Global agriculture set for sustained expansion

February 2, 2017

 

Despite being one of the world’s oldest industries, agriculture continues to be an essential force for the countries that rely on it – whether for export value or as much-needed imports. A recent report found that while the rate of global growth for the industry is likely to slow down, it will still remain on an upward trend.

The most applicable word for the industry is stability. A global population that continues to grow means an ongoing need for increased food production which guarantees a certain level of demand for agriculture services. These demands are boosted further by a greater desire for biofuels as well, cementing agriculture as an industry that is evolving with the world’s needs.

For companies importing heavy machinery to keep up with growing demand, it’s important to be aware not just which products will be needed most, but also the markets that will be buoyed by this ongoing activity.

What’s the catalyst for this growth?

The Organisation for Economic Cooperation and Development (OECD) produced a report in conjunction with the Food and Agriculture Organisation of the United Nations (FAO) that found the average growth rate for agriculture production between 2003 and 2012 was 2.1 per cent. However, from 2013 onwards the organisations are expecting this to drop slightly to around 1.5 per cent.

The slightly reduced production growth has a range of flow-on effects. For a while, prices for both crop and livestock products will remain above their past averages, mostly due to rising demand both for food products and the various biofuel options that can be produced from organic matter.

There’s also a new catalyst for the way the sector will develop in the future. According to the OECD report, the sector’s evolution is now no longer as driven by policy as it was in the past. Instead, it’s becoming more market-driven as countries such as China continue to grow their influence.

Which markets will grow?

China’s significance to the agriculture industry is likely to grow further in the coming years, with the OECD discussing trends that could drastically change the way it engages with other nations. According to the organisation, China is expected to remain self-sufficient in many respects over the coming years particularly in terms of its main food crops. However, the OECD report believes this won’t be sustainable, as the pressure to feed one-fifth of the world’s population will put pressure on its land, water and labour constraints.

It’s a situation which could lead to a greater demand for other countries’ exports, which puts Australia in good stead due to the free trade agreement it recently signed with China (ChAFTA). The Australian government released a fact sheet on what ChAFTA is likely to mean for the country’s agriculture industry. Previously, Australian agricultural exports to China were subjected to tariffs, unlike those from New Zealand, Chile and other regions with existing free-trade agreements.

Now, these tariffs will be removed. For beef exports, this means extra charges of between 12 and 25 per cent will drop ideally by 2024, while the 12 per cent tax on beef offal is expected to be removed by 2022. Other agriculture products expected to receive tariff decreases include dairy, wool, pork, and sheep and goat meat.

Australia’s growing wine industry and the sectors it supports will also likely benefit from the agreement, especially considering Chinese appetite for wine from this part of the world. China’s import market for wine has doubled since 2009 and is now worth more than $3 billion dollars.

With China set to be responsible for much of the growing food demand in the coming years, regions that have ongoing trade benefits could see major boosts to their agricultural industries in response.

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