Global and national context | ABARES Outlook 2021



Nikolai Beilharz:Hello there, I'm Nikolai Beilharz and I present the country hour on ABC Radio in Victoria. And welcome to the ABARES Outlook Conference for 2021. I'm imagining a huge raucous of wild round of applause right now is reverberating around offices and homes throughout Australia. Thank you for joining us today for the conference. I've been lucky enough to open proceedings at the ABARES conference for a couple of years now, and I've said in the past how much I enjoy this opening session and the sessions throughout the course of the next few days, particularly this opening session, looking at some of the big picture things that have been affecting agriculture, obviously COVID featuring so prominently amongst that. But it has been a bumper year for production despite all that, so lots to talk about today. Of course, this year's a little bit different. I'm sitting in a little office at the ABC in Southbank in Melbourne, so there's a very slight chance that Michael Rowland or Virginia Trioli or someone else will barge in asking for the printer code, so you'll have to excuse me if that happens, but I think we should be okay. And I imagine that some of you are probably lucky enough, maybe, to be back in your offices now, but some are probably still in your cobbled together home offices as well, propped up by old cookbooks and dogs and cats and small people annoying you for food already. It is amazing though, how quickly, I think, we've all adapted to working in this online space, and I've no doubt that you'll still be able to pick up some great information in the coming sessions. Just please do us a favor. Keep the video off if you're still in your pajamas. It's okay, we won't tell the boss. To start proceedings today, I would like to welcome Shane [Halloran 00:01:33] from the Ngunnawal people for a Welcome to Country.Shane Halloran:[foreign language 00:01:40]. On behalf of my elders I say, [foreign language 00:01:42] Hello and welcome for those of us meeting on Ngunnawal country. I pay my respects to the traditional owners of the lands from where you're watching today. I acknowledge my ancestors, my elders, the Ngunnawal people, who the traditional custodians of the region encompassing Canberra, the ACT and surrounds. The Ngunnawal people pay our respect to our traditional neighbors, the Gandangara to the northeast, the Walgaloo to the south, the Wiradjuri to the west, the Yuin to the east and Ngarigo to the southeast. We know that a Welcome to Country's an ancient Aboriginal protocol that ensures that once welcomed, your body and spirit are protected whilst on another's land. [foreign language 00:02:22] As we share respect for the land and the people around us, we know the same respect will be shown to us. Thank you.Nikolai Beilharz:Thanks so much, Shane Halloran, for that Welcome to Country. I'd now like to introduce our first speaker, the federal minister for agriculture, drought and emergency management, David Littleproud, who will provide us with our opening address. Over to you, Minister. David Littleproud:Well, welcome to ABARES 2021, albeit in a different format to what we're used to. But we should be proud of the fact that Australian agriculture has stood up through adversity, not just through COVID-19, but through bushfires, drought, and also floods that impacted our national herd. Australian agriculture has been the cornerstone of our nation's economy during some of these tough times. It'll be the cornerstone of getting us out of the COVID-19 recession. I'm proud to say that we've announced our Ag2030 plan to support agriculture's ambitious goal of $100 billion industry by 2030. We've already taken steps towards that. This year, we've upgraded our agricultural output from $60 billion to $65 billion, despite all those challenges. So we've got a lot to be proud of, but our Ag2030 plan is predicated on seven pillars, seven pillars that are essential to ensuring we give the support Australian agriculture needs to reaching that $100 billion dollar industry, particularly around trade. And we're a nation of 25 million people. We produce enough food for 75 million. So if we don't engage with the world, don't trade with the world, then we don't need the farmers we've got now. So that's why in the budget, we announced over $300 million towards a trade package, making sure we have a digital platform that's fit for purpose, getting rid of the over 200,000 export permits that we manually now issue every year, to go into a digital platform. Also, making sure that we're cutting down the number of applications to export, from around 20 to one. That's just using common sense and technology to get out of your life. We're also looking to support industries that export, to make sure that the regulatory framework in which we ask them to operate in is reduced. That's about ensuring that they streamline, using technology to cut down that burden on them. We're also investing significant record amounts in biosecurity funding. Over $870 million has been put into biosecurity, and we'll look to make sure that more is put into it, not just around dollars, but investing in technology and the smarts of the 21st century to protect brand Australia. We've looked at the stewardship program. I'm proud to advise that our biodiversity stewardship program will have its pilots already announced by the time we meet here today. This is an important step in rewarding farmers for the stewardship of their land, but improving their biodiversity. We're looking at building the infrastructure. Over three and a half billion dollars towards infrastructure, towards dams. We want to plumb the nation. We need the states to play their role, and that's about just simply giving us some approvals. But the federal government will support them with cold hard cash. If we inject water into agriculture, then we will grow it even quicker. So the Australian government will continue to support that. We're also looking to deepen our supply chains by investing over $1.3 billion in our manufacturing, taking our agricultural products further through the supply chain, and being able to export them around the world. We're also looking at our education systems, making sure that we're investing in the next generation of agricultural enthusiasts, making sure there's a career pathway for those that want to be in agriculture, wherever they may be, not necessarily just in capital cities. And we're investing our innovation systems. We're number 23 in the world, and I've challenged our RDC's to be number one by 2030. We've made significant steps around reforming that, getting back to first principles. Value to the taxpayer, value to the levy payer. Making sure that there isn't duplication in terms of our research, and making sure there's more money put into development. We do research really well here, but we don't develop the smarts, the best smarts, in the world right here in Australia to product. The commercialization of our research is so important. So the framework's being laid for ag to hit its $100 billion goal by 2030. We should be proud of the accomplishments we've made over such a tough year. We should reflect, but also look to the future. So I'm proud to be the Australian agriculture minister. I'm proud of the fact that regional Australia stood up in some of the most adverse times in our nation's history, and we continue to prosper. It says a lot about Australian agriculture, and it says a lot about regional Australia. Thanks on behalf of a grateful nation.Nikolai Beilharz:Big thanks to the federal agriculture minister, David Littleproud. We will now move on to our first session formally, and on I've really come to look forward to over the years, talking the big picture. And