With La Niña conditions expected to continue above average rainfall over Winter months, higher commercial and residential electricity prices to be reflected in quarterly bills sometime after 1 July 2022, petrol prices at the pump making life harder for small business and households alike, food prices rapidly rising and the loss of commercial passenger flights to Lismore and Grafton airports with a significant reduction in flights to Ballina, Northern Rivers residents are going to have to dig a little deeper to find that fortitude the region’s communities are known for.
BACKGROUND
ANZ Research, Agricultural Insight, 31 May 2022. “Global Food Crisis To Worsen”, exceprt:
Bringing it home
Food shortages are expected to worsen as climatic issues, energy shortages, the pandemic and the invasion of Ukraine all impact the world’s ability to produce sufficient food. China appears to be one step ahead of the rest of the world in terms of securing additional food supplies. Their policy to increase their reserves of imported products is now serving them well as other countries scramble to import product at inflated prices.
High global food prices will cause hunger in developing nations and erode wealth globally, as it will continue to underpin inflation. Food-exporting nations like Australia and New Zealand may continue to benefit in a net sense from high commodity prices, but it’s hard going for lower-income earners. In addition, as global prices become too expensive, demand will fall, as consumers’ ability to purchase higher-value proteins such as dairy products and red meats is reduced. Demand for basic foodstuffs such as grains is not expected to wane to the same extent – people have to eat.
Therefore the world will need to wait for global supply to increase before these markets rebalance and prices temper.
It’s also worth noting that high food prices are not conducive to geopolitical stability. Hunger induces migration and topples governments. The food crisis is another factor to add to the growing list of potential geopolitical risks as the world tentatively emerges from the shadow of COVID-19. [my yellow highlighting]
Australian Bureau of Statistics (ABS), Consumer Priece Index: March Quarter 2022, 27 April 2022:
The Consumer Price Index (CPI) rose 2.1% this quarter.
Over the twelve months to the March 2022 quarter, the CPI rose 5.1%.
The most significant price rises were New dwelling purchase by owner-occupiers (+5.7%) and Automotive fuel (+11.0%)….
Food and non-alcoholic beverages rose by 2.8% since the previous December 2021 quarter and 4.3% since March Quarter 2021. Health prices also rose 2.3% since the previous quarter and 3.5% since March Quarter 2021. Education prices went up by 4.5% since the previous quarter and 4.7% since March Quarter 2021. Housing prices rose by 2.4% from the previous quarter and 6.7% since last year’s March quarter. While Transport prices rose 4.2% since the previous quarter and a whopping 13.7% since last year’s March quarter.
With the exception of Clothing and footwear every CPI benchmark rose since the previous quarter.
The Guardian, 1 June 2022:
Australia is set for its third bumper season of crops in a row, but the increased production will probably bring little relief at the cash register as rising global demand pushes prices skyward.
Australian farmers will plant an area almost the size of England this winter as they try to take advantage of soaring global food prices and a third year of good rains.
The quality of production, though, may be hit by waterlogged fields and reduced fertiliser use as those costs surge, according to Rabobank. Local manufacturers, too, say they’re under strain as raw material and other prices climb and not all of the increases can be passed on.
This winter, farmers will plant a record 23.83m hectares, up 1% on last year, and just shy of England’s 24.36m total area, the bank said in its Winter Crop Outlook. That tally is also 11% more than the five-year average, with wheat plantings up 1.4% and canola, an oilseed, up by 20.9%. Plantings of barley, oats and pulses have dropped…..
Too much rain, though, has forced some farmers to delay or even replant crops – including three plantings of canola in some parts of New South Wales, Voznesenski said.
Other challenges include higher costs for diesel and agrochemicals from pesticides to fertilisers. And while prices have been hitting record levels globally, limited export capacity has hindered exports, meaning farmers have missed out on some of the best prices, he said.
However, Tanya Barden, chief executive of the Food & Grocery Council, said local food manufacturers hadn’t seen much benefit. They were struggling from unprecedented steepening prices for all manner of inputs, from wheat to energy and freight and packaging costs.
“Input costs had risen by 50% over the last decade, and so profitability has dropped from $8bn [a year] to $5bn, and capital investment stagnated,” Barden said. “Industry now is not in a position where it’s able to keep absorbing all these massive additional levels of cost increases.”
While grocery food prices rose 5.3% in the year to March, according to ABS data, they rose 4% in the previous three months alone, she said.
With the full impact of Russia’s invasion of Ukraine and Covid-related disruptions in China still to be felt, it was likely food price inflation would quicken in this and coming quarters, she said.
A separate report by ANZ on Tuesday, meanwhile, argued the world faced a “prolonged global food crisis” caused by lost exports from Russia and Ukraine, two of the biggest exporters…..
Susan Kilsby, an agriculture economist with ANZ, said food inflation is going to be an issue that will “plague Australia and most other countries” well into 2023.
“Demand for grains tends to be relatively inelastic, so for global grain prices to ease we really need to see an increase in the supply of grain that is available to be exported globally,” Kilsby said.
While wheat plantings in Australia will be large by historical levels, yields may fall from the highs of recent years.
“La Niña brings more rains in Australia and Asia, while drought in the Americas,” she said, adding the timing of the rainfall can also have a big effect on output.
