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Is South Australia moving from a ‘mining boom’ to a ‘dining boom’?

29 May 2015

In a result that has outpaced the national rate of increase, the latest BankSA Rural Price Index shows that South Australia’s exports of unprocessed foods have more than doubled, from $1.1 billion in 2009-10 to $2.4 billion in 2013-14.

The index states that as demand, especially from Asia, spreads to more South Australian products, including meat, livestock products, crops and grains, we are seeing a “trend that will help move South Australia from the ‘mining boom’ to the ‘dining boom’”.

Released today, the Rural Price Index is part of BankSA’s Trends economic bulletin, compiled in conjunction with Deloitte Access Economics. 

The index has been tracking farm prices for South Australian farmers since early 2000, and is a measure of prices for three main groups of products – grains, livestock and horticulture.

The bulletin reports that the overall trend in the prices received by South Australian farmers has been broadly positive in recent years, and largely due to the steady fall of the Australian dollar.

According to BankSA Chief Executive Nick Reade, the currency effect is not a minor benefit, given that prices received in Australian dollar terms have risen 4.5 per cent over the past two years, whereas world prices are down a sixth across the same period.

“This has provided a welcome level of assistance to the local industry, with the improved competitiveness of local produce on world markets helping to boost the volume of rural exports,” he said.

“With the currency still moving lower of late, and with the potential for the currency to drop further still given that the dollar remains above its longer term trend, these benefits can only increase.”

As a general rule, every cent that the dollar drops against the US dollar adds around $400 million to annual farm revenue across Australia, with South Australia receiving around 15 per cent of that (or $60 million).

The three commodity groups within South Australia’s broader agricultural sector are grains, livestock and horticulture; crops and grains being the most volatile due to sharp swings in production levels during drought conditions.

However, while the State’s recent winter growing season saw above average yields, the levels were down on the very strong results seen in the previous year. 

But despite this, overall production levels remain strong by historical standards, meaning prices are not tipped to move much in this sector in the shorter term.

The livestock and livestock products component, the largest contributor to South Australia’s agricultural sector, is generally more stable and sees less volatility in its prices compared to the crops component.

With prices not expected to reach those of earlier years any time soon, the livestock and livestock products sector can still expect to export volumes at close to record levels, thanks to the easing Australian dollar and increasing demand from China.

Horticulture, the third and smallest component of the BankSA Rural Price Index, has seen the slowest increase in prices across the past two decades.  Overall, prices are close to the levels seen in 2007, largely influenced by the large falls in prices for wine grapes in recent years.

The sector, however, has seen more activity in terms of volumes, and key to this is the rise in Chinese demand for all types of Australian agricultural produce, and especially barley and canola.

As the BankSA Rural Price Index highlights, the long term decline in the price of wine grapes, has ultimately held back horticulture prices.

The index shows that prices are barely a third of the levels received 15 years ago and this has had a significant impact on the industry’s profitability, with less than 15 per cent of producers making a profit in 2014.

Mr Reade said, as the index reports, China represents a significant opportunity for the industry alongside the expected boost from a lower Australian dollar.

“The combination of these two critical factors may help turn around prices received by grape growers, lift profitability and stabilise the South Australian industry’s outlook,” Mr Reade said.

The BankSA Rural Price Index informs the State’s farmers and farm industries how prices are faring for South Australia’s farm products, rather than merely how prices are faring across Australia as a whole.  The index aggregates price movements across 17 products which make up more than 80 per cent of South Australia’s farm output.

Copies of BankSA’s Trends economic bulletin are available upon request.