ADDRESS TO GLOBAL ACCESS PARTNERS ANNUAL GROWTH SUMMIT
A new global food market: trends and opportunities for Australia
Speech by Bruce Gosper, CEO Austrade
Thursday, 19 September 2013
Parliament House of NSW
The Minister for Trade and Investment, Andrew Robb, was scheduled to attend this meeting tomorrow. I’m sure you understand he has other matters to attend to, and he asked me to extend his apologies for not attending, and his best wishes for your conference. As you will know, he is a great believer in the potential of our agri-food industry.
As we look at the next half century, and the likely tidal wave of growth and demand in our region for food, we should ask how we are placed to respond to this. Is a strong comparative advantage enough to succeed?
Often it has been. When stationed in Washington during the late 1990s, I was at the front of our effort to resist the import restraints the Americans wanted to put on Australian and New Zealand lamb.
I recall one of our people telling me that he and his partner had visited a local country fair in nearby Maryland over one weekend. His partner had sought a quiet moment in a deserted hall to tend to her young baby. Over time the hall slowed filled with others. It was the annual meeting of the Maryland Sheep Breeders Association. One of the items on their agenda was the plight of the US industry faced with strong imports.
The meeting sought to gauge the interests of the association. The guy at the front asked for a show of hands – how many of you have more than 10 sheep, then how many more than 50, and then how many more than 100? Only two or three hands showing at this point. Anyone with more than this?
Our young Aussie mum felt she had to engage. Twenty five thousand said the quiet voice from the back of the hall.
She had grown up on the family property at Yass. Of course the Americans were gobsmacked. One property at Yass with more sheep than their entire membership.
We eventually forced the Americans to back down. The sheer weight of our comparative advantage, the hard work of industry on product development and marketing, and strong trade policy advocacy combined to maintain and build an important market.
And indeed, all these strengths, and more, are required for us to succeed in the next half century. Building a clear comparative advantage, developing and marketing superior products, and ensuring that markets are opened.
The problem of market access has shaped Australian thinking about agricultural trade for half a century.
As a major food producer, with a relatively small population, isolated from key markets, this was understandable.
In the early 1960s, the prospect of Britain joining the European Economic Community, and the loss of market access that implied, caused great anxiety in Australia.
When, after several false starts, this finally happened in 1973, our worst fears were realised.
The UK-Australia Trade Agreement was duly torn up and Australia lost its privileged access to a market we had taken for granted since the earliest days of colonisation.
The effect on agricultural exports was dramatic. Butter, for example, fell from 79,000 tonnes in 1973 to just 7,000 tonnes a few years later, while apple exports dropped from about 86,000 tonnes to 27,000 tonnes. The national dairy herd almost halved and fruit trees all over southern Australia were torn up.
Europe’s Common Agricultural Policy which appeared around the same time as Britain’s first tilt at EEC membership, and the similar protectionist policies of other developed economies, have cast a long shadow over Australian trade diplomacy ever since.
The need for better market access has provided the impetus for many of our highest profile initiatives, including the Cairns Group and our long campaign for liberalisation through the GATT and the WTO.
Today, market access improvements for Australian exports are being progressed through a tapestry of bilateral Free Trade Agreements across our region.
Through them we have the chance to help our neighbours pursue agricultural reform, address global food security concerns, and of course reduce tariff barriers on Australian produce.
While such agreements will certainly be important, we mustn’t become complacent about the competitiveness of our agricultural sector.
A recent analysis in the World Trade Organization’s World Trade Report for 2013 suggests Australia has lost comparative advantage in agricultural products over the last 20 years. Investment in our farm sector, and modernisation, will no doubt be important in reversing this trend.
Similarly, we need to make the right investment in branding, marketing and distribution to position Australian food and agricultural products properly in the fast growing markets of our region. If we don’t, our competitors will gain at our expense.
Changing Global Dynamics
The global food landscape is changing. Economic and demographic shifts are altering established patterns of supply and demand.
As a result, a new global market for food is emerging, one that is more demand-driven and, to some extent, less subject to the trade distortions of the past.
The United Nations Food and Agriculture Organization estimates global food production will have to rise by 70 per cent on 2007 levels to meet increased demand by 2050.
