Horticulture: March quarter 2022

In 2021–22, the value of horticultural production is forecast to reach $12 billion, the second highest on record (Figure 1.1). Production of most fruit and vegetables over summer and autumn is expected to be plentiful, supported by favourable seasonal conditions and low water prices. However, farm and retail prices are forecast to remain elevated due to the increased costs of getting fresh produce to consumers. This comes as supply chain operations have been challenged by workforce shortages caused by the spread of the Omicron variant of COVID-19. The reduced workforce during summer has not only affected farm operations but also disrupted the distribution networks of major supermarkets, with staffing shortages causing some fresh produce to be temporarily unavailable in grocery aisles. Smaller greengrocers that source directly from wholesale markets and multiple suppliers have seen more consistent product availabilities, but they have also faced staffing shortages.

In 2022–23, the value of horticultural production is expected to rise by 4% to $12.5 billion. This is despite horticultural production being expected to fall moderately due to a return to average seasonal conditions. Production of most fresh produce will continue to remain at high levels overall, supported by high water storage levels and low water prices. The moderate fall in supply, along with consistent demand, are expected to support higher farmgate prices. Labour costs are expected to ease but will continue to place upward pressure on farm supply costs. This easing of labour shortages comes as working holiday makers are expected to return in greater numbers than the last two years. However, there remains a risk that a more staggered return of working holiday makers could constrain labour supplies further than anticipated, resulting in a scenario whereby higher labour costs could place greater upward pressure on farmgate prices. This edition of the Agricultural Commodities Report considers both scenarios over the outlook period to 2026–27 (see the Agricultural overview for a full explanation).

Over the medium term to 2026–27, production values under the two scenarios are expected to increase and reach above $15 billion in nominal terms and between $12.7 billion to $13.6 billion in real terms by the end of the projection period. Production is expected to remain more stable in the faster economic recovery scenario, supported by high water storage levels that will buffer against the earlier occurrence of drought years in that scenario. In both scenarios, rising production is projected for some industries including almonds, avocados, berries, citrus, macadamia nuts and table grapes. Higher production in these industries will be driven by previously planted trees and vines coming into maturity.

Farmgate prices will be less affected by labour challenges over the medium term as international travel increases and farms extract benefits from previous investments made to improve on labour productivity. By the end of the projection period, farmgate prices and costs for domestically focused industries are expected to keep pace with general inflationary pressures, with differences between scenarios driven mainly by wage expectations and interest rates that impact on general price levels in the Australian economy. However, if stronger international demand and less supply chain disruptions are realised, as in the faster recovery scenario, the value of production for export focused industries will be higher. This is expected to lead to higher overall nominal value of horticultural production under the faster recovery scenario in later years.

s ABARES estimate. f ABARES forecast. z ABARES projection.
Sources: ABARES; ABS

Key policy changes in the second half of 2021–22 to encourage international travellers to return to Australia are expected to help ease labour challenges in 2022–23 for horticultural industries. These build on previous policies and contribute to improved access to seasonal workforces, including working holiday makers and Pacific Island workers, over the short and medium term.

The improved outlook for labour availability in the short term will be supported by a series of visa measures implemented by the Australian Government to incentivise Student and Working Holiday Maker visa holders to return to Australia and participate in work. This comes as visa application charges will be refunded for any Student visa holder returning to Australia between 19 January 2022 and 19 March 2022, and for any Working Holiday Maker visa holders returning to Australia between 19 January 2022 and 19 April 2022. In addition, since 19 January 2022 the Government has also:

• temporarily removed the limit on Student visa holders’ working hours across all sectors of the economy;
• temporarily relaxed the 6-month work limitation for Working Holiday Maker visa holders, while also removing limits on the time they can work for the same employer until the end of 2022.

The re-opening of international travel for all fully vaccinated visa holders since 21 February 2022 will also improve access to the working holiday maker workforce. This will be helped by exemptions from quarantine requirements and caps to international arrivals available for fully vaccinated foreign visa holders entering into all jurisdictions except Western Australia.

Sourcing seasonal workers from Pacific Island nations will also be streamlined by Australian Government programs aimed to increase Pacific labour mobility. From April 2022, the Seasonal Worker Programme and Pacific Labour Scheme will be replaced by a more flexible and efficient single program. In addition, the introduction of the Australian Agriculture Visa Program will provide further support for a shift to a stable and sustainable workforce by providing better access to a broader pool of international workers.

In 2021–22, the value of horticultural exports is forecast to increase by 8% to $2.9 billion (Figure 1.2). Favourable seasonal conditions supporting production and quality attributes are expected to increase exports of almonds, cherries, macadamia nuts, stone fruit, potatoes, and table grapes. However, costs of air and sea freight and shortages of refrigerated containers are expected to continue to constrain exports.

