the australian agricultural market – an introduction for investors

8/10/2019 The Australian Agricultural Market an Introduction for Investors

1/17

The Australian agricultural market

An introduction for investors


2/17


3/17

Contents

Australia as an agricultural producer 4

Australia as an agricultural exporter 6

Emerging market demand for Australian agricultural commodities 8

Crop production in the Australian Wheatbelt 9

Yields in the Australian Wheatbelt 12

Sustainable farming practices and the Australian Wheatbelt 14

References and data sources 15

Contents


4/17

Australia as an agricultural producer

The agricultural industry makes a significant contribution to Australias national GDP. The average value of agricultural commodities

produced in Australia over the past five years was AU$44 billion (2007-08 to 2011-12). This excludes the significant downstream

contribution of over AU$100 billion from marketing, refinement and processing.

0

10 000

20 000

30 000

40 000

50 000

60 000

Agriculturalproductionvalue(AU$m/ye

ar)

Notwithstanding seasonal variations in crop yields, the value of agricultural production has grown at fairly consistent average annual

rate of approximately 4.5% since the early 80s. During that time the total value of agricultural production has more than doubled,

with average annual production in the last decade being 131% higher than in the 80s.

Figure 1: 30 year trend in total value of Australian agricultural production, 1981-82 to 2010-2011

Australian farmland is attractiveto investors because it combinesthe benefits of first worldgovernance and stability with the

scale and prices of developingnations.Citi Private Bank, Wealth Report, 2011


5/17

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1980-81 to 1989-90 1990-91 to 1999-00 2000-01 to 2009-10

Averageproductionvalue(AU$m/year

Grain and oilseed crops All other crops Livestock & animal products

Crop production has grown more rapidly than livestock, with the average annual production value of crops over the last decade

being 172% higher than in the 80s, compared to a rise of 97% for livestock. Crops now account for over 57% of agricultural

production value and livestock and animal products for 43% (2010-11 figures).

Figure 2: Trends in total value of Australian agricultural production by sector, 1980-81 to 2009-10

Figure 3: Australian agricultural commodities by production value, 2010-11 (AU$48,674 total production value)

Grain and oilseed crops

All other crops

Livestock & animal products


6/17


7/17

50%

55%

60%

65%

70%

75%

80%

200708 200809 200910 201011 201112

Grain production has increased by 69% in the last five years (2007-08 to 2011-12). Because of relatively fixed domestic demand,

these production surpluses have increased the volume of Australias grain exports by 176% over the same period (although it should

be noted that 2007-08 was a below average production year so this skews the figures somewhat).

Australia is the worlds largest producer and exporter of premium white wheat which is particularly well suited to a broad range of

high demand uses such as noodles and bread making. Because of its high and consistent quality, Australian produced white wheat

often commands a price premium on the international market.

Figure 5: Proportion of Australian wheat production exported, 2007-08 to 2011-12

In 2011-2012 wheat exports reached 78% of total production, with export volumes having increased by 211% since 2007-08. Over

the same period Australias share of global wheat exports more than doubled from 6.7% to 15.9%. This makes Australia the third

largest exporter of wheat after the United States and the European Union.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

200708 200809 200910 201011 201112

Share of global production Share of global exports

Figure 6: Australias share of global wheat production and exports, 2007-08 to 2011-12


8/17

Australia as an investment destinationEmerging market demand for Australian agriculturalcommodities

Being within easy reach of the lucrative export markets of Asia and the Middle East, Australian farmers are ideally located to

capitalise on the rapid rise in demand and changing diets in emerging markets. Exports to countries in these regions continue to rise

dramatically, with grain exports to China having more than tripled in the last five years alone (2007-08 to 2011-12).