this session is a really good chance to analyze and look back over the past little while, obviously COVID having a huge effect on so many different aspects of our lives, and particularly economically, but also some of the other effects that have hit agriculture as well, and what may happen next. There are a lot of questions I think that still remain at top of people's minds, in terms of what the economy is going to look like for the rest of 2021 and beyond. Will we face lower growth or slower growth? Will we see things like rising inflation, and what kind of effect will that have for farming? So we'll try and sort through that over the course of the next hour or so. A few little housekeeping things that we need to know. You can submit and upvote questions during the presentations on the menu on the left. We will do a live Q&A after the formal presentations and get to as many questions as we can. If the speaker's given their permission, their slides will be available in the resources tab that you can download, and the session will be recorded and available under the catch up session as well. So let's move to our first speaker. Sarah Hunter is the chief economist at BIS Oxford Economics. She leads the team that provides Oxford Economics' global client base with detailed analysis and projections for Australia's economy. Today, she's looking at how we can try and navigate the economic recovery from COVID. Sarah, to you.Sarah Hunter:Good morning. Thank you for joining me for this economic outlook session. Before we get into the questions and discussion, I'm just going to give you a few brief comments on the global economy's experience last year, what Australia looked like through that period, and then more importantly, what's going to drive the economy, going forward? What are going to be the key factors that will dictate how we go through the next year and beyond?Just in terms of the global economy's experience over the last year, unprecedented is absolutely the word. This is the biggest downturn in activity that we have on record for the global economy through the first half of 2020. And certainly in terms of experience, it's the biggest one for the vast majority of people that are alive today in their lived experience. Since then, we've obviously had a recovery, but the recovery has been patchy, and has differed quite substantially across countries, really as a function of control of the disease, and prevalence of the disease, of the restrictions that are in place, or not as the case may be, and of the policy settings, how fiscal and monetary policy has been used thus far, and what will happen, and how it's going to be used, going forward.These general comments then, give us a general outlook for the global economy, which is, after an initial burst of activity, a sort of slow and steady pace of recovery. The middle part of this year could well be quite strong as restrictions are eased in Europe, but then after that it sort of transitions back to that closer to the long run growth profile. And that broad summary is not too far adrift from Australia's experience over the last year, and more or less what we think might happen this year as we go forward. So over the last year then, what we've seen is absolutely a rollercoaster ride for the economy. Really sharp contraction. The biggest one that we have on record, likely the largest one since the Great Depression in the first half of last year, and then since then the recovery. A partial recovery in the September quarter... Obviously, Victoria is still in lockdown at that stage... And then a further recovery is Victoria came back online, and essentially caught up with the rest of the states through the December quarter. A few comments before moving on to the outlook for this year. Australia has traveled through the pandemic exceptionally well. It's going to record one of the smallest contractions of advanced economies for 2020, and if we're looking at activity levels in terms of where they are relative to pre COVID, that will also be a relatively positive story. We're likely to get back to pre COVID levels sooner than many countries, particularly in Europe.And what explains that, and then what is going to explain then relatively solid performance this year? Well, a few important factors. The first of those is absolutely control of COVID-19. Control of the disease. It's become clear over the last 12 months that there isn't really a trade off between controlling the pandemic and the performance of the economy. Those economies that really haven't failed to control the pandemic have performed relatively poorly in terms of economic activity levels. Those economies that have controlled the pandemic successfully and have normalized as a result, or in some cases never had to go into lockdown in first place, have performed better. Australia very much in that second group if we look at the trajectory for cases. Again, notwithstanding [inaudible 00:12:00] Victoria, clearly, since October the disease is under control. We've had outbreaks recently but they have been well controlled. And that has allowed confidence in the outlook to return. It's allowed the removal of restrictions, and a good degree of normalization. And that has really driven activity levels. The contrast, of course... As you can see on the side, I've just used the UK, but I could really use any of the countries still struggling with the pandemic. They've suffered a first, second, third, even subsequent waves of infections. That's required restrictions, or at the very least, limits on activity that people choose, and confidence in those economies is still depressed relative to what it was pre pandemic, and that shows through in the data.It's not just a story though, about disease control. It's also one of policy. Monetary policy really importantly, to begin with. We've had the RBA put in place and pull all the levers of traditional monetary policy, so the cash rate at its effective lower bound now, but also unconventional measures. We've had the term funding facility for local banks, the three year government bond yield target, and then the introduction of quantitative easing in November, and its extension in their most recent meeting in February.All of these things have made monetary conditions in the local economy very, very loose. Interest rates across the board, mortgage borrowing rates, corporate borrowing rates, government bond yields... They're all exceptionally low. So the RBA providing really substantial amount of support to the economy and making it very cheap for businesses to take on debt, for the government to borrow so that they can support the economy as well. And this is vital, and we know from the RBA's statement that they're going to maintain this as we go forward. So their concern is not just about getting the economy back to pre COVID levels of activity, it's actually going beyond that and getting to full employment. So where the labor market is tight and we get wages growth and price growth. They're not expecting that to materialize for the next three years. So it's going to be a while yet before we see any monetary tightening. To go with that, we've also got fiscal supports. We've got the emergency supports that were put in place early last year. JobKeeper, JobSeeker, social security payments, payments to businesses to get them through the initial impact negative drag on the economy from forcing large parts of it to just shut down. Those have been extremely helpful in terms of supporting household spending, and really getting people to the other side. But what we're seeing now from fiscal policy, is that it's pivoting to what you might call more traditional stimulus. So we've got a move into infrastructure projects, accelerating some of the big engineering