Welcome to 2020 and coronavirus - should farmers worry?

Coronavirus: How worried should farmers be?


The coronavirus outbreak is severely impacting China's food service and Australia's trade channels and may grow far more serious if not contained within weeks


Just as Australia's drought-hit and bushfire-weary farm sector shows signs of enjoying better seasonal fortunes, agriculture's vulnerability to the global impact of China's coronavirus has agribusiness bankers worried.

Outlook projections for the new year from Rural Bank, National Australia Bank and Rabobank have highlighted a dramatic slowdown in China's consumer spending and the likely impact of quarantine and movement restrictions on the nation's workforce.

Just as concerning is the risk of coronavirus running rampant in other key Asian markets such as Indonesia and Vietnam, and the wider impact to trade and the world economy in 2020 if the pandemic is not controlled within months.

"The coronavirus outbreak is already having a severe impact on China's food service and trade channels and this could become more serious and longer-lasting if the virus is not contained in the next six to eight weeks," warned Rabobank's Chinese research team.

Major food service chains such as Starbucks, Haidilao, McDonald's, and Yum China have closed stores, airfreight services and other logistics networks have scaled back, or are uncertain, and processing industries for products like the Australian wool clip are also set to take a hit.

Rural Bank's insights update noted wool industry estimates for China's economic growth to drop from 5.8 per cent in 2020 to as low as 4.3pc if the coronavirus impact mirrored that of the Severe Acute Respiratory Syndrome (SARS) outbreak back in 2003.

About 75pc of Australian wool is exported to China hence this market will be susceptible to a prolonged slowdown in the Chinese economy - Rural Bank Insights Update

The virus had already weakened global beef sentiment, but ironically African swine fever losses to China's pig herd meant red meat was in strong demand to offset its pork shortages.

Coronavirus has infected more than 42,000 people to date in China and 25 other countries, while SARS was contained to less than 8000 people in 26 countries.

"About 75pc of Australian wool is exported to China hence this market will be susceptible to a prolonged slowdown in the Chinese economy," said the Rural Bank report.

Labour shortages

Rabobank noted labour shortages due to travel restrictions and factory and supply chain shutdowns would likely cut import demand for wool and cotton in the short term, although the cotton trade may feel less pain if current demand was any indicator.

Rural Bank tipped global wool values to "track sideways to slightly lower" until there was stability around the virus outbreak.


Potential revenue losses for China's retail and food service sector during the recent subdued Chinese New Year week ranged from 20pc to 80 per cent, or equivalent to almost $185 billion in losses to China's economy, according to Rabobank analysts.

National Australia Bank's latest Commodity Wrap highlighted Australia's agricultural market exposure to China, which takes about 28pc of our farm exports, worth more than $12b a year.

Regardless of when it clears up, coronavirus will almost certainly have more impact on global food and beverage industries, and particularly Australia, than SARS - Tim Hunt, Rabobank

However, despite the pandemic's worries and a horror summer of bushfire trouble for Australian farmers, a falling Australian dollar was helping support agricultural exports worldwide, and it was "pedal to the metal" for cattle markets after recent eastern Australian rain.

The young cattle indicator had broken 620 cents a kilogram - up from 482c six weeks ago.

The dollar, partly depressed by speculation about coronavirus and global trade, dropped from US70c in late December to US67c this week, although NAB tipped its recovery to US71c by late 2020.

Rabobank's head of food and agribusiness, Tim Hunt, felt coronavirus' immediate impact on Australian farmers would be "limited", especially if it was contained by March.

Worse than SARS

However, regardless of when it cleared up, coronavirus would "almost certainly" have more impact on global food and beverage industries - and particularly Australia - than the SARS epidemic in 2003.

"Back in 2002 before the SARS crisis, Australia sent 8pc of its ag exports to China, largely in the form of fibre for re-export," he said.

"Fast forward to 2020 and we send about 28pc, much of which is consumed within China.

"Stronger links have also been developed between Australia and China in terms of exports, tourism, education and investment - we have a very different environment."

The impact already being felt by food and agribusiness exporters was in China's food service channel.

"Rock lobster shipments to China have all but ceased, chilled meat shipments for food service are also at risk as many hot pot restaurants are closed, and cheese consumption for pizzas and other food service uses could be impacted," he said.

Wine sales were also likely to be slow.

China's food service sector has taken a big hit as consumers stay away from public places.

China's food service sector has taken a big hit as consumers stay away from public places.

If the virus lasted many months, Chinese consumer incomes may fall resulting in less premium food and beverage sales activity.

"And this may start to go beyond food service sales and logistical disruptions to potentially impacting consumption in general of meat, dairy, grains and seafood," Mr Hunt said.

Just as critical was the potential spread of the virus in other parts of South-East Asia.

"If it spreads we'll see the same set of impacts in a second very large set of export markets for Australia".

Rural Bank analysts uncertainty about the disease was driving volatility in global dairy markets, which were also expected to have increased supplies from the US, Europe and New Zealand in 2020.

However, "fortunately underlying demand from China appears to have remained steady".

  • Start the day with all the big news in agriculture! Click here to sign up to receive our daily Farmonline.

The story Welcome to 2020 and coronavirus - should farmers worry? first appeared on Farm Online.


From the front page

Sponsored by