The following is an address delivered at the Rural Press Club of Queensland on November 27th, 2013If the pundits are to be believed, Australian agriculture is on the cusp of a boom that will rival the pound-a-pound wool boom of the 1950s. Rapidly growing Asian consumer demand for food, coupled with Australia’s close proximity to Asia has, in the eyes of plenty of commentators and policymakers, put Australian farmers in the box seat to experience a new era of sustained profitability and expansion.
But over the last five years, contrary to the above projections, Australian agriculture’s export performance in Asian markets has been lagging badly, relative to the performance of our major competitors. Australian agriculture has lost market share in all the big five Asian markets – Japan, Korea, China, Indonesia and India. And while Australian agricultural exports to Asia have been growing at around 8% per annum over the past five years, exporters like New Zealand, the USA, Canada and Brazil have experienced annual growth rates in excess of 20% per annum.
A recent trade statistic that really puts Australia’s agricultural export performance in its true context is the fact that Australia’s fruit exports to Asia were worth around $500 million in 2012-13, while Chile’s – a developing nation located on the far side of the Pacific Ocean - were worth $4.3 billion.
Even in Australian domestic markets, Australian produce is being outcompeted by imported products which were valued at $11 billion in 2012-13, equivalent to just under a quarter of the total value of Australian agricultural production.
There are obviously a range of different factors that are behind the insipid export and domestic performance of Australian agriculture;
• The Australian dollar exchange rate has been above $US 90 cents for most of the time since 2007, which makes Australian produce relatively expensive in Asian and Australian markets and reduces prices received by Australian farmers,
• Australia is now one of the highest cost nations on earth, with labour costs in particular very high, making many businesses that rely heavily on labour – such as horticulture - internationally uncompetitive.• Australian agricultural businesses operate in some of the most variable climatic conditions on earth, and there are very real limits to the availability of resources such as land and water.• Agricultural productivity rates have slowed markedly in Australia since about 1997, meaning that output growth arising from productivity improvements has been limited.• Negative media coverage and the resulting poor community perceptions of agriculture have had an adverse impact on both domestic and export markets and affected agricultural investment. The performance of the ABC in particular on livestock exports and more recently the Indonesian spying case have not helped the agriculture sector, despite the extremely valuable efforts of the ABC Rural division.
• The sheer scale of Asian markets means Australia will never be able to supply a large share of the extra demand. To give this some perspective, in the next twelve months China will import almost $US150 billion worth of agricultural products, while the total value of Australian agricultural production in 2012-13 was estimated to be around $US 45 billion.• The Australian retail food market is dominated by two major supermarkets, which have squeezed most of the profitability out of the food processing sector which would normally be expected to compete strongly in domestic markets and provide a platform for export growth. The result has been a lack of offshore investment or expansion by Australian food companies (in fact the reverse has been occurring). In addition, Australia’s food processors have lost market share in Australia and processed food exports have experienced virtually no growth over the past few years,• Australia has had a singular lack of success in negotiating trade agreements with Asian trading partners, while competitors have concluded such agreements long ago and are enjoying significant tariff and trade access advantages relative to Australian exporters.• In contrast to many of our competitors including New Zealand, Australia has a disjointed, State-by-State and commodity by commodity approach to trying to secure better trade access and to promote Australian agricultural products.
• Last but not least, there is an incredible level of complacency amongst policymakers and the sector more generally that stems from Australia’s proximity to Asia. This is completely unwarranted given the realities of international shipping and transport costs, but seems to doggedly persist in the minds of many.
Some of the above factors cannot be easily addressed, or can only be addressed by individual businesses, or in the case of trade agreements the Australian government.
But there are some collective actions that can be taken that would deliver benefits to all involved in the sector, and among these is the development of a ‘brand image’ for Australia agriculture, similar to what has already been developed by New Zealand, Canada and the USA.
A starting point should be a reality check and a stocktake of what Australian agriculture has to offer Asian and Australian consumers. First and foremost should be the recognition that Australian agriculture will never be a big player in Asia, simply due to the fact that Australia does not have the capacity or the volume of production. Secondly, Australia is a relatively high cost agricultural producer and exporter, and will struggle to compete on price alone with other many other suppliers in undifferentiated bulk commodity markets.
This means that it is critically important that as much as possible of Australia’s agricultural produce is positioned at the premium end of Asian and Australian food markets, which are markets in which a product’s quality and freshness are valued, and credence characteristics also become more important.
