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Media Release

Dollar driven recovery in South Australian rural sector

Tuesday, 8 December 2015

Overall prices for farm products have begun to rise for the first time in four years, according to the latest BankSA Rural Price Index.

The Index forms part of BankSA’s latest Trends economic bulletin, and informs the State’s farmers and farm industries how farm product prices are faring.

In recent years, returns to South Australian farmers have been influenced by a ‘tug-of-war’ between flat and falling world prices and the positive influence of a depreciating Australian dollar and low interest rates.

BankSA Chief Executive Nick Reade said that although farm products have fluctuated, they have not suffered the larger price falls that have been felt by the likes of coal, iron ore and oil and gas.

“Rural prices are more important for South Australia than is true in general across the nation,” said Mr Reade.

“This is because South Australia’s farmers account for more than twice the share of our economy than is true on average for the other States and Territories, except Tasmania.”

The fall in the Australian dollar from its earlier peaks has a significant impact on farm revenue.

Generally, every cent that the dollar drops against the US dollar adds some $400 million to annual farm revenue across Australia, with South Australia taking around 15 per cent of that, or $60 million.

The most volatile of the commodity groups is the crops and grains component, with the recent winter growing season seeing below average yields across the board. And while overall production of wheat and barley production rose to above average levels, this reflected gains in planted area. Planted area, production and yields for canola all fell, reflecting poor returns.

However, returns to local farmers have held fairly steady since 2012 and are expected to continue to do so over the next year.

Livestock and livestock products are the largest contributor to South Australia’s agricultural sector and have seen previously declining prices recover in the past year, with beef prices rising steadily.

Sheep prices have moderated but remain at a high level and wool prices have seen small gains in the past year. Looking ahead, prices are expected to continue to rise over the coming year as production falls while Australian export demand remains solid.

While tariff reductions in Japan and Korea as a result of new Free Trade Agreements and a depreciating currency are expected to make Australian beef more competitive in these markets, producers are likely to face greater competition in the Chinese market.

The smallest component of the Index - horticulture - has seen the slowest increase in prices across the past couple of decades with prices generally close to the levels seen since 2007.

As is the case for ‘hard’ or mining commodities, the outlook for export volumes of ‘soft’ or dining commodities are increasingly dependent on China.

Chinese demand for all types of Australian agricultural produce is likely to improve over the longer term as the Chinese economy shifts from investment-led growth to a more balanced consumption-led growth path.

“There are great opportunities for South Australia’s premium food sector as local and global demand for clean, green food rises. South Australia’s meat producers and aquaculture industry are particularly well placed to tap into the opportunities for quality produce,” said Mr Reade.