construction projects that are currently underway, a focus on road maintenance... There's some extra funding there... On government building projects. Hospitals, schools, that sort of thing. And so lots of that stimulus is going to come through now, and it's generating jobs immediately. More of it will come from later and so it will sustain jobs over the medium term, and that's going to be really vital to the recovery. It's important that it doesn't get choked off once it gets underway. Equally, there's some job creation right now to try and help the people who are still unemployed, who haven't got back into work, post pandemic, to find a job. That all sounds very, very positive, and it is a pretty positive outlook, and large parts of the economy are really responding very well to that. So we've got spending by households in terms of retail and domestic expenditure. That's recovering really strongly, and in some sectors indeed, it's higher than it was pre pandemic. We can also see the impact on the construction sector. Those projects that I mentioned are now getting underway, but also residential construction is set to pick up as the impact of HomeBuilder feeds through. It's not all positive good news though. There are parts of the economy that are continuing to struggle, and I couldn't give an outlook discussion and not mention the vaccine and what we think it will enable, but where will the challenges still be? So in terms of the vaccine rollout, we do see it as absolutely a necessary condition for returning to normal, both here in Australia and more broadly across the global economy, but we don't think it's sufficient. Rolling out the vaccine will not mean that track and trace can end, that isolation can end, that the border can just reopen and go back to what it was pre COVID.What we think it will enable is some more certainty around the domestic outlook. So hopefully we won't have to be quite so concerned if we do get an outbreak from hotel quarantine, because the local population will have been vaccinated. So we won't see the snap lockdowns that we have seen across some cities in recent weeks, and state borders hopefully will remain open so that travel, both business and leisure tourism, can resume and people can book trips with confidence that they're not going to have to cancel at the last minute.That will all be very positive for that domestic piece, but clearly those businesses and institutions that are exposed to international arrivals, they're going to continue to struggle. We don't think the international border will be able to reopen really this year, because it will require low disease rates globally. It will require large parts of the global economy to have been vaccinated. And there will of course be concerns about variants and how vaccines have to evolve to take those into account, and what the public health response has to be in light of that.So putting all of that together, we don't think the international border will reopen this year. And that just means it's going to be challenging for higher education institutions and businesses related to the students, but also international tourist exposed businesses as well. For them, the struggle will continue. Just to finish up, what does the more long, long term look like then, in terms of COVID? Will we snap back to normal, do we think, and this will become a dim and distant memory? Or will there be some long lived impacts? Well unfortunately, we do think there will be long lived impacts. The first of those, in terms of domestic economy, will be around what economists are calling economic scarring. So the businesses, the individuals, the jobs that just don't come back post COVID. And as you can probably imagine, we do think that those are going to be concentrated in travel, tourism, hospitality that's exposed to international arrivers, but also other pockets of areas which are challenging. Some retailers, for example, are now having to fight against the sharp increase in online sales, and that's creating challenges for their businesses.We also though, think for Australia in particular, we're going to see scarring around the population. The size of the population, but also its composition. The closure of the international border is likely to result cumulatively between 2020 and 2025, 800,000 fewer migrants entering the country on a net basis. So that's the lost students and the lost temporary workers, that's permanent arrivals. Those people just won't be able to get here. And I should say, we're not actually all that pessimistic on that front either. The Treasury actually thinks by the late 2020s It's going to be 1.1 million people that are lost from the population. And so if we're thinking relative to pre COVID levels... So this is not a question of going back to pre COVID GDP, this is a question of back to the trajectory the economy was on prior to the pandemic... The population is going to be smaller, it's going to be older. So the working population in particular is going to be smaller, and that supply of labor, that output that is produced, that income that is spent through the economy is going to be lost. It's going to be around about, we think, a 4% contraction in potential output, relative to pre COVID, and that's going to be the long run scarring, the long run negative drag that the pandemic has. Thank you very much for listening. I look forward to taking questions and having some discussion to follow. Nikolai Beilharz:Thanks so much, Sarah. And like you say, some very interesting questions, I think, coming out of that discussion, and we will continue to talk about them a little bit later. And on that note, just a reminder, you can submit and upvote questions during the presentations via the menu on the left, and given our online nature this year, that's basically your chance. If you have a burning question and you would like to get it answered, make sure you get those questions in now. Our next speaker for this session is bringing that conversation back to agriculture. How do these huge global trends that affect farm production come back to Australia? Jared Greenville will be a familiar name and face to many of you. He's currently ABARES's acting executive director. Jared, over to you.Jared Greenville:Hello everyone. Before I begin, I would like to welcome everyone to ABARES' first online outlook conference, a first for us in 50 years. We'll be running the conference over four days, covering a wide range of topics, and also in a format where you can catch everything without having to shift between conference rooms. As this is a first for us, we would welcome your thoughts on the event. Now to my talk. As we've heard, the recent past has given rise to a number of challenges. This time last year, we spoke about two key uncertainties in that near term outlook for Australian agriculture, reports of the new coronavirus and changes in trading relationships. A lot has happened since. Today I'm going to briefly look at how these events shaped Australian agriculture during the year, and how we expect them to continue to shape the sector over the medium term. What is apparent is that while the global pandemic and trade disruptions will continue to affect the sector, so will the underlying drivers that existed prior to the events of 2020. Aspects like a changing climate, increasing global competition, and a growing number of well informed and choosy consumers. Playing to our strengths and finding new ways to add value to our primary products will be an important part of prospering in an uncertain future. So what did happen to Australian agriculture as a result of the COVID-19 pandemic? Australian agriculture fared pretty well during 2020, weathering many of the disruptions caused by the ongoing COVID-19 pandemic. As COVID