There are always winners and losers when exchange rates fluctuate. When it comes to exporters, particularly in the agricultural space, the rising Australian dollar may lead to more losers than winners.
As a result, the eyes of the Australian agricultural sector have been focused on the value of the Australian dollar for some time now. In September, the AUD/USD exchange rate stood at a year-long high of 0.81, and although it has since depreciated, the overall trend is that of an increasingly strong Australian dollar on the world stage (statistics courtesy of the Reserve Bank of Australia).
The Australian Bureau of Statistics indicates that the gross value of Australian agriculture came to $56 billion in 2015-16, but this may soon shrink if the dollar's value continues to rise. A strong Australian dollar makes it difficult for exporters because their wares become more expensive to potential buyers. This means they either have to accept that they won't sell as much, or lower their prices to accommodate the new exchange rate, and consequently have smaller profit margins.
However, those operating in the space need not despair. Those agribusinesses that do survive will be all the stronger for it, having improved their product offering and business strategy to ensure they remain attractive to their export markets despite the higher prices. For Australian agricultural exporters, this means responding to what the growing Asian market wants and focusing on green produce.
What does Asia want?
China makes up 21 per cent of Australia's major agricultural export markets, and in total Asian countries make up well over half of Australia's food export markets, according to the Department of Foreign Affairs and Trade. This makes responding to long-term trends in Asia essential for agribusinesses that want sustained growth.
A paper released by the Australian Bureau of Agricultural and Resource Economics and Sciences details those trends:
- These countries are beginning to meet their own demand for staples such as rice and wheat;
- However China's consumption of dairy products will more than double by 2050;
- China's demand will nearly double for sugar and beef;
- Overall, demand for high-value food is growing.
Exporters should focus on these food groups if they are to survive the coming years.
Green is good
The organic food market in China has tripled since 2007, and is continuing to grow, the China Business Review reports. Australia has had a strong green produce sector for some time. However, impetus must now be put on the marketing of these products, with particular emphasis on their "clean green" element, if Australian exports in this area are really to take off.
Alpin Advisory has helped agricultural businesses re-orient their business strategy in the face of changing economic conditions. Contact us today to find out what we could do for you.