AUSTRALIAN GRAINS INDUSTRY CONFERENCE
WEDNESDAY, 29 JULY 2015
*** CHECK AGAINST DELIVERY ***
It’s great to be back at this premier event for Australia’s grains industries.
For me, being here conjures a touch of nostalgia because it was at this conference I delivered my first formal address as Agriculture Minister.
Back then I found myself on somewhat of a steep learning curve and while it has substantially plateaued, I'm grateful to all those – many of them are here today – who still make themselves available to me whenever I’m in need of guidance and advice.
While I know Barnaby Joyce failed to demonstrate leadership on the question of grower representation, I equally know growers and the industry more broadly are committed to speaking with one voice for a common cause.
Yesterday you heard from my friend and colleague Penny Wong.
Penny is one of the stars of the Labor Party and I am grateful for her unwavering commitment to further trade liberalisation and all the benefits it brings our agriculture and fisheries sectors.
In being so committed, she continues a great Labor tradition dating back to Whitlam, and taken to previously inconceivable levels by Hawke and Keating.
Howard, Rudd, Gillard and Abbott have all followed that tradition and that bipartisanship has helped to achieve reform during a period in which it has been so difficult in so many other areas of public policy.
Australia is a country with a relatively small population and therefore, one with limited domestic savings and levels of consumption.
We could never have hoped to be amongst the wealthiest nations on earth without both the foreign exchange earnings and the capital in-flows we need to fund our productive capacity.
For all of our history, we’ve relied on export-income and the savings of others for much of our national wealth; from the time our economy “rode on the sheep’s back” through to the more recent "mining boom".
Living standards have risen more rapidly in recent decades because successive governments have tackled the hard reforms.
For the one hundred years leading up to the 1970s, our national economic model was one most defined by:
• strong export earnings from high commodity prices underpinned by a heathy terms of trade;
• high levels of national income funded by a high tariff regime; and
• inflated consumer prices made affordable by arbitrarily-set domestic wages.
This model broke down when our terms of trade turned against us as the value of the things we exported - mainly commoditised agriculture and mineral products - declined, and the value of the goods we imported continued to rise.
Critical to the on-going success of the new Australian model – an open and internationally competitive economy –will be our capacity to grow the value of future foreign earnings from our agriculture products, and the extent to which we can lift productivity in our agriculture sector.
Sadly, both our share of the global market and our farm productivity are in decline.
I want to canvass each of those problems.
The former reminds us why further trade liberalisation is so important.
That's why Labor remains so committed to it and it's reassuring to know that you have someone batting for you in Hawaii this week.
But eliminating the barriers to trade in key markets which our competitors don’t face is only part of the solution.
First, because producers of commodities will remain price-takers.
Second, because in the short-run at least, Australian output will remain restricted by financial, infrastructure and natural resources constraints
That’s why Australia’s focus must not be just on volume, as important as it will be.
Rather, to fully fulfill our ambitions our key focus must be on value and margins.
I know the grains sector understands this as is demonstrated by the noodle wheat varieties it's producing which are specifically tailored for Japanese Udon Noodles and the wheat varieties which provide higher milling yields for our Middle East customers than does the product of our Black Sea competitors.
But more broadly it means building on our clean, green and safe image by establishing a reputation as a provider of high value, high quality, and niche product.
And of course, further enhancing our capacity to protect and sustain that reputation.
All of that will require us to attract more investment in the sector – money for infrastructure, money for research and development, money for extension and money for marketing and branding.
On the productivity front, so much needs to be done.
Particularly in the management of our natural resources – the productive capacity of our soils, the efficient use of limited water supplies, the most efficient farming practices.
And I’m thankful to Mick Keogh for his excellent recent piece on the need to improve our efforts in delivering the broadband our growers and producers will need to be internationally competitive.
Again, all of this will require a big step up in investment.
The 2012 ANZ report entitled Greener Pastures suggests that to reach our aspirations in agriculture, Australia will need $600 billion of capital investment, and another $400 billion will be needed to support demographic driven farm turnover out to 2050.
