EC400 Agribusiness Economics and Finance Case Study Sample

EC400 Agribusiness Economics and Finance

Economics – Case Study

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.

 
• 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 and macroeconomic environment

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? Define and explain trade cycle. 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

• define key economic terms.

• 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.

Solution

Introduction 

The Australian agricultural sector is an essential part of the country's economy, adding to 3.3% of the Gross domestic product and offering work to 1.3 million people starting around 2022 (Australian agriculture outlook 2022). According to the MBA Assignment Expert, Besides, agrarian items involve 15% of Australia's complete products, underlining the area's significance locally, however on a global level also. The macroeconomic scene inside which this area works has seen relative stability as of late, with a Gross domestic product development drifting around the 3% imprint, combined with controlled expansion and low joblessness (ABARES 2023). This has developed a climate helpful for the development and success of the agricultural sector.

However, recent events like the conflict in Ukraine and rising inflation rates around the world have fueled uncertainty and turmoil in the global economic scenario. These worldwide elements definitely saturate the Australian macroeconomic climate, accordingly impacting its farming area. Monetary and fiscal policies, which are established by the Australian government and the Reserve Bank of Australia (RBA), are crucial to this discussion. The macroeconomic environment and, by extension, the agricultural sector's performance are significantly impacted by these entities' decisions.

In addition, the agricultural sector is likewise impacted by the exchange cycle, with its different stages directing the regular pattern of economic activities and, consequently, the interest and supply of agricultural products. For this situation study, our examinations focus on the ongoing macroeconomic milieu in Australia and its particular effects on the agribusiness area. This study is supported by broad examination from trustworthy sources like the RBA and the Division of Horticulture.

Water and the Climate

Australian agriculture overview and trends 

Agriculture is a significant financial area in Australia, representing 3.3% of Gross domestic product and 10% of work in 2022 (Australian agriculture outlook 2022). The area is profoundly send out arranged, with 70% of creation being sent out. Australia is a main exporter of horticultural items, including beef, wheat, fleece, and dairy items.

Trends

The agricultural industry in Australia is undergoing a number of changes, including:

• Increased efficiency: The agricultural sector's productivity has been rising in recent years as a result of technological advancements and improved management techniques.

•    Shift to higher-value crops and livestock: Almonds, avocados, and beef cattle are examples of high-value crops and livestock that are increasingly being produced. This is being driven by rising interest for these items in both homegrown and worldwide business sectors.

• Increased focus on sustainability: There is a developing spotlight on supportability in the agricultural area, as ranchers and buyers become more mindful of the natural effect of food creation. This is prompting the reception of practices like water protection; soil the executives, and the utilization of environmentally friendly power (Chapman & Lindenmayer 2020).

Outlook

The agricultural sector in Australia has a bright future. The sector is strategically set up to benefit from proceeded with development in worldwide demand for food, as well as the rising spotlight on sustainability (Cho 2018). Nonetheless, there are a difficulties that the sector should address, for example, the impacts of environmental change and the need to draw in and hold skilled laborers.The Australian agricultural area is a dynamic and developing sector that is assuming a significant part in the public economy. If it is able to overcome the obstacles it faces, the industry is well-positioned to continue expanding in the future.
Current trend in GDP and share of agriculture 

The agricultural sector of Australia has a significant impact on the economic landscape of the nation. In 2022, it was responsible for 3.3 percent of the country's GDP, employed 1.3 million people, and its products accounted for 15 percent of Australia's total exports (ABARES 2023). The sector's diverse crop and livestock offerings, which include staples like wheat, beef, dairy, sugar, wool, and cotton, reflect its dynamism. Despite its strong performance, the industry faces a number of obstacles. It must overcome obstacles such as the effects of climate change, rising input costs, and fierce competition from foreign producers. However, there are some positive developments that are compensating for these difficulties. 