Rabobank in its report noted Australian farmers have been investing heavily in new storage capacity to cope with increased production and also the limited capacity of grain handlers and exporters to move their crops.
Supply chain snags, however, mean some of the additional spending is not resulting in the equipment arriving.
In some cases, farmers “can order them, but they’re not even told when they can get” the extra storage, with waits stretching out to a year.
“There’s a lot less certainty in their world at the moment,” Rabobank’s Voznesenski said. [my yellow highlighting]
Soybean farmers on NSW North Coast suffer near-total crop losses. Region grows high-end soy bean crop for foods such as tofu with estimated value of $20 million. Ongoing rain after Feburary-March flooding is causing further losses.
That record flood caused extensive damage to the NSW Sugar Milling Co-operative’s three sugar mills on the Northern Rivers and 3,000 tonnes of raw sugar had to be condemned at Harwood, but it is expected that Condong on the Tweed and Harwood on the Clarence will be operational for the late June start to crushing while the Broadwater enterprise on the Richmond, which experienced extensive damage to the steam and power generation facility may not be fully operational until the end of August.
Australian Institute of Petroleum, Weekly Petrol Prices Report: Week Ending 29 May 2022:
Average Petrol retail price this week: 200.0 cents
Average Petrol wholesale price this week: 189.7 cents
Prices have been rising steadily. With the average petrol retail price for the week ending 1 May 2022 coming in at 178.2 cents and the average petrol wholesale price at 163.1 cents.
The week ending 8 May saw the retail price at 179.6 cents and wholesale price 169.2 cents. By the week ending 15 May average prices had risen to retail 185.0 cents and wholesale 178.7 cents. The following week ending 22 May averages prices had again increased to retail 199.1 cents and wholesale 183.3 cents.
Australian Energy Market, AER Statement – Retail Market, 1 June 2022, excerpt:
As outlined in both our Q1 Quarterly Wholesale Report and our Final Determination of the Default Market Offer last week, there continues to be volatility in the wholesale energy market resulting in added cost pressures on both retailers and consumers.
The AER is closely monitoring the situation in both the wholesale and retail markets and ensuring all participants are complying with the law and the rules…..
ABS, Australian National Accounts: National Income, Expenditure and Product, March 2022, 1 June 2022:
The La Nina weather cycle influenced Australia’s weather during summer and early autumn, leading to severe flooding in areas of south-east Queensland and northern New South Wales.
The impacts of these events can be seen in key national accounts aggregates. Severe storms disrupted mining and construction activity, resulting in reduced gross value added for these industries. Residential and commercial properties were damaged, resulting in increased non-life insurance claims and governments increased spending on defence assistance for affected areas.
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Industry Gross Value Added
The response to the L-strain outbreak of COVID-19 led to a large fall in gross value added (GVA) in the June quarter 2020, driven by a record decrease in market sector GVA. Impacts were widespread throughout market industries, with only Mining and Financial and Insurance Services recording growth. The largest falls were seen in tourism and hospitality-related industries, reflecting the restrictions imposed on movement.
Non-market GVA declined driven by Health Care and Social Assistance. Elective surgeries were cancelled and visits to health care professionals declined as households sought to limit the spread of the virus. Both market and non-market GVA partially recovered in the September quarter 2020 as restrictions were lifted.
The Delta strain of COVID-19 had similar effects on market and non-market GVA, with trading and mobility restrictions reducing demand for many goods and services. The falls were not as pronounced as those that occurred during the L-strain, as fewer states experienced outbreaks. Additionally, trading frameworks such as COVID-19 safety plans were developed to allow some businesses in affected states to keep operating under restrictions such as mandatory QR check-ins for patrons and venue capacity limits.
The absence of lockdowns under the Omicron variant resulted in a lower impact on demand. While restrictions were less stringent, hours worked fell due to high COVID-19 infection rates and subsequent isolation requirements. Market sector GVA rose in the March quarter 2022, with the reopening of domestic and international borders. Growth was recorded in travel-related industries such as Transport, Postal and Warehousing and Accommodation and Food Services. Non-market GVA fell due to a contraction in Health Care and Social Assistance, however the fall was less severe than for the prior strains.
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UPDATE
ABC News, 3 June 2022:
Australian manufacturers facing massive increases in gas prices are warning they could be forced to shut, with tens of thousands of jobs on the line.
Gas prices on the spot market have quadrupled amid supply constraints, local coal-fired power station outages, and the war in Ukraine.
Australia's largest plastics producer Qenos buys about 40 per cent of its gas on the open market.
"Prices have gone up in the spot market to between $30 and $40 a gigajoule. In fact, that's in a month alone, that's an increase of 300 to 400 per cent," Qenos chief executive Steve Bell said.
"For energy-intensive businesses like ours that is not sustainable."….
On Wednesday, AEMO triggered the Gas Supply Guarantee Mechanism for the first time since it was introduced in 2017. The mechanism calls for the market to release supply and come up with a plan to address a potential shortfall.
Analyst Gilles Walgenwitz said without enough renewables capacity in the grid to make up the shortfall, local coal fired power station outages were also pushing up gas prices.
"We have about six gigawatts of coal capacity missing in Queensland, six gigawatts in New South Wales. That's huge, when you compare to the total capacity normally available," he said.
"And so, we have much more gas power generation coming into play to meet the demand and it happens that at the same time, the price of gas is extremely high."
