Duxton’s Agri Bits and Pieces – Vol. 374
Posted on: April 4th, 2018

QUOTE OF THE WEEK

The quote for this week is taken Professor Salah Sukkarieh, professor of robotics and intelligent systems at the University of Sydney, speaking at the Sydney Royal Easter Show:

“Ten years ago there was the assumption that there was no way that robotics would work on a farm — in a very small space of time there’s been a complete refocus and an attention on how robotics can be used on a farm and the farmers are really looking forward to the technology.”

This highlights the integration of advanced technology with primary production and becomes increasingly relevant as agricultural labour becomes scarce, volatility in climate increases and pressure of a growing population make the role of farmers ever more important.

CITRUS ORCHARD AND VINEYARD VALUES DOUBLE ON CHINESE DEMAND

“Citrus orchards and commercial vineyards are selling at almost double the prices of two and three years ago, as growers enjoy bumper profits driven by demand from export markets especially China, according to a new rural outlook report from Colliers International.

In the wine grape sector, Colliers reported Chinese thirst for Australian wine had tripled since 2013-14, with the total value of wine exports expected to reach $595 million in 2016-17 out of a total export market worth $2.64 billion.

Colliers International director Tim Altschwager said large-scale commercial vineyard values had nearly doubled in the past two years on record crop yields and rising prices.

Mr Altschwager said the outlook for this year was positive “particularly for red wine varieties, with the largest crop harvested in 10 years, aligning with firming prices”.

“There has been a noticeable spike in demand for premium vineyards with regional brands, particularly in the Barossa Valley and McLaren Vale in South Australia and the Yarra Valley in Victoria,” the report said.

Amid rising demand in their home countries, Asian groups also seeking to get their hands on the farming assets underpinning production.

Earlier this month, Hong Kong-listed CK Life Sciences, which owns 72 per cent of the 4800-hectare Belvino vineyards portfolio, announced it had bought the 700-hectare Nangiloc Colignan grape and citrus farms and associated water rights in Sunraysia for $46 million.

In the citrus sector, Colliers International directors Jesse Manuel and Nick Cranna said conditions were the strongest in several years, “driven by the increased profitability that has been largely due to China’s demand for Australian product”.

“This increased profitability of citrus enterprises coupled with the lack of buying opportunities for purchasers, is placing significant upwards pressure on orchard values.”

Local citrus grower profits have been helped by a reduction in global competition largely because of the ongoing drought in California and Hurricane Irma which affected yields in late 2017. The export crop topped $300 million in sales last year, the report said.

The three largest citrus producing regions – Riverland, Riverina, and Sunraysia – represented more than 80 per cent of total production last year with ownership of the sector becoming increasingly concentrated: 20 per cent of growers produce about 90 per cent of the produce.

The sector has also attracted a growing number of farming families, corporate agribusinesses and institutional investors (including superannuation funds).”

Source: Schlesinger, Larry. The Australian Financial Review. 25 March 2018.

DROUGHTS IN ARGENTINA AND SOUTH AFRICA HIGHLIGHT THE ECONOMIC IMPORTANCE OF WATER

“Argentina, the world’s largest exporter of soymeal, is suffering its worst drought in at least a decade. Meanwhile, on the other side of the world, South Africa has declared a national disaster as extreme drought ravages the Western Cape region.

The effects of water scarcity on a country’s agricultural sector can send ripples across domestic economies, and are reflected in national economic indicators. In the case of a major agricultural exporter like Argentina, a drought can also reverberate across international markets as global commodity prices react to changes in production.

According to Christopher Decker, a research fellow specialising in economics and law at the University of Oxford, the economic effects of drought can depend on a number of factors, including: how much of the country’s GDP is composed of water-intensive industries; the amount of stored water that can be tapped into in times of scarcity; and how water users adapt their behaviour in response to drought.

