Automation tipped as farm sector's next productivity lever

Agricultural labour productivity outpaced the broader economy in 2025, but Westpac says farmers shouldn't expect that trend alone to keep delivering gains.

Speaking at the Tractor and Machinery Association of Australia's (TMA) 2026 annual conference in late July, Westpac economist, Luka Belobrajdic, said agricultural labour productivity grew 6.1 per cent in 2025, well above the sector's long-term average of 4.7 per cent. He said the gains reflected both a strong year for the sector and genuine productivity improvements, with hours worked and headcount both lower.

However, Belobrajdic said labour productivity gains would likely offer farmers little comfort, given labour represents a comparatively small share of the cost base, with the sharpest price rises concentrated in diesel, fertiliser and the cost of capital.

“It's in that way that the farming sector will look towards productivity gains outside of labour – that is, things like automation of tractors and machinery,” Belobrajdic said. “It's where farmers are really going to be searching for their next productivity gains going forward.”

He also pointed to artificial intelligence as a source of future productivity gains for farmers, particularly in reducing administrative workload, such as payroll processing.

The automation outlook comes as Westpac forecasts Australia's real farm gross value added (GVA) to decline by 0.8 per cent over 2026, as elevated input costs and softer external demand weigh on a sector coming off a strong 2025.

Belobrajdic said the expected contraction reflected ongoing disruption stemming from the Middle East conflict, elevated fertiliser and diesel costs, lower livestock production, more challenging external demand conditions and Chinese beef import controls, as well as a dry and warm winter.

Belobrajdic said initial reports suggested there had been sufficient fertiliser access to secure this season's sowing, but that prices were expected to remain elevated at least through 2027. He noted the World Bank's Global Fertiliser Index was still trading nine per cent above year-earlier levels, with urea and ammonia among the products most exposed, given roughly a third of global fertiliser trade transits the Strait of Hormuz.

Diesel prices are forecast to remain above $2 a litre until at least mid-2027. Belobrajdic attributed the widening spread between diesel and petrol prices in part to reduced access to Middle Eastern crude used by Asian refineries to produce high diesel yields, and to Russia's ban on diesel exports following Ukrainian strikes on its refining capacity. He said diesel had “no real substitutes” in the heavy industries.

“If we think about a tractor that runs on diesel, a mining excavator that runs on diesel, or a generator on a remote construction site that runs on diesel, these things cannot easily be replaced,” he said.

Westpac expects a broad substitution away from fertiliser-intensive crops such as wheat toward canola, driven by oilseed biofuel demand amid disruption in global energy markets.

Meat prices are expected to stay supported by tight supply and strong demand from the United States, before moderating in 2027 as conditions normalise.