The Northern Australia White Paper can be found at www.nothernaustralia.gov.au.
The Agriculture White Paper can be found at http://agwhitepaper.agriculture.gov.au/.
The following article was published in Food Australia in December 2015:
FOOD: TWO WHITE PAPERS AND THE FUTURE
Words by John Hine
(John is an Associate of FoodStream)
There has been much debate on the future of Australia’s food manufacturing sector.
Over recent times, there have been a number of changes that have opened up new export opportunities for manufactured food products and related services. A range of international players are acting on these opportunities and we may miss out unless our farmers and food manufacturers adapt quickly to seize these opportunities.
The two Australian Government White Papers, on Northern Australia and Agricultural Competitiveness, which relate to our food industry, were awaited with interest.
However, neither said much specifically about food manufacturing.
In addition, the Australian Government Minister responsible for implementing the Northern Australia White Paper is Josh Frydenberg, Minister for Resources, Energy and Northern Australia. This implies that the Government sees resources and energy as the key areas of opportunity for Northern Australia.
Agribusiness projects announced or being planned for northern Australia are large and tend to have little to do with food manufacturing, other than beef abattoirs, such as that recently built by the Australian Agriculture Company, near Darwin. Other large projects include;
- The $200M Stanbroke Three Rivers project, south of Normanton, aimed at cropping and cotton.
- The $1B project of the Shanghai Zhongfu group in the Ord River, to grow chia and sorghum.
- The $1.45B Sea Dragon project for 10 000 ha of prawn ponds on the WA/NT border.
A study done many years ago by the Australian Government suggested that food processing done in Australia could actually reduce value if we were selling into a market based on cost. Our relatively high cost base told against us.
However, more recent events show that there is a large niche market in China for Australian food products based on quality and our track record of food safety. This is especially so with baby food but has extended to vitamins. The market is so strong that the Weekend Australian of 5-6 September 2015, p6, reported that there were 4 600 agents in Australia advertising Australian organic groceries, vitamins and baby food through Chinese social media and e-commerce websites.
These agencies are mainly run by Chinese students in Australia and recent migrants from China who are buying product at discount pharmacies and supermarkets. The article reported that the baby food company Bellamy’s had found that 40% of its sales were going to China via these agencies. Bellamy’s now has its own on-line site aimed at China.
The vitamin company Blackmores is now the highest value share listed on the Australian Stock Exchange, based significantly on its booming vitamins sales overseas, especially to China.
The parcels trade with China is so strong that Australia Post has put in place alliances to allow it to more easily send parcels to China.
The recent ‘state of the industry’ report from the Australian Food and Grocery Council (AFGC) noted that there has been a spectacular surge in food and beverage exports, up 28% on last year, and a near doubling of the trade surplus for food and beverages.
This reversed the position of four years ago, which did not look bright.
The lower Australian dollar exchange rate was a key point but the opening up of new markets through free trade agreements was assisting. Changes in demand in countries such as China were also a key opportunity.
However, the AFGC Report said that investment needs to rise to assist in capturing new opportunities.
A distracting note came from Paine Partners, a US-based equity firm which has just sold a major share in the Australian fruit and vegetable company Costa. Paine has some $1B invested in agribusiness but aims at high value areas of the supply chain closest to the farm or seas, rather than in processing.
However, if agribusiness investment is more in farming and aquaculture, then these companies will need significant post-harvest technology to get their products to China in good shape. This will presumably particularly apply to prawns from the planned Sea Dragon operation on the WA/NT border.
Also, the Australian Advanced Manufacturing Council seems not to see food manufacturing as ‘advanced manufacturing’ despite the high level of technology and value adding used by many food manufacturers.
The Qld Government sees a major opportunity in biomanufacturing and released a discussion paper on a ‘roadmap’ for such an industry on 5 November. Biomanufacturing will use inputs from sorghum, the sugar cane industry and other sources of woody material. Again, not food manufacturing in the traditional sense.
However, the Weekend Australian of 31 October – 1 November noted that a number of processed food companies were doing well, including Tassal salmon, Capilano honey, Bega cheese, Select Harvest nuts and health food and Murray Goulburn dairy. These all had market strategies that include high value products to China.
Some companies have formed close links with Chinese groups, to gain capital and access to markets, such as Bindaree Beef, which has sold 45% of equity to China’s fourth-largest pork processor, the Shandong Delisi Food Co, for $140 million.
It may be that formal networks or cooperatives of Australian food manufacturers could be formed to assist smaller companies enter the large, diverse and complex Chinese market.
The New Zealand dairy cooperative Fonterra has been an outstanding success, despite some problems.
There have been a number of Chinese companies buying into Australia. The company Dongfang listed on the Australian stock exchange in October, raising $39M, to provide a vehicle to assist Australian farmers to sell into China. Dongfang grows citrus and camellias in China.
Commentators on the China Free Trade Agreement stress the significance of the opening of trade in services between Australia and China. This could mean developing a food product here for manufacture in China, selling Australian food technology and manufacturing systems into the aged care and health care markets in China, where Australian companies are investing, or air freighting high quality food direct to these aged care/health care facilities. Australia has a flourishing cook- chill sector working in the aged and health care sectors, as seen in the Australian Cook-Chill Council.
Using Australian technology overseas has been a feature of the fruit and vegetable company Costa. They have developed new ‘glasshouse’ technology for growing blueberries and have invested in growing facilities in Morocco for sales to Europe and in Thailand for sales to China.
Certainly, the big players are moving on opportunities in China.
The Australian Financial Review of Friday 6 November reported that the Australian group Aerem is seeking finance of $750M to buy 66 dairy farms in south-west Victoria to make dairy infant food for China.
The large US agribusiness company Archer Daniels Midland (ADM) has increased its ownership share of the major Asian agribusiness Wilmar by buying 22% of Wilmar shares. The stated aim was to give ADM more exposure to growing Asian food markets.
The range of international competitors for the Chinese food market is growing. The ABC Lateline program of 6 November spoke of substantial US and Chinese investment in agriculture in the African nation of Zambia. There have been other reports of significant international investment in agricultural land in Africa.
There is also a major move by pension funds and other investment funds into agribusiness. The publication Pensions and Investments, in an article on 7 September, said that this year there were 33 private equity-focussed agriculture funds seeking investment of US$8.5 billion according to the London based alternative investment fund Preqin. Investors include a number of US pension funds.
The US teachers superannuation fund TIAA-CREF has some US$5 billion invested in farmland internationally. Their investment vehicle, Westchester, has offices in NSW, Victoria and WA. It has announced that it sees a major opportunity in Australia as older farmers leave the industry with no succession plans.
The large US based companies Kraft and Heinz have recently been merged following a takeover by Warren Buffet’s Berkshire Hathaway and the Brazilian company 3G. Presumably significant changes are planned.
The message here is that there are significant opportunities for high value food products into China, aimed at the significant growing middle class, based on our reputation for safe, quality food.
Just what these opportunities are beyond baby food and vitamins remains to be identified.
However, the other message is that there is a growing band of very large investors also moving on the demand for quality food by the Chinese middle class. These investors are moving quickly and often include those from outside the traditional agribusiness sector.
Australian agribusiness will thus need to also move quickly to capture its share of this large market.
Smaller companies banding together via joint marketing companies, cooperatives or similar collaborative mechanisms may be worth considering, given the issues of selling into a very large market in a country with a very different culture and legal systems.