Address to Agribusiness Outlook Conference, Melbourne

TRANSCRIPT OF SENATOR RICHARD COLBECK ADDRESS TO AGRIBUSINESS OUTLOOK CONFERENCE, MELBOURNE

27 MAY, 2015

Free trade agreements, CSIRO megatrends, 2015 Budget

E&OE.......................................................................................................

Thank you very much and it's a pleasure to be here, particularly a couple of weeks after the delivery of the 2015 Budget by the Government.

The influence of Prime Minister Modi in India was really quite interesting where he had said India should look towards Australia. Traditionally they tend to look more to the northern hemisphere than they do to the southern hemisphere but because they were looking at a free trade agreement and Prime Minister Modi had said look to Australia that's what they're doing. I've received a letter from a chef in India who's been crowned India's best chef by one of the organisations over there, saying that Australian lamb is the best lamb in India. So these are the sorts of things that are starting to come through in that market and it is a very different market to our other traditional markets and I think that's one of the things that business, industry and agriculture in this country need to consider when looking at those markets.

So going back to Japan, it is a relatively mature market but there are further opportunities because of the free trade agreement. The ambassador over there hosted a dinner while I was there with a range of product providers and they were all experiencing an increase in discussion and opportunity based around their products. Shellfish and seafood in particular is quite popular and obviously the key products that you put into those markets such as lamb, beef and some opportunities for growth in dairy. There are a whole range of businesses and industries that were there looking at the changes and the growth opportunities in that market.

When I was in China I addressed a breakfast in Beijing and the interest from that market was very good. It ranged from people who wanted to buy product to people who wanted to invest in Australia and people who were very interested in the development of the supply chains.

The interesting thing from my perspective was the change in the supply chains. The growth in the e-commerce market was really quite extraordinary and I saw that both in Beijing and also in Shanghai. I met a small e-commerce business that was selling Australian fruit into the Chinese market and they have five million subscribers in over 30 cities and they were considered a small player in that market. The provider in Australia is selling grapes out of Victoria, so not a huge player in the market.

One of the key questions that I've had over a period of time about accessing some of those large scale markets is how do small providers get into those markets, and I was quite interested in the fact that these e-commerce businesses providing Australian product into those markets were providing a platform for those smaller providers to access that significant market with quite a boutique product.

One of the other providers in that market was an apple grower out of Tasmania who had their own variety of apple that they'd development on their own property. It was very unique and really boutique and they were launching that into the Shanghai market while we were there. We gave them some promotion to assist them to do that but again that e-commerce platform is providing that supply chain into the market. I don't think largely that a lot of Australian businesses have actually become alert to that. It is a significant supply line into the Asian markets and talking to the provider in Shanghai, they had small vans all over the country and they had delivery vans delivering to homes in those cities that they provide into. That's the key part of the business and I think the grapes were selling for something like $20 a kilo in that market.

So, the growers here were obviously pretty happy because they were getting a reasonable price and in some cases they were getting paid for the product before it left Australia which is a very different circumstance, so customers pay for product on order through that supply chain. That's very different to what a lot of businesses are used to and a new opportunity and I think something that industry here in this country needs to come to terms with because it's obviously going to be a significant supply chain into those countries and into those big markets.

In India it's something completely different. My perception of that market at the moment is probably that there's an opportunity for a service offering. There are obviously some opportunities to provide product into that market, probably into top-end restaurants and food service at this time in proceedings. But there are very few operators that are proving a service of putting product into that market, so at this point in time and we were talking for example in the context of wine I think there's something like a dozen providers into the entire Indian market of wine. Now it's a different market because their tariffs are extremely high, about 150 per cent, so you're talking about a very low end wine in Australian terms being the common wine in that market.

But in the context of how do you actually access the market, the simplest thing that came through to me through the visit was you can probably bring their entire industry out here for a couple of weeks and get them to understand the Australian market and show them what is available. That will develop those relationships.

The other thing about India is that nearly everything that's sold is sold with a story. Even television advertisements had a story to them whereas in Australia you see a TV ad and its sell, sell, sell, sell. In India the television advertisements were story, story, story, sell. I had a discussion at one of the premium food and beverage events with a young guy who's parents brought him out to Australia when he was 8 or 9 and he lived here until his early 20s when he said 'Dad, I'm going back to India'. His dad asked him what for and he said for opportunity. He's now heading up one of the major hotel chains for food and beverage procurement in India and he said the story behind a product is very important. I think we've got a great story to share around our food and our agriculture in this country and that's a really good selling point into that market.

The other thing is services and the delegation that Andrew Robb took to Australian Business Week in India recently had about 450 people, which was a huge delegation and made a significant impact in that country. The British trade minister was sitting with Andrew Robb at the beginning of an event and was boasting that he had 100 people with him and what an important delegation they'd brought to India. Andrew is sitting opposite thinking this is pretty good, will he be prepared to ask me how many Australia have. He did and Andrew's response was that it'd been a bit tough across Christmas and New Year as people like being on holidays but we've got 450 people. That had a huge impact in India.

