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Agriculture and food market in Australia

We expect Australian agriculture to see growth across the board in 2010/11 on the back of better yields and overall fair weather. Given consumption's already high base, we do not expect to see significant changes. We foresee further consolidation in the agriculture sector, such as in the sugar and grains industries, as there have been various company activities on that front.

On the export front, we note that the recent catastrophic events in Japan could have a short-term drag on Australian imports especially on livestock and processed dairy goods. Indeed, agriculture exports to Japan comprised nearly 20% of overall agriculture exports in 2010.

Key Forecasts

- Rice Production growth to 2014/15: 496.3% A surge in rice-consuming Asian immigrants combined with increased interest in foreign foods should see rice gain in popularity. Higher, better production output should also boost exports in the short term.
- Beef Production growth to 2014/15: 5.87%. We expect growth on the back of more moisture in the pasture due to Q410's heavy rains in the northeastern part of the country. * Milk production growth to 2014/15: 18.7% and consumption growth to 2015: 7.9%. Consumption growth will be driven mainly by population growth, since at close to 110kg per year, Australia already has one of the highest global per capita milk consumption rates.
- 2011 Real GDP Growth: 2.4% (down from 2.7% in 2010; predicted to average 2.8% from 2010 to 2015).
- 2011 Cash Rate (% eop): 4.75%. Same as 4.75% eop in 2010.

Industry Developments

Given that Japan is Australia's biggest meat (especially beef) export market (39% in 2010), we believe that the impact of the March 11 2011 earthquake in Japan will serve to slow down exports in the short term. However, the medium-term impact could be higher demand for beef imports as it has been reported that a considerable number of animal feed and livestock farms in the eastern part of the country nearest to the quake epicentre were destroyed by the earthquake and tsunami that followed. As such, there could be an increase in demand for 'finished' agriculture products like packaged and processed meats rather than them being traditionally produced locally. In the longer term, however, a potential drop in income could weigh on meat consumption and lead to a fall in demand for Australian beef imports, as happened in 2009 in the aftermath of the financial crisis. Having said that, as events in Japan have yet to stabilise at the time of writing, we will continue to monitor the situation closely and analyse the impact of the Australian livestock sector when we are able to better assess the full impact of the catastrophe.

The Draft Murray Darling Basin Plan could potentially impact Australian Agriculture significantly given that the region sustains the largest agricultural region and houses more than half of the nation's farms. Estimates are that diversions listed in the plan would cause the value of irrigated cotton to fall by 25% in the region. A similar drop of 30% for rice and cereals is also expected. The plan is aimed to be apporved and enacted by mid-2012.

The postponement of the Ethanol Mandate (E5) to 2011 from end-2010 might pose downside risks to the country's sugar output in the short run. Over the longer term, however, BMI believes that this could be a step in the right direction to galvanise the once-large industry into being more efficient as producers strive to increase output to meet ethanol demands (to supply 5% of fuel consumed from sugar and sorghumbased ethanol).

by S. C.
29 april 2011, World News > Oceania

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