We have just returned from a few days in Canberra attending the ASA100 Members’ Forum (“China Beyond the Border”) and the National Farmers Federation 2016 Congress (“Australian Farmers Embracing Digital Innovation”).
It was a fantastic opportunity to catch up with clients, connect with industry bodies and to be part of the conversation on the opportunities, issues and challenges for the agrifood sector.
In this update, we offer 5 observations from the Canberra events.
Where are we with China?
It is hard to have an Australian agrifood conversation without a bias towards the China opportunity (we’ll refrain from mentioning just how many Western food-craving people will enter the burgeoning Chinese middle class in the next 20 years!).
- In many cases the China-focus focus is intentional and with good reason – China is expected to be pre-dominantly responsible for the growth in food demand over the coming decades. A very recent example – post-ChAFTA, China has become Australia’s biggest grape wine export market, taking over from the United States.
- In other cases it is important to remind ourselves that going “all in” on China (or any market for that matter) carries some risk, and market and trading diversification is a prudent thing to do. No doubt other export market opportunities exist for Australia, be they pan-Asia, a post-Brexit UK or otherwise. Let’s not lose site of the fact that more than 100 countries around the world count China as their largest trading partner, just as we do. Interestingly, in the midst of the beef boom that Australia has been experiencing, Australia’s share of the Chinese beef market slipped from 3% to 2%. We’re special, but we’re not that special!
We were reminded that, as an exporting nation, we don’t need to dominate the Chinese market, but rather just access it, and indeed our productive capacity likely prevents market domination in any event. There is general acceptance of the notion that Australia cannot be (choose your favourite analogy…) China’s food bowl nor its supermarket – the high value, “gourmet delicatessen” aspiration is the appropriate one, and as an industry we need to do all we can to make the aspiration a reality.
Key amongst the Chinese market imperatives are market access (ie. removal of non-tariff measures / barriers) and, potentially, a unified approach to the branding of Australian food and produce.
Innovation, productivity and differentiation
The Australian agribusiness industry is an industry in transition. Traditionally we have relied on the depth of our export position and the ingenuity of our farmers, but burgeoning competition from low cost jurisdictions is demanding a strategic focus on Australia’s position in the agri world like never before. In this age of Asian opportunity, how do we maintain and protect our position, how do we enhance it, how to re-focus it?
It is generally accepted that innovation (in the sense of trying new things) is critical to meet the challenges appearing at both ends of the supply chain, as well as in between.
Innovation to aid with improving productivity in a country where additional production is unlikely to come from access to expanded arable areas. Drones, robots, driverless vehicles, digitally-enabled decision making aids and gene technology were prominent discussion items in this context.
Innovation along the supply chain to ensure our products get to markets through more efficient supply chain infrastructure and with less waste, and potentially in a value-added form. There was much support for the proposition that producers ought look along the value chain with a view to partnering, sharing the risks and rewards from downstream initiatives.
And innovation to aid with producing differentiated goods and foods which meet, and respond to, market needs and expectations, and attract a premium in the process.
Much of which begs the question, who is going to pay for this investment in innovation?
It’s easier to find a Greens-voting farmer than someone who reckons the agri industry doesn’t need investment. And notwithstanding the recent Australia-sourced bidding war for Kidman & Co, there’s little doubt that the majority of investment capital coming into the sector is likely to emanate from offshore.
Which brings Australia’s foreign investment policy into sharp focus. Several relevant comments were made in Canberra:
- Unsurprisingly, Minister Joyce was very comfortable with current policy settings, and expressed some pride in the Foreign Land Ownership Register that was born on his watch.
- Many others expressed reservations about the significantly reduced FIRB notification thresholds, and the uncertainty surrounding the “national interest” concept. Whilst the national interest issue will only occasionally be relevant to an agri investment (as a general rule, think Kidman transaction value / land mass coverage and above), the current policy settings are not especially conducive to the creation of investor confidence, and certainly the fee regime is a real-life impediment to the ability of investors to proactively consult with FIRB.
