What agribiz needs to learn from mining

But Australia needs large scale investment in its agriculture sector if it is to achieve its potential to ‘feed the world’, and right now the funds required are not available from any local source. 

" Australia needs large scale investment in its agriculture sector if it is to achieve its potential to feed the world. "
Kerryl Bradshaw, WA Branch Manager, Advisian

Foreign investment is a necessity but is proving problematic as the focus is on the sale of agricultural land, which is being met with vocal public opposition.

It’s time agriculture looked to another sector of the Australian economy for guidance. The mining sector powered Australia’s prosperity for decades and many of the things agriculture needs to do now are things the mining sector had to do in the recent past.

Agriculturalists can learn from the way the mining sector successfully raised its investment funds. And they need to ask if the same approach can be used in agriculture.

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VALUE CHAIN

Australian mining companies succeeded because they focused on the entire value chain - from the mine through to the product’s ultimate customer.

They understood products pass through a chain of activities in order, with each element critical to the quality of the final product. Miss an element and the product can’t be delivered to the customer, mismanage an element and the product is not economic.

To achieve and sustain a competitive advantage, and to support that advantage with information technology, a company must understand every component of its own value chain as well as the distribution networks that deliver the product to the customer.

In doing this, the mining sector realised the value chain itself had a value. While an investment could be made directly in an asset such as a mine, other investment funds could be directed to making improvements in the value chain that enhances and delivers the product to customers. 

It is still difficult to achieve this type of value-chain investment in agriculture. There are pockets where it exists, of course. The grains growers co-operative CBH is strong on ‘joined up thinking, but it’s unrealistic to expect a single cooperative to grow an entire industry and all its subsectors.

That said, there are glimmers of what’s possible starting to emerge.

GLIMMERS

In December 2014, one of China’s major producers and distributors of food and frozen vegetables – Taihua – signed a joint venture agreement with Ipswich’s Churchill Abattoir.

Among other things, the joint venture provided for upgrading the plant to export status and adding a second daily slaughter shift. Crucially, however, Taihua didn’t buy the Ipswich plant as a free-standing asset.

Instead, Taihua made a deliberate investment in the supply chain. This includes establishing a boning room in China, new plate-freezing infrastructure in Australia, as well as providing a market for Australian offal.

Taihua uses its existing (and extensive) distribution network in China to sell beef far and wide. From its base in Shandong Province, the company has established a cold chain distribution network that allows small deliveries to any city in China within 24 hours.

Mining investors are able to see with great clarity how each element of the value chain – from the asset on the ground, to processing, and finally marketing – relates to other elements.  It is now time for agriculture to learn this lesson and reshape the industry’s thinking on the way it raises funds and attracts investment.

It’s easy to fall into the trap of viewing things in isolation, considering only the value of the asset on the ground and thus falling prey to scare campaigns about ‘selling off the farm’.

If investors were given the opportunity to buy into a given value chain, then the issues about foreign ownership that arise now would no longer matter.

At present, the main path for foreign investors is to go the traditional route of buying assets. I’ve heard of situations where carloads of Chinese investors finish up driving around the countryside, stopping at farm gates, attempting to negotiate with individual farmers.

As each party in the transaction has insufficient information about the other’s needs, it tends not to go well.

What I want to see is a clear approach to foreign investment that brings public sentiment along with it.

Value-chain investing is a way of unlocking Australia’s agricultural potential while overcome both justified and unjustified public concerns.

Kerryl Bradshaw is the Western Australia Branch Manager for global advisory firm Advisian