spread, countries implemented measures to limit the spread of the virus. A series of lockdowns posed a number of threats. In particular, logistics and freights, possible shutdowns and processes in input suppliers, along with labor shortages and risks to the functioning of key government services, such as inspection and audit services were all flagged as significant risk factors.As time passed and the government implemented measures to help shore up supply chains, such as the International Freight Assistance measure, the bulk of the Australian agricultural production and trade continued largely unhindered. But we have seen some disruptions, notably related to trade in seafood and other high value products, fall in demand for wool and cotton that go into manufacturing processes, and most recently, labor shortages facing Australia's horticulture sector.Despite these, the resilience and agility of the sector has shone through during the pandemic, but the pandemic has not been the only influence on the sector. At the same time as the COVID-19 pandemic began, the sector was dealing with its third consecutive year of production declines, on the back of continued poor seasonal conditions.However, as 2020 unfolded, seasonal conditions began to shift towards the favorable, helping lift the sector's gross value of production to an all time high of close to $66 billion, up 8% from last year. This rebound is exceptional, both the three years of consecutive decline, and the scale of the turnaround. This significant increase in gross value production has come on the back of one of Australia's largest winter crops on record. Highest in New South Wales and Victoria, highest wheat crop ever. This has been combined with continued strong meat prices, as the effects of African swine fever continue to linger. This rebound in production has been very welcome news for the sector.Looking ahead, next year is unlikely to be a poor season. Recent conditions have left many places in Australia with good soil moisture, and we expect the sector value to remain high, at just over $63 billion, but further ahead, the medium term outlook is less clear. Chances of poor years returning to high, the macro outlook is also uncertain, as recovery in key sectors and markets that drive demand for agricultural production remain unclear. Global production is also increasing. This means that demand growth for some products will be lower, and importantly, price growth is expected to be lower than seen in the past. We are forecasting that the gross value of production remained fairly steady at just over $60 billion, but with uncertain seasonal conditions and economic recoveries, it could vary between 58 and $66 billion.Along with production, the other key important metric for Australian agriculture relates to its trade. Australia exports around 70% of all agricultural production. Exports for this year are forecast to fall by about 4% to around $46 billion.And while COVID has led to minimal disruption at the macro level, it has had an impact on international prices and demand for certain products. People still need to eat, and Australian producers have continued to get products to international consumers, but shifts in where and what they eat and buy has played a role.Most importantly, what we've seen is the continued impact of drought weighing down our export performance. Limited grain for export, and falling herd numbers has limited the amount of exports. In the forestry space, last summer's bushfires have also had an impact.There has also been changes in Australia's trading environment. China, which has become Australia's largest agricultural market, and provided good returns to many producers. And while this relationship will continue to drive benefits for the sector, it is likely it will be less profitable over the medium term. Some impacts have already been seen in barley and wine. A study that we recently commissioned here at ABARES highlights views of Chinese buyers on Australian products. It finds that Australian are highly regarded for their safety, their taste and provenance. But despite the good reputation for almost all products, consumers did not foresee difficulties in replacing Australian goods with products of equivalent quality from elsewhere.This means that if Australia was to have less access to China for its products, Australian exporters would need to utilize the access they have in other markets and develop new ones. Australian exports will backfill markets vacated by other exporters as they shift into China, but these returns are likely to be lower. These shifts, along with macro economic and production uncertainties, will provide the backdrop for what we expect to be a more difficult environment in which to grow trade value. Over the medium term, agricultural exports are expected to remain around $47 billion, but with both domestic production and global uncertainties, it could vary between 46 and $50 billion. Over the longer term, we cannot forget that the fundamentals remain strong. Middle income growth, urbanization, population growth will all be positive forces shaping sector fortunes. Outside these long term fundamentals, other important factors will continue to shape the sector's performance, as we look towards 2030.The sector will still need to face and address a number of these longer term challenges. Changes to our climate are expected to increase, increasing the adaptation pressure on producers right across the country. Consumers will continue to place demands on what is produced, and the way that it is produced. Issues related to social license, and to attributes around sustainability and carbon intensity will become part of the market in trade landscape.The way that we deal with these issues and respond to the challenges will help underpin our competitive advantage in international markets, and will be critical to sector value growth. What will be important is creating the conditions to maximize the sector's growth and contribution to the economy.With the sector's growth targets, there is a renewed focus on value adding as a means to help lift sector value and the returns to producers, but there is more than one way to add value. Opportunities are not limited to downstream activities. Australian agricultural production has increasingly added attributes to what used to be bulk commodities, be that specialized grains for certain production processes, organic products, meat produced in a clean environment, to traceability.These attributes have helped create Australia's clean and green image, and generated high returns to the sector and the Australian economy than what would have otherwise been achieved through more of a focus on processed food exports, and there is scope to expand in this area around responding to consumer preferences, including low carbon production, to a wider set of green and sustainable products.Adding the attributes that a wider set of consumers want also provides flexibility in exports and avoids tariff escalation that often occurs when trading in food products. It can also bolster opportunities for domestic processing. What is important is keeping the costs of adding attributes to products, and the costs of exporting, as low as possible. We also need to ensure that the attributes are recognizable and protected in the markets. Doing this requires a broad approach, including a focus on innovation and up skilling of the agricultural labor force, to better and more efficient export systems, reducing the costs of exporting, and ensuring provenance, all areas of significant government focus. This focus plays to our advantage, and also helps deliver higher returns at the farm gate, helping the sector grow value in an uncertain future. Thank you.Nikolai Beilharz:Thanks so much