June 30, 2021

Making hay: how the agri sector is looking to the future

As our agribusiness sector turns its recent run of good fortune into a rush of on-farm investment, a bold production target comes into sight.

In great news for producers – and the national balance sheet – two years of rapid growth in both volume and value has set Australian agriculture on a trajectory to meet an ambitious target: to become a $100 billion industry by 2030.

The consecutive ideal growing seasons across much of Australia – coupled with low interest rates and high prices for major commodities such as beef, wheat and lamb – have also seen confidence among our 85,000 growers and producers reach record levels.

Rural land values have soared too – by an average 12.9 per cent a year since late 2019 when much of previously parched northern Australia and Queensland experienced drought-breaking rains. And many properties are now being bought by cashed-up neighbouring farm family businesses, rather than sold to foreign or corporate investors.

In the cropping sector, a 51.5 million tonne grain harvest – the second biggest on record – has seen growers pay off debt and returned many farms to profitability.

The dairy sector is benefitting too, with major processors recently announcing they’ll pay record high prices for milk this new financial year, as they battle to secure scarce supplies in an industry where the 2016 milk price crash saw many farmers exit dairy farming or convert to beef production.

Together, this remarkably positive outlook is putting the $66.3 billion agribusiness sector on track to meet the ‘$100 billion by 2030’ target first set by the National Farmers’ Federation and backed by the Federal Government, again most recently in this year’s Federal Budget.

Making hay while the sun shines

This reborn optimism was evident at Beef Week, the major triennial celebration of the $15 billion Australia cattle industry, held in Rockhampton in May. The event witnessed booming sales of cattle yard, fencing and irrigation equipment; shiny new Toyotas, tractors and farm machinery; stud bulls; state-of-the-art technology; and RM Williams boots, belts and moleskins.

NAB Agribusiness senior economist Phin Ziebell says the past two years have added up to a “great run” for the agricultural sector and represent a strong turnaround in farmers’ personal financial situations and overall rural prosperity.

“It’s a very encouraging picture; the combination of good seasons, good crops and good prices doesn’t happen very often in Australia,” he says. “It’s a very good time to be in agriculture and the growth potential of the sector looks promising. But, as always, there are both risks and opportunities ahead.”

Here, Ziebell points to somewhat dry conditions in parts of western Victoria and south-east South Australia, although cropping conditions overall are very strong. It should also not be forgotten that parts of Queensland remain drought-declared, he says.

“The outlook is positive, but what I would say is, don’t get carried away. As most farmers who have been around for a long time know, the good times can’t last forever.

“And you can see that in the way producers are re-investing these returns; they’re not squandering this money but capitalising on the good times, reinvesting it in their farm businesses and leveraging the opportunity for instant asset write offs to go any buy some new equipment. They are sensibly preparing for [the end] and using the capital to boost their future production.”

The help needed to hit $100bn

While there are solid reasons to believe the $100 billion gross value target for farm output remains viable, the figure will not be achieved solely by rises in food and produce prices on current trajectories of production gains.

A recent report by the AgriFutures Research and Development Corporation identified a massive lack of investment in the agricultural sector as a major constraint to future growth.

To achieve the $100 billion vision, the report found $8.7 billion of investment is needed annually; that’s a far cry from the $1.2 billion per annum currently flowing into agriculture.

AgriFutures Senior Manager Jennifer Medway says producers, agricultural consultants, major agricultural companies and investors have all stated that the “missing piece in the puzzle” to achieve $100 billion was a better understanding of the reasons for a lack of capital to support such ambitious growth.

“Our past reliance on increasing land values to fuel debt as a form of capital is unsustainable,” Medway said when releasing the AgriFutures report early this year. “To innovate and grow more productive farm businesses, we need capital investment to drive agtech adoption, and [to find] new and smarter ways of doing things.”

Attracting diverse forms of investment capital was identified in the report as critical to increasing productivity. Greater capital investment is a key growth driver for innovation and change, allowing farmers to become bigger and more efficient, buy more modern machinery, harness greater economies of scale by buying more land, and adopt labour-saving and productivity-enhancing new technologies.

“There are alternative farm investment models such as leasing land, share farming, sale and leaseback, and corporate investment,” Medway explained. “We need to continue development of new models that are accessible to all agricultural enterprises, including family farms, as the link between capital availability and market growth potential is so strong.”

Embracing an exciting future

NAB Executive, Regional and Agribusiness, Julie Rynski is confident the agribusiness sector is up to the challenge when it comes to embracing innovation and new opportunities, on its way to the $100 billion production goal.

But she also acknowledges the AgriFutures report suggesting a $7.5b annual capital shortfall for the agri sector to achieve its growth ambition.

“We’re already seeing plenty of out-of-the-box thinking right across Australia and across all agricultural sectors,” Rynski says. “And we’re experiencing an increase in clients reaching out to NAB for support as they explore ways to grow their farms and businesses, increase productivity and value-add.

“Many are also looking for completely new sources of income, in areas like carbon farming. New revenue streams from the land, beyond traditional food production, will help the sector build resilience and generate diversified income streams.

“We’re constantly reviewing our strategies and approach to make sure we’re lining up resources to support the future needs of our customers and the sector more broadly. All in all, it’s a very exciting time for Australian agriculture.”

Amid such exciting times, the agricultural sector will most surely be keeping its collective fingers crossed for a continuation of good conditions and high commodity prices as it aims high over what’s set to be an ambitious decade.

NAB Rural Commodities Wrap: November 2023

NAB Rural Commodities Wrap: November 2023

20 November 2023

The NAB Rural Commodities Index eased further in October, having now declined for each of the past twelve months. Our index fell by 1.8% mom, leaving it 35.0% below the peak for rural prices in June 2022.

NAB Rural Commodities Wrap: November 2023