The Future of Agribusiness

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• The Future of Agribusiness

GULF FUTURE VISIONS WORKSHOP WEDNESDAY 14TH
OCTOBERNORMANTON Keith De Lacy AM
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• The North Queensland Connection
• Historical
• Personal
• Rural

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• The Agenda
• The next boom soft commodities
• Policy Issues
• The Gulf Challenge

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• THE SOFT COMMODITIES BOOM
• You can bet on it - Why?
• The Population explosion
• Urbanisation
• Bio fuels
• Global warming
• Dwindling water supplies
• Paradoxically most asset prices are substantially
  down on 18 months ago due mostly to the GFC,
  and the fact that hedge funds have been
  liquidating their positions (forward prices do
  not reflect fundamentals).
• But long term fundamentals cannot be denied.

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• Reason 1 POPULATION GROWTH
• The Global population is increasing by 87 million
  pa
• Four times the population of Australia
• Feeding those is challenge enough
• And there are already 1 billion severely
  undernourished
• THE SUPPLY/DEMAND BALANCE IS ABOUT
• TO CHANGE EXPONENTIALLY

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• Reason 2 URBANISATION
• The developing world is, well, developing...
• The biggest and fastest migration from rural
  poverty to urban middle class in history
• China alone
• 20 million pa the population of Australia
• 400 million knocking on the door of middle
  classdom
• India, Russia, Brazil, SE Asia ...
• LEADING TO A DRAMATIC CHANGE IN DIET AND INCREASE
  IN THE CONSUMPTION OF NEW FOOD AND FIBRE PRODUCTS

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• URBANISATION (cont)
• Growing consumer wealth in developing Asian
  nations is resulting in substantial growth in
  demand for animal protein. (Australian Farm
  Institute (AFI) Report)
• Asian demand for protein over next 12 years (AFI
  forecasts)
• Beef 50
• Pork and Chicken 40 (all feeding off global
  grain production)
• Dairy products 60
• Current global feed grain production growth
  rates, if maintained, will only meet about one
  third of projected increased demand by 2020.
  (AFI)

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• Reason 3 BIO FUELS
• President George Bush challenged America to
  produce 35 billion gallons of non-fossil
  transport fuels by 2017 to reduce dependency on
  imported oil.
• The corn belt of America from bread basket to
  fuel tank
• Brazil already produces 30 billion litres of
  ethanol from sugar cane
• BUT WHAT IS IT DOING FOR FOOD SUPPLIES?

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• BIO FUELS (cont)
• The competition for grain between the worlds
  800 million motorists who want to maintain their
  mobility, and its 2 billion poorest people, who
  are simply trying to survive, is emerging as an
  epic issue. (Lester Brown, President, Worldwatch
  Institute)
• UN World food program feeds 90 million people
  annually mainly US corn. Now trend prices are
  set to increase exponentially.
• The era of cheap food is over. The
  post-food-surplus era has arrived.
• But it is the poor who are hardest hit.
• THE FLIP SIDE, A MASSIVE BOOST FOR FOOD PRODUCERS
  WORLDWIDE

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• Reason 4 GLOBAL WARMING
• Climate change is leading to more intense rains,
  unpredictable storms, longer-lasting droughts,
  interrupted seasons, diminished water supplies
  ... (IPCC)
• IPCC predicted that rain dependent agriculture
  could be cut in half by 2020 as a result of
  climate change.
• The World Bank says climate change alone could
  reduce Indias crop yields by 30 by mid 21st
  century (India adds 20 million new mouths to feed
  each year)
• IS THIS ARMAGEDDON?
• BUT WHAT WILL IT DO FOR FOOD PRICES?

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• Reason 5 DWINDLING WATER SUPPLIES
• Water wars loom in a nation of parched fields.
  (Matt Wade, India, 26/9/09)
• 70 of worlds available water is used for
  irrigation
• This water is under siege from wastage,
  population growth, urban encroachment,
  desertification, environmental demands ...
• At current rates, world food demand will double
  by 2050. But the amount of water for irrigation
  purposes is going to halve. Julian Cribb,
  Adjunct Professor of Science at UTS
• FOOD SECURITY REPRESENTS A MUCH GREATER CHALLENGE
  FOR MANKIND THAN CARBON POLLUTION

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• AGRI POLICY ISSUES
• Productivity
• Water
• Protectionism
• Global Warming

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• Issue 1 PRODUCTIVITY
• The challenge Increasing population,
  urbanization, reducing land and water, bio fuels,
  climate change ...
• The answer Productivity science and
  technology, efficiency, economies of scale ...
• If the present growth trends in world
  population, industrialisation, pollution, food
  production and resource depletion continue
  unchanged, the limits to growth on this planet
  will be reached within the next 100 years. The
  Club of Rome 1972 (The Limits to Growth)

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• PRODUCTIVITY (Cont)
• Arguably all these trends have accelerated,
  but...
• Contradictory result Increased prosperity and
  security, esp for the poor those living in
  poverty (less than US3 per day) reduced from 50
  of world population in 1970 to 17 in 2000
• HUMANKIND HAS AN INESTIMABLE CAPACITY TO SOLVE
  PROBLEMS THROUGH INNOVATION, SCIENCE AND
  TECHNOLOGY.

