Rabobank International
Rabobank Agri Commodity Markets Research
Luke Chandler
General Manager- Food and Agri Research
Feeding Asia, from Downunder
Crawford Fund
27 August 2014
4
5
Australia’s role in feeding Asia2
Importance of supply chains3
Challenges for Australian agriculture which need addressing4
Feeding the world in 20501
6
Australia’s role in feeding Asia2
Importance of supply chains3
Challenges for Australian agriculture which need addressing4
Feeding the world in 20501
7
Food and Farming are in the spotlightsAvoiding the next GFC...
8
Australia’s role in feeding Asia2
Importance of supply chains3
Challenges for Australian agriculture which need addressing4
Feeding the world in 20501
9
1980 – A world dominated by the US and Europe
59% 19%
4%
10
2000 – Asia begins to emerge
39% 36%8%
11
2013 – Income growth throughout Asian region brings drastic change
19% 35%13%
14%
12
13
14
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
18 000
2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13
AU
D m
illio
ns
(fo
b)
North Asia South Asia Americas
Europe Middle East Oceania
Source: ABARES, Rabobank 2014
Asia already dominates our export returns
15
-10%
0%
10%
20%
30%
40%
50%
Australia New Zealand Canada USA Brazil Thailand ROW (RHS
axis)
An
nu
al g
row
th
1996-2000
2001-2005
2006-2010
2011-2012
BUT - Australia’s agricultural export growth rates are lagging competitors into the region
Source: Comtrade, Rabobank
16
However, we are only a drop in the ocean
Should we be chasing volume or value?
AU
6%NZ
3%
ROW
91%
17
18
Australia’s role in feeding Asia2
Importance of supply chains3
Challenges for Australian agriculture which need addressing4
Feeding the world in 20501
19
F&A supply chains are under more pressure and becoming more complex
Four drivers are responsible for the pressure – the first three are well known, the fourth, the great cross-over, is new
Source: Rabobank, 2014
F&A supply chains
Commodity pricing
dynamics
Shifting market
power and margins
Feeding 9 billion people
The great cross-over
Supply chain failures
Re-organisation of suppliers
Alignment of supply chains with growth ambitions
Increased strategic priority given to supply chains
Supply chain pressure leads to
change with multiple dimensions
20
When the supply chain breaks....
21
Consumer Reaction is ClearConsumer Reaction is Clear
YUM China Same-store-Sales, YoY percent
-25
-20
-15
-10
-5
0
5
10
15
20
25
Q12008 Q32008 Q12009 Q32009 Q12010 Q32010 Q12011 Q32011 Q12012 Q32012 Q12013 Q32013
22
Australia’s opportunity to supply quality food
Australian agricultural exports are highly prized for their attributes
•Quality
•Functionality
•Traceability
•Disease free status
•Sustainable production
23
Its one thing to have a story, but its how you communicate it
By 2017 two-thirds of all mobile
data traffic will be video
ALMOST 10% OF ALL PHOTOS IN
EXISTENCE WERE TAKEN IN THE
LAST 45 DAYS
24
And farmers are already part of the digital revolution
25
What will our competition look like...?
OR
26
Australia’s role in feeding Asia2
Importance of supply chains3
Challenges for Australian agriculture which need addressing4
Feeding the world in 20501
27
Australian farmers terms of trade
Ratio of index of prices received by farmers and index of prices paid by farmers.
