Australia's place on the global stage was a recurring topic of conversation at the Australian Association of Agricultural Consultants (AAAC) Outlook Conference at Frasers Kings Park, Perth, last Friday, as economists and traders offered some insight into the future of Australia's agricommodities.
ANZ senior economist Adelaide Timbrell set the scene, offering a broad overview of the current global economic and geopolitical landscape, influencing inflation and rising costs.
She said inflation in Australia was declining slower compared to other countries which had taken a sharper approach to tackling inflation.
"We have seen that it's been quite difficult worldwide for us to get inflation back down," Ms Timbrell said.
Oil prices are expected to rise as Saudi Arabia shrinks its production.
This puts pressure on transport costs globally, however Ms Timbrell said Australia would be affected differently, as it imported oil predominantly from Asia.
"When we think about the geopolitical impact of inflation in Australia, it's actually relatively limited," she said.
However Australian oil prices aren't exempt from geopolitics.
"When oil becomes more expensive, it makes everything more expensive," Ms Timbrell said.
"That doesn't just mean your cost of business goes up, it means the Reserve Bank is going to be more responsive with monetary policy."
During the COVID pandemic, hundreds of billions of dollars went into fiscal stimulus packages, as well as low interest and fixed rates, keeping more money in our pockets and less spent on mortgages.
More money in consumer's pockets and a desire to spend, combined with low supply, means prices have risen.
The costs to consumers has also risen well above the increase to supply chain and business costs.
"The cost on businesses hasn't been going up as much as prices have, and that's how profit margins have been going up - however this isn't the case in every sector," Ms Timbrell said.
However consumers have really tightened excessive spending following the pandemic, which is contributing to treating inflation.
"It will take a while to go back to normal, but it is working," Ms Timbrell said.
"COVID brought some of the strongest economic growth we've had in 30 years.
"We're coming back from that, and that is painful, but it is what is going to allow our economy to progress sustainably over the next five to 10 years."
As a whole, Ms Timbrell described Australia as a very indebted country, two thirds of which is household debt on a variable rate.
For reference, in New Zealand, only about 25 per cent of household debt is at a variable rate and the rest is at a fixed rate.
Ms Timbrell said there weren't any rate cuts on the horizon until inflation dropped back to a normal range, which was projected to be in 2025.
This is also due to the fact that although mortgage repayments are higher, the majority of mortgage holders are able to pay their mortgages and household essentials comfortably on their wages.
The global economy is however slowing down due to a number of factors.
"Economic growth over the next 30 years will be slower than the past 30 years," she said.
Ms Timbrell said Australia's heavy reliance on China meant it was also reliant on China's economic growth, which was also stagnating due to a declining population of working age people.
"We still expect to see some (population) growth (globally) but it's these huge economies like China that are no longer seeing population growth and that so does hit the global forecast of growth as well," she said.
Riding on the back of China's years of industrialisation and market growth, the Australian dollar (AUD) is also relatively linked to the Chinese yuan.
"It's not when China slows that the AUD falls, it's when we all expect China to slow down, the AUD falls," Ms Timbrell said.
GrainCorp senior grain trader Scott Haughton echoed the sentiment that Australia, and Australia's grain export market, was very reliant on China.
"We are so reliant on China's continued buying for our prices to be where they are today," Mr Haughton said.
"Our values are only supported because of China's willingness to pay, and they know that."
Long-term economic forecasting suggests the Australian dollar could rise into the 70 cent margin compared to the United States dollar, over the next 12 months.
Ms Timbrell said in terms of global productivity growth, Australia had been slowing down since the mid 2000s and was currently at the lowest rate in 60 years.
However productivity within the Australian agriculture sector is completely different to most other sectors, with strong productivity.
V&V Walsh general manager Brent Dancer shared his perspective.
Part of the Craig Mostyn Group, V&V Walsh is a meat processing company focused on domestic and export markets, and is a part of the Coles and Woolworths supply chains.
"Domestic demand (for lamb) is strong, probably the strongest we've seen for three or four years, but export markets really have struggled," Mr Dancer said.
China and the United States, which had felt the effects of the pandemic and subsequent lockdowns, have had a long-lasting toll on consumer spending habits.
Mr Dancer said in a recent visit to China he believed consumers were in a phase of saving and rebuilding wealth, and said a clearer picture of China's buying habits was likely to become more apparent in the Chinese New Year.
China is showing more of a willingness to pay for lower quality beef and mutton as opposed to higher prices for higher quality beef and lamb.
In the Eastern States, Mr Dancer said a 23 percent jump in the national flock size "can't be understated", however has now drastically slowed with concerns around drought conditions, which means fewer sheep will be leaving WA to cross the borders.
Mr Dancer said processing across WA had increased year-on-year, and V&V Walsh was operating six days per week, and all major processors were looking at ways to increase their capacity.
"From a labour point of view, we are heading back towards pre-COVID numbers, we're tracking really well," Mr Dancer said.
"In terms of livestock, there is a lot around but at the same time there's good opportunity to get them processed through the network."
Mr Dancer said export markets have driven prices and said Australia was largely reliant on China to buy Australian lamb.
"Every lamb that is processed across the country, a portion of that goes to China," he said.
Unwanted lamb bones were also being bought by China, a unique market opportunity which wouldn't exist otherwise.
The United States is another large consumer of Australian lamb, however with its own struggling economy and an over-supply of stock in cold stores, there's some uncertainty around the demand from the US.
"It's (packed lamb) is unsold, sitting in cold stores, they've got to find homes," Mr Dancer said.
"So I would make a note to be cautious when you do see reports coming out showing export volumes, yes they look great, export is going up year-on-year, but it's not going in a way that is necessarily sold."
Australia, and particularly in the Eastern States, was dealing with a lack of cold storage facilities.
Looking at decreasing slaughter rates out of the US, Mr Dancer said it appeared some restocking was underway, which was good news for Australian premium quality beef exports.
Mr Dancer said there were underrated market opportunities in the Middle East.
"They've been really consistent in (buying in) volume, and they're getting a lot more sophisticated in what they're wanting," he said, as customers are preferring high end cuts over carcases.
"They're still not paying as good as the likes of China and the US, but they are starting to follow which is a really good sign."
Mr Dancer also said Middle Eastern markets were also buying a range of meat varieties, such as light wethers and mutton, and there was enough export demand for all types of sheep meat.
Before the pandemic, more than 1000 carcases were delivered to Middle Eastern countries by airfreight from WA, per day.
However there are currently some major problems around transporting via air freight, mostly around the costs involved and a limited number of flights.
"Avocados are in season, we are now fighting for air space with avocados, to get to the Middle East," Mr Dancer said.
"That's something as an industry we should all be pushing for."
The past few years, where Australia has exported high volumes of processed meat, has been formative for international relationships.
Mr Dancer said as long as the supply was consistently available, Australia was able to participate in sophisticated markets and see premium prices.
"Being in markets consistently for 12-24 months, we've created some really good relationships with key markets and it's allowing us to get better premium value," he said.