Queensland agribusiness history and events
Agribusiness is a key element of the Queensland economy, with forecast contribution in 2010-2011 of $6 billion (gross value added ) to the state economy and employing over 87,000 people (DEEDI). Our diverse climate and natural resources support a wide range of industries with beef, grain, horticulture and sugar leading the way. Some of the industry-shaping events and issues are discussed further in this section.
The agricultural component of the Queensland economy is relatively consistent with the national average, however it is not immune to fluctuations in production and economic conditions, as shown in the graph below.
Agriculture, forestry and fishing - Gross value added (%)
Source: Australian Bureau of Statistics, Catalogue 5220.0
Note: Gross value added at state level is measured using chain volume measures. Gross value added is based on industry contribution to total state gross value added. Total state gross value added does not include taxes or subsidies
The last decade has been typified by widespread drought and below average production. According to ABARES the state wheat crop, as an example, has ranged from 601,000 tonnes to 2,016,000 tonnes due to the impact of seasonal conditions. The beef cattle herd has been more stable averaging 11.3 million head with a decade low in 2003 (10.5 million head) and the high in 2008 (11.7 million head).
Though production trends were similar, prices received for these products was inversely related as drought years forced beef producers to off-load additional cattle whilst grain buyers paid premiums to secure volumes.
Cotton production during the middle of the decade was constrained due to insufficient water and poor gross margins relative to other crops; the crop in 2007-2008 was the smallest in 30 years. Prices have rebounded strongly for cotton, and returned to long-term averages for beef and wheat, and seasonal conditions point to good conditions for the medium term for these industries.
Key macro events that have shaped the current state of the agribusiness industry are:
High credit growth supported by rising property values and access to relatively cheap credit. This has moderated as a result of the GFC and borrowers have focused on paying down debt to reduce gearing levels.
|2.||Valuations have been stable (best case) or dropped (up to ~30% in some cases) as a result of lower production due to drought and tighter credit conditions and decreasing investor confidence. Many potential vendors have sought to hold properties back from sale due to recently improved seasonal conditions and may look to sell as soon as prices show signs of firming. Analysis by ABARES (see graphs below) shows the price increase was across a number of industries (though exaggerated in the pastoral industry) and not related to increased cash receipts. The current pressure on property values is therefore likely to remain unless the income imbalance can be rectified. In light of this, any asset divestment plan will need to be carefully considered.
Source: ABARES Australian Farm Survey Results 2007-08 to 2009-10
Water reform in the Murray Darling Basin continues to give rise to uncertainty over separation of title, effective security of water assets and the effect of long-run reductions in water entitlements. Whilst water trading in Queensland has been nominal in comparison with interstate catchment areas, separation of rights from land has helped trading and will increase permanent trading volumes in the future.
|4.||Skilled labour for agriculture has been increasingly hard to attract due (at least in part) to competition from the mining industry. Increased labour costs in agriculture has impacted farm profitability, in conjunction with other input cost price rises such as the fertiliser price spike in 2008, making cash flow reviews and controls increasingly important.|
Seasonal and commodity outlook
We have all been saddened by some of the stories coming back from the natural disasters that have hit Queensland. It has certainly been a challenging time, and there will no doubt be ramifications far into the future. The costs are hard to bear, and some communities and families will never be the same.
If there is a positive to come from this, the increased rainfall from the La Niña event this summer is generally expected to be beneficial to Queensland agriculture, with good soil moisture profiles, lush pasture and full water storages to underpin production over a number of seasons to come. The commodity outlook is also favourable for many industries, with strong cotton prices in combination with record production, very tight cattle markets as re-stockers drive demand, record domestic sheep prices, and strong international demand for grains and dairy products. Many producers have taken advantage of favourable forward prices and are now focussed on production management to meet those contracts.
Generally, production is expected to increase with requests for additional working capital expected over a 12-18 month time horizon as stocks re-build. With some borrowers having insufficient equity to cover the additional credit required, lenders will need to carefully consider their risk management strategies and credit approval processes.
The live export sector is a key segment of the northern agribusiness industry, and over 60% of Australian live cattle exports have historically landed in Indonesia. This equates to over 400,000 head of cattle for 2010.
The recent ban on live cattle exports to Indonesia has already had an impact, with thousands of cattle stranded in holding yards at port. Many more are likely to have been held back on-farm or redirected to other markets. With no outlet to Indonesia, the supply chain has quickly become congested. Unfortunately, there are no alternate markets for northern cattle readily available to ease the situation.
We expect to see a range of ripple effects throughout the industry such as:
- Lower saleyard prices, for all cattle producers but particularly in northern and central markets, as cattle are pushed south
- Cash flow shortfalls for cattle producers from increased feed costs, increased transport costs and delay in receipt of income
- Where cattle producers opt to hold cattle on farm, there will be increased feed costs and pressure on pastures
- All businesses dependent on the live export sector will be similarly affected
- Property values are expected to fall, and already there are reports of properties being pulled from the market. Purchasers are deferring their purchase decisions until the impact has been clarified which will possibly extend until live cattle exports to Indonesia re-commence.
The northern dry season is the peak production period, with working capital requirements at their maximum and capacity throughout the supply chain stretched. Cattle producers would have already secured labour for the mustering season, committed to purchase inputs, and booked suppliers leaving little working capital head room. Now additional funding is likely to be required.
A government inquiry has been set up to investigate and recommend changes where necessary. The final report is due in August, giving the industry only a short window of opportunity to get the supply chain moving before the next wet season closes in. In the meantime, costs are mounting.
Should the situation be resolved quickly and live exports to Indonesia re-commence, it will take time for the sector to get back on its feet. The back-log of cattle will take time to work through as shipping capacity is likely to remain constrained, prolonging the impact across the sector through to next year at least.