Building ag’s momentum in 2018

Building on ag’s credible year as 2018 dawns


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An improved, more sophisticated industry played a big role in securing agriculture’s position as the largest contributor to national GDP growth 2016-17

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As many Australian farmers and their families prepare for a different kind of busyness during the Christmas-new year period, there will likely be pauses for reflection on what was a year of records for Australian agriculture.

This included $63 billion in production, $50b in exports and 23 per cent sector growth.

The emergence of an improved and more sophisticated industry has played a big role in securing agriculture’s position as the largest contributor to national gross domestic product (GDP) growth, accounting for 26pc of Australia’s growth in 2016-17.

This was aided of course by a record winter crop and some relatively high commodity prices last season.

Improvements in farming and business management standards, as well as continued consolidation throughout the year have led to increases in land prices and ongoing corporate and foreign investment.

The rapid rise in technology, from plant and animal breeding through to logistics and supply chain has also helped to improve farm profitability.

Enhanced profitability and greater equity also have the potential to aid succession with older generations able to consider retirement earlier, and the achievements and innovative spirit of today’s farming businesses luring younger generations with new skills.

We are not seeing the levels of investment you’d expect in an extremely low interest rate environment - Mark Bennett, ANZ

While all of these factors cause reason for optimism there’s risk of losing impetus.

Without any real imperative to invest and re-examine a business, there’s potential for a period with less investment, growth and consolidation, impacting the industry in the long term.

Analysis from the Australian Bureau of Agricultural and Resources Economics and Sciences (ABARES) shows slower agricultural research and development investment in Australia during the 1980s correlated with a slowdown in productivity in the 2000s.

Mark Bennett, ANZ Banking Group

Mark Bennett, ANZ Banking Group

Volatile regulatory and political environments, low income growth and increased global competition could also quickly impact investment decisions.

We are also not seeing the levels of investment you’d expect in an extremely low interest rate environment, with the current ratio between income and debt sitting at the lowest level since 2002, just prior to the large increase in investment in the 2000s.

The strong income and profitability stemming from low interest rates combined with robust production are being used by farming businesses to further consolidate debt.

While this is positive for businesses, it also creates a good time for industry investment to secure future gains.

ANZ Research believes the Reserve Bank of Australia will raise rates around the middle of 2018, as long as the central bank is confident inflation is not moving lower and the economy is on track to deliver a falling unemployment rate. This could put ongoing investment at continued risk in the months to come.

The need for the sector to continue to build on the momentum in the new year has never been greater.

The window to grow and satisfy market demand remains open but it’s always been a global and competitive race.

At a family level, the year’s end makes a good time for formal long term planning around business vision, succession, sustainability and growth.

This can provide welcome clarity on the time and investments required to fulfill the opportunities, ultimately helping to build on the success we are seeing across the industry.

  • Mark Bennett is Australian agribusiness head for the Australia New Zealand Banking Group. 

The story Building ag’s momentum in 2018 first appeared on Farm Online.

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