ARE WE LOOKING AT THE WRONG OPPORTUNITY???
Andrew Forrest's Australia Sino Hundred Year Agricultural and Food Safety Partnership wants to position Australia as China's food bowl.
The numbers, and Australia's production capacity, don't support this however - but there are certainly some opportunities we should be continuing to pursue.
Here are my thoughts...
ARE WE LOOKING AT THE WRONG OPPORTUNITY???
27 October 2014
Andrew Forrest has taken what he describes as “the first step” in turning Australia into China’s food bowl by announcing formation of “The Australia Sino Hundred Year Agricultural and Food Safety Partnership”, or, more sensibly, the ASA 100.
According to the ANZ Bank, “The aim of the ASA 100 is to position Australia as the primary food and agricultural product solution to China’s long-term food security and natural clothing needs”.
Without denigrating the initiative (although it is hardly a first step in exploiting the huge opportunity presented by China’s growing appetite), I wonder if the Chinese Premier Li Keqiang had a quiet smile when the two met earlier this year and Twiggy floated the concept.
My bet is that Premier Li would understand the reality – that Australia couldn’t possibly play a major role in solving China’s food security requirements by producing food, let alone become the “primary food and agricultural product solution”.
Australia can’t, and no one country can.
As Dr Craig Emerson pointed out at the ACBC Australia China Food Summit a few months ago in Sydney, Australia’s capacity to become China’s food bowl is a common misconception.
A commonly-quoted figure suggests that Australia exports enough food to feed 60 million people. That is 4.4% of China’s population – assuming we only exported to China. Australian agricultural product exports to China have doubled in the past five years to $7.3 billion in 2013, however, according to the Australian Food and Grocery Council, over the past 20 years Australia's share of China's food imports has more than halved to just 3.3 per cent, with our loss being picked up by “more aggressive and better organised competitors” such as France, Indonesia and New Zealand which have grown their share of the Chinese market. Our share of China's food imports contracted from 7.17 per cent in 1994 to just 3.34 per cent in 2012.
IF we could double our current food export capacity, AND export it all to China, we would theoretically be able to 120 million people – less than 9% of China’s population.
Could we double our food production capacity though? A number of factors suggest we couldn’t.
Doubling Australia’s farm production by 2050 equates to a productivity boost of 2.5 per cent a year – which is highly unlikely given the current status quo.
Whilst some regions will see increased productivity from climate change, due to different weather patterns, Australia could see a 10 percent drop in the production of wheat, beef, dairy and sugar by 2030 unless we update the way we farm. So we’re behind the 8-ball before we start.
I’ll use wheat as an example…
Australia is the fourth largest wheat exporter, but in real terms we account for only 3.4% of total global wheat production: There is a suggestion that we could increase production from current levels of close to 20 million tonnes to over 200 million tonnes – but the requirements to achieve this are completely unrealistic. We would need to clear massive amounts of land and redeploy all water and all land presently used for agriculture exclusively to wheat production – crippling the rest of our food production industry. On top of that, we would need to raise productivity from 1.5 tonnes per hectare to 4.4 tonnes per hectare.
Our track record suggests that this is almost impossible. From the late 1970s to the 1990s Australian agricultural productivity grew at almost 2 per cent per year, but according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) there has been little growth since then. Our last doubling of productivity took 25 years.
Recent stagnation in productivity growth is, in part, due to the drought conditions over the past decade, but we can’t just blame it all on the drought when our commitment to agricultural research has fallen from a peak in the 1970s of five per cent of the value of agricultural production, to just above three per cent in 2007.
In a global context, at 0.5% of GDP, Australia’s government spends much less on R&D and innovation than the OECD average of 0.8% and much less than the leaders (Finland and South Korea – both 1.1% of GDP). Australia ranks 28th out of 34 OECD countries for Government R&D funding. Fortunately our R&D sector is propped up by Australia’s corporate sector which, according to Austrade, increased its expenditure on R&D at a compound annual growth rate of 12.6 per cent from 2000/01 to 2011/12, well above Australia’s nominal GDP growth rate of 6.9 per cent
This means that Australia’s Gross Domestic Expenditure on R&D sits at 2.2 per cent of GDP - above that of Singapore, Canada, UK and China.
The problem is, according to the National Farmers Federation, agricultural R&D represents only 2 per cent of the total government R&D spend. In February 2013 The Australian reported that “…as agricultural research spending has dropped since 2000, the ability of Australia's farmers to produce more food has stagnated. A joint research paper produced by Charles Sturt University and the Australian Farm Institute “links falling farm productivity between 2000 and 2010 with cuts to public funding of agricultural research from $1 billion to $716 million in 2008, followed by a further $150m to last year.”
