Australian farmers and agribusiness should be preparing themselves to take advantage of opportunities arising from falling oil prices and a lower exchange rate.

The OPEC has allowed global oil supply to remain high, pushed prices down and openly stated that it will not slow production throughout 2015. A consequent drop in the value of Australia’s four major resource exports – gas, iron ore, copper and coal – has caused concern regarding this country’s economic outlook. A decrease in the resources sector may, however, create opportunities for other sectors of the Australian economy, notably agriculture.

Over the last six months, oil prices have slumped by 30 per cent and crude oil is now at its lowest level since mid-2010. A number of factors influence the price of oil, including investor speculation, government policy and regional contingencies, like civil war. The recent drop is largely credited to an OPEC meeting in November 2014, at which the OPEC endorsed the position of Saudi Arabia, Kuwait and the UAE that there be no attempt to cut output levels. A major increase in US output from horizontal drilling and fracking meant that oil supply was already high and it is unlikely to drop during 2015.

The economic impacts of the oil price slump on the global macro-economy are multiple and complex. For Australia, the direct consequence has been a decline in the energy industry by around 25 per cent since September 2014. Decreased resource revenue has caused the Australian dollar to fall by around ten per cent in the last six months and the Reserve Bank of Australia has indicated that this will continue.

Although resource revenue has declined, farmers and agribusinesses will benefit from lower oil prices. Primary industries depend on petrol, diesel and fertilisers produced from oil and gas. Lower oil prices, therefore, will lead to a marked decrease in input costs for the sector.

The decrease in the Australian dollar will have a direct effect on exporters, who are now in a far more lucrative position than they were six months ago. Agriculture and primary production constitute some of Australia’s most important exports. The devaluation of the dollar will improve the marketability of products such as meat, wheat, dairy and wool, which are expressed in world prices (US dollars) in the international market. Furthermore, a lower Australian dollar may drive up demand for domestically produced food, as imports become relatively more expensive.

A weakening dollar and low commodity prices will also create favourable conditions for foreign investment in Australia’s agricultural sector. Foreign investment will shape the future sustainability of the sector, which faces high debt, high labour costs and a lack of domestic capital funds. Increased foreign capital could also drive up technological research and development in the sector.

In particular, increased Japanese investment may follow the entry into force of the Japan-Australia Economic Partnership Agreement in January this year. Already, Japanese companies such as Mitsui, Mitsubishi and Sumitomo have increased their investment in grain-handling assets. There is also further potential for Middle Eastern countries to invest in Australian agriculture as they diversify their investment away from oil. Following the oil price crash in 2008, Qatar invested significant capital in Australian agribusiness. Food and primary production may become popular avenues for other oil-dependent countries looking to diversify investment in the near future.

Australian farmers will also be watching the Russian economy closely during 2015. Declining oil revenue has driven down the value of the rouble and caused Russian banks to raise interest rates. Russia may reduce soft commodity exports, particularly wheat, to counter food price inflation. This would result in a decrease in supply competition for Australian wheat producers exporting to Europe and the Middle East.

Volatility in Australia’s energy sector will not necessarily bring about an economic downturn. Farmers should be encouraged to benefit from decreased energy prices and improvements in commodity prices, competitiveness and foreign investment. Combined, these factors create great opportunity for Australian agribusinesses.

Tess Marslen is a Research Analyst, Global Food and Water Crisis Research Programme, Future Directions International. This article was originally published on Future Directions International on 21 January 2015. It is republished with permission.