There was a brilliant delegation of Australian people from the dairy industry as part of our delegation. The Indian dairy industry is in a situation where they've had a significant growth in their industry over a period of time and they call it the 'white revolution' and they build the dairy industry based on dairy farmers with one of two cows. They are the biggest producers of dairy in the world and the biggest consumers of diary in the world and yet their productivity is about five litres per cow per day - Australia's is 25 litres per day. They're looking to lift their productivity and so what can we do to assist them with that?

It was really quite interesting that the breadth of knowledge, understanding and skills with the dairy delegation actually alerted the Indian national development dairy board of the skills that we have. They're now engaging with the Australian dairy industry and there's a strong possibility of them coming out to Australia very soon to look at the skills that we have. There are things that we do on our dairy farms every day that aren't naturally thought about by the Indian dairy farmers. Simple things like choosing your genetics for breeding your herd are managed by the veterinary people in the National Dairy Development Board. Basic farm management and animal husbandry skills and a whole range of things like dairy technologies and all those service offerings provide us the opportunity to develop a relationship with the agriculture sector in India and then as that relationship develops and grows, to then build into much more of a trade relationship in a number of commodities.

They're also looking very much to build a competitive manufacturing sector and they have a 'Made in India' campaign. The conversation then comes around to the products that we have, particularly wool and cotton which go into their clothing sector. So the discussion that we had with their minister in that portfolio was if you want that industry to be competitive, one of the ways to deal with that is to remove the cost impediments coming into your country. So a tariff that you apply to a product form Australia such as wool or cotton coming in to India is an expense to your industry leaving the country. So removing that and enabling us to be a strong trading partner in that business also helps us to reduce our reliance on other markets which we are very reliant on at the moment and that actually makes them a more competitive industry. It's a difficult conversation for them to grasp and a difficult conversation to have but I think they're staring to understand the process of opening up their markets to product coming in, particularly when you're dealing with manufacturing.

Andrew Robb had a very interesting statistic that he put on the table as part of his opening to the Australian Business Week in India and that was going back to 1990. Only 20 percent of global trade was through traded through a country on a global basis, so product coming into a country was transformed in that country and traded back out again, only 20 per cent of global trade. That number is now 70 percent.

A cost of supply coming into the country is an expense and a cost going out of the country. So Australia, which is obviously a very open economy, doesn't have a lot of those expenses coming in and then going out but a lot of countries have very high tariff barriers going in to the country and actually are imposing cost on their own businesses that are through trading a product.

There are a whole range of opportunities that I think can start to open up through the negotiations that we're having with all of these countries, but particularly in India through the service offering and obviously in China with the commodity discussions there.

The opportunities in China are around picking markets and I came back from China on my first visit talking niche markets and the people here didn't really understand what I was talking about because a niche in China might be one city and that city might be 11 million people, which is Sydney and Melbourne combined. That's a niche in China. So again the language that we're talking about in those markets is really very important. Also our place in those markets is something that we need to look very carefully about how we can discuss.

A lot of the discussion for a period of time in Australia has been about Australia as a food bowl of Asia. Now we know and I've had some research done in my office in recent years that indicates that if we double our productivity by 2050 we'll feed ourselves plus 1.3 per cent of all of Asia and that's it. We're nobody's food bowl but we are recognised throughout these markets as providers of a high quality and safe food product. In China, food safety is probably our key attribute and I know that there have been some discussions here around food safety and systems, but at the moment I think one of the things that we need to do is ensure that our food safety systems are maintained.

I've spoken to people in China and had conversations with people re making those purchasing decisions and I can recall talking to one woman in her mid-30s running a store something the size of David Jones saying to me that she was buying Bellamy's baby food from Australia for her daughter because she knew that it was safe. That was the key reason for her purchasing that product because she knew it was safe.

We are quite clearly recognised through all these markets for a high quality and safe food product. That was reinforced to me again when I was in Beijing and Shanghai a few weeks ago and that was the context of a lot of the conversation that was being out back to me as part of the discussion that we had there. It's a really important part of our offering and we need to make sure that we maintain it.

That sort of goes to some of the challenges that I think agriculture is facing in the next 20 or so years. I've had the opportunity to read a draft of the document that's being prepared by the CSIRO in conjunction with some of our research agencies and it's what they call the Mega Trends document and they've identified five key megatrends as part of their projections of what might be happening over the next 20 years. The first one is relatively obvious and that's a hungrier world and so that goes to how we actually meet the food task. I've talked about the opportunities for Australia to double our production by 2050 and it's interesting the National Farmers Federation now talking about doubling it by 2030. Now that's a huge task given the broad agricultural constraints that we have in this country and I'm happy to stick with 2050 because that's a pretty big task in itself. But there is a lot of work to do there. That's obviously going to drive a whole range of issues for the agricultural sector.

The next one is a wealthier world and obviously we've seen the growth in middle classes and increasing incomes as the world develops, with China being one of those that's developing very quickly. With the issues that are coming with that including increasing goods consumption and changes in diets, we're seeing demand for different products, higher demands for proteins obviously and that's starting to reflect in our market now when you look at the demand that's coming into our markets.

