EC400 Agribusiness Economics and Finance Case Study 3 Sample
Assessment-3 Instructions
• Assessment 3 is an individual assignment.
• Cover page information: Need to provide the following details on the first page of your word file.
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• Please ensure the academic integrity of your submission.
• Provide reference list at the end of the essay in a separate page.
• Please note that this assessment requires substantial research (see the assessment criteria below).
Assessment-3 consists of one research essay question.
Your research essay is based on the following case study.
Case study Title: Australian agriculture.
Question
Giving an overview of the current macroeconomic environment related to Australian agriculture, gross domestic product, inflation, unemployment, exchange rate and economic growth, what is the impact of fiscal and monetary policies on macroeconomic environment and specifically on Australian agriculture? Identify the stage of business cycle based on the current Australian macroeconomic indicators. (49 marks)
This is your case study with policy implications that you need to describe in detail and in answering this question, as a minimum, you need to
• conduct research on the current trend in Australian agriculture, gross domestic product, inflation, unemployment, exchange rate and economic growth.
• assess how is monetary policy impacting macroeconomic economic environment and Australian agriculture.
• assess how is fiscal policy impacting macroeconomic economic environment and Australian agriculture.
• Identify the stage of business cycle based on the current Australian macroeconomic indicators.
• provide relevant information, use table, diagrams where appropriate by using multiple research sources.
Additional marks
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Assessment criteria
o You must refer to the textbooks in the first instance. Besides the textbook, you should also refer to a few other academic books, journal articles and relevant websites in answering these questions.
o Use economic theory and real data to analyse the issues.
o Concepts must be defined accurately and completely.
o The assumptions upon which the analysis is based must be stated at the onset.
o Use real life examples (with references) to support your discussion.
o Answers must be complete, addressing the specific tasks nominated in the questions.
o You should use real data as much as possible.
o Diagrams must be drawn properly, correctly labelled and the relations they depict explained.
o Photocopied and scanned graphs from books are not acceptable. It is preferable to hand-draw a graph then scan it to insert in your file.
o Remember an extension is not a gift, it is a burden.
o Use in-text referencing and provide a list of references.
o All submissions for this course must use the American Psychological Association (APA) referencing style.
Solution
Introduction:
ustainability (agriculture.gov.au 2022). The present study analysis has been made to understand the macroeconomic situation of Australia related to its agricultural industry. University Assignment Help, Focus has been given to assessing different macroeconomic indicators like GDP, inflation, exchange rate, unemployment rate and economic growth and their impact on the agricultural industry of Australia. Fiscal and monetary policy implication on the macroeconomic indicators has also been traced with a focus on the impact on the country's agricultural industry. Lastly, based on the finding business cycle of the Australian economy has been traced, and a conclusion to the study has been drawn.
Australian agriculture overview and trends:
Australia is a mineral-rich country that makes mining one of the primary industries of the economy; however, it also has a robust agricultural industry. As per agriculture.gov.au (2022), 55% of land in Australia is used for agriculture and in 2021- 2022, it contributed 11.6% to goods and service exports. Additionally, the value addition to GDP by the Australian agriculture industry in 2021 – 2022 was 2.4%, creating 2.5% employment out of total employment made in Australia during 2021 – 2022 (agriculture.gov.au 2022). With high production, gross value of Australian agricultural output increased by 59% in last two decades (agriculture.gov.au 2022). In 2002 – 2003, gross value of Australian agricultural industry was $59 billion and by 2021 – 2022 it become $93 billion (agriculture.gov.au 2022). This growth was mainly driven by the rise in the production of cereal grains, cattle and calves, fruit and nut and oil seed production as can be seen from figure 1.
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Figure 1: Commodity-wise growth in agricultural products
Source: (agriculture.gov.au 2023)
However, right after a high performance in 2021 – 2022, the Australian agricultural sector is facing a fall in performance. As per agriculture.gov.au (2023), with an estimation to fall in crop production by 18% in 2023 – 2024 compared to the previous year, the gross value of agricultural output in the present year is expected to fall by 14%, making its value to reach $79 billion as can be seen from figure 2.
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Figure 2: Forecasted situation of Australian agriculture
Source: (agriculture.gov.au 2023)
The primary reason for this fall in the performance of the agricultural industry of Australia lies within the drier climatic situation due to El Nino and a positive Indian Ocean Dipole (agriculture.gov.au 2023). The direct outcome of the drier climatic condition is the estimated fall in crop value by 22% from previous year and livestock production by 2% gross value of agricultural products in the current financial year (agriculture.gov.au 2023). On the positive side, horticulture and wine grape production should increase in the current financial year. Australian agricultural industry is adapting new technologies like robotics to enhance the productivity from lands (Carbone, 2022). Digitisation of the process, and focus on supply chain transparency is latest trend, which Australian farmers are using to deal with the poor weather condition.
