The Economics of Wheat in Australia - Essay Example

The Economics of Wheat in Australia The Industry Outlook in Economic Terms: Major Statistics Discussed This paper discusses themacroeconomic aspects of wheat production and consumption in Australia. The crop is grown on a large scale basis and accounts for a significant percentage of the global wheat exports. About 25,000 out of the 121,000 farms in Australia have wheat as one of the major crops planted by farmers. Crop land devoted to wheat in the country averages 2,250 acres (Minnesota Association of Wheat Growers, 2001). Domestic demand and consumption of wheat in Australia is much less than the country’s production. While the country accounts for only 3% of the global wheat production by volume, it meets 18% of the global export value. Clearly, the country exports a larger percentage of the cereal than the fraction of world’s wheat it produces. The Australian Bureau of Statistics (2006) noted that the country produced wheat worth $5.6 billion in the financial year 2003-2004, which made up 15% of all farm production in value. Over 60% of this was sold in overseas markets, underscoring the significance of the country as a major player in the global wheat market. According to the Australian Bureau of Statistics (2012), wheat accounted for 22% of the total crop production for the country in 2010. As shown on figure 1, the volume of wheat produced in the country has been rising over the last four decades. Australia has a GDP ($ 999.6 billion; the equivalent of USD 1454 billion) and a GDP growth rate of 2.4%. Inflation (CPI) stands at 2.5% while unemployment is at 5.6% (Trading Economics, 2015). Statistics show that the GDP growth rate fell by a small margin towards 2015 (Figure 2). The GDP per capita (USD 37,828) however rose in 2015 compared to 2014. Food inflation stands at 1.3%, implying that the possible inflation on wheat products is fairly low (in the event these products have sustained an inflation rate equal to or lower than the national average). Figure 1. Wheat production (by volumes per hectare). Source: Australian Bureau of Statistics (2006). Figure 2. GDP for the last decade. Source: Trading Economics (2015). Interest rates stand at 2% while inter-bank lending rates are at 2.45%. The low interest rates are a catalyst for higher rates of uptake of financial loans from banks and other financial institutions, since the facility pricing is considerably competitive and encouraging for potential loan requesters. The rates further look attractive and banks are able to lend to each other at competitive interest rates, encouraging both growth in the industry and advancement of low cost loans to clients. In order to stimulate growth, the government has created policies that encourage lending to the important private sector. The total amount set aside for issuance to this sector was $1297 billion in 2010 against a demand of over 806 billion in the same year. The surplus in supply would imply that the lenders might have been forced to set the credibility bar lower since there was no real need to turn away loan requesters on the basis of lack of adequate reserves. In terms of monetary and financial policies, the country fares well, ranked as the 21st most competitive economy for businesses to grow. The country also ranks fourth freest to conduct business and the business confidence index places it at a comfortable place to suggest a good business environment. Agricultural products contribute 12% of the entire GDP. Based on the fact that wheat comprises 17% of the entire agricultural output for the country (by value), it is therefore safe to assert that it contributes about 2% of the entire GDP. This underscores the great importance attached to wheat in Australia. . This is illustrated through Figure 1. The Australian Bureau of Statistics (2006) attributes the significant improvement across the decades to extensive research activities and quality agricultural extension services provided to farmers through government support. With the continued increase in export volumes, the country largely depends on the global macroeconomic factors that dictate price, partly exposing the crop to price fluctuations. This is one of the disadvantages that face countries that majorly rely on exportation of goods. The general outlook at the moment is that Australia has the capacity to produce even more wheat, creating further employment opportunities and lowering food inflation. It is not clear how many people are employed directly or indirectly by the wheat production, processing and exportation chains, but the number of farms on which the crop is grown are estimated to be nearing 30,000. Clearly, over 30,000 people (farmers) are employed by the sector at the production phase. Considering that the country has just over 700,000 unemployed persons based on Trading Economics (2015), expansion of the sector could provide employment to a fair fraction of the currently unemployed population. Wheat presents a safe avenue through which Australia could bridge the imbalance in trade with other countries. Apparently, the country imports more than it exports. To counter this import-export imbalance, the country could increase the amount of wheat it produces. This comes with several other challenges that must be met and tackled before settling for this option. For instance, it needs to ascertain that the target market can consume as much as the increased production is intended to supply, since extra supply would flood the market and affect global wheat prices, much to the disadvantage of the farmers. Conclusion Australia is one of the most important global wheat producers. The country is able to produce almost twice as much for export compared to its domestic demand for the commodity. The crop value contributes to a sizeable fraction of the entire GDP. The fact that wheat makes a significant contribution to the economic setup of the country underscores the intensive efforts constantly being made to not only increase the amount of land under wheat but to also increase the productivity of farm land such that a small farm is able to produce a large amount of the crop. References Australian Bureau of Statistics (2006). The Australian wheat industry. Retrieved from http://www.abs.gov.au/ausstats/abs@.nsf/previousproducts/1301.0feature%20article212006. (Accessed 20th October 2015). Australian Bureau of Statistics (2012). Agriculture: Agricultural production. Retrieved from http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1301.0~2012~Main%20Features~Agricultural%20production~260. (Accessed 20th October 2015). Minnesota Association of Wheat Growers (2001). Australian wheat facts. Issue 33. Retrieved from http://www.smallgrains.org/springwh/Jan01/facts/facts.html. (Accessed 20th October 2015). Trading Economics (2015). Australia – Economic indicators. Retrieved from http://www.tradingeconomics.com/australia/indicators. (Accessed 20th October 2015). Read More