To put this in context — the agriculture sector in Australia would need investment of just over $26 billion per annum on top of existing levels of investment (recently around $16 billion) in order to meet the investment levels needed to achieve the "dining boom" type production targets needed to satisfy both demand and the cost of acquiring land and farm assets between now and 2050.
In other words just over two and a half times the most recent annual level of investment in agriculture.
To put this further into context —aggregate investment in mining was $632 billion in the ten years to June 2014 while investment in agriculture was just $141 billion.
For agriculture to achieve its investment goal of $42 billion per annum for the next 38 years, it would need to have aggregate investment over the next ten years of $420 billion — three times the level of investment achieved in the ten years to June 2014.
So where will this financial capital come from?
There are many, including me, who lament the fact that a greater share of our superannuation savings does not make its way to Australia's agriculture and agri-business pursuits. And anything we can do to improve that outcome we should do.
But given the size of the investment challenge, it could never be enough.
According to the Foreign Investment Review Board around $167 billion of foreign investment was proposed for Australia in 2013/14. Of that only $3.4 billion was invested in agriculture, forestry and fishing.
By comparison $22.4 billion was invested in mineral exploration and development which is only half the total annual investment agriculture would need to meet our aspirations.
That’s why I’m so frustrated both by the quality of public debate around foreign investment and the Government’s changes to the regulation of foreign investment.
As a country with a relatively small population and therefore, limited domestic savings, we always have, and always will be, heavily dependent on the savings of others.
The competition for global capital is intense and changes to FIRB thresholds and application fees, along with rules which discriminate between nation-states, simply make Australia a less attractive destination in which to invest.
I know the sector understands all of this and in particular, I know the grains sector understands it.
That’s reflected in the work of the GTA, the GRDC and the sector’s leaders.
Sadly the Abbott Government doesn’t seem so informed or so visionary.
The long-awaited and recently released agriculture White Paper was a great disappointment to me and I know, to many in the sector.
Believe me, I desperately wanted to welcome it as a document of vision; one which looked at the big picture and provided both goals and strategic paths to the obtainment of those goals.
In my speech here two years ago I described myself as a person who believes in the market. I haven’t in any way changed my mind.
While I know Barnaby Joyce has a slightly different view of the world, but I was confident Tony Abbott was more enlightened.
On that basis I was hopeful that the White Paper would include more encouragement of foreign in-flows, more market-based strategies to improve the management of our natural resources, and a commitment to putting the interest of the sector above certain interests in the sector.
On the former, we need initiatives in a range of areas – from carbon mitigation to adaptation, from soil health to water efficiency.
On the latter point let me provide a few examples:
• The decision on ADM’s attempt to acquire Graincorp
• The decision to change Labor’s automatic phase-out of the Port Access Code and its decision to allow exemptions by ministerial decree for some but not for others; and
• The attempt to re-locate the GRDC, RIDC, and the APVMA, at their own cost.
I know some in the room will have agreed with, or been pleased with, some of these decisions.
But whatever your view, I will continue to argue that just as Australia’s old economic architecture was not sustainable in a rapidly changing global economy, you will not prosper in a changing and increasingly competitive global grains industry on your talent, hard work and innovation alone.
To fully fulfill your aspirations, you’ll need a government prepared to show leadership, to establish strategic guidance, to leverage investment in strategic infrastructure and R&D, and to embrace market-based policy responses.
Both the Australian Farm Institute and AEGIC have reminded us that our proximity to Asian markets provides only limited advantage over our competitors and the former concluded that the biggest threat to our success is complacency.
I agree. But I’m pleased to be able to say that as I move around the country talking to growers, other key supply chain stakeholders and industry leaders, I see little evidence of complacency in the private sector.
I wish I could say the same of governments but sadly, I can’t.
But while governments seem to be increasingly thinking short-term, I know business is forging ahead with its long- term plans and ambitions.
For that I congratulate you all and wish the very best for the future.