Current Trend in GDP and share of agriculture:
Australian economic condition is struggling with the post pandemic crisis. GDP growth rate in 2019 – 2020 fell sharply and then two successive year faced rapid growth. In 2020 GDP growth rate fell to -1.9%; however, it swiftly came back on track with a sold growth rate of 5.2% in 2021 and 3.6% in 2022 (oecd.org 2023). During 2022- 2023, economic condition fell again, and its growth rate dipped to 1.8%. As per projection of oecd.org (2023), growth rate during 2023 – 2024 will be 1.4% making it one of the weakest years in terms of economic growth for Australia.
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Figure 3 clearly shows the trend in the GDP growth rate of Australia, which remained within 2%to 4% during last three decades. However massive shocks in growth rate change can be observed during 2019 onwards and one of the major reasons of the same is Covid19 pandemic.
Australian economic growth has significant influence by agricultural industry. Over the years, agricultural industry has generated good amount of value creation for Australian economy. As per the figure 4, during last one-decade Australian agricultural industry has contributed to GDP somewhere between 2 % to 3% annually. During pandemic, contribution of agricultural industry towards country’s GDP fell to 2.01%, which is lowest during last decade. However, strong output and market condition in post pandemic situation has enabled agriculture to contribute 2.3% to GDP growth.
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Figure 4: Industry wise share to GDP of Australia
Source: (data.worldbank.org 2023)
As can be seen from the figure 5 that value addition by agriculture industry towards GDP in Australia fell sharply in 2019 onwards. However, in post pandemic situation since 2021 onwards, agricultural industry value creation was high. In 2022 value addition to GDP was record high for Australian economy.
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Figure 5: Value addition to GDP by agricultural industry
Source: (Tradingeconomics.com 2023)
Though 2021 and 2022 has showcased record breaking performance in term of value addition to country’s GDP, yet in 2023 onwards agricultural output started to fall due to drier weather condition that resulting fall in output. As per estimation of statista.com (2023), Australian agricultural industry to with 3.35% growth rate and its contribution to GDP will remain within its normal limit of 2% to 3%.
The current trend in inflation and its impact on agriculture:
As per rba.gov.au (2023), Australia targets to restricts its inflation rate between 2% to 3%.
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Figure 6: Inflation rate of Australia
Source: (rba.gov.au 2023)
From figure 6, Australian economy has been able to cap its inflation rate within targeted range since 1990s, although there was cyclical ups and downs. However, post pandemic 2019 onwards economy faced a rapid fall in inflation rate and then it skyrocketed. As per Leggatt (2023), Cost Price Inflation (CPI) of Australia has increased to 7.8% in third quarter of 2022, which is highest in last three decades for Australian economy. From there, it started to fell and as of first quarter of 2023, CPI of Australia standing at 6.8%, which is beyond the targeted range of Reserve Bank of Australia (RBA). As per rba.gov.au (2023), major reason of heavy rise in CPI is due to rise in petrol price, rise in cost of products and falling international market.
Rise in inflation has directly influenced the agricultural industry as well. With increased inflation rate, interest rate has also increased which has made borrowing costlier. Apart from this, consumption has been reduced in international market that has resulted in fall in interest among producers to produce output as Australian agricultural industry exports almost 72% of its output (agriculture.gov.au 2022). Fall in international demand means fall in interest among producer to produce products for domestic consumption, which has faced high growth in last two and half years (rba.gov.au 2023). Input cost, labour cost has also increased that directly forced the producers to reducer their output. Moreover, recent war between Ukraine and Russia has disrupted the supply chain and caused energy shock to the western nations including Australia. Coupled with drier climatic situation, this war has added fuel to the inflationary situation and caused output of agricultural industry to fall. As per agriculture.gov.au (2023), food inflation in Australia was as high as 8% in 2023 although it was reduced from 9.2% in 2022. This high increase in price of food products has forced consumers to go for alternatives or reduce their consumption. in spiralling way inflation has hampered both the consumers and producers of agricultural products.