In Australian agriculture, sustainability is emerging as a significant trend. Recognizing the basic job they play in ecological stewardship, ranchers are progressively coordinating maintainable practices into their tasks (Reutter, Lant & Lane 2018). Some of the measures being taken to lessen the impact on the environment are cutting back on the use of pesticides, using less water, and cutting down on carbon emissions. Farmers are currently trying to handle their produce, like milk and meat, to upgrade their worth. Moving beyond the conventional model of raw material production, this enables them to increase their share of the retail price. Australian farmers have an opportunity to carve out a niche in the increasingly competitive agricultural sector thanks to the shift toward value-added products, which aligns with a broader global trend toward localism and quality over quantity (Simon, Nguyen-Van & Rozan 2020).

Alternately, the agricultural sector is not stagnant. It is going through a flurry of positive changes, like making more money for research and development and using new technologies that make it more productive and efficient (Loures et al., 2020). These changes guarantee that the sector will continue to play a significant role in the Australian economy and will be well-equipped to do so in the future.

Current trend in inflation and impact on agriculture 

Australia has encountered consistent financial development throughout recent years, with a 3.3% expansion in Gross domestic product noted in 2022. Strong exports, increased consumer spending, and increased investment fueled this expansion (ABARES 2023). On the other hand, the agricultural area's Gross domestic product commitment has been waning, representing 3.3% of Gross domestic product in 2022 (ABARES 2023). The expansion of the services sector, the expanding globalization of the economy, and the effects of climate change on agricultural production are all contributing to this decline. The farming area actually makes a huge commitment to the Australian economy. It employed 1.3 million people and brought in $65 billion from exports in 2022 (ABARES 2023). Regardless of the declining share in Gross domestic product, the area stays crucial to Australia's financial wellbeing.

The annual inflation rate in Australia has been rising steadily in recent months, reaching 5.1% in May 2023, the highest rate since 2001 (ABARES 2023). The conflict in Ukraine, which has led to skyrocketing food and energy prices, is one of the many causes of this increase. The resultant rising living expenses are influencing the agrarian area adversely. Farmers are struggling with taking off input costs for basics like fuel and manures, crushing their overall revenues (Australian Governement Productivity commission 2023). Additionally, consumers' demand for agricultural goods is being disturbed by rising living costs. Consumers are cutting back on discretionary purchases like meat and dairy products as a result of shrinking disposable incomes, further affecting the industry (Bramley & Ouzman 2019). The ongoing direction proposes that expansion is probably going to keep ascending in the close to term, presenting progressing difficulties for agribusiness. However, the industry is adaptable and resilient. The industry needs to find ways to cut costs and increase productivity in order to overcome these obstacles brought on by inflation. The sector's inherent resilience offers hope despite the fact that rising inflation is putting pressure on farmers and reducing consumer demand for agricultural goods (Ansell et al., 2016). Procedures zeroing in on cost decrease and efficiency upgrade are probably going to assist the area with keeping up with benefit in the midst of this violent financial environment.

Current Trend in Unemployment and Labor Use in Agriculture 

• Australia has seen a reliable reduction in its unemployment rate, arriving at a low of 3.9% in May 2023, the most minimal beginning around 1974 (Hannam 2023). Strong economic growth, rising employment rates, and a falling labor force participation rate are to blame for this improvement.

• This downward trend has been beneficial to the agricultural sector. The area, which utilized 1.3 million individuals or around 4.5% of Australia's complete labor force in 2022, has seen a flood in labor interest (Hannam 2023). This is connected to increased interest in the area, developing agricultural creation, and a more prominent requirement for skilled work.

• Furthermore, the sector faces a lack of talented work, including rural designers and researchers. This can be followed back to restricted preparing programs and a lessening in agriculture understudies.

• The COVID-19 pandemic has made things even more complicated by disrupting agricultural supply chains and making it harder to find workers (Aday & Aday 2020). However, despite these difficulties, agriculture is expected to maintain its growth trajectory and remains a significant employer in Australia. The sector will need to actively address these issues in order to meet its labor requirements and maintain its competitiveness.

• The sector is poised for ongoing change because it is anticipated that Australia's unemployment rate will remain low and that the demand for agricultural labor will continue to rise. In any case, methodologies to draw in and train more youthful, gifted laborers and imaginative ways to deal with defeat the pandemic's effect are imperative for the area's future achievement (Armenta-Medina et al., 2020).

