08 Dec 2020
The agri sector begun 2021 in the midst of an unprecedented set of circumstances. But if 2020 was the year of COVID-19 disruption and the challenges this created for the industry, then 2021 is shaping up as a year of cautious optimism.
While the COVID-19 pandemic will continue to play a role in the fortunes of the sector, a number of other factors - largely driven by good seasonal conditions - will arguably have more impact and provide the basis for a strong year for many stakeholders in several different agri supply chains.
"Heading into 2021, the potential for further disruptions from COVID-19 is never far away.”
Since the start of the pandemic in early 2020, Australia’s agri sector has faced many potential challenges, particularly in terms of labour availability, maintaining operation of key facilities such as saleyards and processors, as well as transport and logistics across domestic and international borders.
Through a concerted and collaborative effort between industry bodies, agribusinesses and different levels of government, the sector emerged from the peak of the disruption as one of the industries least affected.
Heading into 2021, the potential for further disruptions from COVID-19 is never far away - a scenario which increases the need for agribusinesses and industries to accelerate their modernisation plans to further minimise any future impact on their business. In addition, the much discussed concentration risk with China continues to evolve and Australia’s wine and live seafood exports are significantly impacted.
Away from COVID-19, most agribusinesses continue to be thankful for the ongoing excellent season. Coming off two years of severe drought in many parts of Australia, the sight of green paddocks in February in many places or harvests delayed until January- which only served to further boost yields to near record territory - has set many farmers up for one of their best years on record.
Through a positive combination of circumstances, most agri sectors are also seeing some of the highest prices for their output in years. Whether grain prices being pushed up by tightening offshore supply and strong global demand or sheep and cattle prices going from strength to strength on the back of strong restocking activity, many producers will now find themselves in a financial position to consider debt repayment and possibly implement new expansions or strategies on their operations, further enhancing the productivity of the sector.
That said, while the high prices are a benefit for many, they also undeniably provide challenges for others in the supply chain, including some graziers seeking to restock, as well as feedlotters and processors looking for a sustainable margin. In addition, the record prices also require many in the market to re-examine their own business strategies to manage the eventuality that values recede to a reasonable extent in coming months. Consideration should be given to where we are in the cycle in what is a long-term, capital intensive industry.
Globally, a number of the issues which will affect the Australian agri sector in coming months still have much more to play out. The trade issues between Australia and China may have gone quiet but remain active while any impacts on global agri trade of the change of administration in the US will begin to take shape this year. At the same time, as consumers globally continue their economic recovery from the worst of COVID-19, a pick-up in demand may well flow back through Australian agri trade supply chains.
If 2020 was the year the agri sector was taken by surprise, yet reacted admirably, then 2021 should be the year where it is positioned to not just build on what it has learned but capitalise on the new opportunities available to it. If we could just get a follow up season to assist….
Mark Bennett is Head of Australian Agribusiness at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
08 Dec 2020
12 Jan 2021