Source: ABARES, Rabobank 2014
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
prices paid prices recieved terms of trade
28
Cost of production is high for Australian growers relative to other major wheat producers
Variable farmgate cost of wheat production
130
132
134
136
138
140
142
144
146
148
Australia USA Canada Ukraine France Argentina
USD
/tonne
29
Logistics infrastructure (in)efficiencies
30
Regulatory Pressures
31
Capital Constraints: Financing the future
Source: RBA, Rabobank 2014
0
10
20
30
40
50
60
70
Rura
l D
ebt
($ b
illion)
Rural debt; Total
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Wrapping up
• Australian agriculture does have a role to play in
helping to meet Asian food demand – BUT – we
should not overstate this role or try and be all
things to all consumers
• Our focus should be on quality markets
• Supply chain partnerships will be critical
• Farmers need INCENTIVE
• Challenges need addressing
o Cost of inputs
o Red Tape
o Market Access
o Supply chain efficiency
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Thank you
Luke Chandler
General Manager
Food & Agribusiness Research and Advisory
Australia and New Zealand
t. +61 2 8115 2217
Meet the FAR Australia & New Zealand research team…
Luke Chandler, General Manager
Hayley Moynihan, Senior Analyst (Dairy)
Michael Harvey, Senior Analyst (Dairy/Farm Inputs)
Marc Soccio, Senior Analyst (Wine, Horticulture & Rural Economics
Graydon Chong, Senior Analyst (Grains & Oilseeds)
Matt Costello, Analyst (Animal Proteins)
Lloyd Setter, Analyst (Animal Proteins)A global team of 80 analysts dedicated to delivering insights into the world’s major F&A regions
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Queensland
Northern Territory
Western Australia
South Australia
Victoria
New South Wales
Tasmania
Asian investment into Australian Agriculture65% of Australian sugar milling assets are now owned by Asian investors
Investor Company Sector
ShanghaiZhongfu Group
Ord River farmland
Sugar, Sorghum
and processing
BeidahuangWA croppingland and port
facilities
Bright FoodsManassen
FoodsDairy and
olives
CK Life SciencesChellengerWine Trust
Wine
Investor Company Sector
Chineseinvestors
Mt Falcon station
Beef Cattle
CK Life Sciences
CheethamSalt
Salt
Chevalier Group
Moraitis
Investor Company Sector
COFCO Tully Sugar Sugar
Mitr Phol MSF Sugar Sugar
WilmarSucrogen
(CSR)Sugar
Wilmar
Proserpine Co-
operative Sugar Milling
Association
Sugar
Shandong RuYiCubby Station
Cotton
35
Global exporters relying on Chinese demand
2003/042013/14
(f)2018/19
(f)
Wheat 6th =1st *
Corn 83rd 5th
Soybeans 1st 1st
Palm oil 1st 2nd
Pork 7th 4th
Beef 23rd 13th (6th)
Sugar 18th 3rd
* Equal first with Egypt
2003/042013/14
(f)2018/19
(f)
Wheat 4% 6% 4%
Corn 0% 7% 11%
Soybeans 31% 66% 73%
Palm oil 16% 16% 15%
Pork 3% 10% 13%
Beef 0% 3% 5%
Sugar 3% 4% 6%
36
On-farm competitiveness is under pressure
Source: Global Insight International Agricultural Insights, USDA, AGRIC, DPI & Rabobank, 2013
130
132
134
136
138
140
142
144
146
148
USD
/tonne
Source: OnFarm Consulting, DairyNZ, LEI, Teagasc, FADN, Genske Mulder &
Rabobank, 2013
Variable farm gate cost of wheat production, 2012Farm gate milk production costs in selected
countries
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
2006 2007 2008 2009 2010 2011 2012
US c
ents
/litre
Netherlands Upper Midwest
California New Zealand
Ireland Australia (Vic.)
37
Australia’s freight advantage into Indonesia $8-$24
$27
$19$15
$43
$35
Australia still holds freight advantage over major suppliers, however the advantage is shrinking
Difference vs.EC
2010 2013
Ukraine + $24 + $16
US + $54 + $24
Canada + $15 + $8
East Coast + $4 - $4
$86
$56
$32 $36
$47
Difference vs.EC
2010
Ukraine + $20
US + $50
Canada + $11
West Coast - $4
38
Fundamental changes in supply chain relationships are needed
Source: Rabobank, 2014
Chain partner engagement:
From negotiation To collaboration
Significance of relationships:
From transactional To transformational
39
Australian agricultural exports by sector
Source: ABARES, Rabobank 2014
0
5
10
15
20
25
30
35
AU
D B
illion
Grains and Oilseeds Horticulture Animal Proteins
Wool Dairy Raw cotton
Sugar
40
Australia is the main supplier of wheat to the region due to proximity
Source: UN Comtrade
Indonesia Malaysia
Source: UN Comtrade
41
Australia’s agricultural trade with Asia-5
Source: DFAT, Rabobank
0
5
10
15
20
25
30
35
40
45
Valu
e (
AU
D b
illion,
FO
B)
Other China Japan Rep. Of Korea Indonesia India
42
Market Access a Rapidly Changing Dynamic
44
Disease and safety now priority #1 in China