Current Trend in Exchange Rate and Impact on Agriculture 

Australia has seen its dollar valuing as of late, arriving at a pace of $0.73 USD in May 2023, the most elevated starting around 2015 (Venz & Leggatt 2023). Strong domestic economic expansion, low interest rates, and rising commodity prices all contribute to this appreciation. The Australian dollar's appreciation has mixed effects on the agricultural industry. On the disadvantage, it builds the cost of Australian farming commodities for global purchasers, possibly diminishing interest for these items. This could, thusly, influence trade incomes for Australian ranchers. On the potential gain, a more grounded Australian dollar lessens the expense of imported rural contributions for farmers. The general effect on the Agricultural area is probably going to be unbiased in the momentary given these checking impacts. However, if the Australian dollar continues to appreciate, it may begin to have a negative impact, particularly if export demand begins to decline significantly (White, Davidson & Eckard 2021).

Projected patterns propose that the Australian dollar will areas of strength for stay the close to term. This situation would keep on introducing the two open doors (less expensive imports) and difficulties (more costly products) for the farming area. Therefore, in order to maintain profitability, farmers and agricultural businesses will need to strategically adapt to this shifting economic landscape. Increasing the focus on agricultural products with a higher value-added component, increasing market diversification, or improving efficiency are all examples of this.

Agriculture and Economic Growth 

Agriculture assumes a critical part in driving financial development by giving food, unrefined components for different enterprises, and business. It supports efficiency through the reception of new advancements and practices that permit ranchers to yield more with less assets. This efficiency can bring down food costs, invigorating purchaser spending and financial development (Darnell et al., 2018). In particular in developing nations, the agricultural sector contributes significantly to the reduction of poverty and the improvement of living standards by creating a significant number of jobs. Also, Agriculture commodities procure unfamiliar cash, which can be utilized to import labor and products, further helping financial development. However, a country's development stage and status affect how agriculture affects economic growth. In created countries, the rural area ordinarily contains a more modest piece of the economy. Agriculture, on the other hand, frequently makes a significant contribution to economic expansion in developing nations. The area's significance to financial development additionally moves as nations create. Agriculture is a crucial growth engine in the early stages of development. As nations progress and expand their economies, farming's job in driving monetary development will in general lessen, while different areas like assembling and administrations become more prevailing.

Transmission Mechanism of MP and Its Impact on Macroeconomic Indicators

The transmission component of financial strategy portrays how changes in money related arrangement, carried out by national banks, influence the economy through three key channels (Subramanian 2021). When central banks change interest rates to lower borrowing costs, this is called the interest rate channel. Higher loan costs can lessen business venture and customer burning through, possibly easing back financial development (Sihem 2019). Changes in interest rates have an impact on the appeal of the domestic currency to investors, which in turn has an effect on the exchange rate channel. Higher financing costs can bring about money appreciation, making trades more costly and imports less expensive, which can likewise sluggish monetary development. The resource cost channel spins around loan fee influences on resource costs, like stocks and bonds (Australian Government Productivity commission 2023). Higher loan costs might diminish these resource costs, prompting diminished abundance for families and organizations, again possibly easing back monetary development (Cho 2018).

Changes in financial policy have a significant impact on macroeconomic indicators like GDP growth (which is influenced by changes in investment, spending, and exports), inflation (which is influenced by changes in borrowing costs and demand for goods and services), unemployment (which is influenced by changes in investment and spending), and exchange rates (which is influenced by changes in demand and supply of the domestic currency). The transmission component is mind boggling and can change in light of explicit circumstances, yet it's a basic device that national banks use to oversee economies. Even though it is complicated, it is important to know because it is the foundation for many of the changes in economic indicators.

Transmission Mechanism of FP and Its Impact on Macroeconomic Indicators

The fiscal policy transmission mechanism explains the three main ways that changes in government spending and taxation can affect the economy. Aggregate demand is affected by the channel of government spending. Expanded government spending mixes more cash into the economy, possibly encouraging monetary development. The tax assessment channel impacts discretionary cashflow (Apergis, Rehman & Cooray 2021). Higher duties decrease discretionary cashflow, possibly thwarting monetary development by lessening shopper spending.