- Not that this irrefutably solves the FIRB issue, but the theory was expressed that the Chinese investor’s affinity for control and land ownership is dissipating, and instead the Chinese desire for security of supply and offtake will facilitate more FIRB-friendly transaction structures. In a similar vein, there were suggestions that the FIRB issue becomes less acute as privately-owned enterprises (as opposed to SOEs) take the running on foreign investment, with Chinese SOEs having realised that the Australian opportunity is too niche to satisfy such a significant security of supply requirement.
Through presentations at the National Farmers Federation Congress, a lunch at the National Press Club, and presentations at ASA100, the concept of a single, unified “Brand Australia” was repeatedly emphasised.
In particular, the adoption of a single, unified brand / logo for Australian produce has seemingly become the dominant near-term reason for being of ASA100, evidenced on several occasions by the impassioned speeches of Andrew Forrest, the Co-Chair of ASA100.
ASA100 believes that a multitude of Australian brands is confusing and chaotic for Chinese consumers, and prevents the maximisation of Australia’s position in the Chinese market. Instead, ASA100 wants to see a single brand representing Australian produce, supported by targeted Chinese consumer research, and designed to evoke our clean, green, quality and safe credentials in the hearts and minds of Chinese consumers.
It’s fair to say that there are hurdles to be overcome. Whilst undoubtedly laudable in its conception, the architects of the “Brand Australia” proposal will need to engage with industry participants on various matters, including:
- the interaction of “Brand Australia” with existing brands, be it product / producer specific or sector specific, which has often involved very significant investment.
- the integrity of “Brand Australia” and control over its use. The last thing producers want is to expose their reputation to “taint” from the actions of others that also deploy the brand.
- the timetable for development of “Brand Australia”, given the pace at which Chinese markets are developing and channels and consumer preferences are changing.
- funding for the significant work needed to assist with “Brand Australia” development activities. No doubt ASA100 will hope the Federal Government recognises its role in this regard.
- the appropriateness of a China-specific “Brand Australia”, or at least one that is borne of exclusively China-market soundings, when much Australian produce will find its way to other export markets (albeit markets with, generally, less upside than China).
With Andrew Forrest, Harold Mitchell and Jennifer Westacott, together with some of Australia’s leading agribusinesses, behind the ASA100’s push for a unified Australian brand, the challenges shouldn’t be considered insurmountable.
The politics of it all
What would a trip to Canberra be without a healthy dose of politicians and politics?
Minister for Agriculture and Water Barnaby Joyce presented a key note address at the National Farmers Federation Congress, former Trade Ministers Vaile and Emerson presented at the ASA100 get-together, Joel Fitzgibbon (Shadow Minister for Agriculture) presented at both the ASA100 and NFF Congress, Assistant Minister for Industry, Innovation and Science Craig Laundy appeared at the NFF, and Senators Richard Di Natale, Bridget McKenzie, Bob Katter, Andrew Leigh, Derryn Hinch and Pauline Hanson sat on panels at the NFF, meaning there was no shortage of politicians sharing their views on all manner of agrifood related topics.
- Minister Joyce’s unbridled passion for the sector, and learning what goes through his mind as he whiles away his days on the farm marking over-sized lambs (mostly anti-Labour and Greens thoughts, apparently – “blood runs cold through their veins” and “they’ve got no ideas, they’re boring” …)
- the seemingly genuine affection for the sector from a bipartisan-aspiring Joel Fitzgibbon
- Bridget McKenzie’s willingness to use a shot gun to remove annoying drones from the sky
- the generally broad-based interest in, and support for, the sector.
- the lack of political will to do anything about FIRB thresholds or the provision of certainty of regulatory landscape to foreign investors
- the Greens’ live export market misapprehensions, underpinning a preparedness to prioritise animal welfare issues over the well-being of important export industries.