One of the key beneficiaries of the emergence of Asia is expected to be Australia’s agriculture and food sector.
The “Australia in the Asian Century” White Paper highlights that Asian food demand is expected to grow substantially in the medium-term due to the combined effects of population and income growth, and will outpace food production due to environmental constraints, increased biofuel use and a shortage of agricultural land and water.
Australia is ideally placed to capitalise on these trends due to our:
- geographical proximity to Asia;
- complementarity in production systems;
- robust biosecurity system;
- record of innovation and reputation for producing high-quality and safe food products; and
- skilled workforce.
In this context, it is very gratifying to see the White Paper recognise the huge potential for Australia’s agriculture and food sector by designating the following national objectives:
- Australia’s agriculture and food production system will be globally competitive, with productive and sustainable agriculture and food businesses; and
- Australian food producers and processors will be recognised globally as innovative and reliable producers of more and higher-quality food and agricultural products, services and technology to Asia.
However, the benefits to Australia’s agriculture and food sector are not inevitable, and competitor countries, such as New Zealand, Brazil, Argentina and the United States, will undoubtedly seek to utilise their respective comparative advantages to compete for investment and trading opportunities. To enable Australian agribusiness to fully benefit from the rise of Asia, the Government must do more than merely expound a vision and some pathways. We look forward to seeing the Government take the next step and engage with business, industry and other stakeholders to develop and implement steps to allow Australian agribusiness to utilise its comparative strengths and to take maximum advantage of the opportunities in the Asian century.
Productivity improvements, supported by capital investment, are crucial to the ability of our agricultural and food sector to remain competitive in the global marketplace, and to realise the opportunities presented by the Asian century. The White Paper’s 5 pillars of the productivity agenda – skills and education, innovation, infrastructure, tax reform and regulatory reform – are readily recognisable as being key areas where concerted effort is required.
Skills and education
The focus on skills and education is vitally important, as the sector faces what Professor Mark Adams, Dean of Agriculture at the University of Sydney, has described as a ‘skills crisis’ due to the shortage of people with vocational and/or university training in agriculture. The White Paper recognises the need for stronger entrepreneurial, management and technical skills to support its vision for the Australian sector’s participation in the global food industry, and to promote greater innovation through research and development and the export of intellectual property. Although Government efforts such as AgriFood Skills Australia are important, a more comprehensive, specific and well-funded plan that provides for genuine collaboration between Government and industry is required for substantive improvement.
Investment in research and development and industry innovation will continue to be critical to drive productivity in the sector. Partnerships and collaboration between Government and industry in Australia and across the region are expected to be a key contributor to the growth of the sector, and should help drive and support cross-border relationships, generate new export opportunities and improve best practice in food production and distribution. We look forward to the Government building on its promises with actionable steps towards lifting Australia’s agricultural and food research and development programs. For more on the White Paper’s approach to innovation, see our innovation article.
Tax and Regulatory Reform
The White Paper commits generally to tax and regulatory reform, and improving the ease of doing business in Australia. It also commits to ensuring that sustainable practices are maintained through regulation that “assists farmers and fishers to adopt sustainable management practices” and through “robust markets”.
A balanced and consultative approach to the development of policy and regulation that promotes domestic and cross-border investment, trade and innovation, while also fostering safe and environmentally sustainable practices, and minimising red tape, would certainly greatly benefit the sector and improve productivity. However, recent examples (including the approaches taken to the bans on the live export of cattle to Indonesia in 2011 and on fishing in Australian waters by FV Abel Tasman super trawler in 2012, and the development of the Murray Darling Basin Plan) have been variously criticised for creating uncertainty, lacking appropriate consultation and raising the spectre of increased sovereign risk. Clearly a better approach will be needed to help realise the opportunities presented by the Asian century, and to balance the often conflicting objectives for policy and regulation in the agriculture and food sector.
Access to capital
The White Paper recognises that improving access to capital is vitally important to enabling the sector to achieve its potential in the Asian century.
In a welcome move, the White Paper commits the Government to continuing to welcome foreign investment in the agriculture and food sector, and to work with government partners to attract productive foreign investment. It also acknowledges the importance of foreign capital for expansion, and its capacity to support market development and access, customer insights and productivity improvements via the transfer of technology and management skills. For a detailed alert on the White Paper’s approach to foreign investment regulation, see our foreign investment article.
