Ag exports form a vital part of Australia’s economic growth

ABARES research has found that export exposure was ‘better for market resilience’ than turning inwards and shoring up local supply chains.

The trade dispute between Australia and China has drawn a great deal of attention in the last 12 months, especially for those agricultural producers involved in the commodities that have been most affected: beef, barley, wine, rock lobsters and others.

But a report published this week by the Australian Bureau of Agricultural and Resource Economics and Sciences had a clear message: despite many countries turning inwards during the pandemic to focus on domestic supply chains (with the Australia-China dispute an illustration of why many felt it was necessary to do so), the long-term value of exports to the Australian economy outweighs any short-term risk of disruption. And that is especially true for agriculture.

“Domestic protections like trade barriers or subsidies might sound appealing, especially in a crisis, because they encourage domestic production. But they actually make economies weaker and create longer run costs for the economy,” ABARES acting director Jared Greenville said in a statement.

“There is a cost to moving to a protected economy, and it also comes at the expense of growth. Not only does protectionism prohibit growth and cost the government money, we’ve found that it doesn’t really protect that much.”

The ABARES research found that protectionist measures enacted by the Australian government would only reduce gross domestic product marginally during a relatively short-term disruption such as the pandemic – but they could cost the economy A$1 trillion ($778 billion; €645 billion) over 30 years.

Protectionist trade policies should be avoided with measures to bolster local supply chains at the expense of export industries to be assessed on a case-by-case basis, the research organization said.

“Interestingly, Australia’s agriculture sector experienced fewer disruptions than other sectors during the covid-19 pandemic. People still need to eat. Australia’s agriculture sector is export-orientated and heavily exposed to international markets, exporting around 70 percent of agricultural produce,” Greenville said. “For Australia’s producers, exposure to global value chains proved to be better for market resilience.”

ABARES was careful to say that its findings should not lead policymakers to ignore considerations about reducing possible disruption from global shocks, such as another pandemic.

Rather, it suggested that policies to help make industries such as agriculture more globally competitive or that might reduce the cost of doing business would be preferable to focusing on localized supply chains.

At the height of the early stage of the pandemic, several investors assured us that Australian ag was well set-up to cope, with a diversity in its export markets (notwithstanding the important role China has played for some commodities).

ABARES’ findings back this assertion up. They also offer welcome reassurance for those investors who might be considering deploying capital into Australian agriculture precisely because of its strong export levels and its proximity to Asia’s growing middle class.