Look at the cuts. The Australian Government has, in its last budget, cut funding to
- the Commonwealth Scientific and Industrial Research Organisation (CSIRO) ($114.8m);
- the Co-operative Research Centre (CRC) program($80m);
- the Rural Industries Research and Development Corporation (RIRDC) ($11m);
- the Australian Research Council. ARC) ($74.9m); and
- Australian Institute of Marine Science (AIMS) ($7.8m).
- Various Industry support and innovation programs ($845.6m)
These cuts are real, and with the passage of the appropriation bills in late June, most are already in place. Research programs are already being cut back or stopped.
State Governments have done the same thing, including Queensland, where 550 out of 2,500 jobs within its Department of Agriculture, Fisheries and Forestry (DAFF) were reportedly axed and numerous research programs were closed, and South Australia, where the last state budget saw net funding to Primary Industries and Regions SA (PIRSA) fall from $89 million to $77m, including $4m less for the South Australian Research and Development Institute (SARDI). The sprinkling of good news was the allocation of $2.6m (over four years) for two food and wine clusters, and half a million plus to enhance food trade with China in the coming year.
To the Federal Government’s defense, the Department of Agriculture Fisheries and Forestry’s (DAFF) modest budget was increased this year from $1.6 billion to $1.9 billion, and a new Fresh Produce Safety Centre has been established in Australia, the first of its type, to research the safety of fresh food products.
Our performance has affected our reputation. Back in mid-2012 the Australasian chief of Kraft Foods, the world's second-largest food company, said that Australia is not seen as a high-value food innovator, but as “a critical supplier of food commodities''.
I hear what she was saying, but in China’s case, a 3.34 percent share of total food imports hardly makes us a “critical supplier”.
So, we’re up against climate chance, stagnant productivity growth, and significant cuts to food and agricultural research funding.
I think we’re solving the wrong problem.
Australia shouldn’t even be talking about becoming China’s food bowl, let alone spending money on trying to achieve this, and some of the biggest players in the industry think the same way.
Rabobank, the world’s largest food and agribusiness specialist bank, recommended in its Agricultural Competitiveness White Paper submission that Australia should focus on developing high-value produce and move away from competing in highly commoditized global markets.
Kraft Foods argues that we should be focusing on manufactured food and that becoming a farm-gate supplier would threaten jobs, our own food security and even the national economy. There are two sides to every argument, and I’m one of those people who prefers to make pasta sauce with tomatoes that I’ve peeled myself rather than those that have been peeled and pre-cooked in a factory and shipped in a can. China can buy tinned food from anywhere, but they can only buy top-quality fresh Australian food from one place.
I think we’d be smart to concentrate on exporting fresh and farm-gate produce.
Australia can't solve China's food security issues, and in fact I would argue that we don’t, and won’t, play any significant role in China's food security equation. What we can do, what we are starting to do, is excel in the provision of high quality, safe, premium food products. Australia has a solid reputation for producing clean, green, health and safe food, and we should be leveraging this to its fullest potential.
I think we would be even smarter though, and have a bigger impact on food security in China, our region, and globally, if we redoubled our investment in farming productivity and food innovation. We should be exporting our expertise and collaborating with other countries that have developed their own expertise. This is a two-way street, and would help address food security concerns (those of our own as well as our global neighbours) far more than any additional food we could produce.
Australia is cutting funding to an already under-funded food and agriculture research community, and now backing a program that can never achieve its stated objective of becoming China’s “primary” food bowl.
Don’t get me wrong. I’m a huge supporter of the concept of increasing our export trade with China. The attention being given to the China opportunity is welcomed and timely, but it will only really mean something if the Governments and corporates put their money where their respective mouths are.
The highest priority of Twiggy’s new ASA 100 should be, in my opinion, to trigger a pivot by the Federal and State Governments and have them dramatically ramp up investment in, and support for, research into food and agricultural technologies, and the commercialization existing and new Australian expertise. This must include serious incentives for Australian businesses to invest in the research and production sectors.
I’m worried that the current aim of the ASA 100 is distracting Government and business from the real opportunity – the provision of high-quality premium foods for China’s upper and growing middle class, and the provision of Australian food and agricultural expertise for Chinese producers.
We should be leveraging our reputation for clean, green, healthy and safe, and leveraging our expertise and experience, instead of trying to become a bulk supplier.
I have to ask the question: Is the ASA100 really looking at the right opportunity?
About the author:
Gareth Lott is a member of the Australia China Business Council and sits on the ACBC Agribusiness subcommittee in South Australia, he owns a china-focused aquaculture company, and, through his family business, operates several small-scale farms in regional South Australia. Gareth is also a member of the Australia Arab Chamber of Commerce and Industry and the Australasia Representative of the Global Forum for Innovations in Agriculture in Abu Dhabi. This article is Gareth’s personal opinion only and is not endorsed by any of the above organizations.
© October 2014 Gareth Lott