THURSDAY, 16 JULY 2015
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Everyone seems to agree; Australia is on the verge of a “dining boom”. But are we really?
One thing is certain; with the global population growing to 9 billion by 2050, the world will need a lot more food.
And it's not just population growth, as incomes rise in highly populated developing nations, per capita calorie consumption is also on the rise. So too by the way, are money making opportunities. You all know that better than me.
But can we assume that this increase in global demand will deliver the equivalent of a “mining boom” in our agriculture sector here in Australia?
I believe I know the answer: "it's maybe, but only if we're smart enough and strategic enough”.
The fact is the dining boom won't come to us, we must go to it.
Ultimate success will only come if we have the right strategic plan, the right alignment of government and private sector aspirations, and the financial capital needed to make the necessary investment.
The Australian Government recently released its long-anticipated Agriculture White Paper.
While it contained some worthy initiatives, it lacked what we need most: a big picture view with clearly defined goals and objectives.
We hoped for a sound strategic assessment of our strengths, weaknesses and opportunities, strategic guidance and a coherent response to that guidance.
The strategic assessment could have clearly identified both our opportunities and challenges.
Of course, our strengths seem obvious; our proximity to such a large part of growing food demand, our rich natural resources, our expertise and experience and, most of all, our reputation as a provider of clean, green and safe food.
But are these competitive advantages overstated?
Let’s take each in turn.
Geography is to our advantage no doubt. But as is well documented, in many cases our high domestic supply chain costs outweigh the savings in freight costs which our proximity to Asia brings.
And while it is true Australia enjoys a shipping costs’ advantage over its competitors in the markets of South East Asia, this is not always true for North Asian countries including China, Japan and South Korea.
Our natural resources are indeed rich and plentiful, but historic farming practices and a changing climate pose the question; how in the future do we produce more with less?
Our expertise, skills and talent for innovation is known world-wide, but there are many warning signs that both investment and outcomes are in decline. And it's becoming harder to attract younger Australians to agriculture.
Our clean, green and safe food reputation is without challenge and is our greatest source of competitive advantage. But how well prepared are we to protect it and verify it when something goes wrong? Are we investing sufficiently in our biosecurity systems? Are our traceability and verification strategies sufficient and complete?
We don't know the answers to these questions because the Agriculture White Paper didn't stress-test them.
Nor was there any attempt to compare our cost competitiveness or propensity for innovation, with that of our competitors.
Worse, there was no attempt to seriously address the biggest challenge of all: how we tackle the challenges of increasingly variable, dry and unpredictable weather patterns.
But there is another big issue. It's an area where we actually lack competitive advantage; it's called money.
For all of our history, first as a colony and since as a country, we've relied on the financial capital of others. As an island continent with a relatively small population and therefore limited savings capacity, we will continue to be so.
This becomes all the more obvious when you consider the enormous challenges involved in transitioning from a "mining boom" to a "dining boom".
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 in 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.
So where are the BHPs, the Glencores and the Rio Tintos of the agriculture sector? Where will the investment in Australian agriculture come from?
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.
So how do we lift foreign investment in agriculture from the current paltry 2 per cent of all foreign investment?
First of all we have to establish the strategic guidance and strategic plans I began with.
That in itself will lay the welcome mat out for potential foreign investors who will then have the capacity to assess and understand the Government's priorities and its plans to align private and public sectors’ aspirations.
Business needs to know the host government is committed to providing the natural resources, the workforce, the infrastructure and the business environment it needs to secure the rate of return it hopes for.
But none of that will be any good if we are not sending the right signals to emerging and non-traditional sources of foreign investment, particularly the nation-states of Asia.
This is why I'm concerned about the current Government's changes to the rules governing foreign investment screening.
Foreign investment screening is important, it helps to build and maintain public confidence in the foreign investment regime.
It's the same reason the former Labor Government initiated a plan to establish a foreign investment register for agricultural land - maintaining public confidence and support is important.
But lowering thresholds, assessing applications on a cumulative basis, and dramatically increasing application fees is no way to encourage investment. Indeed, in a world in which competition for global capital is intense, it's no way to run foreign investment policy.
Indeed not only will it drive investment away at a time we need it most, the changes will undermine, rather than build public support.
That is a bad result for Australia's agriculture and agri-business sectors, and it's a bad result for Australia.
Now this contribution has not reflected my usual style. It's been largely negative. I like to be positive.
But both our farm productivity and global market share are in decline.
And having spent two years talking up the “dining boom”, offering bi-partisanship, and feeling confident that the work which began with the Asia Century White Paper and the National Food Plan would continue, I'm feeling less optimistic than I once was.
But on a more positive note, I'm determined that Australia will have a plan and while the recent Agriculture White Paper has left me disappointed, I look at the major private sector players in Australia's agriculture and agri-business sectors - including some new players- and I see smart people with energy, enthusiasm and determination.
So I thank you and congratulate you for your efforts and your gathering today and tomorrow.
In the end, it's your entrepreneurial spirit and good judgement which will determine the success of the sectors you represent.
I wish you all well.