Rising rivals threaten ag’s $100b production goal

ANZ says ag's $100b target demands more effort to beat rival farm exporters


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The gross value of Australian farm production is tipped to only reach $58 billion this year, well short of the $100b goal the industry hopes to achieve by 2030.

The gross value of Australian farm production is tipped to only reach $58 billion this year, well short of the $100b goal the industry hopes to achieve by 2030.

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Our five largest farm commodity sectors should be bracing for much more global competition and higher potential cost threats says ANZ report

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Australian agriculture’s ambitions to be a $100 billion a year industry in a decade face some increasingly challenging headwinds – and not just the hot, dusty winds currently blowing across drought-parched parts of the continent.

Our five largest farm commodity sectors should be bracing for much more global competition and higher potential cost threats at home warns the ANZ Banking Group.

An annual production value target of $100b by 2030, as championed by the National Farmers Federation, would firmly double Australia’s current farm output.

However, on present growth trends, even without rising export competition from the likes of the Ukraine, Brazil or New Zealand, Australian agriculture is only likely to manage annual gross production values of $89b by 2030.

In fact, farm production’s gross value is on track to slip three per cent to $58b in 2018–19 according to the Australian Bureau of Agricultural Resource Economics and Sciences.

That’s 6pc below ag’s productivity peak achieved in 2016–17.

Our 10-year average is down at $56b.

Although our agribusinesses remain world-leading, our international competitors have improved their quality, volume and reliability. - Mark Bennett, ANZ Banking Group

“The $100b target is certainly achievable, but growing global competition means heightened levels of collaboration and innovation are required,” said ANZ’s agribusiness head, Mark Bennett.

“We‘ll need more than our current run rate when it comes to investing, regardless of whether we’re looking at traditional sectors like grazing, or profitable new performers like fresh produce exports.

“Although our agribusinesses remain world-leading, our international competitors have improved their quality, volume and reliability.”

While many farm sector players were currently focused on worsening drought conditions, the bank’s research highlighted some fundamental steps needed for Australian agriculture to reach its potential.

These included digital connectivity to improve the real time efficiency of farm business management; farmers and farm supply chain operators reinvesting in innovative infrastructure and time saving technology, and more joint venture initiatives in the supply chain.

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A wider mix of capital funding sources was also needed to bankroll industry infrastructure and fresh farm investment.

Simply improving financial literacy and on-farm documentation would also lift farmers’ capacity to demonstrate their production credentials to potential investors or lenders.

“You have to present yourself as more than just a good farmer,” Mr Bennett said.

The industry must take stock of factors which are inevitable and those which it can influence and consider how to make use of both - ANZ's On Track report

Aside from Australia’s seasonal volatility, ANZ’s On Track report noted the strengthening overall position of rivals in key export categories such as dairy, wheat, beef, horticulture, and even sheep meat, where there is only one competitor.

They posed genuine challenges to farm industry earnings.

“The industry must take stock of factors which are inevitable and those which it can influence and consider how to make use of both,” the report said.

Beef and grain pains

In the grain sector the low cost production, scale and trade bargaining power of Black Sea region countries would see their share of global wheat exports lift to 35pc by 2030, notably in Asia where Australian wheat values would be hurt.

Canada, Argentina and Russia were also rising competitors in our traditional wheat markets.

Similarly, Australia faced more production challenges from emerging beef players, even China.

Brazil and Argentina could increase their combined global export market share from a fifth to almost a third by 2030, while US production trends implied its surplus of exportable beef was building.

American beef would compete for valued Australian customers in Asia.

Our modelling shows 1.5pc annual growth in capital investment combined with a 3pc rise in productivity would grow the sector to $97b in production by 2030 - Mark Bennett

In dairy our traditional strength as a low-cost producer and significant exporter was under threat from seasonal constraints and rising production costs, plus the strength of NZ, US and European Union milk production.

The three would account for 81pc of global volume growth by 2030.

“Australia’s major dairy export categories – cheese, whole milk powder, and skim milk powder – are expected to come under increasing pressure,” the ANZ report said.

Sheep meat outlook

Until 2023 NZ would also hold a tariff advantage as a sheep meat exporter to major market, China, which imported about 62pc of its sheep meat products from NZ and 36pc from Australia.

Mark Bennett

Mark Bennett

However, by 2030 Australia’s share was tipped to climb to almost 50pc.

Other growth opportunities, particularly in Asia, included fruit and vegetables – now Australia’s fourth biggest farm export segment.

Fruit shipments to China alone jumped 500pc in the past four years, while China would remain the world’s biggest dairy import market.

ANZ suggested Australian agricultural quality and low regulatory risks would also help attract continued interest from global investors.

“Ongoing capital injections are critical to growth,” Mr Bennett said.

“Our modelling shows 1.5pc annual growth in capital investment combined with a 3pc rise in productivity would grow the sector to $97b in production by 2030.”

Precision-to-decision digital technology such as soil and weather sensors had potential to unlock more than $25b a year in value for farmers - Fiona Simson, National Farmers Federation

NFF president, Fiona Simson, acknowledged the $100b target was “a bit of a stretch for our industry to make, but it’s doable”.

More free trade deals such as the recent TPP11 had to be government priorities to improve access to burgeoning markets which other rivals did not yet enjoy.

Energy certainty needed

“And we badly need a national energy policy to provide electricity industry investment certainty, certainty for ag sector investors and to capture the huge potential value in on-farm power generation and energy cost savings,” she said.  

“Precision-to-decision” digital technology such as soil and weather sensors had potential to unlock more than $25b a year in value for farmers.

Fiona Simson

Fiona Simson

“It can cut labour costs, help management efficiency and save water, chemical and fertiliser use,” she said

Farm consolidation in some commodity sectors such as cropping would also lift efficiency, while more “intensive and unusual production opportunities, including glasshouse crops” would enable smaller, but highly productive, landholdings to bloom.

We don’t have enough insurance structures to encourage confident investment or protection opportunities - Fiona Simson

While much of agriculture’s productivity goals depended on farm and agribusiness initiative, governments also must be firmly committed to improving freight and communications infrastructure and developing a national agriculture policy recognising farming was a risky business, particularly as climatic conditions grew more volatile.

“We don’t have enough insurance structures to encourage confident investment or protection opportunities,” Mrs Simson said.

“I think it’s pretty clear government will need to play some role in getting a critical mass of risk protection strategies established.”

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