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• PRODUCTIVITY (Cont)
• So long as we continue to embrace the technology.
• There is a superstitious opposition to
  genetically modified (GMO) crops.
• Can a hungry world afford this indulgence?
• Eg., CSR/UQs Sugar Booster Project (GM
  technology) can increase sugar content by 25 -
  but we cant exploit it.
• Yet sugar is sugar, pure carbohydrate.
• Food safety should remain of paramount
  importance, we should look at this emerging
  science on a case-by-case basis and open our
  minds to the possibility that GMOs can be a piece
  of the jigsaw puzzle as we face climate change
  and food security. Tony Burke, Fed Minister for
  Agriculture

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• Issue 2 WATER
• About half of the 70 of worlds available water
  which is presently used for irrigation is lost.
• There is a pressing need to introduce
  efficiencies, modernize infrastructure, and save
  water in storage and infrastructure systems.
• Proper pricing encourages investment in
  efficiency.
• Irrigated food production is a pariah in the
  well-fed suburbs a bit like uranium mining, or
  GM technology, or shale oil ... Can a hungry
  world afford this indulgence?
• The Australian experience - Cubbie?
• The Food Bowl modernisation Project on the
  Goulburn-Murray Irrigation system?

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• Issue 3 PROTECTIONISM
• Agriculture protection the world over has kept
  farmers poor!
• The multilateral system (a world trading regime
  governed by predictable, enforceable and
  transparent rules under auspices of WTO) has
  underpinned the most successful fifty years of
  human existence. Mike Moore former DG of WTO
• The free trade dividend In the last third of
  the 20th century poor countries that opened up to
  international trade and investment grew 6 times
  faster than those that did not.
• North Korea? China? Australia?
• The more you protect the uncompetitive the more
  you entrench the uncompetitive
• A subsidy on one mans job is a tax on anothers
• Protectionist sentiment is growing again under
  the umbrella of GFC and ETS (green) politics

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• Issue 4 GLOBAL WARMING
• Heads you lose, tails you lose!!
• If carbon emissions really do lead to global
  warming, then according to the IPCC you get more
  intense rains, unpredictable storms,
  longer-lasting droughts, interrupted seasons,
  diminished water supplies ...
• But if the sceptics are correct, you get the CPRS
  anyway.

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• GLOBAL WARMING (Cont)
• CPRS Agriculture to pay for animal emissions by
  2016 leading to losses to farming sector 10.9
  billion by 2030 (Centre for International
  Economics)
• 126,000 jobs to be lost in regional Australia by
  2020 (Access Economics modelling)
• CPRS will result in 20 decline in regional
  economies. (NSW Gov research)
• And even in the short term the ag sector will pay
  for the rest of its carbon footprint -
  substantially increased costs for energy, fuel,
  fertilizer, chemicals, transport ...

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• GLOBAL WARMING (Cont)
• Australian farmers among most efficient and least
  subsidised
• GOVERNMENT SUPPORT AS PERCENTAGE OF FARMING
  INCOME
• Australia 4
• US 17
• EU 31
• Japan 60

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• GLOBAL WARMING (Cont)
• Ag is at the end of the line absorb all costs
  but pass nothing on, especially in export markets
  unshackled by carbon imposts.
• And will it really make a difference?
• We need to save the world from global warming so
  that they can all die of hunger! anon
• The biggest threat to agriculture over the next
  half century is not climate change, but climate
  change policy. Mick Keogh, AFI

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• THE GULF CHALLENGE
• The Strengths
• The Weaknesses
• The Threats

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• Challenge 1 STRENGTHS
• Lifestyle the country, sense of community
  cherish it, make a virtue of it
• Environment fresh air, climate, unspoiled
  country, the fishing ...
• Resources
• minerals - highly mineralised NW Mineral
  Provence
• grazing - live cattle exports
• fish resources Northern Prawns, estuarine,
  recreational
• environmental resources - lifestyle,
  environment, fish etc

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• STRENGTHS (CONT)
• Water - highly over estimated in metropolitan
  Aust but a massive asset in a hungry world.
• Proposed Gilbert River Irrigation scheme great
  potential, but many challenges. Make sure it is
  modern, with economies of scale to do its own
  research, marketing etc
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• PLAY TO YOUR STRENGTHS there is great capacity
  to develop mineral deposits, irrigation, eco
  tourism, attract the grey nomads ...

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• Challenge 2 WEAKNESSES
• Significant socio-economic disadvantage
• Low population both numbers and density (makes
  economic provision of services etc very
  difficult)
• Isolation from markets (rules out so many
  economic opportunities), services, influence etc
• Rudimentary services Infrastructure,
  communication, transport ...

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• Challenge 3 THREATS
• Global warming a hiding to nothing
• Environmentalism
• A quasi religious blend of new-age nature
  worship, junk science, left-wing political
  activism and anti-profit economics. Walter
  Starck
• Attitude a negative or siege mentality is
  economy destroying. Be positive, be tolerant, be
  creative, be progressive, and be sustainable
• Play to your strengths, accentuate the
  positives, stress the virtues
• Resources driven A - the A is a commodity
  currency this creates problems for exporters,
  and for tourism (more expensive for overseas
  visitors and cheaper for Australians to travel
  overseas.
• Capricious Government decisions (out of sight,
  out of mind)

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• THE END
• Keith De Lacy AM