GLOBAL meat prices are expected to come under downward pressure due to the COVID-19 pandemic, but remain high by historical standards, according to an Australian government report released today.
The ABARES Impacts of COVID-19 on Australian agriculture, forestry and fisheries trade report said the outlook for agricultural prices still depends on the global supply and demand balance.
The report said ABARES’ March 2020 global outlook assumed COVID-19 would be isolated to China. The forecast then was for a general softening of export prices for Australian producers.
However, global meat prices have been boosted by African swine fever-induced shortages — a situation that will continue during the pandemic, the latest report said.
“So, while the pandemic is likely to place downward pressure on prices, the expectation is that they will continue to remain high by historical standards.”
The ABARES COVID-19 impacts report said if the pandemic continues to spread, the basic need for food will likely sustain demand as long as supply chains function.
“However, the duration of the pandemic and the resulting downturn in economic activity would have a negative impact on household incomes.
“This would translate into a fall in export prices for a number of products.”
However, the downturn in prices will be partially offset by a falling Australian dollar as global markets react to the more significant impacts that are likely to occur in other sectors of the Australian economy, such as education and tourism. ABARES said global grocery supply chain disruptions will most likely be temporary.
China risk limited, but virus’ global spread a problem
ABARES said initially, Australian agriculture’s exposure to China was a risk, but the country’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, ABARES said 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,” the report said.
Supply chain risk for wool
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.”
ABARES said agricultural products consumed through more discretionary spending are likely to be significantly affected.
“For products which feed exclusively into manufacturing supply chains, such as cotton, wool and wood products, the impacts will depend on the extent and length of closures of manufacturing businesses and any disruption to the construction sector.
“The impact on these industries from falling consumer incomes will be more significant as consumers delay purchases of new clothes and other durable goods.”
ABARES acting executive director, Peter Gooday, said the International Monetary Fund (IMF) is currently forecasting a 3 percent contraction in global economic activity in 2020, which is worse than the global financial crisis.
“However, because agricultural exports principally relate to food, trade will continue and consumers will continue to want Australian agricultural products.
“The key impact on global agricultural markets is likely to be softer prices from falling incomes and changes in where food is consumed rather than significantly reduced consumption for most products,” he said.
“Despite the pandemic, it is the recent difficult seasonal conditions in Australia that will continue to dominate industry fortunes over the short term.
“While recent improvements in seasonal conditions will ease pressures on primary producers, the effects of COVID-19 compound the impacts on the sector from drought and this summer’s bushfires,” Mr Gooday said.
“While there is considerable uncertainty in the outlook with the spread of COVID-19, the underlying medium-term prospects for the agriculture sector remain strong.”
Mr Gooay said global stocks of major grains are currently very high, the outlook for global production is good, and the current restrictions are not expected to affect global markets significantly.
No significant disruption to input supply chains
ABARES said well-functioning import supply chains will be important for the expected increase in use of fertilisers and herbicides in Australian agriculture.
ABARES said that up to April 2020 there has been no apparent sign of any significant disruption to imported inputs. ABS trade data for February 2020 reported that foreign input supplies continue to flow (ABS 2020b).
“Whilst ABS trade data for March 2020 was unavailable at time of publishing, confidential import clearances data suggests that imports of key inputs have continued over recent weeks without significant problems.
“Imports of stock feed remain well above the 5-year average, reflecting the effect of drought on domestic stocks,” the report said.
“Fertiliser imports have been below the 5-year average, again reflecting the effect of the drought that significantly reduced demand during the summer cropping season.
“Fertiliser imports picked up significantly in February — a trend that appears to have continued into March,” ABARES said.
“A similar pattern has emerged for agricultural chemicals, suggesting that supply chains are responding to increased demand despite the COVID-19 crisis. Imports of agricultural machinery remain largely in line with average levels.”
To read the full report on the ABARES website click here.