to Jared Greenville. And we were said to be joined by Michael Every from Rabobank. Unfortunately he hasn't been able to join us this morning, but luckily, we do have someone that who can step in and fill his shoes and give us some other insights for this session. Our final speaker is Luke Chandler. He's the managing director of John Deere here in Australia and New Zealand. Has considerable experience working overseas in a number of different roles as well. He'll be speaking this morning about how technology can help farmers try and grow, and also grow sustainably. So Luke, over to you.Luke Chandler:Hello. My name is Luke Chandler, managing director of John Deere in Australia and New Zealand. Many thanks to ABARES for the opportunity to speak with you today. Today I'd like to share some of our experiences as a global manufacturing company during the COVID pandemic, to share a little bit about us as a company, and also talk about some of the technologies that we're focused on to help make Australian farmers the most profitable and sustainable in the world.So who is John Deere? We're 184 year old company that was founded in the Midwest of the US. This photo in the top right of the slide is our headquarters in Moline, Illinois, which is about three and a half hours west of Chicago, right on the Mississippi River. And the office right of this building has been my office for the last five years. And for anyone following the news, you'd know it's about minus 27 degrees there at the moment, with about five foot of snow on the ground, so I'm very happy to be presenting to you from sunny Brisbane today.We operate in over 100 countries around the world. We have around 70,000 people employed. In Australia, we've been part of the Australian agricultural industry for over 50 years, and we have locations around Australia and New Zealand together with our dealers. We also have around four and a half thousand employees in Australia and New Zealand, so it's a very exciting time to be part of Australian agriculture and John Deere.So the COVID pandemic, and being a global manufacturing company. This has certainly created challenges over the last 12 months for our supply chain. I thought I'd share a quick example with you to help explain this. So the photo in this slide, or the tractor behind me are large tractors that we manufacture in Waterloo, Iowa. Going into every single one of these tractors, there's around 4,000 parts that we source from all over the world, whether it be from Asia, from Europe, from South America. And this has obviously created challenges over the last 12 months, as these areas have all gone through different waves of the pandemic at different times. At one stage during 2020, we had around 25% of our supply chain suspended, which obviously created issues in terms of making sure that we could get tractors out the door, and really stressed our supply chain, and continues to stress our supply chain to current day. Another big focus of managing through the COVID pandemic has been about protecting our people. So we still have around 85% of our workforce working remotely. So the headquarters I showed you in the previous slide, everyone has been remote from that headquarters for almost 12 months now. We've also had to spend significant amount of time and energy re engineering our factory floors in order to keep our people safe, to comply with COVID regulations, to make sure people can operate safely and keep social distancing, while still maintaining their quality of work and the production. And so a lot of energy has gone into making sure we're protecting our people.And all of this energy, trying to manage supply chains, ensure we have parts, protect our people to keep factories running, has all really been around trying to limit any downside or impact on our customers around the world, and so that's what we continue to do to this day.So switching from COVID to technology now, and while you may hear a lot about AgTech, this is nothing new for us. In fact, we've been collaborating with and investing with Australian farmers on technology for decades, and I thought it'd be worth sharing some of the real success stories that we've seen over time here in Australia, and on the left hand side of this slide you can see the photo of GPS and field mapping, which was really built in collaboration with farmers in the cotton and grains industry in parts of northern New South Wales, and now is really a foundational piece for what we call precision agriculture around the world, and was developed right here, again, in collaboration with Australian farmers.The next photo you see is the round bale cotton picker, which was developed here in collaboration with the Australian cotton industry, an entire supply chain. We use prototypes here, and now it's a product that we have all around the world.The next photo is, again, technologies that were developed in collaboration with local partners, mobile weather and iGrade. We have technologies that we developed here almost a decade ago, and they're only now starting to get some traction in other parts of the world. So shows how far ahead some of our farmers and adoption of technology is, here in the Australian market. And then the last one is really around future steps, and what are the investments we need to keep making to ensure Australian agriculture remains highly competitive in the world market? So here, we're thinking about machine learning, automation, and some of these sorts of things, to help drive Australian agricultural productivity to the next level.And these next wave of technologies are really going to be critical to help ensuring we drive Australian agriculture to the next level. So if you think about, as we've gone through this journey of technology, farmers traditionally have managed on a farm basis or a paddock basis. And then, as we've had GPS and field mapping, they've been able to drill that down to manage by field. As we've had section control, they've been able to break it down even further. And with some of these next wave of technologies, we're expecting farmers to be able to manage their productivity on a row basis, and even on a plant by plant basis. As machines learn and get smarter as they go through the fields, they're going to be able to manage on a plant by plant basis. And obviously, this really creates huge opportunities in terms of productivity for our customers.So as we think about this wave of technology, we think about investing in technologies to help make Australian farmers more profitable and more sustainable. Global agriculture is really at an inflection point, where historically, the focus has been about bigger, faster, more efficient machines. And in the future, it's going to be about smarter machines. To give you an example of this, a couple of years ago, John Deere acquired a Silicon Valley company called Blue River. The technologies that Blue River have around artificial intelligence and deep learning algorithms, we believe we can embed onto the hard iron of John Deere machines to help make farmers more profitable and sustainable. One example of this is in sprayers, where the deep learning algorithms can teach the sprayer the difference between a weed and a plant. We can then reduce herbicide use by as much as 80%, because the sprayer will only be focused on the weed. This significantly improves profitability because it means more money in farmers' pockets, less going out into input costs, and also significantly improves the environmental footprint of agriculture, globally. So it really is a win-win for the farmer and for society.So with that, id like to thank you again for the opportunity to share some of our experiences during the COVID pandemic, to tell you a little bit more about who John Deere is, and also