The current trend in Unemployment and labour use in agriculture:
Like inflation, Australia faced massive increase in unemployment rate during post pandemic situation. During last one decade it has limited unemployment rate between 5.5% to 6.5%, which is within its targeted rate of unemployment as per abs.gov.au (2023). However, from first quarter of 2020, unemployment rate increased to 7.5% and since then it started to fall again as can be seen from figure 7.
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Figure 7: Unemployment rate trend in Australia
Source: (abs.gov.au 2023)
As of now, in first quarter of 2023, unemployment rate is 3.7% and participation rate remained at 66.7% (abs.gov.au 2023). Abs.gov.au (2023) also showcase that in 2023 first quarter, 13878900 employment and monthly hours worked increased to 1933 million. This positive change in unemployment situation of Australia is in line with the previous literary evidence which showcase there is a negative association between inflation and unemployment (Barkley & Barkley, 2020). As it was observed that domestic consumption has increased sharply in post pandemic situation, Australian economy asked for higher amount of labour. With higher labour demand unemployment reduced, although put upward pressure on labour wage. This in turn increased cost of production and resulted in rise in final product causing inflation to rise. Thus, the trend of unemployment shows a downward slope in labour market, however, it is causing inflation to rise.
Upon analysing the impact of unemployment rate trend on agricultural industry of Australia, it was observed that during 2019 – 2022, total labour force employed in horticulture and broadacre sector increased moderately (agriculture.gov.au 2023). Portion of contract labour in total labour force was highest followed by family and permanent labours (agriculture.gov.au 2023). As per the agriculture.gov.au (2023), it is expected that there will be increase in employment situation in agriculture during 2023 – 2024 as farm and farm management jobs advertisement are highest in 2023. In comparison to the fall in the unemployment rate, employment in agriculture did not increase proportionately as majority of the increased labour force was absorbed in health industry followed by construction, education, and training as per cica.rog.au (2023). More interestingly, it was observed by agriculture.gov.au (2023) that since 2021 – 2022, there has been massive fall in the foreign contract labours in agricultural industry. Hence, it can be said that the Australian agricultural industry is focusing on sourcing labour from domestic labour market to attain sustainability and overcome market shock like pandemic (Antle & Ray, 2020).
The current trend in Exchange rate and its impact on agriculture:
Australia a major exporter of agricultural products including forestry and fisheries production. Among all items, sugar, wheat, mutton, canola, and beef are the major product of export, followed by rice, dairy products and other as per the figure below as per figure 8 (agriculture.gov.au 2022).
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Figure 8: Product type wise export
Source: (agriculture.gov.au 2023)
As per the figure 9, in recent time, most of the agricultural exports from Australia is directed towards China.
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Figure 9: Destination wise value of exports
Source: (agriculture.gov.au 2022)
As per google.com (2023), the Australian dollar exchange rate against the Chinese Yuan post 2002 has faced major shocks in 2008 due to the Global Financial Crisis and in 2013 due to Chinese Yuan devaluation. Chinese Yuan is weaker than Australian dollar, however, as per fas.usda.gov (2019), rapid urbanisation, rise in income and standard of living and food safety focus of Chinese people has increased the demand of agricultural products. As per figure 10, demand for dairy products, fresh fruits, beef, pork, wine, and nuts are high in China. Australia, one of the prominent exporters of these items, has developed strong trade relations with China.
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Figure 10: Demand of agricultural product in China
Source: (fas.usda.gov 2019)
Moreover, rise in the Australian currency in terms of Chinese currency has helped the Australian agricultural industry to have a higher value for their products. This is a win-win situation for both countries, increasing the trade relationship between two nations. Focusing on the figure 5 also reveals that trading relation with the Asian economies for Australia is increasing significantly in recent times; however, trade relation with old partners like New Zealand USA is falling. Australian dollar is the fifth most traded currency in the world, and it has higher value than any other Asian economies mentioned in figure 9 (Pandey, 2019).
Underpinning the overview and trend in the agricultural industry of Australia, exchange rate has posed a positive impact on agriculture industry of the state. However, recent poor international demand and rising global inflation has caused Australian agricultural industry to lose 14% of its value (agriculture.gov.au 2023).
Agriculture and Economic growth:
Australian agricultural sector is one of the significant contributors to the country’s economy. Though Australia is a developed economy and has high dependence on the service sector, with GDP value addition ranging from 2% to 3% annually is a driving Australian economy towards sustainability (Antle & Ray, 2020). With the high dependence on trade, Australian economy is expected to face strong growth in coming years as per agriculture.gov.au (2023). Major trading partners like China, ASEAN-5, south Korea, and Japan is expected to growth moderately. Largest trading partner of Australia, China is supposed to grow at 5.4% in 2023 and at 4.5% in 2024; this is supposed to boost the export to Chinese economy from Australia. Apart from this, as per agriculture.gov.au (2023), more than 50% value of export is generated by the agricultural industry. In comparison to this, global economies like China, ASEAN-5, Japan, and south Korea have export value creation from agriculture is lower than 30%. This showcases the importance of agriculture industry of Australian for its economy.
