Sunday, April 13, 2014

Trade deal opens huge opportunity - and challenges - in agriculture

By Ross B. Taylor

The just concluded trade agreement with Japan presents enormous opportunities for Australia, and in particular for our agriculture sector. But it also presents some challenges for us to closely examine our mindset to producing and exporting food to the region.

This trade deal is set to reinforced our national view that Australia is to become ‘The food bowl of Asia’ and that we are about to experience a massive _‘Dining boom’_ to replace our mining sector as the major exporter for Australia. Yet the official statistics don't necessarily support that view and are concerning.

China’s imports of food imports over the past years have seen our share of that huge market actually fall; from 6% to 3% of total imports. Meanwhile, Indonesia has seen its exports of food to China 'explode’ from just 2% to 13%. It gets worse. Our food exports to Malaysia, which is traditionally a major buyer of food, has dropped from around 17% to just 6% whilst Indonesia has increased its share from 8% to 28%.

Australia’s export of food to Indonesia itself also tells another disturbing story; Down from 16% in 2006 to 8% today.

These countries have a strong and emerging middle class and whilst Australian exports of food, measured in actual tonnes, looks 'satisfactory', when expressed as a percentage of our neighbours growing food imports, the  story doesn't look so good as shown above.

So what has gone wrong in the middle of what should be our next export boom?

Firstly, we have taken our collective eye of the big emerging ‘ball’ to our immediate north. Whilst we see , Indonesia as a place that ‘collects, then ships boat people’, or a place that is home to terrorists or military dictatorships, our neighbour has grown-up and has produced an economy-including agriculture-that needs all the technical and scientific help it can get to expand its food growing capacity to not only feed its own people, but to ‘add value’ and export manufactured food to the Asian and Middle Eastern regions.

We have failed to identify this opportunity, but it’s still not too late if we face the reality that for some food crops, Australia will never be able to compete against our Asian neighbours with their high rainfall, better access to markets, fertile soils and economies-of-scale with large populations and low labour costs. But  just because we are berry growers or dairy farmers for example, doesn’t mean we must only operate from Australia.

By partnering with Asian growers for example we can invest in the supply chain and bring  our extraordinary knowledge and skills to build mutually successful businesses. By taking a more lateral approach to food production and exports, we can widen the opportunities enormously.

Trade expert, Cameron McMillan told 'The Australian's' Rowan Callick (7th April 2014) that "..We are amazing food producers, but after that we lose our way a bit". McMillan, who is the Executive Director of the international BDO Group, said that Australia needs to be, "...working through (partnerships) joint ventures in target economies". These should include not only Japan and China, but also countries closer to home such as Indonesia.

Our live cattle export industry is now rebounding strongly, but we once again fall into the trap of wanting to revert to the ‘we sell; they buy’ model. We must co-invest in the entire supply chain so we build a long-term and vibrant food market, with beef as the core ingredient, selling to not only Indonesian consumers but also to  third-party markets throughout the region.

WA’s CBH Group, through its Interflour operations in Asia doesn’t just sell several million tonnes of WA wheat to Indonesia every year, but ‘adds value’ through its Asian partnerships to manufacture flour, plus billions of packet-noodles with an enormous benefit back to WA farmers. Smart.

One often wonders what could have happened fifteen years ago if we had then identified Indonesia as the future power-house in motor car manufacturing, and that they would need first-class components to be  manufactured nearby using knowhow and technology that Australia has.

Could we today have large vehicle component design, technology and marketing businesses here in Australia with the actual assembly being  done by our JV companies next door to the car plants in Jakarta?
Sadly we will never know.

Meanwhile for our farmers and growers of agriculture products here in Australia we need to get their input costs down. Energy costs are an enormous burden on our primary industries. Labour availability and  costs remain a major problem, as does government regulation and red tape which has lead to Australia falling nine places this year (to 23rd place) in trade efficiency in the past four years.

Fortunately local food associations such as _Horticulture Australia_ have identified these challenges and the industry is moving to achieve better economies-of-scale through larger farms and improved on-farm  practices plus being supported by government to cut the red tape and the cost burdens to which I have already referred.

Even if we do all these things, and they are needed to be done urgently, we still must think more laterally as to how we produce food and goods for export. Using integrated supply chains through international partnerships, that involve co-investment overseas and in Australia, will be critical. Government organsiations such as  Austrade should play a key role in implementing and facilitating these plans. They have many good people and we should use them.

Asylum seekers have been the most important regional issue for many Australians in recent years. If any 'good' can come from the Prime Minister's determination to stop this terrible trade in people will be that it will not only save lives and help Australia and Indonesia, but it may also help us to re-focus our attention on the real issues and opportunities for our country that will create jobs and prosperity. And agriculture should lead the way.

Ross B Taylor AM is the Preseident of the Indonesia Institute (Inc).
(This article first appeared in The West Australian Newspaper on 3rd April 2014)

(Ross Taylor acknowledges the contribution and research on this topic by Michael Sheehy, Nuffield Scholar and Senior Advisor on Agriculture, Jakarta Indonesia)

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