Following a Federal Government ministerial refresh announced on 19 December 2017, David Littleproud is Australia’s new Federal Minister for Agriculture and Water Resources.
As one of his first acts, Minister Littleproud has confirmed his support for the National Farmers’ Federation’s (NFF) goal of growing the Australian agriculture sector to A$100 billion by 2030. By way of comparison, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has forecast that the gross value of farm production during 2017-18 will decrease 7% from the record A$63 billion set in 2016-17, primarily driven by less favourable climate conditions.
With that bold goal in mind, what can we expect from the Federal Government in 2018?
Continued trade push
Australia remains a significant net exporter of food, with a current population of less than 25 million but current production capacity sufficient to feed approximately 60 million people. In 2016-17 alone, the value of Australia’s farm exports was A$49 billion. More than A$33 billion of those exports were to Asia, with China being the single largest export destination (A$10 billion). By contrast, Australia imported only A$17 billion in agricultural products over the same period.
In order to improve on these results, the Federal Government will need to continue with its efforts of pursuing multilateral agricultural trade reform to enable exports of Australian agriculture products to have better access to foreign markets.
We expect that in 2018 the Federal Government will continue with its current two pronged approach.
Firstly, we expect that the Federal Government will continue to seek the reduction of specific trade distorting protections (such as tariffs and financial subsidies). Minister Littleproud experienced an early baptism by fire following the decision of the Indian Government to introduce tariffs of 30% on chickpeas and lentils with immediate effect on 21 December 2017. In response, Minister Littleproud obtained an agreement from the Indian Government to in the future provide forward notice to the Australian grains industry of future increases in tariffs, and at the same time has sought alternative markets (such as Nepal, Iran and the United Arab Emirates) for the estimated 200,000 tonnes of Australian chickpeas and lentils already in transit to India. The introduction of these tariffs was a major setback for Australian farmers - during the period January to November 2017, Australia was India’s largest chickpea provider (having sold chickpeas valued at more than A$1 billion) and India’s second largest provider of lentils (having sold lentils valued at of more than A$194 million).
Secondly, we expect that the Federal Government will continue to negotiate new free trade agreements (FTA). While there are a few FTAs still being negotiated that we are keenly following, such as the Australia-Gulf Cooperation Council (GCC) FTA (the GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) and the Pacific Alliance FTA (which includes a regional trading bloc comprising Chile, Colombia, Mexico and Peru), a major early highlight for 2018 is the apparent agreement on the Trans-Pacific Partnership (TPP) involving 11 countries - Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Expected significant wins for Australian exporters under the TPP include:
- accelerated reductions in Japan’s import tariffs on beef;
- elimination of a range of cheese tariffs into Japan;
- new quotas for wheat and rice to Japan, and for sugar into Japan, Canada and Mexico; and
- the elimination of all tariffs on sheep meat, cotton, wool, seafood, horticulture and wine.
Advocating for more investment in the sector, including by superannuation funds and foreign investors
The NFF’s goal will not be achieved without significant additional investment in the sector.
We expect that an important source of such investment will be Australian superannuation funds. The previous Minister, Barnaby Joyce, was a strong advocate for superannuation funds to invest more in the sector after it was found that the aggregate exposure of MySuper accounts to the sector was only 0.3%, even though the sector represents 12% of Australia’s GDP.
No doubt the sector will also remain an attractive investment target for foreign investors. While Australia’s foreign investment regime, as it applies to investments in the sector, continues to generate debate. Minister Littleproud has ruled out further foreign investment restrictions.
Banking Royal Commission – impact on agribusiness finance
Although it is still early days for the Royal Commission into Australia’s banks and other financial services entities, it has not stopped people speculating on what recommendations may be made. In this regard, Minister Littleproud, a former agribusiness banker, has proposed the establishment of a new “independent agricultural tribunal” designed to quickly resolve disputes between banks and rural businesses. The Royal Commission will be ramping up in 2018, so definitely watch this space.
Murray-Darling Basin Plan
Since the Murray-Darling Basin Plan (Basin Plan) became law on 18 March 2013, there has been continual scrutiny. In November 2017 the South Australian Government even indicated that it would establish a Royal Commission into widespread allegations of upstream irrigators stealing water from the Murray-Darling River system.
Following the release on 19 January 2018 by the Department of Agriculture and Water of an independent report prepared by Ernst & Young (EY Report), Minister Littleproud took the opportunity to call for renewed commitment to the Basin Plan.
Importantly, the EY Report sets out a pathway to enable the release of 450GL of water through efficiency measures by 2024, with neutral or improved socio-economic impacts. It will be interesting to see to what extent these measures are adopted and when.
Minister Littleproud has certainly hit the ground running, and we look forward to an exciting and busy year ahead.