Australia—Drought weighs on agricultural exports

Australian export earnings from agriculture are set to fall 4.5% over FY2019 and FY2020 as weaker production, stemming from the drought in eastern states, more than offsets the broad pickup in global prices. Agriculture is Australia’s third largest export earner behind hard commodities and services. In particular, drought has weighed heavily on wheat production and will likely cause a 22% fall in export earnings over FY2019. While wheat exports are expected to bounce back strongly over the next couple of years as production returns to pre-drought levels, record Argentinean production provides some risk to the export outlook. The unseasonably dry conditions are also expected to weigh on beef exports (down 11% over the next 18 months), along with cotton and wool receipts (down 30%). However, the Australian Bureau of Agricultural and Resource Economics (ABARES) expects agricultural exports will recover over the medium term, expanding 3.3% p.a. to reach A$55.5b by FY2024 (Chart).

Australian agricultural exports face growing non-tariff measures (NTMs) (policies other than ordinary customs tariffs that can potentially have an economic effect on trade). Indeed, NTMs facing Australian exporters have risen 60% over the last 10 years, driven by higher technical barriers to trade and a growing list of sanitary requirements imposed by most countries to ensure food safety and to protect biosecurity and the environment. ABARES suggests that horticulture exports face the greatest number of NTMs; dairy is a distant second, followed closely by grains, oilseeds, pulses and meat. Compliance with sanitary and technical barriers may raise export costs, but can also lead to greater benefits from trade. For example, Australia’s high food standards domestically could give Australian producers an edge over their international competitors.