In 2022–23, horticultural exports are forecast to increase by 7% to $3.1 billion. Underpinning the export growth is favourable production prospects leading into and during the export period, improved trade access for citrus into the United States, and tariff reductions for Australian exports into the United Kingdom. Reduced costs of seasonal labour would help growers to better focus on mitigating weather damage and inspecting for produce quality. At the same time, an easing of disruption to export logistics would increase demand for Australian produce by lowering trade costs and ensuring more timely deliveries. However, there remains a risk that in a scenario where issues with labour costs and trade disruptions persist, then these concerns could lead to slower growth in export value.

Over the medium term to 2026–27, export growth will be largely influenced by the speed of the global economic recovery and resolution of supply chain disruptions. This comes as faster and stronger global economic recovery from the pandemic would help to lift international demand for Australian produce, especially in Asian countries. Less disruptions to export logistics would also support exporters to better service existing markets. Additionally, expansion into new markets will be facilitated by investing in marketing and supply chain relationships that help to grow demand. These favourable developments assumed under the faster recovery scenario would help to grow horticultural exports to $4.3 billion dollars in real terms by 2026–27. In contrast, there is a risk that staggered economic growth and prolonged disruptions to export logistics could constrain growth of horticultural exports to reach $3.3 billion in real terms by the end of the projection period.

s ABARES estimate. f ABARES forecast. z ABARES projection.
Sources: ABARES; ABS

Over the medium term, farmgate prices are expected to fall in some growth industries including avocadoes and berries as their production volumes are projected to rise. The development of export markets has become an increasing focus for these industries with emphasis on improving trade market access and their competitive advantage against southern hemisphere competitors. It is expected that higher exports in the faster recovery scenario will help to dampen price falls in the domestic market for those producers. However, disruptions to export logistics and slower international demand assumed in the slower recovery scenario would risk those prospects. In such a case, more supplies having to be traded in the domestic market would cause greater reductions in their farmgate prices. This would lead to falling profit margins that could contribute to greater industry consolidation.

Horticulture Award new minimum hourly wage guarantee for pieceworkers to take effect from 28 April 2022

From 28 April 2022, the Horticulture Award will include a minimum hourly wage guarantee and a requirement to record hours worked by pieceworkers. This comes following a decision by the Fair Work Commission which will see pieceworkers under the Horticulture Award guaranteed at least the minimum hourly rate for the pieceworker’s classification level plus, for a casual pieceworker, the 25% casual loading. The decision also requires employers to:

• fix the piece rate at a level such that a pieceworker working at the average productivity of a pieceworker competent at the piecework task will earn at least 15% more per hour than the minimum hourly rate plus the casual loading (if applicable); and
• record all hours worked by the pieceworker and the applicable piece rate at the time those hours were worked.

The implication of the new minimum hourly wage guarantee for farm businesses is unknown, but they are expected to induce more worker screening by farm employers in the short term and labour-saving investments in the longer term. Higher pay guarantees should induce more potential applicants for farm work. Farm businesses better able to adapt to these new rules by increasing their chances of hiring or retaining higher productivity workers stand to benefit against their competition. Similarly, those businesses making current investments into workforce efficiency and labour-saving technologies would be in better positions to save on labour costs in the longer term.

A healthy diversity of increasingly agile value chains servicing Australian customers

In the late half of 2021–22, there have been large disruptions to the distribution networks of major supermarkets. This has been contrasted with less disruptions to smaller retailers supported by more de-centralised wholesale markets. Consequently, this has re-ignited questions about the performance of various food supply chains in Australia, and which of them stand to benefit consumers and producers more broadly.

Major supermarkets operate long food chains that transport, distribute and supply vast amounts of consistent quality goods across Australia to reach a greater number of consumers. Such operations have helped to reduce transportation and distribution costs, address issues of asymmetric information typical in food safety and quality, and better deliver convenience and savings to consumers through a wider array of affordable farm products in one place.

On the other hand, the many smaller retailers and greengrocers servicing their local communities find efficiencies and savings in shorter chains. They often see less throughput than the major supermarkets in their area but offer a more customised shopping experience through speciality products not found in supermarkets.

Australian consumers have valued both convenience and connections to their food, and those prospects would help to support a healthy diversity of value chains servicing the Australian community. Reflecting Australian consumers’ preferences, we expect the diversity of value chains servicing the Australian community to continue. In addition, lessons learnt from the current Omicron pandemic have paved the way for workforce contingencies and investments to improve the adaptability of business operations against future workforce shortages.