The crowding-out effect relates to government acquiring effect on loan costs. Expanded government acquiring raises interest for loanable assets can increment financing costs. As a result, business investments and consumer borrowing may be discouraged, potentially slowing economic expansion. Financial approach fundamentally influences macroeconomic pointers. It can impact Gross domestic product development through changes in total interest, influence expansion by adjusting interest for labor and products, impact joblessness levels additionally through changes in total interest, and effect government obligation by altering the public authority's spending plan deficiency (Apergis, Rehman & Cooray 2021).

Although the transmission mechanism of fiscal policy is complex and the impact it has on macroeconomic indicators can vary depending on the situation, fiscal policy is critical to economic management. The development of new financial markets and economic globalization has resulted in an increase in the complexity of the transmission mechanism over the past few years. Moreover, the viability of financial arrangement has decreased in a nations because of high obligation levels and maturing populaces. In response, governments have begun to manage their economies by utilizing unconventional fiscal policy tools like spending increases and tax cuts. Fiscal policy is still an important tool for governments to use to direct economic activity and achieve macroeconomic goals, despite these obstacles (Horton & Gainiy 2023).

Trade Cycle Phase 

A trade cycle, otherwise called a business cycle, is a repetitive peculiarity in an economy and comprises of four stages: peak, contraction, trough, and expansion (Lorentz et al., 2016). During the development stage, the economy encounters development. Organizations put resources into capital and recruit extra workers, setting off an expansion underway and business. This upward momentum typically benefits all sectors as well as the economy. The peak of the expansion phase is the pinnacle of economic activity. Businesses are operating at full capacity and employment is at its highest. The economy is flourishing, with the highest possible levels of both supply and demand for goods and services.

Post-top, the economy enters the compression stage, described by a financial stoppage. Organizations, expecting diminished request, pull back on venture and business, prompting a reduction underway (Lorentz et al., 2016). This stage is normally connected with expanding joblessness and a loosening speed of monetary exercises. The box stage denotes the nadir of the exchange cycle, with financial action and work at their most minimal. The economy is either experiencing a recession or, in extreme cases, a depression. These trade cycles can last for years and can vary in length based on a lot of different things. As of late, factors, for example, globalization and monetary development have infused expanded unpredictability into these cycles. Fiscal and monetary policies can be used by governments to manage these cycles, aiming to dampen extremes, reduce the negative effects of contractions, and take advantage of expansion periods for growth. Effective economic planning and policymaking requires a thorough understanding of these cycles and their repercussions.

Conclusion 

The agricultural sector assumes a pivotal part in the Australian economy, contributing essentially to gross domestic product, work, and commodities. It has confronted difficulties, for example, fluctuating product costs, the effect of environmental change, and a maturing labor force, however its flexibility has seen it through these. Advancements in innovation, practices, and supportability, close by esteem added items, have improved its proficiency and efficiency. The agricultural sector's conditions have been shaped by Australia's macroeconomic environment, which includes GDP, inflation, unemployment, and exchange rates trends. Low joblessness rates areas of strength for and development have cultivated a strong climate for horticultural development. Rising expansion and valuing Australian dollars present blended ramifications, with the area expecting to adjust to keep up with productivity.

Through interest rates, monetary policy has an impact on the economy's borrowing costs, consumer spending, and investment. Regardless of the intricacy of the transmission component, it stays a viable instrument for dealing with the economy. In the mean time, financial strategy influences the economy through government spending and tax collection. It continues to be an essential tool for economic management despite the challenges posed by high debt levels and aging populations. The exchange cycle, set apart by periods of extension, pinnacle, compression, and box, is a repetitive peculiarity in economies. For the sake of economic growth and stability, it is essential to comprehend and control these cycles. As the economy explores through the various phases of the exchange cycle, fitting financial and money related strategy reactions are vital to help the agrarian area and the more extensive economy. Australian agriculture, in spite of its difficulties, is ready for development and development, making it an imperative piece of the country's financial scene.

References

ABARES. (2023). Snapshot of Australian Agriculture 2023. https://www.agriculture.gov.au/abares/products/insights/snapshot-of-australian-agriculture 
Aday, S & Aday, M.S. (2020). Impact of COVID-19 on the food supply chain. Food Quality and Safety, 4(4),167–180

Ansell, D, Freudenberger, D, Munro, N & Gibbons, P (2016), The cost-effectiveness of agri-environment schemes for biodiversity conservation: A quantitative review, Agriculture, Ecosystems & Environment, 225, 184–191.