The third one is called a bumpier ride and there's a whole range of things in there, globalisation, climate change, environmental change and how that changes the risk profile for agriculture. And it's obviously a really important thing that we need to consider as part of how we grow our agriculture in the future.

The fourth one is transformative technologies, now I know that you've had some discussions around things like infrastructure and those sorts of things and they're all very important in having high quality and efficient supply chains. So in transport links, road and rail shipping, all of those things are really important and it's obviously something the government's focussing on from a range of perspectives. The Prime Minister's got a very strong focus on the development of infrastructure, Minister Joyce is talking about infrastructure services and particularly in the agriculture sector and then Minister Truss has recently announced some changes proposed for coastal shipping which all go to making our supply chains more cost effective. We can have the most efficient and cost effective farmers and manufacturers in the world, but if it costs too much to get our product to market that is a cost in the supply chain that we need to work on.

The other thing I think is probably one of the biggest transforming changes coming in respect of agriculture is the use of data. So we're very close to having the first satellite for the NBN that will be up I think in August this year from my conversations with Minister Turnbull and operational in April. So we're now having conversations with him about how we utilise those services and utilise the opportunities for data to actually assist with the growth in productivity in agriculture, because I think that's going to be extremely important. It works from a whole range of perspectives, the opportunity for chemical companies to provide agricultural chemicals into the industry that effectively have a live testing for example. In the application of agricultural chemicals and the testing regimes and matching those things up to improve the efficiency of operation and information that flows out around food safety, these are really important things that are occurring.

The growth in precision agriculture and the opportunity to use that data, the operation of equipment and monitoring data is something that's growing significantly and there's a major project in my home state of Tasmania through the University of Tasmania's Sense-T, and they're doing significant work in that space.

The last part of the five megatrends is choosey customers and I think that's something that we're starting to see now and the conversations that we're having now around food and where it comes from, what the supply chains are like and again issues about food safety which we've seen quite prominently in recent times are all the things that we're going to have to manage in the next 20 years according to the research that CSIRO is doing. Of course those things need to be built into our vision for agriculture which becomes the White Paper.

So, reducing red tape, we've seen the supermarkets saying to us that they want to take the cost out of the supply chains. Our message and my message to them has been that's very well you want to take cost out of the supply chain and you want to shorten the supply chain, but with all of your quality assurance systems which each one of you have how about you stop applying cost into the supply chain yourselves? So there's some work being done around that.

Of course the other thing that I think's going to be felt in a period of time is as we open these new markets up we will see some of the service product that currently exists in Australian markets going to export markets which is going to do a couple of things. One, it's going to take pressure off the price and so the focus that we have as a government on increasing returns to farmers will be affected in a positive way. But it also potentially means some changes in prices of food here in Australia.

We had quite a bit of discussion around it yesterday at Senate estimates around growth and the potential for reduced trade into China, the size of the Australian herd for example. But in Australia we have something like 25 per cent more vegetables than we can consume or need in the Australian market and yet we try to sell it on the Australian market. Now that's only going to have one impact on prices and that's a negative one because it's an oversupply.

So the opportunity for Australian farmers is with the opening of these new markets in particularly South Korea, China and Japan is to sell their product on to those new export markets and reduce supply and cost pressure into the market and there's already evidence of that occurring. A company in Tasmania, Reid Fruits, is a high quality cherry grower and last year before the signing of the Korea Australia Free Trade Agreements they sold 5 tonnes of cherries into South Korea, this year they sold 183 tonnes of cherries into South Korea. They did not sell one single cherry to Coles or Woolworths, so not only did they get a pretty good price for the product in South Korea but they took 183 tonnes of pressure off the Australian market and competition with other growers around the country and that has an obvious impact on pricing.

The impact of the work that Andrew Robb's done in the free trade agreements I think is really important. There's obviously some work to do around supply chains and potentially shortening them. Coles and Woolworth own supply chains for one reason and that's to get a return out of them so the shorter supply chain is and the further you can reach down the supply chain yourself as a farmer, the better opportunity there is for return.

Then we come to some of the transformative things that we need to manage as part of what we're doing in agriculture. In the Budget a couple of weeks ago we saw a number of measures that start to put agriculture on the path towards being able to deal with some of the issues that we're coming to talk about. So issues around accelerated depreciation for irrigation infrastructure for example, fencing and stock feed. There's a number of measures that we're starting to bring through, the accelerated depreciation for small business has been very supported by the agriculture sector and of course we have the bigger picture to come in a relatively short period of time with the White Paper, that really needs to address all of these megatrend type issues and the transformative things that are going to face agriculture in the future. That document is going through its final phases of discussion at the moment.

So in agriculture I think we're at a really interesting point in time. A lot of people in my position get up and say it's a very important point in time, but I think given that we've just been through a cycle where we've signed these free trade agreements and we're actively negotiation a number of others, we're seeing this change in demand in food and a renewed focus internationally on food investment in the agricultural sector, particularly in places like Australia. I think it is a very transformative time for agriculture in this country, which makes the work that we're doing around the announcement of the White Paper very important, but also I think really does underpin a very strong and positive future for agriculture in this country.

Thanks for the opportunity to be here and I look forward to catching up with some of you and having some further conversations. Thanks very much.

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