Farmers Down Under Face ‘Watershed Year’ as China Risks Stack Up

(Bloomberg) -- 2021 will probably mark a “watershed year” where Australia starts to reduce its reliance on China for agricultural exports as diplomatic tensions look set to persist, according to Rabobank Group.

The risks of supplying the Chinese market have “definitely increased,” Tim Hunt, the bank's head of food and agribusiness research for Australia, said in a statement Friday. This is whether or not Beijing continues to scale back purchases of Australian food and agricultural products as it's poised to do in the coming years, he said.

Australia's agriculture sector has borne the brunt of escalating tensions between Beijing and Canberra that's led China to impose a raft of trade measures restricting imports of Australian beef, barley, lobster, wine and timber. While the overall hit to Australia's economy is relatively small, the impact on some of those industries has been savage as exporters are forced to abandon their biggest market and seek customers elsewhere.

“Mother nature is supporting Australian farmers at the moment” with abundant rainfalls boosting crop yields, but “the Chinese government is in a less generous mood,” according to the statement.

Reducing reliance on the Chinese market is one of the major transitions Rabobank says Australian agriculture needs to navigate in the year ahead. Prevailing market conditions of strong demand, limited supply and high prices for agricultural commodities will make this shift away from China seem less daunting at the current time.

“But reorientation to reduce reliance on China is a multi-year challenge that will still be ongoing when the market cycle inevitably turns again,” Hunt said.

Hunt also flagged a need for the sector to increase focus on environmental sustainability, as well as mitigate for possible softening of demand as governments look to withdraw assistance for consumers that propped up demand for food and fiber during the pandemic.

Rabobank's 2021 outlook for specific commodities:

• Wheat: strong global demand is set to keep prices firm through the year
• Feed grain: rising global feed grain demand and supply constraints to support prices in 2021
• Beef: a rebuild year, with favorable conditions triggering increased breeding numbers and reduced slaughter keeping cattle prices firm
• Sugar: a balanced global 2021 supply forecast, but outlook subject to impacts of La Nina, trade flows and pandemic
• Cotton: production set for sharp recovery, as demand recovers post Covid-19
• Wine: pandemic-related disruptions to food service to continue to influence retail demand for wine, but geopolitical tensions with China will put pressure on average export prices

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