Figure 7: Five year rise in food exports to Australias largest emerging market export destinations

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

Phillipines

Thailand

Malaysia

Indonesia

Middle East

China

Annual exports (AU$m)

Exports in 2010-11 Exports in 2006-07

Figure 8: Rise in Australian crop exports to China, 2007-08 to 2011-12

0

500

1000

1500

2000

2500

3000

3500

200708 200809 200910 201011 201112

Annualexports(AU$m)

All other crops Other gra ins and oilseeds Wheat


9/17

Crop production in the Australian Wheatbelt

On average an area of 23 million hectares was planted to crops in Australia over the last 10 years (2001-02 to 2010-11). There has

been a steady increase in the total area planted to crops from 14.7 million hectares in 1991-92 to 24.4 million hectares in 2010-11,

an increase of 66%.

This increase has been led by wheat which has seen a near doubling from 7.2 million hectares to 13.6 million hectares during the

same period, compared to only 43% for all other crops. Indeed, the area cropped to wheat is greater than the total area planted

to all other crop types combined (including all other arable and perennial crops) with wheat accounting for 56% of the total area

cropped annually over the last ten years (2001-02 to 2010-11).

Figure 9: Long-term trend in the area sown to wheat and other crops, 1991-92 to 2010-11

6

7

8

9

10

11

12

13

14

15

Areasown(millionha)

Wheat All other crops

The Australian Wheatbelt isa vast grain growing regioncovering an area three timesthe size of England.


10/17

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

200708 200809 200910 201011 201112

Areasown('000ha)

Wheat Other grains and oilseeds

The great majority of the land area not planted to wheat is devoted to other commercial grains or oilseed crops, with non-arable

crops accounting for only 2% of the total cropped area. The precise land use allocation by farmers to different arable crops

fluctuates from year to year. This is primarily due to farm level management decisions based around rotational crop planning and

the level of rainfall received before each growing season.

Figure 10: Relationship between the area sown to wheat and other arable crops, 2007-08 to 2011-12

As Australias single most important agricultural commodity by production volume and value, wheat accounts for over half of

Australias grain production, with an average annual production of 23 million tonnes over the last five years (2007-08 to 2011-12).The average annual value of production from Australias grains industry was AU$11 billion over the last five years (2007-08 to 2011-

12) of which AU$6.13 billion or 55% was from wheat.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

200708 200809 200910 201011 201112

Annualproduction(kt)

Wheat production All other grains & oilseeds

Figure 11: Australian wheat and grain production, 2007-08 to 2011-12


11/17

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

200708 200809 200910 201011 201112

Annua

lproductionvalue(AU$m)

Wheat Other grains and oilseeds

Driven by higher yields and commodity prices the production value of wheat rose by 42% to $7.3 billion over the same period.

Although also on an upward trend, the rise in the production value of other grains has been more variable due to fluctuating

agricultural commodity prices. The value of all grains produced (including wheat) increased by 19% over the last five years.

Figure 12: Value of Australian wheat and grain production, 2007-08 to 2011-12

Western Australia produces more wheat on a larger area of land than any other state with an average annual production of 7.3

million tonnes sown on 4.6 million hectares over the last 10 years (2001-02 to 2010-11). During this period Western Australia

accounted for 36% of Australian wheat production, followed by New South Wales which accounted for 30% and South Australiaaccounting for 16%.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

New South Wales Victoria Queensland Western Australia South Australia

Annualareasown('000h

a)

Annualproduction(kt)

Annual production Area sown

Figure 13: Average wheat production and area sown by Australian state, 2001-02 to 2010-11


12/17


13/17

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

New South Wales Victoria Queensland Western Australia South Australia

Coefficientofvariation(2001-02to2010-11

)

Area sown Annual production

Figure 15: Variability of wheat production and area sown by Australian state, 2001-02 to 2010-11

(Note: Variability in the above graph has been calculated using the coefficient of variation, a statistical measure that describes the

degree of divergence from the average. The larger the value, the more variation there was in wheat production and area sown over

the ten year period.)

It is important to note, however, that given the diversity of climate conditions within each sate, state-wide yield averages and

variability data are not sufficient to assess individual farming districts within each state. For instance, in any given state grain yields

generally decline and yield variability generally increases for farms further from the coast.

Due to differences in rainfall reliability and timing, even districts with the same average annual rainfall extent can exhibit widely

differing yield profiles. Yield profiles can have a major impact on investment returns since yield reliability (rather than average yield

level) is one of the most important determinants of farm profits.

