Three key ingredients in growing the food bowl

As a nation we have talked about Australia’s place in the global food story and the discussion has centred on our ability to become a valuable supplier of food to Asia. The rising incomes and changing diets in places like China and India isn’t new news – nor is the prospect of the great opportunity it brings for us here in Australia.

"We need to rethink the future agricultural opportunity."
Stuart Hancock, State Head, Regional Business Banking WA at ANZ

But the statistics remain impressive and are worth remembering. Each year in China, 27 million people qualify for the ‘middle class’ status. Total goods traded between China and Australia were worth $A143 billion in 2015, 9.5 times more than in 2000.

Exports to China were $A81 billion in 2015, up 35 per cent on 2010 and the value of Australian agricultural goods exported to China was $A7.7 billion in 2014, up 75 per cent on 2010.

These figures all speak to the widely held view agriculture is also the next sector to benefit from the Asian Century, especially given our land, water, skills and geographic location. But that is the opportunity story. What I’d like to discuss today are some of the immediate, next steps our industry can take.

ADVANCE

The answer comes from exploring best-practice models for agribusiness and helping drive economic growth and resurgence in regional Australia. It’s about how we advance our position and generate greater production volumes and returns for our farmers.

Agriculture in Australia is resurging. Our economy is in transition and we are recapturing the romance of farming. There are also great commercial benefits to also be gained.

At a national level, total Australian farm outputs are currently valued at $A50 billion, heading to $A60 billion. What’s really interesting to me is for every $A1 earned on the farm, $A5 is contributed to the regional economy.

At a state level, Western Australia is going through its own economic transition. It’s had a period of substantial investment in resources projects through the construction, production and export phase – which has now been impacted with the global drop in demand and falling commodity prices.

Despite this though, we believe the WA economy can transition from the mining boom to the dining boom - if it can refocus on its agricultural sector. In WA the agricultural sector is strong, we’ve seen the value of agricultural production increase.

RETHINK THE FUTURE

In Australia we need to rethink the future agricultural opportunity by stepping away from what is being demanded from us and instead looking at what and how we can supply it.

At an industry level it’s about accessing the right markets, getting the right skills and people in place, having better technology and improving the way we tackle research and development. At a farm level it’s about focussing on the three key elements - innovation, capital and education - of a best-practice agribusiness model.

• Innovation is a critical element to being best practice in agriculture. Farmers are looking to animal and produce genetics for breeding or even for the health and welfare of their animals.

They are looking to solar technology for energy efficiency, to news ways of waste management, to new farming practices with seeding, to robotics in machinery to sensors and imagery. While we have some way to go on adoption compared to world leaders like the USA, Australian agriculture has made massive leaps in technological development and innovation.

But innovation is also about marketing and finding new markets. Through having the right connections, investors and plenty of time and patience, farmers can take advantage if the Asia opportunity.

Finally, innovation can be seen in farming models and structures. Australian agriculture is normally typified as a family farm handed down through generations. In reality a number of models exist for farming and should be brought into the mix – with many generating fantastic results in efficiencies and profitability.

Alternative farming structures include joint ventures, shared farming arrangements, equity partnerships, offtake structures, or even fund managers, corporate sector funding or cooperatives. Some of these require a greater level of professionalism and increased financial reporting than traditional models, but drive greater accountability and long-term business planning.

Overall, farmers who recognise the benefits from doing things differently are ones to take the lead from.

• The next key element is capital – which is an issue for many farmers. Investing to achieve efficiency gains and improvements has historically been difficult. Combined with labour shortages, land and water challenges as well as rising costs, Australian farmers have their work cut out for them.

Capital composition combined with expert operational management has the capacity to drive the unit cost of production lower – and most good farmers today are completely focussed on this 'controllable'.

At an industry level, ANZ’s ‘Greener Pastures’ report from 2012 said Australian agriculture faces a significant capital gap over the coming decades. Around $600 billion in additional capital is needed in the sector to generate profitability and growth.

Capital therefore needs to come from multiple sources. We should consider more innovative ways with how we receive capital investment.

We know farmers tend to reinvest retained earnings and also look to banks for further support. Increasing the investment in our farms is vital if we are to improve our productivity and meet the export market challenge.

Our industry must also look beyond domestic sources of capital, together with new accommodating business models and structures.

• The last key element to a best practice farming model is about education. We’re already seeing the outcomes and benefits coming from the younger generation of farmers.

They’ve come back to the farm with a new mindset and a fresh perspective on productivity and innovation. They’ve studied business, economics, agronomy and they’ve got increased knowledge on the fundamentals of business.

They’re interested in sourcing new capital and setting up different ownership structures but also driving on farm innovation with seed varieties, genetics and the use of chemicals.

The younger generation understands and views farming as a business. They’re keen to apply best practice, using their education and not just doing what their parents did because they’ve been taught that way.

It’s not a new concept farmers need to focus on business management, ensure they have financial data to aid decision making and take advice from the right specialists. But it’s one that deserves more attention and a conversation about how to do it.

Agriculture is one of Australia’s most-vital industries and we have a tremendous opportunity on our doorstep. Now is the time for agribusiness to show strong leadership by taking stage with our nation's best innovators and committing to adopting best-practice business models.

This is an edited version of a presentation by Stuart Hancock, State Head, Regional Business Banking WA at ANZ to CEDA in Perth