Australian and international farm policy news

USDA optimistic for 2015 outlook

The 2015 forecast for United States (US) agriculture released at the recent USDA Agricultural Outlook conference presented a reasonably positive outlook for US farmers, despite the build-up in grain stocks and the strengthening of the US dollar. Robert Johansson, USDA Chief Economist, summed up projections for 2015 as follows:

Overall, the forecast for the coming production year is bright. Record production has meant that stock levels are higher and prices are lower, but producers will benefit from record asset levels and from new farm programs intended to cushion declines in farm revenues. New crop insurance products are covering more products than ever before. In addition, falling energy prices will reduce input and transportation costs. Regional disruptions in port and rail services are expected to be resolved. While agricultural trade has become increasingly competitive, the resolution of old trade disputes and prospects for new agreements promise to open new opportunities to US producers. Lastly, the technological advances in our ability to collect, process, and report data offer new ways to optimize field production, improve risk management, and enhance market transparency.

Queensland sugar taskforce

The contentious issue of the future of sugar marketing arrangements in Queensland will be the subject of a review by a taskforce, which will report back to Minister Joyce by May 2015. Queensland Sugar Limited (QSL) has effectively maintained a single-desk marketing arrangement for sugar refined by Queensland sugar processors for many years. The arrangement is gradually being dismantled, with the possibility now available for sugar mills to opt out of the arrangement, and market their own sugar.

Three mill owners, Wilmar, MSF Sugar and COFCO have given notice of their intention to cease participating in QSL from 30 June 2017. Some growers supplying these mills are concerned that they have no choice about which mill they supply, and that the removal of the QSL pooling arrangement will leave them vulnerable to monopoly pricing. The dilemma all involved face is that the processors have high fixed costs, and capital that is only utilised for a short period each year. Any ‘leakage’ of cane to alternative processors (where they are available) can quickly render a processor unviable, so processors are having to carefully manage their relationships with growers, while seeking the option of exiting the QSL arrangement.

Lower rates for drought finance

The Australian Government has announced that interest rates for Farm Finance Concessional loans and Drought Concessional loans will both be lowered 16 basis points due to lower government borrowing costs. From 1 February 2015, interest repayments on these loans will be set at 4.34% and 3.84% respectively, down from 4.50% and 4.00%. These interest rates are reviewed on a six-monthly basis. Under the program, loans are made available to eligible farmers for debt restructuring of existing commercial loans and productivity enhancement where new debt is anticipated to generate positive return. Applications for 2014–15 are now open in all states and territories and will close on 30 April 2015.

Chinese fertiliser export tariffs to change from seasonal to flat

China will impose flat tariffs on urea and phosphate exports in 2015, as the Chinese Government shows signs of continuing to remove some of the trade restrictions that have been such a feature of Chinese trade policy in the past. Previously, the Chinese Government exercised a variable tariff rate on fertiliser exports. In 2014, urea exports were tariffed at 15% + 40 RMB/t during the peak periods (January to June and November to December) and 40 RMB/t during the low season (July to October). These will be replaced with a year round 0% + 80 RMB/t. Phosphate exports will be subject to 100 RMB/t tariff in place of a high season tariff of 15% + 40 RMB/t and a low season tariff of 50 RMB/t.

A key factor driving the policy change has been rising domestic fertiliser supplies in China. China has annual capacity to produce over 80 million tonnes of urea, but only consumes around 65 million tonnes. Additional capacity to produce a further 30 million tonnes is also expected within the next two years. The move to a flat rate export tax is expected to further integrate Chinese fertiliser producers into world markets and to reduce the volatility of global fertiliser markets associated with episodic Chinese exports during low season tariff periods.

Its (very) dry in Brazil

First it was California experiencing a prolonged and severe drought which significantly reduced agricultural output, especially for commodities like almonds. Now it is Brazil that is also experiencing a prolonged and severe drought, especially in the southeast region. In São Paulo state – one of the worst hit areas – agribusiness represents 15% of GDP. There are reports that some farmers have lost almost a third of their crops due to water shortages. The Agricultural Economy Institute estimates that last year may account for the state’s worst agricultural losses in half a century.

On the state’s coffee plantations, many new crops lost their fruit due to the dry weather, and around 20% of the state’s citrus crops died. The 2013-14 bean crop production was almost 10% lower than the previous year, while corn production fell by 26%. Production of soy, one of the country’s largest export crops, shrank 17% over the same period. This year, sugarcane farmers are expected to see a nearly 12% production decline. In addition, the domestic price of beef increased by 22% last month as a result of the drought. The drought has become so severe that there are real concerns that the municipality of São Paulo, home to more than 20 million people, may run out of water in the near future. To try and prevent this, government officials have begun locking taps used to pump water from streams and rivers to farms. In February, the Governor authorised the police to carry out this task, and to impose fines on those who disobey. Farmers will receive compensation through financial credit from the state in some cases.

Keep up-to-date with discussion on current issues in Australian and international agriculture policy via the Ag Forum on the Institute website.

Images:  AGO, Queensland Sugar, Walmart

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