Assessing the ethics of a business entity’s activities before making investment choices is hardly a new practice; Norway’s Pension Fund has been doing it for decades. But as the Australian Financial Review pointed out last week, the list of activities on the “unethical business” list may be moving beyond the usual suspects like military platforms, alcohol, tobacco and certain nuclear pursuits.
In a world where people are growing increasingly concerned about our environment it not surprising that investors are becoming increasingly discerning. But the idea that agriculture could be added to the list will rightly send shockwaves through rural communities everywhere. Let’s hope that ultimately, our large superannuation funds view agriculture not as a threat to our environment but rather, an opportunity to make money while improving it.
Growing global demand for food presents Australia with a magnificent opportunity. Not just because we are located in Asia - our proximity cost advantage can quickly be off-set by higher costs elsewhere in our supply chain. And not because we will be sending multiples of our current volumes to Asia, our limited natural resources simply won’t allow it.
Australia’s opportunity is not so much in volume but value. Our objective is not to be Asia’s food-bowl, but its high-end deli. Our main target should be niche markets where the highest return on our investment can be secured at least cost to our natural resources.
What allows us to aspire to this goal is our “clean, green, safe image”. The growing middle classes of Asia want high quality, safe and clean food. Increasingly, they will also be looking for food grown in an environmentally sustainable way. Just as our big retailers in Australia can now put a higher price tag on a food item with an organic label on it and charge more for free range eggs, Asia’s retailers will be putting a premium on our clean and sustainably grown agricultural product.
Australia’s agriculture sector understands this and has begun to act. For example, in 2012 our dairy industry developed and adopted the Australian Dairy Industry Sustainability Framework, identifying priority areas, goals and objectives for embracing and promoting sustainable practices. To use Dairy Australia’s words: “the Australian Dairy Industry Sustainability Framework outlines Australian Dairy’s vision to enhance livelihoods, improve wellbeing and reduce our environmental impact so that Australia’s dairy industry is recognised worldwide as a responsible, responsive and prosperous producer of healthy food”.
Our dairy farmers are not alone; a number of other commodity sectors are pursuing their own sustainability plans and many family farmers are working with consultants to introduce more sustainable and productive practices. These are not initiatives without challenge, in the short run greater sustainability comes at a cost and the majority of Australia’s farm businesses are cash poor. This limits the pace of change.
To increase the pace, agriculture will need significant additional amounts of out-side investment. This represents a great opportunity for our super funds; chance to secure high returns for their members by cashing in on the “dining boom” while also improving the productivity and sustainability of our farm sector. The United Nations has declared 2015 the “Year of Soils”, what a great time for them to become more active.
Sadly, fund managers receive no encouragement or leadership from the Abbott Government which seventeen months into office, has no strategic plan for Australia’s agriculture sector, provides no direction on natural resource sustainability, and has no credible strategy for addressing changing climatic conditions - possibly the biggest challenge for Australia’s farmers. A bit of leadership from Government would go a long way!
This article was first published in the AUSTRALIAN FINANCIAL REVIEW on Tuesday the 27th of January 2015.