some of the technologies that we're investing in to help make Australian farmers more profitable and sustainable. It's an incredibly exciting time to be part of Australian agriculture. Thank you.Nikolai Beilharz:Thanks so much. Luke Chandler there from John Deere. And as Luke mentioned, and really detailed some of the incredible challenges that people right across our society, but certainly in agriculture, have faced in trying to navigate their way around COVID over the course of the past year. We do now have about half an hour for a live Q&A with our panel. Just a reminder, you can submit and upvote questions during presentations via the menu on the left. So if you do have a thought that comes up, please do submit that, and we'll try and get to as many as we can. So we do have Sarah Hunter from BIS Oxford Economics, Jared Greenville from ABARES and Luke Chandler from John Deere all joining us. Sarah, maybe if we start with you. Obviously so much talk about COVID and how that's affected economies, and how it's dominating the outlook at the moment. Are there other things that people need to be aware of, or thinking about, though?Sarah Hunter:Yeah, there's always other trends and shifts that are playing out. And it was interesting, some of the technological improvements that the other speakers were talking about, the very micro examples of what I track at a macro level in terms of productivity growth and living standards getting better, and it's obviously really great to see that.Obviously, thinking a bit more short term and near term, another risk or evolving situation we're certainly tracking is relations with China, and how that has an impact in the economic sphere. It obviously permeates through a number of parts of the economy and beyond. But we've been really looking at that quite closely, at the broader picture and how those relations are evolving with respect to other commodities, and eventually when the border reopens, services trade. So that's another area I'm certainly paying close attention to at the moment. Nikolai Beilharz:Do you see agriculture was being more exposed or more vulnerable than other commodities, or other parts of the economy? Sarah Hunter:Yeah, it's a really interesting question. We've actually done some work to try and look at that, and gauge that. And agriculture as a group is, as I'm sure everybody that's tuning in is pretty [inaudible 00:41:24] there's clearly a lot of commodities in there, but what we've generally observed is that the commodities where either China is a major consumer, and that does tend to be most, just given its size, but more importantly, where Australia is a major global producer, those are the commodities which travel through this best. They're the best protected. Mostly because the market power that we have means that even if we're not able to sell to China, we're able to sell elsewhere, and the price movements perhaps are not that substantial, because if China absorbs imports from other countries, then that leaves other markets open. And we have actually seen that kind of trade dispersion switching already happening through some of the data.And the commodities that are most exposed are the ones where we're a relatively small global supplier. It means that we don't have the same sort of market power, and China can easily go elsewhere, and then it can be harder to find new markets. So those are the commodities in general that I'm concerned about, and some parts of agriculture do sit in that, and I'm sure other panelists will have some views on which those might be.Nikolai Beilharz:Yeah, well on that note... Thank you, Sarah... Luke, you spend a fair bit of time in the US, as you mentioned in your presentation. How do you think the new Biden administration will change the trade relationship between China and the US, and I guess then the ramifications of that for Australia as well?Luke Chandler:Yeah, thanks Nikolai. So I've had the last five years in the US, and obviously under President Trump, there was significant tension for US soybean producers, who export a lot of their product to China. What we saw during that period was a significant amount of uncertainty, but as Sarah has just mentioned, it was really a lot of trade flows reshuffling. So while the US might have been locked out of the major China market, and Brazilian and Argentinian beans flowed into that market to displace the US beans, the US then found other markets elsewhere around the world. So it certainly did create some inefficiencies, certainly created a lot of certainty, but for the most part, US soybeans were able to find other homes elsewhere around the world. I guess the one thing where Australian agriculture is a little bit different is we export so much of what we produce. And so while the US is... Export's certainly important, but it has large domestic market there. Whereas for Australian producers who rely on 60, 65% of their product going overseas, and China being a large destination for a lot of those commodities, it's going to take a lot of effort and time, in order to find other homes for those products. So there's certainly a lot of uncertainty and risk for Australian agriculture, if those trade tensions continue to escalate. Nikolai Beilharz:And Jared. You've been taking a look at that as well, some of those impacts?Jared Greenville:Yeah, certainly. I mean, just to echo some of the comments of Sarah and Luke, that a lot of the impacts that we see is a bit of a reshuffling of the deckchairs in a number of markets, as our product backfills markets that get disrupted because China's buying from those suppliers. And what we found really is that that is not a costless exercise, and so it takes a bit of time and investment to sometimes build those markets. But also, China has really been trading at a premium for a number of products for Australian producers. And that's good we trade on a bit of a reputation in there but, as I mentioned, other countries also have a reputation for the similar... And they compete on that, and then we're backfilling their markets, which maybe don't value some of those attributes as much a China does, and so that reduces some of the price. When we think about going forward, while there's an initial shuffling of deckchairs, production responses and the like, that makes it a little bit more difficult to see that price growth that we're seeing in our export bundle. Australian agriculture's production quantity levels have been relatively stable over time. So what's been the key value? Well the key sector growth has been prices. And so it's, how do we unlock those prices? How do we deliver to what consumers want? And that's looking also outside of China. Nikolai Beilharz:And Sarah, we've had a question through from the audience. I guess this follows on from that idea of the other things that are affecting agricultural economies, apart from COVID. This is from Danielle, saying, "What will one million fewer immigrants mean to agriculture, an industry already suffering labor shortages in all aspects?" Danielle says, "This is scary. A lack of skilled labor means many of our planned industry growth forecasts will not be met due to a lack of manpower." So it's certainly something that has been talked about a lot in the media, that idea of labor shortages. How much of an effect will that have?Sarah Hunter:Yeah. And certainly agriculture is one of the sectors that we see and identify as being exposed to those lack of skilled workers, those temporary workers would normally be coming in. And there's a lot of them that just haven't been able to enter the country over the last 12 months. And so for agriculture and other sectors which tend to struggle, as well as construction, they tend to draw in skilled workers from overseas, and again, that's