by Professor Ross Kingwell – AEGIC Chief Economist.
Key message: Australian grain farmers can count themselves fortunate. The economic and climatic conditions in a 2020 world affected by COVID, as luck may have it, have actually favoured Australian grain farmers. Yet again, Australian grain farmers can say they live in the Lucky Country.
First published in 1964, The Lucky Country, written by Donald Horne, caused a sensation. It critiqued the confident Australia of the 1960s and challenged what the author saw as an unimaginative nation, mired in mediocrity and manacled to its past. So popular was the book that the phrase ‘the lucky country’ became part of the national lexicon.
But is the phrase still relevant now; especially amid a recovery from a global pandemic? How are economies, including Australia, faring? How is grain production, grain demand and grain trade being affected? Are Australian grain farmers still residing in a Lucky Country?
In general, as reported in April 2021 by the International Monetary Fund (2021), many economies are now performing better than initially thought when COVID-19 brutally disrupted economic activity. The global economy contracted by only 3.3% in 2020, whereas back in October 2020 the same estimate was for a 4.4% contraction. Now the global economy is projected to grow at 6% in 2021 and 4.4% in 2022. The April projections for 2021 and 2022 are now 0.8% and 0.2% higher than stated back in October 2020.
Since near mid-2020 world trade volumes have strongly rebounded and now surpass pre-COVID levels (Figure 1). Merchandise trade has hugely rebounded (grey line in Figure 1).However, trade in services is yet to recover to pre-COVID levels. International travel, the arts, entertainment, and some sports are yet to experience adequate recovery.
The economic damage wrought by the COVID pandemic is less than initially thought back in 2020 and economic recovery is also stronger than initially considered, although not all sectors have fared equally. The global story is broadly applicable to Australia.
The Australian economy contracted by only 2.4% in 2020 and is projected to grow at 4.5% in 2021 and 2.8% in 2022. Earlier forecasts were much more pessimistic.
What about the grains sector? How has it fared globally, and especially in Australia?
Globally, the IMF’s food and beverage price index increased in 2020 by 20%, led by rises in the prices of vegetable oils and cereals. In the second half of 2020 prices of many staple crops surged, including prices of wheat, corn, soybeans and canola, reversing an earlier trend of stable or declining prices over the first months of the pandemic in 2020 when large global supplies and weaker demand weighed on prices and logistics troubles reigned.
Soybean and corn prices have increased by more than 50% between August 2020 and February 2021. These prices have been supported by weaker-than-expected harvests, first in the USA and more recently in South America, and strong demand from China, keen to rebuild its pig herd after an outbreak of African swine fever in 2019. Wheat prices in 2020 increased by 38%, following dry winter wheat conditions across the Great Plains of the USA, a small 2020 crop in the European Union, and strong stockpiling demand. Wheat prices rises also have been supported by the imposition of wheat export taxes in Russia and Argentina.
Figure 1: Trade indicators since 2017
In Australia grain farmers have benefited, especially farmers in New South Wales. In 2020/21 these farmers are finally savouring the very rare twin combination of very high grain prices and a bumper season. Elsewhere in Australia average or better harvest volumes combined with very high grain prices will make 2020/21 a year of decent profits, as evidenced by the surge in farmland prices during 2020.
So the COVID-19 pandemic has not been ruinous for Australian grain farmers; quite the opposite.
However, it’s worth sparing a thought for those who have fared poorly due to the pandemic. Across the globe, close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections. In many countries, including Australia, youth, women, and the relatively lower-skilled have suffered more than others, often because their jobs are concentrated in contact-intensive services and the informal sector.
Australian grain farmers can count themselves as fortunate. The economic and climatic conditions in a 2020 world affected by COVID, as luck may have it, have actually favoured Australian grain farmers. Yet again, Australian grain farmers can say they live in the Lucky Country.
International Monetary Fund (2021). World Economic Outlook: Managing Divergent Recoveries. Washington, DC, April.
HORIZONS: the AEGIC Economics and Market Insights blog
Expert grains industry analysis and commentary from AEGIC’s Economics and Market Insight Team on a range of big-picture topics that affect Australia’s export grains sector.