Global demand driving up agribusiness confidence

Global demand driving up agribusiness confidence

Australian mid-market agribusinesses are feeling optimistic about the industry’s future, according to the most recent Commonwealth Bank Future Business Index.

Australian mid-market agribusinesses are feeling optimistic about the industry’s future, according to the most recent Commonwealth Bank Future Business Index.

Results from the December quarter showed a modest rise of 1.5 index points for agribusiness, consolidating a sharp improvement in the previous quarter.

69% cent of Agricultural businesses expect business performance to improve in 2014, and 47% of firms expect headcount to increase in the next six months, although labour skills shortage is still a concern for 37%.

Almost a third of respondents (32%) see the falling Australian dollar as their biggest challenge in the coming months, compared to only 9% in the September quarter.

More than one third of agribusiness respondents (39%) feel well prepared to handle fluctuating business conditions, although the majority plan to focus on managing costs rather than business growth.

Interestingly, the transport industry recorded the biggest surge in confidence in the latest Future Business Index. Given that transport is such a vital element of the agribusiness supply chain, the degree of confidence in that sector reflects very positively on agribusiness.

So what is driving agribusiness’s Future Business Index results?

Global demand driving confidence

Australia’s reputation for producing high quality crops and livestock, combined with a seemingly unstoppable surge in middle class wealth in countries like China, equals strong demand and higher revenues for Australian farm businesses.

Agribusiness is starting to consider whether Australia can truly become the food bowl of Asia, and what will be required to achieve that goal. It’s becoming clear that demand alone is not going to be enough to deliver excellent returns back into the Australian agriculture sector and that every part of the supply chain needs to continue to look at what we need to do to remove inefficiencies and grow productivity.

The continued confidence of the sector reflects a commitment to addressing the challenges to increased global supply.

Big results in WA and SA

Recent exceptional crop results will have added to the buoyant mood.

As of February 2014, total winter crop production in Australia for 2013/14 is forecast to be the second largest on record at 44 million. Winter crop production in WA is forecast at a record 17.2 million tonnes (up 55% year-on-year) thanks to favourable spring growing conditions. SA winter crop production is also expected to boom, forecast to have increased 31% year-on-year to 8.6 million tonnes, the second largest on record.

Of course, dry conditions have resulted in NSW winter crop production falling below the decade median, but the good news is that total east coast winter crop production is still forecast at 18.1 million tonnes, which remains above the long-term median.

A word on drought

While overall confidence in the sector is looking strong, the impact of drought can’t be ignored, especially for NSW and Queensland. As the drought continues, agribusinesses have been concerned that farm workers who leave the industry in search of other employment will not return to the sector once the drought breaks, so skills shortage concerns are also connected to drought.

Get industry insights from the latest Future Business Index report. To find out how CommBank can help your Agribusiness, contact your local specialist or call us on 1300 772 968.