As the world’s sixth largest country, Australia is abundant in natural resources. Iron ore, coals, precious metals and agriculture are all key exports for Australia, which relies heavily on international trade for its development and prosperity. While Australia’s natural abundance is seen as an important comparative advantage, export-reliance is seen as a detriment during periods of weak or declining commodity prices.
Australia’s agricultural sector, which earns $155 billion annually and represents 12% of the country’s gross domestic product,[1] has helped the economy weather the storm of declining prices in the energy, iron ore and precious metals markets. With the ratification of the China-Australia Free Trade Agreement (CHAFTA), agriculture will remain a key driver of the Australian economy.
The Australian Wheat Belt
Australia’s wheat belt encompasses a huge swathe of the continent, ensuring a steady and continuous supply of agricultural products that can feed domestic and international markets. The country’s wheat belt encompasses the temperate Northern, Southern and Western regions, with states like Western Australia, New South Whales, South Australia, Victoria and Queensland all contributing to the industry.
Australia’s wheat belt is home to 135,000 farmers who employ more than 300,000 people. In the country’s rural communities, agriculture is the biggest employer. When we factor in direct and indirect employment, agriculture employs more than 1.6 million people.[2]
Sowing season usually begins in the autumn, which corresponds with the April to June period in the southern hemisphere. Harvesting begins in the spring, which falls between September and December.[3] Given that agriculture is considered one of the “five pillars” of the Australian economy, the growing period is considered essential for the country’s prosperity, especially at a time where the forces of climate change are disrupting the intensity and duration of rainfall. This has created concerns about sustainability and raised demand for new innovations in technology and infrastructure that could help improve yield.[4]
The Chinese Influence
China’s influence on Australia extends far beyond agricultural consumption. China is Australia’s largest trading partner[5] and responsible for the bulk of demand in key sectors such as manufacturing, education, real estate and mining. In fact, Australia recently experienced its longest run of manufacturing growth since 2010,[6] thanks in large part to continuing Chinese demand.
The recent passing of the China-Australia Free Trade Agreement is expected to help boost Australia’s agricultural sector by making it more competitive with global competitors.[7] This is especially true for Western Australia, which is the largest exporting state of agricultural products.[8] Currently, agriculture accounts for approximately 8% of Australia’s total exports to China, with 20% of that in dairy, beef and wine products.[9]
Chinese investors are also laying a bigger stake in Australian agriculture, which many view as the next natural resource boom.[10] This includes dropping hundreds of millions of dollars on rural properties in a buying spree that could be valued at more than $1 billion. While the Chinese are taking a more cautious approach to agriculture than, say residential property in places like Sydney, money is pouring in (after all, a Chinese investor bought Australia’s largest cotton irrigator a few years ago for $232 million).[11] According to the Australian Financial Review, Chinese investors made more than half a billion dollars’ worth of rural land investments in Australia as of September 2015, with more investors reportedly “waiting at the farm gate.”[12]
Outlook on Australia’s Economy
Australia’s economy has fared pretty well over the past couple of years in comparison with its advanced industrialized peers. However, the outlook has softened in recent months, which will likely force the Reserve Bank of Australia (RBA) to keep interest rates at rock bottom. According to Westpac’s Leading Index of Economic Activity, which is “designed to enhance the decision making process of financial and business managers and policy makers,” the economy can expect below-trend growth this year.
“Despite some improvement over the last two months, the leading Index continues to point to below trend growth through much of 2016, implying a slowdown from 2015’s slightly above trend pace,” said Matthew Hassan, senior economist at Westpac, as quoted by Business Insider.[13]
Against this uncertain backdrop, Aussie businesses and policymakers are increasingly turning to agriculture to sustain the nation’s growth.
“Australia’s economy is faced with a double whammy,” said BBC News in a report dated February 19. “With the end of the mining boom and a dependence on China, the country is facing risks it hasn’t seen in more than two decades. The government is pushing agriculture as the new driver of economic growth – but will it work?”[14]
Australia’s new strategy is banking on a growing middle class in emerging markets such as China, which demand more of what the Aussies produce, including meat, dairy and other agricultural products. However, with China’s economy showing signs of a prolonged downturn, it’s unclear how much longer local producers can rely on the world’s second-largest economy.
[1] Agriculture in Australia. European Parliament.
[2] The Conversation (August 26, 20150. “Australia’s ‘five strong pillar economy’: agriculture.”
[3] Land Commodities. Growing seasons in the Australian Wheatbelt.
[4] The Conversation (August 26, 20150. “Australia’s ‘five strong pillar economy’: agriculture.”
[5] Lowy Institute for International Policy. China-Australia Relations.
[6] Thuy Ong (January 3, 2016). “manufacturing maintains six month run of growth.” ABC Australia.
[7] Anna Vidot (December 18, 2015). “Australian farmers prepare to reap the benefits as China trade deal takes effect.” ABC Australia.
[8] Growing conditions in the Australian Wheatbelt. Land Commodities.
[9] Jared Lynch (November 11, 2015). “Myth busted – how China trade deal will really affect Australian agriculture.” The Sydney Morning Herald.
[10] Daniel Stacey (September 3, 2015). “China Plows Big Money Into Australian Agriculture.” The Wall Street Journal.
[11] Matthew Cranston, Angus Grigg and Lisa Murray (September 27, 2015). “Chinese investors heat up Australian farm buying spree.” The Australian Financial Review.
[12] Matthew Cranston, Angus Grigg and Lisa Murray (September 27, 2015). “Chinese investors heat up Australian farm buying spree.” The Australian Financial Review.
[13] David Scutt (March 16, 2016). “Australia’s economy may be already slowing.” Business Insider.
[14] BBC News (February 19, 2016). “Australia turns to agriculture as economy falters.”