On the other hand, falling inflation in Asian economies is supposed to reduce the interest rate that can boost the demand in international market. With higher international demand, Australian economy is supposed to be benefitted as it will face higher demand for exportable (Barkley & Barkley). Moreover, as the demand will take pace, it will boost the economic performance through boosting the major macroeconomic variables like employment, inflation, exchange rate.
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Figure 11: Change in input cost
Source: (agriculture.gov.au 2023)
Since 2021, farmers gained massive boost in growing condition that aggravated the output from farming industry and contributed to the high growth rate. However, along with output, input cost also increased, which was a major concern among farmers. However, as per agriculture.gov.au (2023), it was also observed that input cost for framing industry is falling; this supposed to reduce the cost of production that will encourage the producers to produce more agricultural products. Hence, it is expected that farmers will remain in strong position with falling input cost, however if the proportionate change in demand does not catch up, it will put negative effect on agricultural output. With fall in agricultural output, GDP is also supposed to fall dampening the overall growth rate.
Policy implications on macroeconomic indicators with focus on the agricultural industry:
Monetary policy and its impact on macroeconomic indicators:
Monetary policy is an essential economic tool that helps the RBA to tackle economic situation. To deal with the post pandemic depression and to counter the present inflationary pressure, RBA has taken various monetary measures. RBA has increased the cash rate to 3.6% in 2023 which is aimed to put a stop in inflation (Cole, 2023). As the interest rate increase, propensity to save increase and conversely borrowing reduces. This reduces the overall aggregate demand in the market and reduce the inflationary pressure. However, it has negative impact on the country’s GDP as output is supposed to fall due to the increased interest rate.
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Figure 12: change in interest rate in Australia
Source: (tradingeconomics.com 2023)
This cash rate increase has also impacted the agricultural sector as well. Higher cost of borrowing has refrained producers to take loan and increase their production. Thus in 2022- 2023 onwards, output of the agricultural industry has also faced a fall.
Fiscal policy and its impact on macroeconomic indicators:
Fiscal policy is a government driven policy tool that focus on government expenditure, tax, and investment situation to control economic performance. Since the outbreak of Covid19 pandemic, government of Australia has taken various measures directed towards safeguarding the interest of Australian farmers. Through 9.5 million USA Pacific Food Security Initiative Australian government helped to serve the farmers (dfat.gov.au 2023). Moreover, JobKeeper program has helped the contract farmers to sustain during pandemic. In present time, government has committed $600 million for agricultural sector during 2022 – 2023 (agriculture.gov.au 2023). This is supposed to strengthen trade and export, boost biosecurity and modernise supply chain to handle future disruption like Covid19 pandemic.
Trade cycle phase:
Trade cycle has four phased which are expansion, peak, contraction, and trough. In pre pandemic situation, Australian economy was growing at a steady rate of 2.2% and GDP was also increasing, and it was in its expansion stage. After facing historical high GDP in 2013, there was a fall in GDP till 2016, however it rolled back to track and continued to increase again. During pandemic in 2019 – 2020, Australian economy faced depression situation, where output fell, and economic growth become negative. However, since 2020 – 2021, recovery phase started with increase in the production and opening of the economy. With suitable weather condition and massive boost in the domestic and international demand, Australian economy faced expansion. It can be observed from the good growth rate of Australia in 2021 – 2022 financial year and increase in GDP value to 1552.67 billion USD (tradingeconomics.com 2023). This was highest GDP for Australian economy and in this regard, role of agriculture industry needs to be mentioned which also faced record breaking growth post 2021.
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Figure 13: Change in GDP
Source: (tradingeconomics.com 2023)
However, as the economy grew, infatuation started to rise with exorbitant increase in the consumer prices. Australian economy faced highest inflation of 7.8% in third quarter of 2022, which was highest in last three decades. This resulted Australian economy to move into recession phase of trade cycle. Now with the easing of the inflation rate in domestic and international market, Australian economy is supposed to move into recovery phase and will move towards peak.
