Australian and international farm policy news

Argentina targets Australian markets, as it axes taxes on exports

Argentina is likely to re-emerge as a major competitor for Australia in international beef and grain markets, as a result of the outcome of recent national elections. One of the first acts of the new president Mauricio Macri (appointed in December 2015) was to remove the majority of the punitive crop and export taxes that had been imposed on farmers by the previous government. The new government also allowed the peso currency to depreciate by about 40%, making Argentinian exports much more price competitive in international markets.

It is predicted that, as a result of this change, Argentina’s wheat acreage will grow enormously, and exports are expected to more than double to 9.8 million tonnes in the year to June 2017. The re-emergence of competition from Argentine exporters has already impacted on Australian grain exports to Middle Eastern wheat markets. The Argentinian’s have also been successfully selling wheat to the United States (US), and it is expected that their next target will be Asia.

It is also anticipated Argentina will target Asia with its beef exports, as its herd size increases. Argentina is now recognised by the OiE as a foot and mouth disease free zone (with vaccination), which opens up market opportunities. There are forecasts that Argentinian beef exports will increase to 1.3 million tonnes in 2016, and it is likely some of these exports will be targeted at markets currently held by Australia. The loss of these markets to Argentina is inevitable, given the shortage of supply that will be experienced from Australia over the next few years, as a consequence of the smaller cattle herd.

Corn prices in the US

US corn production in 2015/16 is estimated to be 13.6 billion bushels, yet another near-record harvest. As a result, the prices that US corn farmers are projected to receive range from US$3.30–$3.90, averaging around US$3.60 per bushel. To put these prices in perspective, in 2012 corn prices exceeded $US8 per bushel. Corn prices are dropping due to the excess supply arising from large recent harvests, which has coincided with plateauing demand for corn for use in ethanol production. Adding to the downward price pressure, US corn exports have experienced increased competition in international markets from Argentina, Brazil, Ukraine, and Mexico. Lower corn prices will provide some relief for US livestock producers, who rely on corn as their primary animal feed. It can be expected that US beef, dairy, poultry and pork production will increase in response to the increased profit margins arising from lower corn prices.

Brazil’s economic turmoil

Economic conditions in Brazil worsened in the last quarter of 2015, tipping the national economy into recession. Official figures indicate that 1.5 million jobs have been lost, and inflation is currently running at more than 10% per annum. Sometimes, it has seemed like the news simply could not get worse for the Brazilian economy in 2015. Brazil’s state-owned oil company Petrobras was engulfed in a corruption scandal; plunging oil prices triggered a major fall on São Paulo’s stock market; and impeachment proceedings against President Dilma Rousseff, due to a finance scandal, destroyed what little confidence there may have been that the Brazilian Government could respond. With no confidence in the government, banks not actively lending and foreign investors looking elsewhere, hopes for some short-term economic recovery seem futile.

The International Monetary Fund (IMF) is expecting Brazil’s economy to contract 3.5% in 2016 and remain stagnant in 2017. The conflicting pressures arising from high inflation and high interest rates put the government and central bankers in a quandary. The difficult political scene along with the slowdown in China and increasing US interest rates are draining away capital and investment from Brazil. The next 12 months will show how the government and the people of Brazil respond. Interestingly, there could be an upside for agricultural exporters in that the Brazilian Real is expected to depreciate, and labour availability and costs are more favourable than they have been for some time, which should reduce agricultural production costs.

Japan-Australia Economic Partnership Agreement (JAEPA) 12 months on

The Department of Foreign Affairs and Trade report that the first 12 months of the JAEPA have allowed Australia’s agriculture sector to build on traditional exports to that market and create opportunities in emerging areas. The tariff cuts have seen amazing growth in export sales in some sectors; fresh table grape exports from Australia to Japan have increased from $0.6 million to $6.5million in 12 months, and shelled almonds exports have grown from $0.4 million to $4.1 million.

The value of both fresh and chilled beef exports also increased by 24% and 15% respectively. The export value of beef tongue – a popular dish in many Japanese restaurants – increased by 75% to equal more than $52 million. Australian bottled wine exports to Japan increased by 11%, while bulk wine exports have tripled to $5 million. Export sales of frozen shrimp and prawns increased 90%, rolled oats sales to Japan increased by 62%, fresh Valencia orange exports increased by 77%, and asparagus exports have increased by 41%.

No doubt the depreciation of the Australian dollar has been a major factor in some of these increases, but the results certainly paint a very positive picture of the possible outcomes that may occur once other recently negotiated trade agreements come into effect.

Image:  Sam Beebe, Ecotrust