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What Asia’s food boom means for Australia

Asia’s ballooning middle class is opening up huge opportunities for Australia to switch its exports to the region from mining to dining. But the challenge is not demand, it’s supply – and more pointedly, resourcing supply.

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“I think it’s a shame that Australia has become so urbanised and so focused on the service sector that we can’t get our head around the agriculture sector,” David Thomas, CEO of Think Global and a BRIC (Brazil-Russia-India-China) expert says.

" Rising incomes are changing diets in Asia, encouraging a shift from traditional staple grains to more meat and processed foods."
Zilla Efrat, Freelance journalist & editor

“Australia has probably neglected its agriculture sector. Now it’s time has come and we are a bit slow to start loving it again.”

In the future, a staggering 85 per cent of the world’s growing middle class is expected to be in Asia.

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The OECD estimates China will overtake the US with the world’s largest middle class by 2020. Similarly, it reckons India will bypass the US with 12 per cent of the world’s middle class in 2021 and the rest of emerging Asia (including Indonesia, Vietnam and the Philippines) will do so with 13 per cent in 2020.

Rising incomes are changing diets in Asia, encouraging a shift from traditional staple grains to more meat and processed foods. And some of the foods projected to be most sought after by 2050 – beef, wheat, dairy products and sheep meat – are those that Australia is extremely well-placed to supply.

“Australia’s advantages stem from our particular geography and demography,” Professor Tor Hundloe of Bond University’s Faculty of Society and Design and a co-author of Australia's Role in Feeding the World says.

“We are much closer to the expanding Asian markets than our competitors in both South and North America. There is close to a fortnight difference in shipping time. Proximity translates into cheaper prices, whether products are freighted by plane or ship.”

That’s the good news.

…TO A CERTAIN EXTENT

According to National Farmers' Federation chief executive Tony Mahar, Australia has only been able to take advantage of these opportunities “to a certain extent”.

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“We just need to continue refining and improving our capabilities,” he says. “By design, we need to become more efficient and more competitive. We have good systems in place in terms of food safety and environment regulations that make our products very competitive in the global market.”

“But we are a high cost producer so we have to balance the cost of production with the market requirements and do the things we are good at. This is an ongoing challenge. The industry has improved and it will continue to do so.”

Productivity is a challenge. To meet demand Australian agriculture needs an increase in efficiency. That in turn should lead to opportunities in products and services such as fertiliser and irrigation.

For example, for Australia to produce 15 billion litres of milk by 2025, up from nine billion today, ANZ calculates an investment of $A8.6 billion is needed. Productivity must be gained from non-productive land.

Thomas says investment will help aggregate farms and provide some leverage to increase production.

“Because we are too slow and the government isn’t leading, smart Chinese investors and entrepreneurs see the potential and are buying our farms,” he says.

“It starts with a fundamental discussion about the importance of our farming capability. It needs the government to set a vision and a plan and it needs the best minds to work together to build a platform to enable us to bring investment in and raise production and build the sector.”

Mahar agrees more investment is necessary and believes community concerns about foreign investment can be overcome with more information and an awareness of what it means.

Australian producers also have to be realistic about their capabilities and to work together.

“We aren’t the hugest supplier. Some of the cities and markets in Asia consist of millions of people,” Mahar says. “As a country, we won’t be able to supply all those growing markets. We have to pick the markets that suit us and focus on these and not try to be everything to every market.”

Thomas agrees. “Two years ago, I took a mission of citrus growers to China,” he says. “At the beginning, growers were trying to compete with each other. By the end, they realised there was no way they could meet all the demand and they had to work together.”

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“If we are going to get anywhere close to meeting the demand, it has to be ‘brand Australia’. Everyone has to work under one banner. A good example is Zespri in New Zealand, a government agency responsible for branding and exports of kiwi fruit overseas. And in California, you have Sunkist which supports the citrus industry there.” 

Mahar also calls for a joint approach. “I am a big fan of a collaborative industry/government approach,” he says.  “Government clearly has a role to play in government-to- government negotiations to improve and maintain market access and address some of the non-tariff barriers.

“But industry has also to ensure it’s competitive and can control the supply into the market. Government can’t do that.”

ANOTHER ADVANTAGE

For Australia though, the opportunity is enormous and the advantages real.

“Another geographical advantage is that when it is winter in north-east Asia (China, Korea and Japan), it is summer in Australia,” Hundloe says. “We sell Tasmanian grown cherries into China in its winter.”

Australia also has a wide range of climates, soils and rainfall.

“These have resulted in the widest possible range of agricultural products, from tropical fruits, winter and summer grains, cold-water fish, cool-climate wine grapes and tropical rock lobsters, to name a handful,” Hundloe says.

The lucky country also has enormous amounts of certified organic land.

“Produce from it brings a premium,” Hundloe says. “Vast tracts of savannah grass-lands through to the near-desert country of central Australia have never had chemicals or fertilisers applied to it.”

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“It has not been ploughed or brought under irrigation. Yet this is where we run herds of cattle and sheep so large that they would make a Texan weep with envy.”

In addition, Australian producers have been dealt a better hand with the signing of the China-Australia Free Trade Agreement (FTA) last year.

Over time, it will eliminate tariffs on a wide range of agricultural produce and processed foods. It also levels the playing field with competitors that already have an FTA with China, such as New Zealand, Chile and ASEAN, and it gives Australians a head start over larger players that don’t, like the US, European Union and Canada.

The dimensions of the challenge sketched out in ANZ’s Greener Pastures insight report hold true: 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.

Come what may, Hundloe says Australia needs to ensure it doesn’t take its eye off the ball or spread itself too thinly in what’s likely to be its next big bonanza.

Zilla Efrat is Sydney-based freelance journalist and editor

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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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