Forecasts published last week by the Australian Bureau of Agricultural and Resource Economics and Sciences sum up a mixed year in the Australian agriculture sector: good performance in many parts of Western Australia offset by very difficult conditions in large parts of the east of the country – albeit with farm performance still at a “comparatively high” level overall.
The headline numbers in ABARES’ Agricultural Commodities Outlook for the quarter ending March 2019 were pretty striking: the volume of farm production nationally is expected to decline by 6 percent, driven by an 11 percent fall in crop production due to the drought in the east.
As well as volume declining, the value of farm production is also expected to fall by 4 percent to A$58 billion ($41 billion; €36 billion), although improving commodity prices in grains, wool and sheep meat has helped to cushion this blow.
And on an individual farm basis, the average farm cash income for all broadacre farms is set to fall by 18 percent from $201,300 in 2017-18 to $173,000 per farm in 2018-19, with around 50 percent of farms set to record a lower income this year than they did last year.
New South Wales is set to be particularly hard hit, with farms in the First State set to record an average loss of A$69,000 in 2017-18, compared with an average profit of more than A$100,000 just two years ago (last year saw a modest average profit of A$2,000 per farm in the state).
It’s not all bad news, though. The average farm cash income for all farms is still well above the long-term average of A$140,000, suggesting that when taking the whole country into account, the sector has been more resilient than is sometimes portrayed.
And in states and territories that have not been affected by the drought, performance has been very good, with average farm cash incomes on broadacre farms in Western Australia, for example, set to increase from A$368,800 per farm in 2017-18 to A$490,000 per farm in 2018-19 – a big leap in anyone’s book.
So, what does all this mean for investors?
Well, it lays bare some of the things that many who are involved in Australian ag know to be true, but that those who are not actively involved may not have such a detailed understanding of.
Firstly, Australian ag can be volatile year to year, the same as in many other regions – but it looks especially stark here when images of livestock dying in bare paddocks are beamed across the country and beyond.
These images are harrowing and obviously represent very hard times for the producers and investors behind them. But they don’t represent all farms and farmers, and there is more resilience here than some like to think, as demonstrated by that average farm cash income figure.
And secondly, Australia itself is hugely diverse. It is better to think of it as several different agricultural markets all located on one continent, from the WA cropping and grazing region that has performed well this year to its counterpart in the east that has not, encompassing sweeping cattle properties and sugar plantations in the north, irrigated agriculture in southern NSW and Victoria, and dairy production in the country’s south, and everything else in between.
It looks likely that returns will inevitably be lower for many investors next year, especially if they have exposure to drought-hit properties in the east or flood-hit properties in the north.
But savvy investors who want exposure to Australian ag will have a diversified portfolio covering more than one region in the country, if they have the capital to do so.
And the ABARES figures show there are still good stories to be told and money to be made among the difficulties being experienced by many.