Although these commitments to openness to foreign investment are important, we believe that greater efforts must be made to improve the sector’s access to capital. In particular, the White Paper misses the opportunity to commit to promote domestic investment in the sector. While it could be expected that improvements in productivity should attract more domestic capital (in additional to foreign capital), our experience to date has been that Australian institutional investors are often reticent to invest in the sector for a range of reasons (including insufficient scale of enterprises, perceptions of volatility and risk, a mismatch between available business models and investment objectives, and a lack of incentives). In this regard, we commend the dialogue on investment structures encouraged by the recent report commissioned by ANZ - “Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand” by Port Jackson Partners. The report can be accessed here.
Similarly, the White Paper does not identify any significant tangible steps for increasing foreign investment in Australian agribusiness. It largely adopts the attitude that foreign investment will flow if Australia correctly positions itself and improves the macro environment for the sector. Given the competitive global landscape for agribusiness and the aggressive push for capital from other agricultural economies, we consider this to be an optimistic view. To ensure Australian agribusiness receives the level and type of foreign investment that it needs to thrive, we believe that the Government should consider a package of incentives to encourage foreign investment, including marketing, tax and stamp duty incentives and educational initiatives.
The White Paper emphasises the importance of securing and maintaining access for Australian food and agricultural products to export markets. In the White Paper, the Government pledges to continue to work to improve market access for Australian exports, and to lead efforts to secure agricultural trade reform in the World Trade Organization (completion of the Doha round of trade talks). A successful conclusion of the Doha round of multilateral trade negotiations would be clearly significant for Australian agribusiness, but appears unlikely at this stage. Accordingly, we encourage the Government to continue to pursue bilateral free trade agreements as a secondary means of expanding trade. The White Paper recognises the importance of concluding free trade agreements with key trading partners, including the 5 key countries of regional importance - China, India, Indonesia, Japan and South Korea - to significantly improving the export prospects of the Australian agricultural and food sector.
However, the White Paper also recognises that open markets are not enough to ensure thriving exports. Significantly, against the backdrop of the 2011 live cattle export ban, it emphasises the need to build diplomatic and commercial relationships in Asian markets to support the agriculture and food sector’s growth. The Government pledges to work with industry to understand Asian customers and their food needs, and to work with exporters to develop strategies to meet those needs. It also stresses a commitment to regional co-operation (particularly in relation to food security and innovation sharing) and to supporting business-to-business links with regional economies to raise the profile of Australia’s exports.
Although the White Paper generally addresses the potential for the development of Northern Queensland, Western Australia and the Northern Territory, we believe that the Government has missed an opportunity to articulate in the White Paper an agribusiness development plan for these areas. Given their proximity to Asia and significant land and water resources, we consider that the development of the northern regions is a “must do” for Australian agribusiness in order to be competitive in the Asian century. In particular, significant investments in infrastructure and skills in the region should be a part of future Government agriculture and food sector initiatives.
What it means for Australian agribusiness
The White Paper sets the framework for a positive dialogue between Government, business, industry and other key stakeholders for the development of the Australian agriculture and food sector in the Asian century. There is an acknowledgment of Australia’s potential as a food bowl for Asia and a commitment to embracing innovation and investment to develop the sector, and to foster relationships in Australia and regionally to build connections, open markets and develop food supply systems and technologies.
In the longer term, if the Government is able to work with business, industry and stakeholders to fulfil the vision and utilise the pathways articulated in the White Paper, it will go a long way to making Australian farmers and food producers and distributors, in the words of famed commodities investor Jim Rogers, the ‘Ferrari drivers’ of the 21st Century. However, given the scope of the White Paper and the minimal specifics articulated to date, it is clear that business and industry must continue to work with the Government on the necessary policy and regulatory actions which are needed to help make the White Plan’s objective a reality.
In conclusion, our suggested action steps are:
- All parties in the sector should seek to build on the priorities identified in the White Paper by educating and lobbying the Government to develop and implement balanced and timely reforms to enhance innovation and skills development, and domestic and foreign capital investment, to drive the sector’s continued success.
- Agribusiness should seek to take advantage of the focus on the Asian Century by engaging Government agencies such as Austrade to develop regional relationships and access for Australian food and agricultural products in Asian markets.
What is your response to the White Paper? We encourage you to provide feedback and participate in the conversation at the Asian Century website.