Authors: Jared Greenville, Heather McGilvray, LY Cao and James Fell
As the COVID-19 pandemic spreads, so will the impacts on Australia’s agriculture, forestry and fisheries sectors. Initially the impact was due to slowing demand in China, however the subsequent global spread of the virus is now impacting on global markets, making the short-term outlook for Australian agriculture increasingly uncertain.
The International Monetary Fund (IMF) is currently forecasting a 3% contraction in global economic activity in 2020—worse than the global financial crisis (IMF, 2020). However, because agricultural exports principally relate to food, the key impact on global agricultural markets is likely to be softer prices rather than significantly reduced consumption. This is because food is always an essential commodity, even during a crisis.
Initially, Australian agriculture’s exposure to China was a risk. The most exposed products were those typically associated with restaurants and cafés, and, for the forestry sector, those feeding into manufacturing processes. China’s success in controlling the spread of the virus has allowed it to loosen restrictions and put its economy on a path to recovery. Provided the recovery is sustained, the negative impacts on Australia's trade with China may be limited.
However, with the virus now spreading well beyond China, second and third waves of impacts on Australia's agricultural, forestry and fisheries sectors are likely. In the immediate future supply chain and logistics disruptions are expected to be the most significant risk to the three sectors and hence to producer incomes. Those disruptions may impact on the supply of imported inputs, and the performance of export supply chains. Although the risk is significant, early indications are that many issues are being resolved—including with support of the Australian Government— such that supply chains within Australia, and to a number of major markets, are still functioning. For those sectors that rely on manufacturing in other countries (for example, forestry and wool) the potential for further disruption to production and logistics outside Australia could constrain demand for Australian products.
Domestic measures to limit the spread of COVID-19 could affect labour availability in some industries or disrupt their ability to export due to impacts on logistics networks. Horticultural and intensive production enterprises are particularly concerned about access to migrant labour needed to get products from the farm to consumers. The Australian Government has taken steps to reduce these risks through recent changes to visa arrangements for seasonal workers.
Despite the pandemic, it is the recent difficult seasonal conditions that will continue to dominate industry fortunes over the short term. The biggest impact on the agricultural sector over the past three years has been and remains the drought conditions that have affected national production. And while recent improvements in seasonal conditions will ease pressures on primary producers, the impact of this summer's bushfires and COVID-19 will likely compound those of the drought in the short term.
There is considerable uncertainty in the outlook for the agricultural, forestry and fisheries sectors with the spread of COVID-19. Key aspects that will drive the economic impacts from the pandemic relate to the length of time over which it continues and the measures put in place by governments around the world to limit its spread. However, the underlying medium-term prospects for the sector remain strong.