Australian Agriculture Business and Challenges and Opportunities for the Sector – Lindley Edwards and Mitchell Brown CEO, AFG Venture Group & Corporate Adviser and Analyst, AFG Venture Group

“We have an historic opportunity to revitalise agriculture… I call on you to take bold and urgent steps to address the root causes of this global food crisis” – UN Secretary General Ban Ki-Moon

Agriculture is an important industry for Australia and a significant exporting industry. Two thirds of Australia’s total agricultural output is exported. According to DFAT and ABS statistics the following is an overview of current state of agriculture exports:

Value of Australia’s top agricultural exports – 2009 (calendar year)
Major agriculture export products	CY2009 A$m	Share of Rank	Total
Total Agriculture (excluding fish, forestry and rubber)a	27,985		100.0%
Beef	4,764	1	17.0%
Wheat	4,756	2	17.0%
Wine	2,297	3	8.2%
Wool	1,809	4	6.5%
Lamb and mutton	1,455	5	5.2%
Animal feed	1,234	6	4.4%
Live animals	1,152	7	4.1%
Milk and cream	940	8	3.4%
Barleyb	766	9	2.7%
Hides and skins (excl furskins) raw	764	10	2.7%
Fruit and nuts fresh or dried (not incl oil nuts)	763	11	2.7%
Vegetables, fresh or frozen	702	12	2.5%
Cheese and curd	701	13	2.5%
Canola	678	14	2.4%
Sugara	664	15	2.4%
Edible products and preparations	565	16	2.0%
Cotton	537	17	1.9%
Cereal preparations	498	18	1.8%
Malt	412	19	1.5%
Animal fats and oils	272	20	1.0%

^a Deficient the confidential sugar component July-December 2009

^b Deficient the confidential barley component September-December 2009

Australia’s major exports of agriculture by destination – 2009 (calendar year)
Major agriculture export markets	CY2009 A$m	Rank	Share of Total
Total All countriesa	27,985		100.0%
Japan	4,271	1	15.3%
China	3,122	2	11.2%
United States	2,670	3	9.5%
Indonesia	1,931	4	6.9%
Republic of Korea	1,440	5	5.1%
New Zealand	1,402	6	5.0%
United Kingdom	910	7	3.3%
Malaysia	774	8	2.8%
Singapore	699	9	2.5%
Taiwan	590	10	2.1%
Hong Kong (SAR of China)	574	11	2.0%
Thailand	570	12	2.0%
Saudi Arabia	561	13	2.0%
United Arab Emirates	526	14	1.9%
Vietnam	483	15	1.7%

^a Deficient the confidential sugar component July-December 2009.

Note: the country totals exclude any confidential items.

Sources: DFAT STARS database consistent with ABS catalogue 5368.0, Feb 2010; ABS special data service for sugar.

We have decided to put quotes from some of the world leaders who presented in 2008 at a UN sponsored summit on tackling global food shortages, through our article.

Current Factors Affecting Agriculture

“I call for a global contribution to deal with the reasons for the current crisis and its repercussions in a way that achieves the interests of both developed and developing countries; a global contribution that goes beyond policies, attitudes and interests in their narrow national perspectives so that this contribution will deal with the people’s food security more comprehensive… a global contribution that witnesses our joint efforts on the national, regional and international levels to contain this crisis and stop the mounting rise in food prices.”

– Egyptian President Hosni Mubarak

Over the past couple of years an increasing number of scientists, economists and agricultural advisers have become increasingly concerned about emerging issues of food – food production, food supply and food security. Trends and drivers that are contributing to the concern over food are:

• Increasing global population;
• Changing weather patterns and environmental impacts which include reduction in access to water e.g. reduction of rainfall and below ground water (falling water tables) as well as continued deterioration and degradation of soil quality and number and severity of weather events such as floods, droughts, hail storms;
• Demand for more production-intensive foods;
• Changing consumer tastes, particularly for organic, seasonal;
• Escalation in need for more production-intensive foods;
• Competition for water rights/requirements – farming vs. environmental vs. urban vs. industrial requirements and flows;
• Growing urbanization of rural areas, as well as less farmers, particularly loss of smaller farms;
• Rivalry from other uses of land – bio-fuels production / mining.

Other Sector Influences

“The international community must be prepared to consider bold and unprecedented measures. The burden, which is now borne largely by the developing countries and the poor, can easily spill over into the developed societies”.

– Malaysian Prime Minister Abdullah Ahmad Badawi

Agriculture and therefore food and food supply have a number of unique factors that influence the sector.  These issues include:

• Governmental policies of export and import restrictions, subsidies and food standard policies. It is worth noting that the average tariffs for agricultural goods are more than 3 times higher than for non-agricultural goods — some agricultural tariffs are as high as 800%;
• Costs of infrastructure of food logistics including storage and transport;
• Impacts of investor speculation;
• Foreign exchange volatility;
• National inflation rates, particularly in relation to food costs;
• Competition (or lack thereof) in food distribution and food retailers;
• Genetics and emerging genetic technologies and the rights or otherwise to use them;
• Rising input costs for production and food supply;
• Global macro economic and market factors including volatility, risks;
• Over dependence on single markets. An example of this is the current state of play between Australia and Indonesia with cattle and beef.

Most pundits agree that in the future in regard to food security we will most likely be facing deteriorating global conditions. True food security for any country means regional food security. If shortages do occur in the future, and many economists and experts are confirming they will, each nation will feed itself first.

So Australia and its agricultural sectors have some strategic opportunities, notwithstanding the challenges outlined above.

• Asian countries wishing to shore up supply;
• Development and use of intellectual property to improve production, decrease use of resources, improvements in farming techniques;
• Developing new markets;
• Creating value-add products for specialised markets which give better returns to producers;
• Improving logistics and supply chains;
• Building and repurposing transport infrastructure to improve efficiency, reduce costs and waste;
• Taking advantage of demand for clean, green, environmentally friendly food, showing province of food and creating consumer branding around this;
• Improved processing of agriculture resources, reducing waste, and increasing value add.

Perhaps the final word in this article should go to Brazilian President Luiz Inacio Lula Da Silva: “Genuine food security should be global, and achieved through cooperation”

About the authors

Lindley Edwards is CEO of the AFG Venture Group and is a specialist adviser in merger, acquisition, divestments, fund raising, strategies consulting and licensing for public and private companies.

Mitchell Brown works as an analyst and advisor for AFG Venture Group in the corporate advisory sector. He is an Agricultural Economist by training, and has an interest in Australia’s primary industries, and the opportunities that are available for these industries in Asia.