Global agriculture is entering a period of transformation. Trade barriers and policy-induced surpluses will continue to exact a toll, but their influence is becoming less pronounced.
Economic reform can take part of the credit for this, but the real driver is demand – mostly from the developing world.
This demand, in turn, owes its origins to three things: population growth, increasing urbanisation and rising incomes.
The world’s population is expected to rise by 30 per cent, to over 9 billion people, by 2050. While this is a slower rate of growth than previous decades, it still amounts to an extra two countries the size of India over the next 40 years.
At the same time, the proportion of people living in cities is projected to rise from 50 per cent now to 70 per cent by 2050.
To give you an idea of what this means, it is estimated that the built environment will expand by a city the size of Greater London every month until 2050.
As Roy Scheider uttered in the 1975 blockbuster Jaws when he gets a good look at the size of the shark, ‘we’re gonna need a bigger boat’.
Urbanisation and the steady rise in incomes across developing countries are important because city dwellers not only tend to buy more food, they also buy more expensive foodstuffs, such as meat and dairy.
Meat, fish and dairy products will all increase their share of demand relative to cereals, fruit and vegetables, although demand for those will still grow.
Asia is the epicentre of this change, accounting for over 70 per cent of the projected growth in the value of agricultural produce and food demand by 2050, but other regions such as Latin America are also significant.
While developing countries will attempt to meet more of their own food needs domestically – in part through investing in local agriculture – the total value of all food imports is nevertheless projected to increase by over 170 per cent by 2050. Asia’s food and agricultural imports alone will rise from US$120 billion to US$590 billion.
If we can maintain our competitive edge, we can expect to capture a substantial portion of this growth. ABARES estimates the real value of our food exports could be 140 per cent higher by 2050.
The Australian Government’s teams in overseas markets – with officers from Austrade, DFAT, the Department of Agriculture, AQIS and Customs – are there to open markets and to help Australian firms find and take advantage of these opportunities.
For my part, Austrade’s offices in the commercial centres of our major trading partners are staffed with teams who know their markets inside out, back to front, and who help Australian firms find and capitalise on new opportunities every day.
But markets are dynamic, tastes change, and our competition is stiff. We need to think carefully about how we can succeed in these markets.
As Alison Watkins from Grain Corp said recently, ‘Our edge will be as a reliable supplier of high-margin, safe, green and high-quality food.’ Australia must strive to be the ‘developing world’s delicatessen’ and deliberately avoid competing in a ‘low-margin supermarket role’.
Similarly Rebecca Dee-Bradbury of Mondelez International says, ‘High value-added products will clearly be a significant part of market growth in Asia – convenient, natural, healthy, safe, tasty food from trusted and high-equity brands’.
The level playing-field Australia has long sought will, of course, remain one of our goals. But in the half-century to come, food exports may depend as much on our capacity to meet consumer demand as they do on our ability to access particular markets.
Success will require investment to introduce innovation, increase capacity, and to build the right distribution networks.
We’ll need to develop a nuanced understanding of consumer preferences across our export markets.
We’ll need to react sensitively to the food security and safety needs of our trading partners.
We’ll also have to carefully manage our brand and promotion activities.
And all this needs to work in tandem with our pursuit of freer trade.
Austrade’s international network gives us a unique perspective on these issues, especially in key Asian markets.
In China, for example, we need to consider how we position our products and jump at the chance to capitalise on our reputation as a reliable supplier of high-quality, safe food.
China, as we all know by now, is home to a rapidly expanding middle class. Consumers there are becoming more affluent, better informed, and more sophisticated than ever before.
There is a growing focus on health, convenience, and premium brands. Chinese consumers are developing a preference for western tastes and cuisines, and demanding safer food.
To avoid the choking congestion of their fast-growing cities, more urban and time-poor Chinese consumers are also opting to buy food and groceries online, creating new distribution channels for Australian exporters.
Our network in China has identified opportunities emerging right now in dairy, meat, baby foods, seafood, fresh fruit, gift-packed food, fruit juices and drinks, honey, breakfast cereals, olive oil, health foods, ingredients and seasonings.
Australian exporters are actively pursuing some of these opportunities, often with great success.
