Cashing in on Asia's agribusiness bonanza

The pool of cash created by Asian demand for agribusiness products is rapidly expanding and ready for eager Australian companies to grab.

There is no doubt many Australian businesses are experiencing a period of transition. In a multi-speed domestic economy, with a high Australian dollar and global volatility, feedback from our customers indicates that some industries are experiencing growth while others undeniably face significant challenges. The Australian agricultural industry is an example of how harnessing change can lead to success in this transitory environment.  

How businesses respond to change and evolve with the global environment plays a central role in not only their future success, but that of the Australian economy more broadly.

What we need is for businesses to have a strong mix of realism and confidence: realism to face into the challenges of the world’s changing conditions; and confidence to prepare and structure their business for future opportunities.

The agricultural industry in Australia has been embracing innovation and taking advantage of new opportunities, and reaping the rewards.

In 1900, almost one quarter of the Australian population worked in the agricultural industry. In 1960 it was 8 per cent, while today just 3 per cent of us work in agriculture. No one would argue the agricultural industry today isn’t more efficient, more innovative and more specialised than it was when one quarter of the population worked in it. The industry has gone through transition and innovation and is ultimately more productive for it.

Now, as the focus moves to rapid population growth in Asia, the Australian agricultural industry has to once again seize the opportunity to secure the quality food supply chains of the region.

The fundamentals are there: Australian farm exports are already forecast to reach $39.3 billion by 2018-19, up 11 per cent on the average over the last five years according to ABARES. Over the same period, gross farm production will reach $57.5 billion.

However even this immense growth will meet just a fraction of the demand coming from Asia, and in particular, China. By 2050, Asian agrifood demand is set to double to $US3.1 trillion.

While it is unrealistic to think Australia alone will be the sole supplier and beneficiary to this extraordinary growth, our farmers’ strong environmental credentials and reputation for providing high quality, safe produce means we are perfectly positioned to take advantage of the demands of the rapidly growing middle class in Asia.

NAB director and author of the white paper Australian in the Asian Century, Ken Henry, notes growth in the Asian middle class is set to explode in coming decades -- from 500 million people today to 3.2 billion people by 2030.

And as wealth and income levels rise, the focus will shift from a produce quantity to quality basis, with safe and nutritious food taking priority. Consumption patterns will change, and demand for high quality meat, dairy, eggs, sugar and wine -- which Australia is perfectly positioned to supply -- will increase.

This opportunity has been recognised by Canberra, with the federal government securing a free trade agreement with South Korea, and continuing to work towards a free trade agreement with China.  

Strengthening trading ties with Asia are good news for the Australian agriculture industry; it’s an exciting time for producers and agribusinesses and one they should be looking to seize with both hands.

While the sector is lamentably exposed to weather conditions, changes in government policy and movements with the dollar, Asian agrifood demand is offering a very bright future for Australian agriculture.

NAB’s latest Post-farmgate Agribusiness Survey shows conditions rose significantly in the December quarter to reach their highest levels in nine years. December was also the first time in three years that trading, profitability and employment all recorded positive readings. This has pushed agribusiness confidence into positive territory for the first time since 2005.

Trading conditions should also prove to be more favourable for the remainder of 2014, particularly if the dollar continues to move downwards to more sustainable levels, providing relief for many.

Building those links and relationships into China are vital for Australian agribusiness if they are to truly seize this opportunity with both hands.

As Australia’s largest Agribusiness Bank, NAB takes this role seriously and has established a specialist Agribusiness Asia Desk to help initiate and strengthen trading ties. In May, we will lead our fifth delegation of agribusiness owners and operators to Asia on a study tour to China and Hong Kong, with a focus on the wine industry.  The tour will meet potential trading partners, corporate leaders and industry representatives.

When we consider wine sales in China are expected to increase by 50 per cent in the next two years, there is an opportunity Australia’s winemakers can and should be a part of.

An agricultural sector that builds on Australia’s natural advantage and reputation, and makes the most of the opportunities that arise from transitioning global markets, will have positive prospects for the future for this century and beyond.

Joseph Healy is Group Executive, Business Banking at National Australia Bank.