For Australia to play its part in the Asian dining boom, focus is required on improving profitability on-farm and increasing efficiency throughout the supply chain. This was the message from the Global Food Forum presented by The Australian, in partnership with Visy and the Wall Street Journal in Sydney on 26 March 2014.
Domestic capital is reluctant to invest in Australian agriculture whereas foreign investors recognise its strategic value and are investing throughout the supply chain. Short-term reporting requirements and the limited number of viable investment options, other than funds or listed stocks, are discouraging factors. Direct investment is an efficient method of deploying capital, although does not suit the passive investment style of many Australian institutions. As investment flows from overseas, this will hopefully whet the investment appetite from Australian sources, although this may require the development of innovative investment structures to match the investment rationale of our domestic institutions.
Where should we be steering this investment to best grow Australian agriculture to play a meaningful role in the Asian dining boom?
Australia is a relatively high cost production system when compared globally so it is important that we also maintain our competitive advantages in efficiency and effectiveness. This will be done through investment in supply chain infrastructure and on-farm productivity improvements.
Supply chain infrastructure is critical to overall efficiency of the sector. For example, our rail network cannot handle the size and weight of grain trains which is too great for many rail sidings, track sleepers and bridges that in many cases haven’t received major upgrades since Federation. In addition, grain has competed for rail access with the mining sector during the resources boom. As a result, the bulk of Australian grain is delivered to port by truck increasing supply chain costs.
In addition, regional water infrastructure requires further investment to increase available water and for efficient delivery to irrigation areas. There is significant scope to increase irrigation capacity in key growing areas and to improve delivery to reduce water loss through evaporation or seepage.
At the farm level, investment in infrastructure maximises profitability by increasing efficiencies, productivity and market options. Investment in water storage, water use efficiency, grain storage and technology can have great impacts on the bottom line. However, given current high farm debt levels, this investment should preferably be sourced from fresh capital rather than debt.
Agriculture must lift productivity to capture market share of the anticipated demand growth over the next twenty years. Australian agricultural productivity was second only to telecommunications in recent years although since 2010 has slowed as a combination of poor seasons and volatile global markets stemmed investment in research and development.
Australian productivity has always been cost driven requiring investment to increase farm income to offset limited commodity price growth, and growing labour and energy costs. Yet those operators with the courage, foresight and ability to invest in productivity growth through R&D and technology will be better placed to capture market share and price premiums.
Maximising the benefits of the Asian food boom will require significant investment both in infrastructure throughout the supply chain and productivity growth at the farm level. For further information on how to attract investment or improve productivity, call AMC on +61 7 3307 9555.