Australia’s agricultural sector can weather the COVID-19 storm despite the global economic downturn and pressure on commodity prices, according to Rabobank.
The Dutch multinational on Friday said several factors would help cushion the negative economic impacts of the coronavirus pandemic on the industry in coming months.
These included the low Australian dollar, local farmgate prices supported by limited domestic supply and positive seasonal expectations.
Rabobank head of food and agribusiness research Tim Hunt said the lower Australian dollar – currently trading at roughly 50 British pence or 60 American cents – would provide shelter from falling prices for local producers.
“The worse the pandemic gets, the lower the Australian dollar will fall as capital gets reinvested in lower risk financial markets like the US and Japan,” he said.
Mr Hunt said the Australian dollar was likely to be lower for longer than it was during the global financial crisis – the last major global economic shock.
This, he said, would ensure the contraction in farmgate prices in local currency terms was less than seen on world markets.
Rabobank’s monthly agribusiness report said local farmgate prices would also be supported by low Australian grain stocks, as well as diminished sheep flock and cattle herd numbers after several years of drought.
“This is ensuring strong competition for product in the local market from processors downstream,” Mr Hunt said.
The report also said recent rainfall – as well as the weather outlook – suggested Australian farmers would have a decent production season this year.
However, Mr Hunt warned the COVID-19 disruption would still bring downside risks on many fronts for Australian agriculture.
These included the availability of agri-chemicals and farm labour as well as the continuation of operation of packing houses and processing plants.
Other market downside risks included the potential of re-infection in China, Mr Hunt said, and a global economic downturn that could be worse then the global financial crisis.
He said potential high infection rates in regional Australia could also have a negative impact, as well as the “wildcard” of an appreciation in the Australian currency.