For Australlia, that means greater demand from international markets - for food and fibre. And, in many cases, we just can't produce enough of it. That means it is an exciting and challenging time for many primary producers, particularly in Australia's beef industry.
"Additional strategic effort is required throughout the industry to ensure it delivers to global markets offering long-term reward for farmers and the collective industry."
Mark Bennett, Head of Agribusiness at ANZ
Export is vital: only 30 per cent of Australian beef production is consumed domestically so the global audience and its hunger for Australian beef is critical to the future of the industry. Australian beef's traditional markets of USA, Japan and Korea remain significant and are growing but China is quickly pushing into the top three.
China, Japan and Korea are mainstay markets for chilled and frozen beef, while countries like Indonesia and Vietnam are key live export markets – and will remain so despite ongoing challenges with these markets in terms of development and public perception.
However in the short to medium term, Australia's supply capacity is constrained. Due largely to the Queensland drought, Australian beef production in 2015 is set to fall by around 1 per cent. In the absence of grass and water, many farmers have de-stocked, fuelling lower prices, all in the face of burgeoning demand, especially from China.
While the sales were welcome, beef was perhaps commoditised at a lower price, which conflicts with a broader industry objective of creating value and pricing accordingly to improve margins.
Given the drought conditions, there was a preconception the Queensland grazing fraternity would be understandably low on morale at the recent Beef Australia event in Rockhampton, one of the world's largest beef expositions.
For many beef producers in the region, there have been many things go wrong in the last four years, perhaps too many to mention. But overwhelmingly the atmosphere at Rockhampton was positive.
There is a strong belief in the well-documented global demand for Australian beef and the composition of the 85,000-strong crowd was one reflecting the evolving shape, health and velocity of the industry.
An unprecedented international contingent really highlighted the closeness of this market where investors, traders, processors, producers and service providers freely swapped ideas, insights and opportunities.
The common fix required and requested was a lot of rain, which is hard to organise. What shouldn't be done however is generalising on the issue of weather alone dictating the financial plight of any participant in the agribusiness value chain.
It is an obviously significant variable but it does not in itself explain the wide range of financial performance and general confidence exhibited by the thousands of farm/agri businesses who met in Rockhampton.
Some individual circumstances of those gripped by the current drought are incredibly tough and indeed difficult to understand for anyone on the outside. Yet overwhelmingly these circumstances are being met head-on.
Graziers are doing their best in a difficult environment, tabling potential responses and working towards appropriate solutions. This kind of management helps a business through short term pressures, and with the outlook beyond weather looking good, there is clearly a confidence about the future.
In achieving value creation, the sector can grow profit through the supply chain which is especially important if Australia cannot maintain the advantage by being a low-cost producer in the global market. Cattle prices are now historically high for Australian farmers but these prices actually produce a cost problem as farmers seek to restock.
The rebuilding exercise may take some years and there is a possibility, as our domestic farm businesses recover and the herd is rebuilt, other big producing nations like the US and Brazil could take advantage. (although the US has its own problems given its declining herd).
The creation of the ASEAN Economic Community later this year is expected to spur economic and consumption growth inside the trade zone, doubling the potential value of overall Australian agricultural exports to the region to an estimated $US15.5 billion by 2025.
Whether in live exports or the development of cold chain processing infrastructure, these are massive opportunities for the Australian beef supply chain. To achieve this potential, however, Australian agribusiness will need to be aware of changing trends in consumption and adapt its output accordingly.
ANZ Senior Agricultural Economist Paul Deane said in a recent report the global price outlook for beef in 2015 would remain a secondary driver in Australian as weather and domestic cattle supply continued to dictate prices.
Even with the latest rally local prices look cheap, Deane said, on both the demand and supply side.
He has forecast a sustainable Eastern Young Cattle Indicator (EYCI) of $A5.20 to $A5.50 a kilogram.
So what can be done to accelerate production efforts aimed at protecting markets and growing new ones?
It may be worth focussing on those grazing businesses in good financial shape. They do exist. A confidence shift is required here to drive investment that creates improved productive output - and I don't think this is just about commodity prices.
Investment from outside the agri industry from corporate and fund markets along with foreign investment also has the potential to increase production too. This is not limited to the north and it is not limited to production.
More graziers are attracting equity from outside farming to either grow production or to develop supply chain opportunities. More organised money is being invested in agriculture for diversity, return and future possibilities.
These kind of structures often carry no or minimal debt and invest in innovation, technology, genetics and infrastructure. Not all of these investments will be perfect and it's unlikely they will in themselves transform the family farming landscape. But they will play a greater part in the mix and lessons can be learned by everybody around success or failure of some of these ventures.
The macros look really good for global animal protein, especially beef. Identifying appropriate assets and guiding investment to execution, along with access to quality operational management are critical areas for new investors.
The sector needs a dramatic and short-term improvement in Queensland's seasonal conditions. Additional strategic effort is required throughout the industry to ensure it delivers to global markets offering long-term reward for farmers and the collective industry.
The key themes tabled in ANZ's Greener Pastures report three years ago remain critically relevant today. How can the sector satisfy demand if it doesn't have the beef to sell and how does it generate the required supply?
How does it ensure it is not just playing to commodities but extracting value from markets that play to the changing tastes and behaviour of the population in its key markets? Is there enough price incentive to encourage investment in herd rebuild and output?
Beef Australia saw robust and constructive debate between representatives across the beef value chain on issues of capacity investment, key markets, marketing, efficiency, and supply.
This included views from potential investors, all of them experts in their business of specialisation and sometimes integration. There was great passion and thought demonstrated with the best interests of industry in mind.
Of course there is not just one way or one solution. But I couldn't help thinking that while in many respects our industry can be fragmented and difficult to coordinate, there is genuine evidence of being on the right path.
If the mood at Rocky was anything to go by, I'd say we are at the beginning of a very exciting time in the beef industry. Rain won't guarantee everyone's success but right now it feels like the only piece that's holding things back.
Mark Bennett is Head of Agribusiness at ANZ.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
25 May 2015
24 Apr 2015
19 Oct 2012