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Farm exports in the firing line as coronavirus bites

Concerns over the impact of coronavirus on Australia’s farm exports are deepening as the number of confirmed deaths rise and the virus remains uncontained.

On the Chinese mainland, more than 1000 people have lost their lives to COVID-19, the World health Organisation’s official title for the virus. There have been more than 42,000 cases reported worldwide.

If the virus is not contained soon: within 6-8 weeks, the impact on Australia’s agricultural exports to China could become ‘more serious and long lasting’, Rabobank Food & Agribusiness Research Head Tim Hunt said.

“Currently, disruptions are being experienced across the entire food and agricultural supply chain,” Mr Hunt said.

The virus outbreak arrived at the peak of Chinese New Year activities. Since then Australian rock lobster shipments to China have all but ceased, as more people prefer to stay home than dine out.

“Chilled meat shipments for food service are also a risk category given a lot of hot pot restaurants are closed at the moment.” 

Popular retail and fast food chains have started to close their stores amidst the outbreak with coffee giant, Starbucks closing more than half of its stores in mainland China and McDonald’s closing many hundreds of restaurants.

Mr Hunt said the longer the virus remained uncontained the more precarious the situation came for Australian farmers.

“Hopefully we won’t get to ‘round two’ but if we do, incomes may fall in China and we may eventually see less growth in sales of premium food and beverages as that wealth effect starts to kick in.

“And this may start to go beyond just food service sales and logistical disruptions to potentially impacting consumption in general of meat, dairy, grains and seafood.”

The coronavirus has seen Aussie cray fish sales dive.

Rabobank have outlined the the potential impact on individual commodities:

Rock Lobster – likely to be the most exposed sector, with 95 per cent of sales going to China. While rock lobster sales from WA have ceased for now, fishermen can leave the lobsters in the ocean and catch their quota later if quota windows allow.

Red Meat – short-term disruption is likely given logistical disruption and reduced eating out by Chinese consumers. The general shortage of protein in China as a result of African Swine Fever is still expected to result in ongoing strong demand from China once the short-term impacts of coronavirus are overcome.

Grains – limited impacts are foreseen both initially and in the event of a second round phase.

Dairy – at this stage, limited first round impacts as most of what is shipped (i.e. powders and infant milk formulas) have a good shelf life and are consumed at home. That said, cheese consumption could be impacted as it is mainly used in food service (for burgers and pizzas).

Wool and Cotton – labour shortages due to travel restrictions and factory shutdowns are expected to reduce Chinese import demand in the short-term. Depending on the extent of coronavirus, there may be implications for the Chinese economy which could impact the longer-term demand for wool. For cotton, there is expected to be very little impact as recent figures suggest increasing demand emerging from China.

Sugar – very little disruption is expected to impact sugar trade flows, processing and consumption. But indirectly, the dip in the oil market – associated with concerns on the impact of the outbreak on global growth – could push Brazilian millers to produce more sugar this season which would lead to a softening in global prices, and ultimately, Australian prices too.

Wine – on-premise consumption of wine in China in 2019 accounted for around one third of total wine sales. Sales into this channel are expected to fall in the short-term while restrictions on group dining remain in place. That said, volumes of wine sold via e-commerce are likely to rise as distributors attempt to push more product into, and invest more money in developing, this sales channel.

Horticulture – Fortunately the cherry industry had air freighted most of its crop to China before the virus hit, something that would have been highly problematic a month later. In the next two to three months the main threat to export fruit and vegetable crops will be logistical, with demand from Chinese consumers for quality imported fresh produce not expected to fall from current levels.

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