The Australian agricultural market

An introduction for investors

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Contents
Contents
Australia as an agricultural producer

Australia as an agricultural exporter

Emerging market demand for Australian agricultural commodities

Crop production in the Australian Wheatbelt

Yields in the Australian Wheatbelt

12

Sustainable farming practices and the Australian Wheatbelt

14

References and data sources

15

Australia as an agricultural producer

The agricultural industry makes a significant contribution to Australias national GDP. The average value of agricultural commodities
produced in Australia over the past five years was AU$44 billion (2007-08 to 2011-12). This excludes the significant downstream
contribution of over AU$100 billion from marketing, refinement and processing.

Figure 1: 30 year trend in total value of Australian agricultural production, 1981-82 to 2010-2011

Agricultural production value (AU$m / year)

60 000

50 000

40 000

30 000

20 000

10 000

Notwithstanding seasonal variations in crop yields, the value of agricultural production has grown at fairly consistent average annual
rate of approximately 4.5% since the early 80s. During that time the total value of agricultural production has more than doubled,
with average annual production in the last decade being 131% higher than in the 80s.

Australian farmland is attractive

to investors because it combines
the benefits of first world
governance and stability with the
scale and prices of developing
nations.
Citi Private Bank, Wealth Report, 2011

Figure 2: Trends in total value of Australian agricultural production by sector, 1980-81 to 2009-10

Grain and oilseed crops

All other crops

Livestock & animal products

45,000

Average production value (AU$m / year

40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1980-81 to 1989-90

1990-91 to 1999-00

2000-01 to 2009-10

Crop production has grown more rapidly than livestock, with the average annual production value of crops over the last decade
being 172% higher than in the 80s, compared to a rise of 97% for livestock. Crops now account for over 57% of agricultural
production value and livestock and animal products for 43% (2010-11 figures).

Figure 3: Australian agricultural commodities by production value, 2010-11 (AU$48,674 total production value)

Grain and oilseed crops

All other crops
Livestock & animal products

Australia as an agricultural
investment destination
exporter

Australias geographic isolation as an island continent and

its strict quarantine laws have kept it relatively free from
many of the agricultural pests and diseases that affect other
countries. This has considerably benefited the competitive
position of Australias agricultural industry in global export
markets.

Grain production up by 69% and

exports up by 176% in the last five
years.

Although Australia accounts for a relatively small proportion

of global production, its low population density allows
two thirds of its agricultural output to be exported. This
equated to average annual exports of AU$30 billion over
the last five years, equivalent to a 12% share of Australias
annual exports, making Australia one of the worlds largest
agricultural exporters.
Grains account for the largest share of Australian agricultural
commodity production (25% of total agricultural production
value) with an average annual gross value of production of
AU$11 billion over the past five years. Over half of all grain
production is exported, making Australia one of the worlds
top grain exporting countries.

Figure 4: Australian wheat and grain exports, 2007-08 to 2011-12

Wheat exports

Other grains and oilseeds

25,000

Export volumes (kt)

20,000

15,000

10,000

5,000

0
200708

200809

200910

201011

201112

Grain production has increased by 69% in the last five years (2007-08 to 2011-12). Because of relatively fixed domestic demand,
these production surpluses have increased the volume of Australias grain exports by 176% over the same period (although it should
be noted that 2007-08 was a below average production year so this skews the figures somewhat).
Australia is the worlds largest producer and exporter of premium white wheat which is particularly well suited to a broad range of
high demand uses such as noodles and bread making. Because of its high and consistent quality, Australian produced white wheat
often commands a price premium on the international market.
Figure 5: Proportion of Australian wheat production exported, 2007-08 to 2011-12
80%

75%

70%

65%

60%

55%

50%
200708

200809

200910

201011

201112

In 2011-2012 wheat exports reached 78% of total production, with export volumes having increased by 211% since 2007-08. Over
the same period Australias share of global wheat exports more than doubled from 6.7% to 15.9%. This makes Australia the third
largest exporter of wheat after the United States and the European Union.
Figure 6: Australias share of global wheat production and exports, 2007-08 to 2011-12

Share of global production

Share of global exports

18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
200708

200809

200910

201011

201112

Emerging
Australia as
market
an investment
demand for
destination
Australian agricultural
commodities

Being within easy reach of the lucrative export markets of Asia and the Middle East, Australian farmers are ideally located to
capitalise on the rapid rise in demand and changing diets in emerging markets. Exports to countries in these regions continue to rise
dramatically, with grain exports to China having more than tripled in the last five years alone (2007-08 to 2011-12).
Figure 7: Five year rise in food exports to Australias largest emerging market export destinations
Exports in 2010-11

Exports in 2006-07

China

Middle East

Indonesia

Malaysia

Thailand

Phillipines

500

1,000

1,500

2,000
2,500
3,000
Annual exports (AU$m)

3,500

4,000

4,500

Figure 8: Rise in Australian crop exports to China, 2007-08 to 2011-12

All other crops

Other grains and oilseeds

Wheat

3500

3000

Annual exports (AU$m)

