Succeeding in a Competitive Global Market Dr Ric Simes Director

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Succeeding in a Competitive Global MarketDr
Ric SimesDirector

• Presentation at the Foodbowl Unlimited Forum
• 24 September 2007

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Structure of Presentation

• Positive economic context
• Changing patterns of demand for food
• The inevitable changes in the composition of
  Australian exports
• Lessons from other sectors of the economy
• Some implications for agriculture

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Investor interest
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Investor interest

• Positive factors
• global demand
• close to growing markets
• disease free, green production
• technology and productivity
• potential restructuring/consolidation.
• Risk factors
• poor returns historically
• climate change (including energy costs).

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What investors are seeking

• Super funds are after
• investments amounting to, perhaps, 10-50
  million in any one fund
• focused management and strategy
• scale
• suitable diversification and
• prospective returns based on the underlying
  business rather than land values.

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Economic Outlook
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Robust economic growth globally
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Contribution of emerging economies
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RBA commodity price indices in SDRs
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PSEs in OECD countries
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High value agricultural products
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Three different markets

• The major markets for regional producers will
  continue to be either
• domestic or
• in developed economies.
• Evolving tastes and lower trade barriers will be
  important.
• On the other hand, over the medium-term, much of
  the growth will be driven either directly or
  indirectly from new Asian markets.

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International Food Consumption Patterns

• The USDA has compiled estimates on income and
  price elasticities across 114 countries.
• Income elasticities are higher for
• low-income countries than developed economies
  and
• high-values foods than for staples.
• (eg dairy 0.7, meat 0.6, staples 0.4).
• Consumers are more responsive to price changes
• in developing economies than for those in
  developed markets and
• for high-valued foods than for staples.

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Food Consumption in China, 1975-2003

Change 1975-2003 Cereals -3 Starchy roots
-32 Vegetables 473 Meats 417 Fruit
689 Fish 354 Milk 592 Other food
266 Total 100
Source FAO
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The growing urban middle class in Asia

Household Incomes - China
Source ABARE
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Australias trade accounts
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Current account deficit
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Exchange rate TWI
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Lessons from other sectors
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Increasing manufactured exports

• ADD CHART

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Elements of success

• Increased manufactured exports based on
• reduced tariffs and lower AUD
• generic support for RD and exports assistance
• a consistent message to embrace Asian markets.
• The financial services sector aims to boost
  exports over the next decade
• Ireland as an example of success
• success relies on consistent and concerted effort
  between industry and government.

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Implications for agriculture
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Expanding high valued agriculture

• Success requires steady improvements along the
  supply chain
• onfarm practices
• technology use of water capital scale
• logistics
• transport and
• marketing.
• Producers need to be responsive to the ultimate
  customers demands.
• Coordination of effort is difficult given the
  different parties involved.

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Australian food exports
Source National Food Industry Strategy
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Increased scale in agriculture
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Conclusion
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Main messages

• A very supportive economic environment
• global competitors are becoming more productive
  but
• strong growth, declining trade barriers and
  potentially a more competitive exchange rate
  should dominate.
• Patterns of demand favour high-value products
  (both in domestic markets and new global
  markets).
• Thus, for the Goulburn/Murray Valley region, a
  potential strategy would involve (subject to
  progress on water)
• high-value products (within dairy, horticulture,
  meat)
• consolidation/restructuring of production
• investment in marketing, logistics, etc

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Main messages (cont)

• This agenda is not new
• especially for the Goulburn/Murray Valley region
  but
• it is a challenge to deliver in a consistent
  manner in difficult times.
• Large institutional investors have become quite
  interested in the sector.

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A more open trading environment

• Trade barriers have come down in most markets,
  assisted by
• the expansion of the EU and
• the desire by emerging economies to engage
  international markets as a core element of their
  reform programs.
• Tariffs in agriculture have fallen, but
• they are still high relative to other sectors
  and
• in emerging markets, they tend to be higher for
  high value agriculture products than for bulk
  commodities.

Source National Food Industry Strategy
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Food groups as of food budget
Source ABARE
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Food Consumption in India, 1975-2003
Change 1975-2003 Cereals 15 Starchy roots
29 Vegetables 49 Meats 44 Fruit
56 Fish 47 Milk 94 Other food
30 Total 35
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Australian food exports to Asia
Source National Food Industry Strategy
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Australian food exports to mainland China
Source National Food Industry Strategy