|2007: A frustrating year for Aussie farmers
Thursday, 13 December 2007
Despite the Westpac-NFF Commodity Index reaching record highs in 2007, it has been a frustrating year for Australian farmers many of whom were unable to capitalise on the commodity boom due to poor seasonal conditions and the continuing drought.
Commodity prices during the year were largely driven by a surge in global demand for biofuels, strong economic growth in developing countries, global population growth leading to urban encroachment on arable land and widespread drought in key agriculture production nations such as Australia.
NFF vice-president, Charles Burke, says the index peaked in September at almost 50pc above 1997-98 levels.
"Australian farmers were buoyed by the possibility of a strong winter cropping season as early rain promised to see production meet high global prices," Mr Burke says.
"However, the failure of the rains to eventuate over both winter and spring saw that optimism wane as the sector was plunged into unprecedented back-to-back winter crop failures, and minimal water allocations for many farms across the country.
"As a result, farm debt mounted, rising to more than $45 billion. This was further exacerbated as farmers became even more acutely exposed to official interest rate increases during 2007.
"Rising interest rates and strong growth in demand for Australian commodities combined to see a steep rise in the value of the Australian dollar, dampening some of the potential gains from strong world agricultural commodity prices. Peaking at over US93c to the Australian dollar (up from US77c earlier in the year), potential farm-gate returns were slashed, just when every cent counted the most."
Westpac senior economist, Justin Smirk, says despite the frustrations for Australian farmers, the international market for agricultural commodities remains very strong.
"Demand for sugar and grains from the growing biofuels market, driven mainly by the US and EU, has been largely credited with soaring commodity prices. However, another important factor has been changing demand patterns flowing on from flourishing economic conditions in developing countries, especially South-East Asia and China," Mr Smirk says.