Australian Agriculture in a Geopolitical Maelstrom

In Australia, the agriculture industry is particularly impacted by geopolitics, inextricably interconnected with the global market. The strong international focus of Australian agriculture drives growth opportunities, but also exposes the sector to significant geopolitical risk. The current landscape, changing with a speed and depth we have not experienced in our lifetimes is making the industry particularly vulnerable to its impacts.

Four main geopolitical mega-trends impact Australian agriculture: structural shifts in the international system; rising domestic political unrest and a rise in authoritarian leadership; technological transformation; and climate change, and they are all in unprecedented motion.

COVID-19 is further accelerating geopolitical uncertainty. While the connections may not seem immediately obvious, agriculture, as a sector worth at farmgate more than $68 billion in 2018-19, is set to be transformed by each of these issues. The value chain, from farm to consumer, is affected by geopolitics trends impacting the physical flows of goods through supply chains, and non-physical market access protocols and consumer sentiments. Resulting outcomes for the industry and Australia’s regional communities will be profound.

As explored in detail in KPMG’s report Australian Agriculture in a Geopolitical Maelstrom, each of the geopolitical mega-trends will influence Australian agriculture in very different but interconnected ways:

Structural shifts in the international system, including the rising economic strength of Asia, will drive growth for premium, high value Australian goods that international consumers can increasingly afford. Asian consumers will expect quality and safe agricultural products – and be willing to pay. At the same time, the strategic competition between China and the US is creating enormous unpredictability in the region. Broader outcomes may depend upon where Australia’s loyalties are perceived to lie. Tariff and non-tariff barriers are increasingly being stood up as major players in the global system compete.

Australia’s position in the international system may impact upon trade outcomes and available markets for the agriculture sector.

Rising domestic political unrest in countries around the world is being driven by real and perceived inequality, and growing mistrust of elites. Populist politics and the rise of authoritarian leaders has resulted in an erosion of multilateral cooperation and an increase in economic nationalism. The norms and institutions of international trade are being fundamentally challenged and a likelihood of more barriers to trade in agricultural goods being introduced. In many cases there is growing scepticism towards foreign investment into agriculture.

Food security is a critical component of this trend, as a highly visible issue where inequality is pronounced.

Technological transformation offers significant revolutionary potential for Australian agriculture in the pursuit of improved yields, productivity and quality. Traceability is increasingly a standard consumer expectation in a secure export supply chain, whilst 5G networks offer the potential to integrate on-farm and value chain information flows. However, genetically modified crops still raise food safety and ethical issues, posed as arguments versus their role in tackling challenges such as food security.

The implementation and use of 5G itself is a highly contested geopolitical area given the strategic competition between China and the US in the tech arena.

Climate change is a major geopolitical issue on the global stage, and will also play out at the local Australian level. Temperature changes and access to critical resources like water and arable land will have profound impacts on Australian producers’ ability to grow and raise livestock. Alongside profound physical impacts to growing conditions and productivity of land and livestock, the rising emphasis placed on ethical production and sustainability by modern consumers makes climate change a demand as well as a supply issue.

The extent and timeframe within which this returns to the agenda following COVID-19 will be a major determinant on how environmental challenges play out for Australian agriculture going forward.

It is evident that the Australian agriculture industry will face lasting impacts as a result of shifts in the four geopolitical mega-trends. There will be some issues that affect all-of-agriculture, others impacting specific sectors, and instances where there is differentiated impact per individual business. Those best placed to leverage growth through geopolitical opportunities, whilst mitigating against risk, are organisations that understand, plan for and embrace geopolitics as a key component of their business planning. Developing resilience to risk whilst strategically scoping and accessing opportunities will underpin business’ ability to successfully manage the unpredictability ahead.

During geopolitical unrest, there are logical steps that organisations can follow to proactively respond:

a) Translate the trends – what do these issues practically mean for your specific business context?

b) Know your exposure – how will these events impact your top and bottom line, and where should you focus effort?

c) Develop your strategy – form a targeted strategy that is responsive to change, addressing both risks and opportunities.

d) Keep current – Stay across dynamically evolving events and update your strategy accordingly.

Read the full report here to find out more about how Australian agriculture can effectively navigate the geopolitical maelstrom.

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