The cases of Argentina and South Africa bring into sharp focus the need for policymakers to shield the economy from future droughts, particularly given the threat of a changing climate.

Damaging Argentina’s cash crops
Agriculture is a crucial pillar of Argentina’s economy. Soybean meal is Argentina’s top export, followed by corn, soybean oil and raw soybeans. Together they made up 38 percent of all exports from Argentina in 2016, making the economy particularly vulnerable to extreme weather. As a result of the current drought, the government’s budget forecast of 3.5 percent growth may actually be significantly lower.

As recently as October, Argentine farmers were expecting to expand their corn planting, but are now braced for the worst harvest since 2009, which at the time was heralded as the worst drought in 100 years.

All trouble in the Western Cape
The drought plaguing South Africa’s Western Cape region has diminished its projections of agricultural output by a fifth compared with last year. This translates not only into decreased macroeconomic revenue, but also into employment losses, as smaller harvests means less labour.

Wheat production is especially hard hit, with yields projected to almost halve, from 1.1 million tons in 2017 to 586,000 this year. This will also cause South Africa to increase its wheat imports to 2.1 million tons in 2018, up from 935,000 tons 2017. The increased imports will widen what is, as of January, the largest trade deficit in the country’s history.

South Africa is also the eighth-largest exporter of wine in the world but is on track for its lowest production since 2005. In January, the dams that supply irrigation to the vineyards in the Western Cape were at 24 percent capacity, a fall of almost 50 percent year on year. This means the vines do not have enough water for a proper harvest, and the grapes that are produced are smaller and have less juice, affecting a major regional export.

Mitigating future impact
In the midst of a drought, the need for policy solutions is brought into sharper focus. Governments must prioritise the mitigation of such scenarios, particularly if the economy is agriculture dependent or if water infrastructure is underdeveloped. Having a plan in place to lessen the impact can prevent the worst of the economic damage that would otherwise be inflicted.

“There is a need for some governments to take a more risk-based approach to drought planning and management,” said Decker.

The revamping of outdated water infrastructure is also crucial, particularly in a region like the Western Cape which is both an economic engine and prone to dry climates. “The primary lesson for policymakers is that current water infrastructure in [the] Western Cape and other provinces in the country needs urgent expansion to meet the growing population,” said [Sifiso Ntombela, Head of International Trade and Investment at Agbiz – an agricultural business chamber for South and southern Africa].

The threat of drought is compounded by the spectre of a changing climate that will make water scarcer and render larger swathes of land increasingly inhospitable to crops. “As we see temperatures increase, the frequency and severity of drought does appear to be increasing,” said Fuchs. “It is too early to tell if this is a cycle we are going through, or something which is transitioning to a more permanent basis.”

Assessments from South Africa are less equivocal. “Climate scientists report that both the frequency and severity of climate-induced disasters are increasing in the Western Cape,” said Ntombela. “They have warned that the Western Cape is set to become relatively drier and will experience moderate to strong warming in the next 100 years, which will affect the agriculture sector the most.”

Water is such a basic resource that its presence is taken for granted, but its absence is felt very strongly. As climate conditions change, and in many places worsen, water security becomes an increasingly crucial issue. Governments need to take the lead in planning and prevention, but individual users also have an important role to play in managing a country’s water resources.”

Source: Moncada Rivera, Fernando. World Finance. 23 March 2018.

CHART OF THE WEEK

he chart of the week is taken from Bloomberg. In the wake of the US’s steel and aluminium tariff announcement a number of key trading partners have been exempted (Mexico, S. Korea and Canada) or temporarily exempted (the EU), thus emphasising the thesis that the tariff was primarily aimed at China. In response, China announced a tariff on $3bn of US imports – which is only about 2% of US imports into China. This would suggest that the first round of Chinese tariffs will have minimal impact on either China or the US, for example the effect of a tariff on US pork imports of 25% constitutes 0.3% of Chinese pork consumption.

JOKE OF THE WEEK