Aus agri on the cusp on something big
Australian food producers continue to benefit from Asia’s growth as demand for agricultural commodities remains largely buoyant. But now the market is being urged to think beyond the farm gate and look to value adding and brand building to win a greater share of an ever-expanding prize.
ANZ’s Head of Food, Beverage and Agribusiness Australia, Ian Hanrahan, says the sector is almost certain to enjoy continued strong demand from Asia, given the region’s burgeoning middle class population. But factors such as changes in consumer preferences and bolstered competition from other exporting nations mean there is little room for complacency.
“It’s a broad opportunity with well-understood demand dynamics,” Hanrahan says. “We sit geographically on the cusp of South East Asia.”
“Sixty per cent of the world’s population live in our time zone and these populations are continuing to grow rapidly and are increasing their spending power.”
Hanrahan says the scope of the opportunity is visible from a simply walk down the street in “cities like Shanghai, Jakarta or Hanoi.
“Take in both the volumes of food being consumed, as well as the changing types of food,” he says. “It gives you an incredible firsthand perspective of both the challenge and the opportunity.”
“[Aus agri] output has grown 35 percent in the last decade, so we believe it can grow by a further 40 per cent if we get the settings right.”
- IAN HANRAHAN
ANZ estimates the current value of Australian agricultural output at $A61 billion, about three-quarters of which is exported.
“We think as a base case scenario the industry will reach $A89bn by 2030, a 40 per cent increase on today’s level,” Hanrahan says.
“It sounds ambitious, but industry output has grown 35 per cent in the last decade, so we believe it can grow by a further 40 per cent if we get the settings right.”
“Under an aggressive-case scenario where productivity improvements and the impact of technology exceed our current expectations it is possible we could see industry output hit $A100 billion in this timeframe.”
One imperative is consumers need to be confident about the origin and quality of Australian food.
“Australia plays well with its strong international reputation for food safety and provenance,” Hanrahan says. “We are starting to see the difference where some people are taking advantage of the opportunity, through areas such as new technologies and enhanced marketing, while others are yet to capitalise on this.”
Among the successes Hanrahan singles out is the diverse horticulture sector – now Australia’s fourth biggest soft commodity export by value – and the cotton industry.
The latter’s efforts have resulted in an especially strong foothold in China, where it has a strong reputation for quality despite recent production challenges as a result of the drought.
“The meat industry continues to be a key Australian exporter. In particular, sheep meat exporters have done a good job to get the message out about the quality of their produce in a competitive market, while our beef exports maintain a global reputation for being a premium product.”
Having sold its retail and wealth banking businesses in Asia to focus on its institutional business in 15 Asian markets, ANZ focuses on the sectors in which it excels, including food, beverage and agriculture, financial institutions, natural resources as well as media and telecommunications.
With an exposure to the food and agribusiness sector dating back 184 years, ANZ has been willing to support companies that follow the cross-border value chain into either upstream or downstream activities, from agricultural production through to storage, processing, distribution and ultimately retail.
“Going beyond the domestic value chain is not for the faint hearted but a lot of our food and beverage customers have done it and done it well,” Hanrahan says.
“Our support does not end in Australia or New Zealand. We can support these customers all the way through to end consumers in other markets and there are plenty of examples of customers with operations in places such as PNG, Indonesia, Fiji and other parts of Asia-Pacific where we will back them and support them.”
“For example, the bank has established South-East Asian banking arrangements with a large food company to support their global supply chain business in the Greater Mekong (Vietnam, Cambodia, Laos, Thailand and Myanmar) and we are also now financing a multinational fast moving consumer goods (FMCG) customer in a seventh Asia-Pacific country.”
“We have also established local financing support for a drinks manufacturer in both PNG and Indonesia and recently assisted a food retailer to incorporate their new business operations in China.”
“Some customers have developed processing capacity offshore, some have developed in-house sales capabilities while others have formed agency relationships and are investing in these parties,” he says.
“There are no right or wrong ways to go about it.”
Hanrahan says while the markets were growing, Australian agricultural producers needed to anticipate shifts in consumer tastes as well as competitive factors, such as changes in tariffs.
“Getting access to customers is an ever changing landscape as they become wealthier and more sophisticated,” he says. “Distribution channels are also changing. It’s not unusual for customers to sell food and beverage products in China via (ecommerce sites) Alibaba and JD.com.”
Meanwhile, exporters of our core commodities cannot let their guard down as new competitors emerge, or bumper crops elsewhere depress prices. International rivals are also improving quality, volumes and reliability.
For example, Black Sea producers such as the Ukraine are a constant threat to Australian wheat – our biggest agricultural export sector – even though Black Sea grain often contains more moisture and less protein than the Australian produce.”
Despite the tyranny of distance, it has been cheaper for important grain customers such as Indonesian noodle producers to buy Black Sea grain, while even Australian grain marketers and traders have established a Ukranian presence to play in that market.
Hanrahan says while China rightly remained the Asian focus for most importers, other emerging markets should not be ignored.
“India also has a billion mouths to feed and Australian exporters have not tapped that market in a comprehensive way,” he says. “Vietnam is a huge opportunity, especially for grains and beef processing, while Indonesia has a population of 300 million and little farmland, right on our doorstep.”
RELATED INSIGHTS AND RESEARCH
Aus, Indo FTA to open new markets
Neighbouring nations seal long-awaited trade deal in Jakarta.
Make the most of Asia: invest, don’t just export
There are more – and often better – profits to be made in moving beyond exporting and into investing.
On sustainability, companies ‘have to change’
The changing nature of the environment – and economy – demand businesses act on sustainability, experts suggest.