Trade has been a hot topic in Australian agriculture over the past 18 months or so.
China’s ongoing tariff war has shown little sign of abating, leading Australian farmers and wine producers to seek alternative markets for their wares.
The signing of a free trade agreement with Britain was hailed by the Australian government as a big win for the country’s agriculture sector and, while unlikely to prove a major export market for many commodities, is still welcome news (even if the reaction from British farmers has been somewhat different).
With this backdrop, last week, the Australian Farm Institute held its first in-person conference since the start of the covid-19 pandemic, focused on the topic of trade in disrupted economies in Toowoomba, Queensland.
Agri Investor joined virtually to hear Reserve Bank of Australia governor Philip Lowe give the keynote address, with some positive words for the sector.
On the broader economy, Lowe laid out how employment and economic output are both actually higher in Australia than they were pre-pandemic, despite all the economic disruption. “Not many countries can say that the bounce back has been quicker and stronger than we expected last year,” he said, citing the performance of agriculture as a contributor to this.
He then sounded a note of caution over the slowing of productivity growth, which he said was likely linked to subdued levels of business investment.
There are signs that this is picking up, though, with agriculture “really at the forefront” thanks to equipment purchases and the like, Lowe said, while emphasizing that there was still a long way to go before investment reaches the levels needed to create a more productive economy.
In response to an audience question about how more investment in agriculture could be encouraged, Lowe’s response was quite telling, and will not come as much of a surprise to anyone involved in the sector Down Under in recent years, arguing that the availability of finance is not the “major issue.”
“If a business or farm has good ideas, good management, good technology – in the end it will find some financing. It may not be that easy and they may have to go through different routes, but there is a very large pool of global savings and Australian savings looking for a home. If you have a good business plan, there is money available,” he said.
“The reason we have low interest rates at the moment is that lots of people want to save and not many businesses want to use those savings to invest in new capital. People blame the central banks for low interest rates but we’re really responding to the savings and investments dynamic. There’s plenty of money there – what we’ve got to see is good ideas, capacity, the willingness to take risks, and good business plans. If all those things are there, the money can be found.”
A report from AgriFutures published earlier this year identified a multibillion-dollar annual gap in Australian agriculture that threatened the sector’s long-stated target of reaching A$100 billion ($75 billion; €63 billion) in value by 2030.
That report said Australia “must find answers to questions about how much capital is needed and where it will come from.”
It’s been clear for some time that private capital has a significant role to play – and the huge pool of “savings,” as Lowe puts it, looks ripe to be put to good use in ag, backed by the tailwinds of the pandemic.