At first glance, fears over the future of fruit manufacturer SPC Ardmona and food processor Simplot seem to be just another question of ‘how long can we prop them up’.
We’ve heard similar questions in the auto manufacturing sector. The high dollar has ravaged the food processing and packaging sector, both making it harder to export goods and putting cheaper imported products on Australian consumers’ shelves.
The $43 million in industry assistance, promised to the two companies by Labor before the election but harder to meet in the face of Coalition spending cuts. Whether the Coalition delivers will be a crucial test for the struggling sector.
But there is a difference. Food prices in the longer term are headed in only one direction: up. Global population growth, from 7 billion to 9 billion by mid-century, takes care of that.
Car manufacturing doesn't have that natural structural promise of better things to come. Nations such as Germany, China and the US continue to put pressure on Australian car manufacturing, because each year they become more efficient, more capital intensive, and produce better cars for less money.
In food processing, there is a lot that can be done to become more competitive – more on that below. The Abbott government needs to ask itself whether the brutal currency forces acting against this industry can be resisted much longer with the aid of public money.
One problem is the confusion caused by the Coalition’s talk of Australia becoming the ‘food bowl of Asia’ – an electioneering fabrication that doesn’t stand up to a moment’s scrutiny (Is Abbott’s food bowl vision a joke? April 11).
Yes, we’re a big country, but also one with vast tracts of useless soil or insufficient rainfall to grow much in it. The arable or irrigable land available is nearly all in production already. A tiny amount remains to be exploited in the wetter north, but is in the order of 100,000 hectares or irrigable land, when down south around 2 to 3 million hectares are being irrigated.
To compound that, climate change is already affecting rainfall patterns and more land is becoming marginal as winter rain fronts drift south a little more each year. The future of Australian agribusiness is less in vast areas of commodity crops, and more in higher-value processed or intensively farmed products.
We have an opportunity to be the delicatessen of Asia, not its food bowl.
Professor Snow Barlow, foundation chair of horticulture and viticulture at the University of Melbourne and convener of the National Climate Change Adaptation Research Facility, points out that we can feed only 60 to 80 million people (depending on what mix of foods is demanded), whereas the world’s population is currently growing at 80 million people a year.
The northern plains of India and northern China are the real food bowls of Asia and are largely fed by groundwater, says Barlow. The problem there is that the underground aquifers have been dropping by about half a meter a year. If those ‘food bowls’ stop producing, there is going to be real trouble.
But then that’s not what industry policy, such as the subsidies to SPC and Simplot, is about. The objective of helping such firms through an extended period of a high Australian dollar is to maintain (and, in the future, expand) local jobs in viable industries.
That’s where things get really political. Barlow explains that each agribusiness makes its own demands on that most limited of Australian resources, water.
Thus for every Olympic swimming pool’s worth of irrigation water, you can grow around $2000 worth of vegies.
The same volume of water will produce $1500 worth of fruit to supply SPC or $1200 worth of grapes to turn into plonk. Those sober enough to still be reading will remember we have a bit of a glut of those.
But the biggest users of irrigation water derive the lowest market value of product from those Olympic pools of water sprayed about. Cotton farmers get $600 worth of crop, the dairy industry gets $400 of product and rice growers harvest $300.
So Barlow’s argument in favour of propping up SPC, Simplot and other smaller players is that by 2030, there is every chance we will not have an auto industry, but we will have a food processing industry – particularly in the areas that get the most bang for their water-buying buck.
That vision raises two big problems for the infant Abbott government as it finds its feet on industry policy.
Firstly, a lot more capital is required to boost intensive farm production. The natural place to find that capital is in the countries that will consume the food – China in particular. And for the Coalition, that means growing tensions between protectionist National Party MPs such as Barnaby Joyce and pro-market Liberals. The latter know that Chinese companies can take away the profits, but that they will still support local economies and jobs in a way that clearly isn’t happening now.
Secondly, Barlow points out that what we really have is a marketing problem. If we want to sell higher-value goods to China, then launching joint ventures with Chinese firms is the obvious way to do it. Local expertise, brought to Australia, can identify the products that will sell.
In recent years, wagyu beef, originally raised in Japan, has become a hit with western diners. Beef is a commodity; wagyu is a premium product.
In a similar way, local Australian firm Brookfarm has taken a commodity product – Macadamia nuts – and extended it as the base for muesli, ‘walkabout mix’ (often served to this journalist with a cold ale on flights home from Canberra), muesli bars and pure and infused macadamia oils.
When one of those becomes a hit in Shanghai, more Aussie workers will be headed to the nut farm, so to speak.
All of which raises a big question for Agriculture Minister Barnaby Joyce and Industry Minister Ian Macfarlane. If they do bow to pressure from the industry and keep the factories and jobs alive, do they attach conditions in the way conditions were previously attached to auto handouts?
A requirement to ‘grow, process and package something the Chinese will eat’ might be the solution.