Conclusion:
Above analysis showcased that the Australian agricultural industry is one of the major contributors to the country GDP creation. With high impact on the exports, agricultural industry adds 2.4% value to the country’s GDP. It was observed that inflation and exchange rate are one of the major factors that influence the performance of Australian agricultural sector. Rise in economic growth and sustainability of Australian economy is positively associated with the agricultural sector. Hence a fall in agricultural output will lead to fall in export and will result in fall in value creation for Australian economy. Fiscal and monetary policy has played crucial role in bring back the Australian economy to its normal path post pandemic. It also helped the agricultural industry to get its massive output boom in last two years.
Reference:
Abs.gov.au (2023). Labour Force, Australia. https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release
Agriculture.gov.au (2022). Delivering Ag2030. https://www.agriculture.gov.au/sites/default/files/documents/delivering-ag2030-april-2022.pdf
Agriculture.gov.au (2022). Snapshot of Australian Agriculture 2023. https://www.agriculture.gov.au/abares/products/insights/snapshot-of-australian-agriculture#farm-incomes-at-record-highs
Agriculture.gov.au (2023). Agricultural overview. https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/agriculture-overview#inflation-continues-to-dampen-markets
Agriculture.gov.au (2023). Economic overview. https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/economic-overview#global-growth-to-slow-but-recover-slightly-in-2024
Agroculture.gov.au (2023). Labour use . Australian agriculture: Analysis of survey results, 2021–22. https://www.agriculture.gov.au/abares/research-topics/labour#summary
Antle, J. M., & Ray, S. (2020). Sustainable Agricultural Development. Palgrave Studies in.
Barkley, A., & Barkley, P. W. (2020). Principles of agricultural economics. Routledge. https://dlib.neu.edu.vn/bitstream/NEU/51180/1/Principles%20of%20Agricultural%20Economics%20by%20Andrew%20Barkley%2C%20Paul%20W.%20Barkley%20%28z-lib.org%29.pdf
Carbone, R. (2023). The trends shaping Australia’s $71 billion agriculture sector in 2023. https://www.forbes.com.au/news/innovation/the-trends-shaping-australias-71-billion-agriculture-sector-in-2023/
Ceica.org.au (2023). Employment Outlook to May 2023. https://cica.org.au/wp-content/uploads/Employment-Outlook-to-May-2023.pdf
Cole, W. (2023). Australia's central bank to get new rate-setting board under review shake up. https://www.reuters.com/markets/australia-central-bank-get-new-rate-setting-board-under-review-recommendations-2023-04-20/
Dfat.gov.au (2023). Australia’s development program. https://www.dfat.gov.au/development/topics/development-issues/agricultural-development-initiatives
Fas.usda.gov (2023). China: Evolving Demand in the World’s Largest Agricultural Import Market. https://www.fas.usda.gov/data/china-evolving-demand-world-s-largest-agricultural-import-market#:~:text=Market%20Overview,Organization%20(WTO)%20in%202001.
Leggatt, J. (2023). Australian Inflation Rate: Economy Facing ‘Bumpy Road’. https://www.forbes.com/advisor/au/personal-finance/inflation-rate-australia/#:~:text=May%2031%3A%20CPI%20Rises%20To%206.8%25,-Inflation%20is%20proving&text=It%20marks%20an%20increase%20from,up%20from%205.3%25%20in%20March.
Oecd.org (2023). Australia Economic Snapshot. https://www.oecd.org/economy/australia-economic-snapshot/
Pandey, S (2019). Currency whirlpool sucks in Australia, New Zealand as global trade war rages. https://www.reuters.com/article/us-forex-asia-cenbank-idUSKCN1UZ0Q5
Rba.gov.au (2023). Australian growth. https://www.rba.gov.au/chart-pack/au-growth.html
Rba.gov.au (2023). Inflation and Recent Economic Data. https://www.rba.gov.au/speeches/2023/sp-gov-2023-03-08.html
Rba.gov.au (2023). Inflation. https://www.rba.gov.au/publications/smp/2023/feb/inflation.html
Statista.com (2023). Agriculture – Australia. https://www.statista.com/outlook/io/agriculture/australia
Statista.com (2023). Distribution of gross domestic product (GDP) across economic sectors Australia 2021. https://www.statista.com/statistics/375558/australia-gdp-distribution-across-economic-sectors/
Tradingeconomics.com (2023). Australia GDP From Agriculture. https://tradingeconomics.com/australia/gdp-from-agriculture
Tradingeconomics.com (2023). Australia Interest Rate. https://tradingeconomics.com/australia/interest-rate
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