Macroeconomic Conditions

NSW primary industries continued a remarkable recovery following the recent drought, despite some challenges including continued lock downs due to COVID-19 and significant east coast flooding. However, the above average rainfall also boosted crop production and, despite the economic uncertainty created by COVID-19, prices for most commodities were strongly higher. Higher production of both livestock and cropping also boosted exports to record highs. The International Monetary Fund estimated that global economic growth reached 6.1% in the 12 months ended December 2021 as countries began to reduce COVID-19 restrictions. However, growth slowed in the first two quarters of 2022 due to a range of factors including:

mounting inflation concerns leading to rising interest rates,
a slowdown in growth from China due to continued lockdowns as a result of their zero COVID strategy,
heighted geopolitical risk, including Russia’s invasion of Ukraine.

Despite this, Australia’s growth was robust, growing 3.6% in 2021-22. Unemployment fell to a 48 year low of 3.5%.¹⁶⁵ Although excellent seasonal conditions and strong commodity prices supported profitability, primary producers did face some challenges, including rising input costs, freight challenges and issues with availability of labour.

Record commodity prices and exports

FAO Food Price Index¹⁶⁰

Nominal
Real

Download data (.XLSX)

Global food prices surged during the year with supply disruptions due to COVID-19, drought in significant food producing regions in the northern hemisphere and the Russian invasion of Ukraine all conspiring to push up food commodity prices significantly.¹⁶⁰

NSW primary industries were beneficiaries of this trend in 2021-22 as commodity prices continued to increase despite the strong rises already achieved in 2020-21. Prices were higher for virtually all the main commodities produced in NSW led by key broadacre crops: cotton (+47%), canola (+44%) and wheat (+16%). Prices were also stronger for key livestock commodities including beef (+17%), wool (+14%) and sheepmeat (+7%). With increased production as well as strong prices driven by rising global demand, NSW primary industries’ exports boomed, rising 64% to $10.9 billion,³⁵ⁿ^u a record high. Broadacre crops were the main driver of higher exports, led by wheat, oilseeds and cotton. Livestock exports also grew strongly, up 27%, as beef and sheepmeat production recovered.³⁵ China remained the largest export destination with exports rebounding from a decline in 2020-21 to grow 49% in 2021-22.³⁵ Exports to Europe also grew strongly, up 62%, primarily due to an increase in canola exports.³⁵

Cost of inputs and freight

Whilst prices and production were very strong, NSW primary producers also faced higher input costs driven by many of the same factors driving up food commodity prices. Energy costs, including oil and gas prices, rose significantly as demand recovered from the COVID-19 pandemic, exacerbated by the Russia-Ukraine conflict which disrupted supply. This led to higher fuel and fertiliser prices.

In response to higher energy prices China also imposed restrictions on the export of phosphates which further disrupted global fertiliser supply. During the year average global diammonium phosphate prices were 77% higher than last year while average urea prices were 156% higher. Key fertilisers are now between 2 and 4 times higher than they were in 2020. Australia imports the majority of fertilisers used in agriculture. For example, Australia imports some 90% of its urea.¹⁶² Fertiliser costs represent on average 14% of total cash costs of NSW cropping farm businesses and fuel and oil represented 7%.¹⁶¹

For the 2021-22 winter crop producers were able to access fertilisers at only slightly elevated prices. However, the steep rise in fertiliser prices from September 2021 meant summer crop producers faced materially higher input costs as did winter crop plantings for 2022-23. The rise in fertiliser prices is similar to 2007-08 which were also the result of supply chain disruptions and higher energy costs as well as an increase in the use of crops for bioenergy. In 2007-08 the situation resolved quickly, however the continued conflict in Ukraine, high commodity prices and persistently high energy costs are keeping both fertiliser and fuel costs high. High fertiliser prices do at least appear to be stimulating investment in local production.¹⁷⁸

COVID-19 also resulted in significant disruption to global shipping which, combined with higher fuel costs led to higher freight costs. For some commodities this added substantially to costs for exporters. The Baltic Dry Index (a proxy for bulk commodity shipping costs) started to rise significantly in January 2021. By September 2021 it was up over 390%.¹⁶³

By June 2022 the index had fallen to more reasonable levels but remained well above long term averages. Fortunately, this index has continued to fall after the end of the year. Container shipping costs also rose materially over same period, rising over 220% from January 2021 to September 2021.¹⁶⁴ Like bulk shipping costs, container shipping costs have also declined since peaking however remain more elevated relative to historical averages.

Global fertiliser price indexes, based on A$ f.o.b¹⁸⁰

Phosphate rock
DAP
TSP
Urea
MOP

Download data (.XLSX)

Labour availability

Lower immigration and the recovery in economic activity as the impacts of the pandemic eased also led to issues with labour availability, especially for horticulture which relies heavily on seasonal labour. Continued border closures/restrictions led to a significant reduction in overseas labour supply from both the Working Holiday Makers scheme and the Seasonal Worker and Pacific Labour scheme. Labour shortages were also a major issue for the processing and grain handling sectors which has the potential to create bottlenecks in the supply chain which could impact farmgate prices.