2500

2000

1500

1000

500

0
200708

200809

200910

201011

201112

5,000

Crop production in the Australian Wheatbelt

On average an area of 23 million hectares was planted to crops in Australia over the last 10 years (2001-02 to 2010-11). There has
been a steady increase in the total area planted to crops from 14.7 million hectares in 1991-92 to 24.4 million hectares in 2010-11,
an increase of 66%.
This increase has been led by wheat which has seen a near doubling from 7.2 million hectares to 13.6 million hectares during the
same period, compared to only 43% for all other crops. Indeed, the area cropped to wheat is greater than the total area planted
to all other crop types combined (including all other arable and perennial crops) with wheat accounting for 56% of the total area
cropped annually over the last ten years (2001-02 to 2010-11).
Figure 9: Long-term trend in the area sown to wheat and other crops, 1991-92 to 2010-11
Wheat

All other crops

15
14

Area sown (million ha)

13
12
11
10
9
8
7
6

The Australian Wheatbelt is

a vast grain growing region
covering an area three times
the size of England.

The great majority of the land area not planted to wheat is devoted to other commercial grains or oilseed crops, with non-arable
crops accounting for only 2% of the total cropped area. The precise land use allocation by farmers to different arable crops
fluctuates from year to year. This is primarily due to farm level management decisions based around rotational crop planning and
the level of rainfall received before each growing season.
Figure 10: Relationship between the area sown to wheat and other arable crops, 2007-08 to 2011-12

Wheat

Other grains and oilseeds

15,000

14,000

Area sown ('000 ha)

13,000

12,000

11,000

10,000

9,000

8,000
200708

200809

200910

201011

201112

As Australias single most important agricultural commodity by production volume and value, wheat accounts for over half of
Australias grain production, with an average annual production of 23 million tonnes over the last five years (2007-08 to 2011-12).
The average annual value of production from Australias grains industry was AU$11 billion over the last five years (2007-08 to 201112) of which AU$6.13 billion or 55% was from wheat.
Figure 11: Australian wheat and grain production, 2007-08 to 2011-12

Wheat production

All other grains & oilseeds

35,000

30,000

Annual production (kt)

25,000

20,000

15,000

10,000

5,000

0
200708

200809

200910

201011

201112

Driven by higher yields and commodity prices the production value of wheat rose by 42% to $7.3 billion over the same period.
Although also on an upward trend, the rise in the production value of other grains has been more variable due to fluctuating
agricultural commodity prices. The value of all grains produced (including wheat) increased by 19% over the last five years.
Figure 12: Value of Australian wheat and grain production, 2007-08 to 2011-12

Wheat

Other grains and oilseeds

8,000

7,000

Annual production value (AU$m)

6,000

5,000

4,000

3,000

2,000

1,000

0
200708

200809

200910

201011

201112

Western Australia produces more wheat on a larger area of land than any other state with an average annual production of 7.3
million tonnes sown on 4.6 million hectares over the last 10 years (2001-02 to 2010-11). During this period Western Australia
accounted for 36% of Australian wheat production, followed by New South Wales which accounted for 30% and South Australia
accounting for 16%.
Figure 13: Average wheat production and area sown by Australian state, 2001-02 to 2010-11

Annual production

Area sown

8,000

5,000
4,500

7,000

4,000

Annual production (kt)

3,500
5,000

3,000

4,000

2,500
2,000

3,000

1,500
2,000
1,000
1,000

500

0
New South Wales

Victoria

Queensland

Western Australia

South Australia

Annual area sown ('000 ha)

6,000

Yields
Australia
in the
as an
Australian
investment
Wheatbelt
destination

Although rainfall patterns vary between states from year to year the impact on yields averages out over longer time periods such
that average long-term yields are roughly equal for all states, having averaged approximately 1.6 tonnes per hectare over the last
decade (2001-02 to 2010-11).
Figure 14: Average wheat yield by Australian state, 2001-02 to 2010-11
1.8
1.6
1.4

Annual yield (t/ha)

1.2
1.0
0.8
0.6
0.4
0.2
0.0
New South Wales

Victoria

Queensland

Western Australia

South Australia

The primary reason Australian wheat yields are relatively low by international standards is the fact that Australian farmers have
become highly specialised in low rainfall farming techniques. As a result, the Australian Wheatbelt has extended inland over time to
areas where rainfall is lower. Indeed, the majority of the Wheatbelt receives low to medium rainfall, with the largest single category
of farms by land area being in the low rainfall areas.
Because yields are lower on lower rainfall farms, this depresses average yields for the country as a whole. High rainfall farms in
Australia show yields more in line with global averages (2.86 tonnes per hectare over the last decade, 2001-02 to 2010-11).
It is the timing and reliability of rainfall (as opposed to extent) that determines the variability of yields and there is wider yield
variability between Australian states than is suggested by the average long-term yield figures. Western Australia benefits from the
most timely and reliable rainfall of the Australian states with distinct wet winter growing seasons and dry summer harvest periods.
As a result, variability in yields is lowest in Western Australia, with New South Wales and Victoria having the highest degree of
variability.

Australias large farm sizes

facilitate greater economies of
scale and higher farm income.

