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The changes Australian agriculture needs

Australia's agricultural sector faces the pressure of expectation as mining investment winds down and the country looks north to Asia's growing demand to provide the next great boom.

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This won't happen without change. As pressure on the sector increases from global competitors, new ways must be found to increase productivity and improve the sector's international competitiveness.

"There is great opportunity for Australian agricultural exports with the right policy framework to support change."
Mark Bennett, Head of Agribusiness, Australia | ANZ

Demand in Asia is developing quickly, but Australia's overall market share in agriculture exports to some key regions like ASEAN is falling. Both industry and the federal government recognise this as illustrated by the recent release of the Agricultural Competitiveness White Paper.

There is great opportunity for Australian agricultural exporters with the right policy framework to support change and increased competitiveness. In order for Australia to capture this opportunity, what does it need to do?

GREENER PASTURES - STILL

It's a question ANZ and others have asked before. In 2012 ANZ released a report entitled Greener Pastures, the theme of which holds as much relevance today.

The report estimated Australia could more than double the value of its annual agricultural exports by 2050 resulting in an additional $1.7 trillion in revenue over the next four decades.

To achieve this Australia will require additional capital investment of $1 trillion, including $400 billion to assist older farmers to exit the industry and younger farmers to enter. To realise this enormous export upside, an essential element is a suitable policy approach.

The federal government's whitepaper contains a number of practical initiatives and financial commitments that will go a long way to helping out.

The eleven-year commitment to $250m a year for drought concessional loans is particularly timely and establishing five new agricultural commissioners to increase export markets will also be welcomed.

Tax deductions on new water facilities and individual expenditure items of less than $20,000 - along with accelerated depreciation of fodder storage assets – will help farm finances and support productivity increases.

FLEX ASSISTANCE

At ANZ, we were particularly pleased to see the changes to the farm-management deposit, which sees the limit raised to $800,000 per person, and allows FMD accounts to be used as a farm business loan offset.

Creating easier access and flexibility will assist farmers in managing seasonal variations in their businesses. This is targeted towards further assisting leading producers invest with a higher level of confidence.

The competitiveness of the industry is not reliant on on-farm operations alone and the efficiency of our agribusiness supply chain is also very critical.

Previous government announcements have indicated various infrastructure initiatives totalling $50 billion in investment, with $42 billion of this directed towards road and rail. Delivering on these infrastructure initiatives is imperative if we are to improve supply chain efficiency.

Reemphasising the importance of infrastructure investment, Agriculture Minister Barnaby Joyce recently signed an agreement that opens up live cattle trade to China in a deal worth $1 billion to $2 billion annually.

Processors and producers have been buoyed by this announcement in light of Indonesia's slashing of live cattle import quotas – from 250,000 to 50,000 head this quarter alone.

The government has also announced the establishment of the $100 million Northern Australia Beef Roads Fund to improve the resilience and productivity of cattle supply chains in northern Australia.

If we expect to be able to deliver anywhere near what export markets are demanding, these types of infrastructure projects must be a priority - and delivered on time, and on budget.

NEAR SIGHTED?

Although infrastructure building is listed among five priority areas in the whitepaper, commentary has already focussed its lack of ambition in this regard.

Access to water is highlighted as a critical factor in the Government's other recent white paper on Developing Northern Australia.

The $500 million made available through a new National Water Infrastructure Fund is a start, but places high expectations on state governments and industry for additional funding to help boost agricultural production in this region.

We also support the $13.8m being made available to provide farmers with knowledge and materials on cooperatives, collective bargaining and innovative business models.

The primary barrier to the uptake of new business models is that many small and medium-sized enterprises are not aware of the potential alternative models. Family ownership is often seen as the only viable option for establishing or expanding a family enterprise.

Whether it is cooperatives or share farming, a range of alternative structures are available – and it's important we build the knowledge and skills of farmers as to the possibilities and successes achieved by other farmers in alternative models.

While family-based farming will continue to be important, alternative business structures, still oriented around families, can offer greater specialisation, economies of scale and productivity gains.

It will be important to remove obstacles to restructuring of traditional farm structures and promote generational change to protect the long term interests of farming families and communities.

GET READY

Although not contained in the report, ANZ also believes farms need to be 'investment ready'. That means demonstrating and articulating business performance that caters to trends in demand. Clearly articulated business plans that guide investors on returns and possibilities are also critical.

The need to drive productivity growth and embrace new premium markets in Asia requires a continued focus on investment and innovation in all that we do in the agriculture sector, with a focus on not just what global consumers want now but in the future.

Recent white papers demonstrate that the government is engaged in the issues as the industry looks to rise to the challenges and opportunities ahead.

Mark Bennett is Head of Agribusiness, Australia 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.

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