Australian agriculture is forecast to record its fourth year of growth according to agricultural banking group Rabobank, with supply chain issues, COVID-19 and inflation among the challenges in the year ahead.
In its annual Agribusiness Outlook report the bank said record high agricultural commodity prices and yields put the Australian agriculture sector in a strong position for 2022.
"Australia's second year of great pricing and mostly exceptional production conditions in 2021 means the Australian agriculture industry is well placed to take on the challenges of 2022," the report said.
RaboResearch's Dr Cheryl Kalisch Gordon said there will be some pressure on farming margins in the year ahead compared to the previous year, with some commodity prices expected to fall.
The senior commodities analyst said despite a mixed production outlook and challenges another favourable year was expected for Australian agriculture.
Dr Kalisch Gordon doesn't expect a repeat of the record grain and oilseed harvest for the 21/22 season, although said slaughter numbers for cattle and sheep will increase after some producers have restocked.
Milk production was also forecast to rise, but only in the second half of the year according to the report, while 2022 cotton production was on track to continue rising, with an 85 per cent increase on last year.
The report found local macro-economic settings remain supportive for Australian agriculture, with the Australian dollar expected to make only modest gains over the year.
Dr Kalisch Gordon said 2021 had been a "once in a blue moon" year for Australia's agricultural sector, with very strong prices resulting from "hardship globally", while high prices coincided with favourable production conditions for Australia.
"There was a combination of drought and adverse weather in key cropping regions around the world, strong stockpiling demand in the face of potential food shortages along with COVID-induced labour shortages which impacted intensively-produced agri products and transport," she said.
While the outlook for 2022 is also positive, the bank expects the year ahead will bring "less pronounced opportunities" for Australian agriculture.
"We start 2022 with the Australian food supply chain under unprecedented pressure, supply chain disruption and bottlenecks being felt across the board - from access to inputs at the farm level through to consumers accessing food on supermarket shelves," Dr Kalisch Gordon said.
The report found the impact on supply chains is expected to linger through the first quarter of the year, while geopolitical tensions will also play a role.
Dr Kalisch Gordon said the tight global market for agricultural commodities had shielded Australia from the impact of losing China as a buyer in 2021, but Australia may need to work harder to diversify across the globe "as markets unwind."
There's also the potential for market fallout from current tensions between Russia and Ukraine, which could "deliver exaggerated volatility in markets ranging from wheat through to oil and fertiliser".
"We also expect some of the heat to come out of prices for a number of commodities in 2022 as supplies are renewed globally, stock levels are increased and demand tempers," she said.
COVID will continue to impact the agricultural sector, as will "the pervasive challenge of inflation, which continues on one of the steepest rises in 30 years".
Other challenges ahead included still-high farm input prices and ongoing labour shortages.
"Additionally, we expect there will be global policy tightening around economic stimulus measures that have been in place during the pandemic, which will be designed to moderate demand," she said.