Apergis, N., Rehman, M. U., & Cooray, A. (2021). Do fiscal shocks explain bond yield in high- and low-debt economies? [Do fiscal shocks explain bond yield?] Journal of Economic Studies, 48(2), 468-494. doi:https://doi.org/10.1108/JES-05-2019-0229

Armenta-Medina, D., Ramirez-delReal, T., Villanueva-Vásquez, D., & Mejia-Aguirre, C. (2020). Trends on advanced information and communication technologies for improving agricultural productivities: A bibliometric analysis. Agronomy, 10(12), 1989. doi:https://doi.org/10.3390/agronomy10121989

Australian Government Productivity commission. (2023). Trends in Australian Agriculture. Retrieved from https://www.pc.gov.au/research/completed/agriculture
Bramley, R. G. V., & Ouzman, J. (2019). Farmer attitudes to the use of sensors and automation in fertilizer decision-making: Nitrogen fertilization in the australian grains sector. Precision Agriculture, 20(1), 157-175. doi:https://doi.org/10.1007/s11119-018-9589-y

Chapman, B., & Lindenmayer, D. B. (2019). A novel approach to the sustainable financing of the global restoration of degraded agricultural land. Environmental Research Letters, 14(12) doi:https://doi.org/10.1088/1748-9326/ab5deb

Cho, G. (2018). The australian digital farmer: Challenges and opportunities. IOP Conference Series.Earth and Environmental Science, 185(1) doi:https://doi.org/10.1088/1755-1315/185/1/012036

Hannam, P. (2023). Unemployment rate in Australia falls back to 3.5% despite interest rate rises. Retrieved from https://www.theguardian.com/business/2023/mar/16/unemployment-rate-in-australia-falls-back-to-35-despite-interest-rate-rises

Horton, M & Ganainy, A.E. (2023). Fiscal policy: Taking and giving away. Retrieved from: https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Fiscal-Policy

Lorentz, H., Solakivi, T., Töyli, J., & Ojala, L. (2016). Trade credit dynamics during the phases of the business cycle - a value chain perspective. Supply Chain Management, 21(3), 363-380. doi:https://doi.org/10.1108/SCM-08-2015-0307

Loures, L., Chamizo, A., Ferreira, P., Loures, A., Castanho, R., & Panagopoulos, T. (2020). Assessing the effectiveness of precision agriculture management systems in mediterranean small farms. Sustainability, 12(9), 3765. doi:https://doi.org/10.3390/su12093765

Reutter, B., Lant, P. A., & Lane, J. L. (2018). Direct and indirect water use within the Australian economy. Water Policy, 20(6), 1227-1239. doi:https://doi.org/10.2166/wp.2018.055

Sihem, E. (2019). Management of climatic risks and its effects on agricultural productivity: evaluating the impacts of government policy. International Journal of Food and Agricultural Economics, 7(3), 243-255. Retrieved from https://www.proquest.com/scholarly-journals/management-climatic-risks-effects-on-agricultural/docview/2269926387/se-2

Simon, d. B., Nguyen-Van, P., & Rozan, A. (2020). More market, more efficiency? water market impacts on water use efficiency in the australian agricultural sector. St. Louis: Federal Reserve Bank of St Louis. Retrieved from https://www.proquest.com/working-papers/more-market-efficiency-water-impacts-on-use/docview/2586370444/se-2
Subramanian, A. (2021). Harnessing digital technology to improve agricultural productivity? PLoS One, 16(6) doi:https://doi.org/10.1371/journal.pone.0253377

Venz,S & Leggatt, J. (2023). AUD to USD forecast: Will the Dollar recover against the Greenback?. Retrieved from: https://www.forbes.com/advisor/au/investing/currencies/aud-to-usd-forecast-and-trends/

White, RE, Davidson, B & Eckard, R (2021), A landholder’s guide to participate in soil carbon farming in Australia Australian Farm Institute. Retrieved from:
https://www.farminstitute.org.au/publication/a-landholders-guide-to-participate-in-soil-carbon-farming-in-australia/