Figure 15: Variability of wheat production and area sown by Australian state, 2001-02 to 2010-11

Area sown

Annual production

50%

Coefficient of variation (2001-02 to 2010-11)

45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
New South Wales

Victoria

Queensland

Western Australia

South Australia

(Note: Variability in the above graph has been calculated using the coefficient of variation, a statistical measure that describes the
degree of divergence from the average. The larger the value, the more variation there was in wheat production and area sown over
the ten year period.)
It is important to note, however, that given the diversity of climate conditions within each sate, state-wide yield averages and
variability data are not sufficient to assess individual farming districts within each state. For instance, in any given state grain yields
generally decline and yield variability generally increases for farms further from the coast.
Due to differences in rainfall reliability and timing, even districts with the same average annual rainfall extent can exhibit widely
differing yield profiles. Yield profiles can have a major impact on investment returns since yield reliability (rather than average yield
level) is one of the most important determinants of farm profits.

Australia has lower farmland

prices than any other large
agricultural exporter.

Sustainable farming practices and the Australian

Wheatbelt

Having worked under challenging conditions of delicate soils and limited water resources for generations, Australians are amongst
the worlds earliest and most committed adopters of sustainable farming practices.
The bash and burn approach of field preparation for sowing and crop residue management of the last century has largely given
way to minimum tillage. The majority of Australian farmers now conserve their crop residue for its proven and crucial role in
minimising soil erosion and moisture loss. This trend has been helped by the greater availability and affordability of large scale farm
machinery suited to Australian farming conditions.
Precision agriculture techniques have also been widely adopted by Australian farmers and the country in now recognised as a world
leader in the development and commercialisation of precision agriculture techniques. It is now common practice for farmers and
harvesting contractors to use Global Positioning Systems (GPS) to map the variation in crop yields across farms, apply fertilisers,
nutrients and other chemical inputs and minimise soil compaction using auto-steer to avoid operation overlap.
Not only are techniques such as minimum tillage and precision agriculture which reduce the ratio of input use per unit of production
good for the environment, they are also good for farm profits and asset values (because they improve soil health and productive
potential). Indeed, the adoption of sustainable farming techniques and technologies has been instrumental in the rising level of
productivity and water use efficiency achieved by Australian farmers.
Larger farms are more able to afford precision agriculture technologies and the specialised machinery involved. In combination with
lower land prices on larger farms, this makes farm size one of the most important determinants of investment returns.
Notes:
Minimum tillage (also referred to as reduced or zero-tillage) is a soil conservation system utilising the minimum level of soil
manipulation necessary for successful crop production. In minimum tillage the soil is not turned over as with conventional tillage
which involves ploughing and harrowing. Conventional tillage causes a decline in optimal soil structure and greater vulnerability to
erosion, loss in organic matter content, and loss of moisture.
Precision agriculture is a farming management concept based on observing and responding to intra-field variations. Today, precision
agriculture is about whole farm management with the goal of optimizing returns on inputs while preserving resources. It relies on
new technologies like satellite imagery, information technology, and geospatial tools. It is also aided by farmers ability to locate
their precise position in a field using satellite positioning system like the GPS or other GNSS.

Almost all farm sales are between local

Australian farmers and 98.5% of all
agricultural businesses are still 100%
Australian owned.

References and data sources

Australian Bureau of Meteorology, Historical Climate Data, 2012

Australian Bureau of Statistics, Agricultural Land Use and Selected Inputs Data Series, 2012
Australian Bureau of Statistics, Australian International Trade Data Series, 2012
Australian Bureau of Statistics, Australian National Accounts, National Income and Expenditure Data Series, 2012
Australian Bureau of Statistics, Crops and Pastures Data Series, 2012
Australian Bureau of Statistics, Selected Agricultural Commodities Data Series, 2012
Australian Bureau of Statistics, Value of Agricultural Commodities Produced Data Series (chain volume measure), 2012
Australian Government Department of Agriculture, Fisheries and Forestry, Australian Bureau of Agricultural and Resource Economics and Sciences, Agricultural
Commodities Statistics, 2012
Food and Agriculture Organization of the United Nations, Agricultural Statistics Database, 2012
Liao, B and Martin, P 2009, Farm innovation in the broadacre and dairy industries, 2006-07 to 2007-08, ABARE research report 09.16, Canberra, November.
Nossal, K and Sheng, Y 2010, Productivity growth: Trends drivers and opportunities for broadacre and dairy industries, Australian Commodities, vol. 17, no. 1, March
quarter, pp. 206216, ABARE, Canberra.
ODonnell, C 2010, Measuring and decomposing agricultural productivity and profitability change, Australian Journal of Agricultural and Resource Economics, vol. 54.
pp. 527560.
Organisation for Economic Co-operation and Development (OECD), Agriculture and Food Statistics, 2012
United States Department of Agriculture, Production, Supply and Distribution Database, 2012

Land Commodities Asset Management AG

Blegistrasse 9
CH-6340
Baar
Switzerland
t. +41 44 20 55 970
f. +41 44 20 55 971
info@landcommodities.com
www.landcommodities.com

Land Commodities Asset Management AG