challenging just at the moment. So it's sort of pockets of challenge, if you like, for certain sectors, although the general economy does have spare capacity in its labor force. So it's some parts of the economy, there are people who can't find work, other sectors are struggling and really fighting to get the people that they need.I think the other important point about these missing migrants, if you like... And to be clear, when we talk about missing migrants, what we're talking about is not the population shrinking, it's just it not getting to as large, as big, as we thought it would, pre COVID. But that has implications in terms of demand, and planning for that demand [inaudible 00:47:28] fewer people that obviously need to eat food, and consume all the other goods and services we produce. And that's a challenge for businesses in general, for agriculture in particular. What does your demand environment look like over the next five years relative to what you thought, and what does that mean in terms of investment plans and the trajectory through that space? So those are definitely the issues that we're grappling with at a macro level, but agriculture certainly is a sector we can see on a very micro level being very exposed on both the demand and the supply side.Nikolai Beilharz:That also kind of ties in with those comments you were making earlier about the likelihood of international borders potentially not reopening, that this could be maybe not a medium or long term problem, but certainly something that isn't going to go away tomorrow. Sarah Hunter:Yeah, absolutely. I mean, I'm not an epidemiologist or a public health expert, but just based on announcements from the government, the vaccine rollout, and what we can see happening overseas, it does seem very likely that the inflow of people in general, of workers in particular for the next certainly 10 months or so is going to be challenging, and then after that, perhaps we can look at it easing, but certainly not a near term solution, it seems. Nikolai Beilharz:Jared, we've got a question through to you. This is from Bill. He says, "Where do your data on the difference between bulk commodity exports and more processed exports come from?" Bill says, "Surely adding value domestically brings wider socio economic benefits." So things like jobs in factories and those kind of benefits. He says, "Isn't that why the government's implemented this new manufacturing policy, including for food?" Jared Greenville:So the interesting thing when you look at export value save at a bulk commodity, or even processed goods, so flour, say versus wheat, when you look at that export dollar that's sent out, it's actually embodied a range of different inputs that have occurred from a range of different sectors in the economy. So even that dollar of wheat that we export has a whole bunch of [inaudible 00:49:23] services, has a whole bunch of machinery services and so forth, and innovation, R&D, and tech, and all the rest.And just doing that wheat, or producing that wheat in a smarter way, or producing different varieties uses all these other inputs. And so in the same way as when you take that wheat and you grind it down, you make it flour, that uses extra inputs and labor and so forth from other sectors. And so then when you think of it that way, there's multiple steps in value adding. There's that stuff that goes on at the farm gate, and there's the stuff that goes on further downstream. And both of those changing the way you produce and doing things and meeting consumer expectations, both those things add jobs and add value to the domestic economy. Then it becomes a question around how much are we going to sell? There's a quantity and the price differences and so forth. And really, when you look at it, what we've seen in the past is that because we've been able to add these things that consumers want, we're selling a lot more at a higher price domestically, and that's had a bigger effect in terms of, for every dollar of agricultural production, the export return's been higher than when we compare to other countries that have gone down a little bit that extra path of processing. What it doesn't say is that one is necessarily better than the other, but it really highlights the point that we can add value at the farm gate, and if we're going to add value through further domestic processing, such as the government manufacturing plan, it'd be great to have the same kind of attributes that we're adding at the farm gate underpin the value growth in that domestic processing. And I see one as really embedding the potential for the other.Nikolai Beilharz:Okay. Thanks so much, Jared.Luke Chandler:If I could just add to that, I guess the difference between, say bulk and value added products... One of the things with regards to trade disputes is obviously, as Sarah and I mentioned, and Jared as well, with regard to a reshuffling of trade flows for bulk commodities, it's obviously a lot easier to do that. Where you see trade disputes impacting some value added products, and different parts of the supply chain, obviously there's more relationship based impacts there. And so it can take years, even decades, to build up some of those relationships, and then trade disputes can kind of pull them apart, and then it's a lot harder and longer lasting an impact, as opposed to the bulk commodities, where you can send your soybeans to the Middle East rather than China, and then once the tariffs are taken away, it can switch back. But for some of those value added products, it's not as easy to switch back, because relationships have been impacted. So I think that's certainly an important part when it comes to, at a higher level, thinking about how we manage some of these trade relationships.Nikolai Beilharz:And Luke, if we follow up with another question for you... I think this is perhaps best pointed your way. This is from Mike [inaudible 00:52:35] comment or read the comment first. Write offs, upfront, don't necessarily encourage long term development domestically. So that's talking about agricultural support and write offs that way, but Michael says, "How can governments better support the development aspect of research and development?" So what role can government play when it comes to boosting R&D?Luke Chandler:Obviously, the 2020/21 ag economy in Australia has benefited from some of the shorter term policies from government, which were really stimulus to help support the industry during the uncertainties of COVID, longer term. And we heard from the minister there about the importance of innovation, and partnering, and research, locally. And I think that's where companies like ours really look to collaborate, be it with universities, be it with customers, or local industry bodies. Because I think that's where the power of that innovation, working across the industry and across the supply chain, is really powerful. So anything the government can be doing to incentivize that collaborative type approach I think is really important to lay the foundation for further innovation. We all know Australian farmers and Australian agriculture is highly innovative. As we talked about, we operate hugely reliant on global exports. We don't have safety nets that maybe some sectors have elsewhere in the world.And so I think that's where... And obviously we operate in a pretty harsh environment as well, so farmers here are extremely innovative, but we just need to lay that right foundation in terms of policy, to ensure the entire industry is collaborating. Nikolai Beilharz:Thank you. We've had a question through from the audience. This is for Sarah from Tim. Tim says, "Sarah, can you please elaborate on the economic scarring, and how Australia's scarring will be greater than other