in December 2017 followed a 50 per cent tariff on field peas, Australia is well placed to supply this important market with one of its key staples when restrictions are lifted.
Nuts
The nut industry has also enjoyed significant growth, largely on the basis of consumer recognition of the nutritional value of nuts. As a result of this growth and stability, the industry has progressed up the prosperity chart to become one of Agriculture’s most promising opportunities for future growth.
Australia’s nut industry is enjoying continued strong investment in new plantings, with real value of production forecast to increase by over 50 per cent by 2025. The industry’s advantages over competitors includes lower per unit production costs, higher yields and a ‘country of origin’ gene pool. Australia also enjoys a reputation for food safety and maintaining high environmental standards, which together with our relative isolation has generally provided Australian agriculture with a pest and disease-free environment.
Australian nuts (such as almonds, macadamias, walnuts, chestnuts, pecans and pistachios) attract a premium in markets such as Asia, Europe, the USA due to their food safety, product quality and reliability of supply.
Wool
The resurgence in wool demand – and prices – have caught many by surprise. Three years ago, it appeared that consumers across the globe had turned their back on natural, premium fibres for good. But this is no longer the case. Wool’s popularity in active sportswear and baby garments has driven a turnaround demand for the product. While it’s prospects are somewhat limited by its current high price (which are unlikely to remain strong forever), wool’s long-term growth prospects as a sector are looking far more positive than they have in years gone by.
Vegetables
Vegetables have long been recognised for their health benefits – little has changed on that front. What is changing, however, is the increased export access and growing export demand for Australian vegetables – including broccoli, brussel sprouts, asparagus, celery and mushrooms. Processing improvements are also enhancing the quality, suitability and convenience of Australian vegetable products.
The downward movers
Beef and lamb
Of all the sectors we examined in 2015, the future appeared brightest for beef and lamb. While long term demand prospects and Australia’s competitive advantages in these sectors remain strong, the growth prospects for these sectors have somewhat dipped.
This is, in some part, due to the potential upside identified in 2015 being already realised and reflected through very high cattle and lamb prices (by historical standards) over the last two years. We are beginning to see a correction in the market occur – with the Eastern Young Cattle Indicator dropping below 500c/kg for the first time in over three years. As this correction occurs, we are likely to see some farmers move out of beef cattle and into other livestock or crops.
Looking longer term, beef exporters can remain optimistic due to the ongoing high demand for protein resulting of higher incomes particularly in Asia – and Australia’s strong reputation for quality red meat products. However, a number of consumer concerns in other markets, including Australia, are tempering expectations for growth. These include dietary concerns over high red meat consumption and animal welfare concerns.
Sugar
Increasing health awareness is the primary driver of our downward revision for the sugar sector. Consumers are becoming more aware of the impacts that sugar can have on their health, and the sugar content of their foods, which is causing a transition towards alternative sweeteners. Nutritional policies are also expected to continue to drive down sugar demand in future.
Outlook
Overall, we are still very optimistic about Agriculture, despite the fluctuating fortunes of different sectors over time. Our analysis shows that while global opportunities for individual sectors will change, Australia’s competitive advantage still remains strong for wide sections of the industry.
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