Beef exports, to name one high-profile example, set a new record in August, reaching over 16,000 tonnes for the month. That’s an extraordinary 930 per cent increase on August last year.
China, of course, is itself a major agricultural producer and is looking to boost yields through greater efficiency and more advanced farming practices.
Australia is assisting in this process through the export of food-related services and technology.
Australian suppliers and consultants are helping establish pilot hydroponic and aquaculture operations that will make fresh, low-mileage produce available to the urban residents of Shanghai and elsewhere.
Our contribution includes farming hardware and technology, as well as expertise, quality assurance and food safety services.
Projects like this not only help local authorities achieve their food security goals, they also embed Australian companies in regional value chains, opening new markets for high-value inputs.
Value chains play an increasingly important role in the global economy, particularly in Asia, and they represent an important area of opportunity for the food sector.
Our successes have come despite the challenges posed by China’s complex regulatory environment and trade restrictions.
However, there are still things Australian firms can do better.
The Chinese market is intensely competitive and Australian products tend to compete on value or quality rather than price, even in comparison to rival imports from Europe and the US.
As well improving packaging and ensuring consistent supply, Australian exporters need to strengthen its marketing and promotional efforts, building brands and establishing product differentiation.
Chinese consumers are aware of Australia and its ‘clean and green’ credentials, but often struggle to identify an Australian food brand.
There’s a feeling among Chinese retailers and distributors that we aren’t proactive enough, and tend to take our good reputation for granted.
This is a theme that emerges in other Asian markets, and it’s something we need to work harder on.
From Japan comes a good example of what we need to do more of. Here, Meat and Livestock Australia’s eye-catching ‘Genki’ beef campaign is helping boost Australia’s reputation as a safe, reliable food source.
The Japanese concept of Genki, which encompasses energy as well as physical and mental wellbeing, connects this desire with existing perceptions of Australia as a clean and healthy environment.
Anxieties about food safety and security have understandably heightened in Japan following the 2011 earthquake, tsunami and nuclear crisis.
This, combined with Japan’s aging population, only amplifies the value of Australia’s clean and healthy brand.
Our network in Japan has identified major opportunities for supplying olive oil, cheese, seafood, health foods, processed foods, fruit, vegetables, nuts and wine to Japanese consumers.
In India, the story really is one of rapid growth, providing an opportunity for Australia to capitalise on our reputation for safety and reliability.
To give you a sense of the extraordinary period of expansion India is about to enter, sales in its organised food and grocery retail market are expected to rise from US$9 billion now to US$34 billion in just over two years’ time.
It’s the same in the organised hospitality sector which is expected to grow from under $US2 billion now to nearly US$5 billion in the same period.
Some estimates put the current growth rate of imported food at 30 per cent per annum.
Once again, Australia is in a good position to benefit from this growth thanks to our reputation for safety and quality.
That reputation recently received a welcome boost from the success of another export, Masterchef Australia – now the most-watched cooking show on Indian TV, despite competing with 125 other cooking programs!
Australian food brands are beginning to establish a presence on the back of this, as are Australian food franchises such as Muffin Break and Gloria Jean’s.
Other opportunities currently exist in wine, dairy, meat and processed food, including snacks, cereals and biscuits.
In India, as elsewhere, we are jostling for attention with competitors from Europe and the US with strong brands and a committed marketing presence.
Feedback from our network in India suggests more needs to be done on brand and marketing, and now is the time to do it.
The Indonesian story, too, is one of growth and changing consumption patterns. But here there’s a strong desire at the government level for greater food self-sufficiency.
Nevertheless, food imports are growing strongly. In the past two years alone they’ve increased by US$5 billion or more than 50 per cent.
As in other parts of Asia, grain consumption is declining relative to meat, dairy and eggs, especially amongst middle and upper-income earners and urban residents.
With Indonesian tastes changing, there is also greater demand for things such as baked goods, pizza, and other convenience foods. This means greater demand for wheat to produce flour.
In order to enhance food security, the Indonesian government is seeking to expand domestic food production, especially in beef, sugar and rice.
This too, provides opportunity for Australian producers who can ensure reliable food supply, and provide agribusiness expertise and innovative technologies.
