Australia’s almond sector is set to remain competitive with that of California over the medium term, a new report from Rabobank has forecast.
The report, Australian Almonds: Still in the Game, modeled three different scenarios to take into account the variability of water availability and pricing: an orchard with 100 percent of water available from permanent water entitlement; an orchard that sources all its water from temporary allocations; and an orchard with an equal split of permanent and temporary water.
In all three scenarios, Rabobank found that an orchard planted in Australia would be competitive on costs with a counterpart planted at the same time in California, if the value of the Australian dollar remained below $0.75. For the orchard with fully permanent water, the exchange rate could rise to $0.97 and remain cost competitive.
Report co-author and Rabobank senior wine and horticulture analyst Hayden Higgins told Agri Investor that Australia’s almond orchards were likely to remain profitable in the medium term, but that the biggest risk to growers in the country was water pricing.
“The cost of water is the biggest influence on the cost of production moving forward,” he said. “And because everybody’s strategy around water is different, whether they have permanent entitlements or a mix of permanent allocation and leased water, it’s really hard to model an average.” Higgins added that Rabobank had used a base average cost of A$250 ($171; €154) per megaliter when making its predictions.
“We know that inflows will change,” he said. “At some stage we’ll get a recharge event which means inflows should rise, but until that stage there will remain pressure on water and the price is likely to remain above its long-term average.”
Rabobank predicted that global almond production in both the US and Australia would rise by 43-44 per cent over the next five years to a combined total of 1.62 million tonnes by 2023-24. This increase would put some downward pressure on prices, Higgins said.
“Whilst we believe that supply shouldn’t get materially ahead of demand, in order for that to occur the average price is likely to drop off over time,” he said. “But when we’re building that into our forecasts, we still believe that with a reasonable exchange rate scenario as we [have] now, it looks like Australian almond orchards will remain profitable.”
The report also noted the opportunities the US-China trade war has presented to Australian almond producers. China accounted for around 57 percent of Australia’s almond exports in the 12 months to the end of September, up from 12 percent on the same period the previous year.
“There’s definitely an opportunity there,” Higgins said. “We’ve seen huge swings in Australian volumes exporting to China because that gap in the market has opened up, not only because of rising demand for almonds in particular, but because there are less US almonds going there because of tariffs.
“That’s given Australia an opportunity to grow its market share and create new relationships. And whilst we expect that, when retaliatory tariffs are removed at some point the US funnels more supply there, it doesn’t necessarily mean we’d lose all the market share we’ve gained.”
Higgins also said that although any disruption to US almond supply would probably lead to upward pressure on almond prices, any negative effects on Australian almond yields alone would result in only limited price rises.