countries, including potentially similar countries like New Zealand or Canada?"Sarah Hunter:Yeah. So the scarring... I suppose a general point to make is that when economists talk about scarring, what they're talking about is where does the economy get back to in the long run, relative to what we thought pre COVID? So it's not scarring as in not getting back to pre COVID levels of GDP. That will happen probably in the next couple of months. And it's not scarring in terms of the economy not growing in the future. That's not what we mean either. But what we think about as economists is, how much do we think the economy can produce at any given point in time, and what is it actually producing? What's the difference? And then what we're looking at scarring, it's what has happened to that hypothetical, if you like, amount that we can produce? And so what we can see with COVID, what we see generally with recessions, is that they always generate some degree of economic scarring because some people lose their jobs, become less productive, perhaps become completely disillusioned with trying to find a new job, and they drop out of the labor force completely. If the recession hadn't happened, they would have stayed in their job, they would have kept working, producing, earning, spending, but because of the recession, they've unfortunately lost their job, and we lose them potentially completely from the workforce. So there's scarring that comes from that channel, that's going to be very focused on, in this case, tourism, travel, higher education, those kind of areas which are very, very exposed here in Australia to the COVID downturn. And that particular channel, if we compare Australia to other countries, is actually likely to be relatively mild. Our recession here was much milder than in other countries, although very large in absolute terms. And in terms of exposure to that channel, there are parts of the world which are much more exposed to that. The Mediterranean, for instance, is very, very reliant on international tourism. So Spain, Italy and Greece. Those sectors are, as you might imagine, really struggling right now, and many, many businesses there just won't make it through. And so the scarring from that channel, for those economies, will be much larger than what we experience here.The second channel, though, which sort of to some extent overwhelms that relatively positive performance, is that demographics channel that I was just talking about earlier on. So pre COVID, most people thought that net overseas migration would run at between 200,000 and 250,000 a year, so that the population would keep being added to by that inflow of migrants. Obviously, that's not happening. Hasn't happened for the last 12 months. And as we were talking about earlier, it's going to take a while for that to fully return. So there's going to be an accumulation of people that are lost, for want of a better word, that we would have expected to get here, and to live here, build their lives here, that just won't for various reasons. If I take those people out of the population, out of the workforce in particular, and migrants tend to be younger people, they tend to be workers. Obviously, if they come as temporary workers, they're clearly workers, but also generally than that, they tend to be workers. We take them out of the labor force that we thought we were going to have pre COVID, and that gives you a much larger degree of scarring again, compared to some other countries where migration is just less important as the driver for demand for growth in the population, and therefore for the economy. So it's that second channel, where Australia is really going to struggle. And particularly compared to New Zealand, their net overseas migration numbers are much smaller in any given year, typically, relative to their local population, and so the scarring from this channel is going to be much less for them.Nikolai Beilharz:Thank you, Sarah. We've had one more question through from Gordon. I think this is probably best directed at Jared, but others may also want to have a go at it too. It's talking about... We're focused significantly on improved production in this session. Gordon says, "What do you see as the business skills, rather than production, that could be needed to take advantage of opportunity?" So he's kind of talking about understanding customers, financial management, literacy risk management, personnel management. How important is that alongside the actual bulk numbers, I guess? Jared Greenville:I think it's very important. I mean, one of the focus areas that the government has at the moment's on the agricultural workforce and skills around that, and we've seen a number of measures with university courses and the like, but when you unpick productivity growth over time, there's innovations, adoptions of new technology, but there's also managerial skill and other skills about running the farm business, which are harder to really pinpoint. They're kind of more intangible. But they're all basically related to the human capital that's locked up inside the farmer himself, or herself, and so having an investment and an up skilling in that area, I think is a complimentary investment to go with some of these innovation trends, and enables companies like John Deere to really trial and get feedback, and also then better develop. And so innovation is a two way street. It's about communication, both up and down that supply line. And so I think it's really essential, but that goes hand in hand with anything else.Nikolai Beilharz:We've just got time for one last question, which we'll get to quickly. This is from Matt Dalgliesh. He’s saying, "Reports from China are suggesting that their pig herd is nearly back to pre ASF levels, or swine fever levels. However, their pork prices and meat import levels remain elevated, given that large demand from China in 2019/20. Can we believe that they have recovered their pork herd?"Jared Greenville:Guess I'll jump in with that one. So as with herd rebuilding, as numbers increase, supply generally goes down, because they're holding back stock to rebuild those herds. And so we're seeing a bit of that occurring within China at the moment. And so while things are growing, we're not expecting them to be fully back tomorrow. But the trajectory is definitely there. There's that uncertainty, as there is with any kind of rebound from a virus, but there's been structural changes in also the way they produce, around having more bio secure farms, and shift and scale. So as that herd starts to reach a critical mass, we'd expect supply start to come in. So at the moment, we're still seeing that strong demand for protein and red meat, but we expect as that kind of comes out over time that that will start to diminish, and we'll see those prices starting to fall.Nikolai Beilharz:Okay. Thank you so much. I think that brings us to the end of this session, because we're pretty much out of time. Thank you to everybody who submitted some questions. Some really interesting discussion there. Normally this is when the rousing round of applause begins as I say, "Thank you. Please thank you to our speakers for this session." Sarah Hunter from BIS Oxford Economics, Jared Greenville from ABARES, and Luke Chandler from John Deere. So thank you very much to all of our speakers this morning. A short survey will be popping up in a couple of moments. If you'd like to send through any feedback, then you can also chat to our spotlight exhibitors, who will be online for the next half hour as well. But for the moment, that is our first session. Thanks so much for your time.Jared Greenville:Thank you.Sarah Hunter:Thank you.Luke Chandler:Thank you. ................
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