Home > Agriculture well placed to weather global financial storm – visiting international specialist

Agriculture well placed to weather global financial storm – visiting international specialist

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article image Michael Whitehead, vice-president of Rabobank

Agriculture is in a better position than most other industries to weather the global economic crisis, a visiting international agricultural expert has told Australian farmers.

Michael Whitehead, vice president of Food & Agribusiness Research with Rabobank in New York, says that while agriculture will not be immune from the impacts of global recession in 2009, strong fundamentals mean the sector has a comparatively far brighter outlook than many other industries.

“We shouldn?t delude ourselves that agriculture will be immune. It?s going to be tough in terms of consumer demand being affected and how that impacts on agriculture, but our view is that, for those farmers who are good at their business and have good operations, the long-term fundamentals are very good.

“Comparing agriculture to other sectors in the crisis, the fundamentals are still going to be there for agriculture. The food demand is going to be there and the population growth – which is a key driver of increased food consumption – is still going to be there.”

Global demand for grain from the biofuels industry also shows few sign of abating, particularly under the new US administration, Mr Whitehead said.

Supply side pressures

There is also optimistic news for Australian farmers on the supply side, with global grain stocks likely to fall with reduced production in developing countries as a result of the credit crisis and the prospect of „external shocks? such as a Chinese drought and political and climatic problems in South America.

“The credit crisis means we may well see that many farmers in the less developed world won?t be using any fertiliser or will be applying less fertiliser so yields may well go down,” Mr Whitehead said. “And if some of the concerns come to fruition about the impacts of Chinese drought and instability in countries such as South America, there is every chance that what is currently an oversupply of wheat in the world, for example, may start to show concerning lower global end stocks and that could definitely put upward pressure on prices.”

The Australian agricultural sector will also benefit from the likely continuing lower currency, with the US dollar expected to stay strong, Mr Whitehead said, while global prices for farm inputs, such as fertiliser, look set to remain at lower levels.

‘Steak to sausage’

Already, Mr Whitehead says, agriculture is seeing the impacts of the global financial crisis as consumer behaviours changes, with a discernible move to lower-cost products.

“One of the trends we?re seeing, particularly in the US, is what we call the „steak to sausage? example, where people are trading down from luxury items,” he said.

“It?s interesting that we?re seeing share prices strong, for example, in chocolate companies that make basic chocolates, but people are walking away from luxury chocolates,” he said.

“People are buying less textiles and that?s impacting the cotton sector and we?re seeing people eating out less, but buying more fruit and vegetables from supermarkets to cook at home.”

Mr Whitehead was in Australia as part of Rabobank?s Visiting Experts program, which brings international agricultural specialists to Australia and New Zealand to share global expertise with Rabobank clients.

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