Ag-Stocks: Grass Is Greener In Budget Aftermath

Commodities | Oct 12 2020

The Australian government's investments into turbocharging ag-exports will be a longer-term benefit for the sector

-Government wants to ‘turbocharge’ agricultural exports
-Benefits for ASX-listed ag-companies mostly longer term
-Ag-tech emerging as the next exciting growth area

By Anastasia Santoreneos

The Coalition has promised to deliver billions towards “turbocharging” agricultural exports and securing better infrastructure in its 2020 Federal Budget, meaning the future of stocks in the sector is looking bright(er).

The Government committed $328m towards cutting the red tape on the export process and $317m to the International Freight Assistance Mechanism, which will help expedite the transport of perishable goods to overseas markets. 

The Budget also committed $2bn towards the National Water Grid, which aims to increase the nation’s water security. A further $1.3bn will go towards the Modern Manufacturing Initiative, with a portion of that going towards increasing Australia’s food production capabilities

The agriculture sector represents around $14bn on the ASX. Once you remove Incitec Pivot ((IPL)) it reduces to just $13bn, meaning the changes in the Budget aren’t likely to have a huge direct impact on listed agricultural stocks.

However, they are likely to benefit from changes in the long term.

$328m to turbocharging exports

The majority of the Government’s $328m export spend will be put towards creating a single interface for exporters to complete their paperwork, rather than manually fill out forms to get their products moving. 

According to Datt Capital founder Emmanuel Datt, the changes spell good news for all agri-stocks in the future. 

“It’s a manual process at the moment, and there are a lot of steps to the export. This is a step towards the future, and it’s going to benefit all agri companies,” he said. 

$317m to expediting overseas exports

The $317m International Freight Mechanism will result in fewer obstacles for perishable goods companies exporting their produce overseas.

Seafood producer Tassal ((TGR)) and fresh fruit producer Costa Group ((CGC)) will be poised to take advantage of this investment.

While Elders Limited ((ELD)) isn’t strictly an agricultural group, it provides a lot of support services to the agriculture industry, meaning it’s likely to also see some long-term benefit from eased trade conditions.

On the flip side, we won’t see much movement in consumer stocks like a2 Milk ((A2M)) that have a domestic retail focus. 

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