Australia has lower farmland

prices than any other largeagricultural exporter.


14/17

Sustainable farming practices and the AustralianWheatbelt

Having worked under challenging conditions of delicate soils and limited water resources for generations, Australians are amongst

the worlds earliest and most committed adopters of sustainable farming practices.

The bash and burn approach of field preparation for sowing and crop residue management of the last century has largely given

way to minimum tillage. The majority of Australian farmers now conserve their crop residue for its proven and crucial role in

minimising soil erosion and moisture loss. This trend has been helped by the greater availability and affordability of large scale farm

machinery suited to Australian farming conditions.

Precision agriculture techniques have also been widely adopted by Australian farmers and the country in now recognised as a world

leader in the development and commercialisation of precision agriculture techniques. It is now common practice for farmers and

harvesting contractors to use Global Positioning Systems (GPS) to map the variation in crop yields across farms, apply fertilisers,

nutrients and other chemical inputs and minimise soil compaction using auto-steer to avoid operation overlap.

Not only are techniques such as minimum tillage and precision agriculture which reduce the ratio of input use per unit of production

good for the environment, they are also good for farm profits and asset values (because they improve soil health and productive

potential). Indeed, the adoption of sustainable farming techniques and technologies has been instrumental in the rising level of

productivity and water use efficiency achieved by Australian farmers.

Larger farms are more able to afford precision agriculture technologies and the specialised machinery involved. In combination with

lower land prices on larger farms, this makes farm size one of the most important determinants of investment returns.

Notes:

Minimum tillage (also referred to as reduced or zero-tillage) is a soil conservation system utilising the minimum level of soilmanipulation necessary for successful crop production. In minimum tillage the soil is not turned over as with conventional tillage

which involves ploughing and harrowing. Conventional tillage causes a decline in optimal soil structure and greater vulnerability to

erosion, loss in organic matter content, and loss of moisture.

Precision agriculture is a farming management concept based on observing and responding to intra-field variations. Today, precision

agriculture is about whole farm management with the goal of optimizing returns on inputs while preserving resources. It relies on

new technologies like satellite imagery, information technology, and geospatial tools. It is also aided by farmers ability to locate

their precise position in a field using satellite positioning system like the GPS or other GNSS.

Almost all farm sales are between local

Australian farmers and 98.5% of all

agricultural businesses are still 100%

Australian owned.


15/17


16/17

Australian Bureau of Meteorology, Historical Climate Data, 2012

Australian Bureau of Statistics, Agricultural Land Use and Selected Inputs Data Series, 2012

Australian Bureau of Statistics, Australian International Trade Data Series, 2012

Australian Bureau of Statistics, Australian National Accounts, National Income and Expenditure Data Series, 2012

Australian Bureau of Statistics, Crops and Pastures Data Series, 2012

Australian Bureau of Statistics, Selected Agricultural Commodities Data Series, 2012

Australian Bureau of Statistics, Value of Agricultural Commodities Produced Data Series (chain volume measure), 2012

Australian Government Department of Agriculture, Fisheries and Forestry, Australian Bureau of Agricultural and Resource Economics and Sciences, Agricultural

Commodities Statistics, 2012

Food and Agriculture Organization of the United Nations, Agricultural Statistics Database, 2012

Liao, B and Martin, P 2009, Farm innovation in the broadacre and dairy industries, 2006-07 to 2007-08, ABARE research report 09.16, Canberra, November.

Nossal, K and Sheng, Y 2010, Productivity growth: Trends drivers and opportunities for broadacre and dairy industries, Australian Commodities, vol. 17, no. 1, March

quarter, pp. 206216, ABARE, Canberra.

ODonnell, C 2010, Measuring and decomposing agricultural productivity and profitability change, Australian Journal of Agricultural and Resource Economics, vol. 54.

pp. 527560.

Organisation for Economic Co-operation and Development (OECD), Agriculture and Food Statistics, 2012

United States Department of Agriculture, Production, Supply and Distribution Database, 2012


17/17

the australian agricultural market – an introduction for investors

Documents