Once again, though, there is a feeling we tend to be too relaxed about marketing and promotion compared to some of our competitors.
In the case of wine, for example – for which there is also growing demand – Indonesian importers tell us Australia is falling behind French, Italian, South African and Chilean competitors on customer engagement.
There’s a need to build stronger relationships, and to educate the market about Australian varieties and regions.
Though this is not to single out wine – we can do more across a range of food lines in Indonesia. Packaging is another area where Australia is falling behind competitors from the US, Europe and other parts of Asia.
There is sense that Australian suppliers need to work more closely with customers to localise their packaging, rather than relying on a one-size-fits-all approach.
Turning to another important market for Australian producers, Thailand. Here there have been some major successes flowing from the 2005 Thailand-Australia Free Trade Agreement which reduced or eliminated tariffs on most Australian food exports.
This has allowed Australia to become an important ingredient supplier to the local food processing industry.
As with the other markets I’ve already talked about, in Thailand there’s also growing interest and demand for our processed food, both at the premium end of the market and via the country’s rapidly expanding convenience store sector.
This demand is creating opportunities for Australia to supply gourmet foods, chocolate and confectionary, fruit juice, jams and spreads, pasta products, snacks and dairy foods.
But even with the advantages brought by the FTA, Australia still needs to do more.
Thai distributors also report Australian suppliers have missed out on opportunities because they’ve been slow to respond to enquiries.
And New Zealand, South African, French and Korean producers have all recently conducted large-scale, multi-media campaigns promoting their brands. Australia is suffering by comparison. A theme which I will return to in a moment.
Tonight I’ve focused on a few markets in Asia to provide a snapshot of some of the opportunities and challenges we see emerging there.
But that’s not to suggest good opportunities don’t exist elsewhere, because they do.
Developed economies like North America will continue to be important, high-value markets for Australian food exports.
And new markets are opening up in emerging regions like Latin America.
In Chile, for example, we helped negotiate a protocol allowing Australian beef to become a mainstay in local supermarkets, despite Chile itself being a major beef producer.
Direct, in-market assistance like this is one way we can help the food sector navigate the new global food market.
Another is our development of a National Food Brand in collaboration with the Australian Food and Grocery Council.
This project, currently in early stages, will start to fill some of the gaps in the marketing and promotion of Australian food exports that I’ve talked about tonight.
We are also mapping out production and supply chains in key markets to help Australian exporters understand where they can tap in.
And Austrade is also working to capture a share of the increased flows of agricultural investment now moving around the world.
Foreign direct investment is needed to help improve sustainability and efficiency in our existing agricultural zones and to develop potential new agricultural areas in Northern Australia.
Investment can also help commercialise new technologies and food varieties, introduce innovation and improve Australia’s food processing capacity and distribution networks.
All of this will boost Australian productivity and ensure we remain competitive with our rivals.
Inbound foreign direct investment also has an important role to play in integrating Australia with global value chains, realising production efficiencies, and complementing the role of outbound Australian investment to countries like China.
By creating links with overseas markets, new investment provides new opportunities for Australian food producers to export high-value, intermediate products, in partnership with producers elsewhere.
Let me conclude. I was rather taken recently by something Angela Merkel had to say when asked what emotions Germany arouses in her. She said: “I am thinking of airtight windows! No other country can build such airtight and beautiful windows”.
A lot of people probably think this strange, but I thought such pride in what Germany does well – build well-engineered products – was exactly the right thing to see. It was terrific leadership and an example we should emulate as we promote Australian food to the world.
Ladies and gentleman, tonight I’ve tried to provide a broad outline of the global food market and the new direction it is taking.
Increasingly, we are seeing are a whole range of opportunities in markets right around the world, but smart and active brand positioning needs to accompany our diplomatic efforts to secure a level playing field.
Essentially, my message is this: things are changing and we need to change with them. We cannot take our reputation or our markets for granted.
Australia’s agricultural and food industries must adapt to the needs of growing markets where people are more affluent, educated, and discerning.
As well as the great commercial potential these changes hold, they present an opportunity for Australia to once again demonstrate our ingenuity, integrity and skill in supplying and marketing high-quality food to a hungry world.