Australian agriculture does have some characteristics that mesh well with what are understood to be the desires and values of fussy, middle and upper-class Asian and Australian consumers. These include;
• Australian farmers are able to produce very high and consistent quality products,• Australia has extremely high food safety and biosecurity standards,• Australia has world-leading product traceability systems,• Australia has very efficient logistics and transport systems that enable products to be delivered that are very fresh and retain their nutritional qualities.• Australian agriculture has very strong sustainability credentials, including some of the most water-efficient crop production systems in the world.• Australian cropping and livestock systems are very ‘natural’ production systems with relatively low levels of pesticide and fertiliser use compared to most international competitors.• Australia has very high standards of farm worker welfare and safety compared to virtually any other agriculture sector worldwide.• Australian agricultural production is largely sourced from family farming businesses, rather than large corporations and factory farms, and,
• The Australian agricultural sector receives the lowest level of taxpayer support of any national agricultural sector worldwide, and therefore represents extremely good value for Australian taxpayers and consumers.
There is a need for some caution, however. The real value of a brand lies in the relationship that it creates between the producer and the consumer. To be successful it has to be a vehicle for two way communication that involves an understanding of consumer wants and desires, and identifies ways that characteristics of Australian farming satisfy those. It is definitely not just Australian farmers telling their story. And it is certainly not just an “Australian Made” sticker added to a product label. The contrast between the “100% Pure” brand that has been developed by New Zealand over the last fourteen years, and the Australian Made sticker highlights this difference very starkly.
In a similar vein, the various Rural Research and Development Corporations that have commodity promotion responsibilities do great work in opening up markets and getting trade access for their specific commodities. For example, the ‘Aussie Beef’ campaign that Meat and Livestock Australia has implemented in Japan and Korea is widely regarded as a successful promotion that brings benefits and premiums for Australian beef. But there is no doubt these efforts would be much more effective if they were all coordinated behind a strong and widely recognised national brand. Again, having some of the promotion resources expended by all these different organisations allocated to a national brand strategy, which all could then utilise and leverage in their activities, seems a much smarter way to work than for each of them to each try and develop a separate brand identity.
A potential added advantage of a strong national brand for agriculture is the assistance it would provide to current and future Australian exporters in Asian markets. This applies in particular to new exporters seeking to gain a foothold in specific markets. It is often noted that New Zealand exporters promote themselves under the ‘100% Pure” New Zealand brand first and foremost, and use that to leverage the value of their region or specific retail brand.
Australian exporters, by contrast, are said to expend most of their efforts in criticising the products on offer from their fellow Australian exporters and trying to undercut them on price. This is not a successful approach to adopt in higher-value markets.
Austrade has taken up the concept of brand Australia, and is currently engaged in some research work that involves canvassing a wide range of stakeholders and consumers about the concept, and the values that they see as important and identify with Australian agriculture. They will soon be reporting on this to industry, and expanding the work to key Asian markets in the next twelve months. The funding for this work was provided as part of the National Food Plan, but there are no additional funds available to take this work beyond the research stage.
This leads to the need to consider a related issue, which is the current state of advocacy organisations representing the farm and wider agricultural sector in Australia. The National Farmers Federation has served the farming and wider agricultural sector very well over the last thirty years, and is the logical organisation to champion a concept like brand Australia on behalf of the entire agricultural sector. However, a severe lack of resources and rapidly declining budgets means the NFF is not in a position to expend much effort in pursuit of this initiative, let alone to put up any real resources to support it.
This is not the only issue on the national stage which the NFF no longer has sufficient resources to address on behalf of Australian agriculture, and in the judgement of some in the industry, the current NFF and State Farmer Organisation model is no longer sustainable.
The NFF has recently embarked on a process that aims to identify a more sustainable future model, and for the sake of Australian agriculture it is very important that this succeeds. One of the big challenges in this process is the fact that the members of the NFF are the State and Commodity farm groups. Those farmers who choose to be involved (and the proportion is shrinking year by year) join their State-based Farm Organisations, some of which are members of the NFF. Finding a better model for the NFF invariably involves change at the State or Commodity organisation level.
This highlights that while farmers see advocacy organisations as important, farmers don’t see any direct value for themselves and hence many adopt the free-rider approach. The membership offer of farm organisations to potential members obviously needs to be expanded in ways that engage members at the local level. This will need to include direct membership benefits and services that are valued by members, and not available to non-members.