Barnaby's boom needs Chinese wisdom

China's middle classes will fuel the 'dining boom', but attempts to become the country's food bowl by selling cheap, average products won't get us far. Australia's strength is in niche, high-quality items, which we can export at a premium.

In recent weeks the Abbott government has dropped its misleading 'food bowl of Asia' slogan and started to focus its attention on the real growth story in agriculture -- adding value to Australian produce.

Agriculture Minister Barnaby Joyce told Sky News: "We feed right now about 60 million people. If we doubled our production and fed 120 million people, we couldn’t even feed half of Indonesia, so let’s stop talking about how we’re going to feed the whole of south-east Asia.

"What we do have is a premium product and, with the right supply chains, a premium product gets a premium price."

In fact, in nutritional terms, Australia would struggle to feed 80 million people, mainly because of poor soil quality and low rainfall across much of the nation (Let's stamp out the food bowl myth, April 19, 2013).

As the mining boom's price-spike phase and subsequent construction phase pass into history -- leaving the bread-and-butter phase of high volumes and lower prices -- the stakes for Australia in growing other export industries could not be higher. Without doing so, Australians face a steady erosion of their import-dependent lifestyles.

While Treasury officials in Canberra have for some time championed the services sectors -- financial services, education exports and tourism -- agribusiness and food processing have a big role to play in the tradable sector of the economy.

However, Australian firms must avoid making the mistakes of the past. 

As my colleague Robert Gottliebsen explained some years ago, the story of Yellow Tail wines and some of their low-priced Australian competitors serves as a warning.

While brands such as Yellow Tail found early success in the US (as did Jacob's Creek in the UK), the net effect was to cast Australian wines as cheapies, when in fact we have some of the best winemakers in the world.

That frustrating fact appears to be playing out again, with Rathbone Wine Group managing director Darren Rathbone telling The Australian his company was struggling to make inroads with its distribution channels in China.

Rathbone told the paper: "A lot of Chinese have come into wealth and the French brands were the most expensive and they’ve equated price with quality in the same way they’ve gone for Louis Vuitton or Gucci".

That Australians don't go into new export markets with top-shelf products is perhaps a remnant of the old 'cultural cringe'. However, there are good reasons why we should.

This year's standout example is the Sullivans Cove whisky company in Hobart, which took the title as the world's best single malt at the 2014 World Whisky Awards in London.

That's some feat, given the award nearly always goes to Scottish or sometimes Japanese tipples.

The success of Sullivans Cove is part good business sense and part good luck for proprietor Patrick Maguire, whose distilling career began as a hobby, sharing a drop of his home-made spirit with friends.

Now he sells into markets around the world and says he is often cold-called by distributors wanting his product -- including the likes of Harrods in London.

But the most interesting thing about the growth of his business is that his premium product seems to make more money for his distribution partners than himself.

Maguire, who has not increased the price of his product to distributors despite his win in London, has flown to many cities around the world to meet distributors and says he is usually picked up in a Porsche or Ferrari.

By not trying to squeeze every last dollar out of sales to the sport-car-driving partners on the ground, Maguire taps into their local knowledge, which he says includes very specific information on which bars, hotels or retailers will be able to sell his niche product.

As a metaphor for the 'dining boom' that is supposedly going to be accelerated by China's growing middle class, Maguire's success is instructive.

Rather than try to understand the many cultural settings into which he sells (in a vain attempt to capture the profits of vertical integration), he's allowing existing distributors who really know the market to take a fat cut of the profits and establish an Australian product in a high-value-added niche sector.

That's important. Australia and China have had a long history of misunderstanding each other culturally.

When Gough Whitlam broke Australia's two-decade policy of refusing to recognise China by visiting the country in 1972, for instance, the streets of Beijing were hung with loudspeakers playing Click Go the Shears, The Road to Gundagai, and Waltzing Matilda. Local authorities even had a swimming costume made for Margaret Whitlam in case she felt like a dip.

The point is that in marketing terms, we often make mistakes of a similar magnitude.

However, those mistakes are more easily avoided if Australian firms approach China without the notion that we can 'get inside' the consumers' heads. Local distributor-partners will do that much better, particularly if they share a good portion of the profits.

At a winery near Daylesford, Victoria, where your columnist bought a good case of pinot recently, the proprietor told him: "Don't bother coming back next year. A Chinese company has bought us out -- they won't keep making the same wine. They just want the brand to help them sell ordinary wine."

That's marketing.

The key, according to Maguire, is to avoid leaping into the new markets as a "bulk producer".

"We have to be careful which markets we go into," he says. "We can afford to pick and choose. Selling into the wrong market won't get our brands past the premium point."

Barnaby Joyce's refreshing honesty about not being the 'food bowl of Asia' should focus minds on the fact that our labour costs are high, and having Asian markets 'on our doorstep' underplays the fact that we still have to freight our products a long way to sell them to the booming middle classes.

Small, high-value exports will play a big role in the dining boom. As covered previously (We should be Asia's delicatessen, not its foodbowl, October 25), the Brookfarm company based in Byron Bay has escaped the fluctuations of the selling macadamias as a commodity by turning those same nuts into value-added mueslis, snacks, cooking oils and so on.

That is the same direction Visy boss Anthony Pratt has promoted in the past year -- one in which innovative packaging is as much a part of the export's value as the product.

The dining boom presents a historic opportunity, but also a great risk -- namely, selling cheap products to reluctant Chinese consumers -- when Australia has everything it needs to establish itself as a natural home of premium products and brands.

The dining boom won't double the amount of produce Australia sells, but it should more than double the export earnings.