Strong financial performance, growing export demand and the use of emerging technologies are positioning agriculture to be one of the most exciting sectors in the Australian economy.
Agriculture is already the second biggest contributor to GDP, after mining ($202 billion in 2019), contributing $71.9 billion.
In 2019-20, the domestic agriculture and food sector contributed $71.9 billion in Australia’s gross domestic product (GDP). This year, total agricultural production alone is set to surpass the $70 billion threshold for the first time.
Currently, 70% of food produced in Australia is exported, with the increasing wealth of Asian citizens a key driver for future growth. While recent trade tensions with China have forced exporters to review their market, Asian markets are still forecast to double in value by 2050.
Renewed investor interest in agriculture has been driven by the sector’s potential, along with strong returns and resilience to weather and climate events, geopolitical tensions and COVID-19. Of the 35 agricultural stocks on the ASX, the majority have made returns above 10% in the last year.
Agtech is one subsector viewed as having significant growth potential with more investor appeal than on-the-ground farming. Globally, investors backed agtech with $22 billion in 2018, while Australia’s slice of the pie was just $39 million. AgTech innovations span emerging markets such as cannabis which globally is set to grow by 25% per year, reaching US$67 billion by 2028. New research has predicted that the domestic cannabis industry will experience annual growth of 40% over the next five years – and with our clean, green credentials, industry experts are tipping Australia as a potential export powerhouse for medicinal cannabis.
Ducking and Weaving: Current and Future Challenges
While the future of Australian agriculture is bright, external pressures will continue to challenge the industry to adapt and acclimate. Global supply disruptions have tightened the availability of fertiliser, herbicides and pesticides, simultaneously jacking up prices. The price of glyphosate increased by 75% in 2021 with phosphate at its most expensive since 2011. Research released by Rabobank suggested that freight dynamics will continue to exert pressure on farmers until at least the first quarter of 2022.
The longer-term implications of climate change have been highlighted by the announcement of a La Nina event which has already caused havoc for farmers in regions across Australia. Grain yields, in particular, will be smaller with poorer quality than usual, putting additional pressure on farmers in New South Wales and Queensland who were eyeing off the 2021 harvest as a way to recover financially from an extended period of drought.
Labour shortages continue to be an issue at the coalface of farming, with a shortage of backpackers and uncertainty around the new agriculture visa system. Shortages are experienced across all sectors of the industry, and at all levels with the aging workforce set to snowball the issue over the long term.
Sources: Minerals Council of Australia, Stockhead, Rabobank, Deloitte, Stockhead
Image: By Benjamin Davies on Unsplash