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Notes from Agriworld Australia Conference, Sydney Olympic Park, 16-17th July 2015

The Agriworld conference is in its inaugural year and provided a forum for experts in their field to convey to agribusiness stakeholders the facts, figures, trends, export information and projections for global agribusiness for the next 35 years.

To see the full program: http://www.agriworldaustralia.com.au/conference/Conference-Program/

There is a variety of information – find topics of interest to you in the table of contents to save you reading the whole document. 

Dual sessions ran simultaneously, these notes are from just over half of the possible sessions.

Table of Contents

Conference Day One Thursday 16 July. 2

  1. Fostering a healthy, vibrant and prosperous rural Australia. 2
  2. Taking a strategic national approach to “whole of value chain” productivity improvement for food and fibre products. 2
  3. What do investors look for in an agribusiness asset?. 3
  4. Selling the clean and green Australian brand – growing market opportunities for organics, sustainable and ethical produce – PANEL DISCUSSION.. 4
  5. Understanding food export demand – findings from the Export Market Insights Database. 5
  6. Changing Asian food demand: implications for Australian food producers and manufacturers. 6
  7. Where does Australia stand on agribusiness? Comparing Australian performance and potential on a global stage. 6
  8. Building brand Australia – developing a strong name for Australian produce. 7
  9. Making the most of Chinese e-commerce opportunities for Australian food producers and manufacturers. 8
  10. Tackling market access for Australian agribusiness – PANEL DISCUSSION.. 9
  11. Building human capacity, diversification and intensification of production at Echo Hills Farm 9
  12. The smart and savvy future farmer – the science of growing production yields – PANEL DISCUSSION.. 10

Conference Day Two Friday 17 July. 10

  1. Marketing and market development for food products. 10
  2. Unlocking northern Australian agricultural development opportunities. 11
  3. Meeting the growth and profit challenge in horticulture. 12
  4. Implications of the Food and Grocery Code of Conduct 14
  5. Building farming innovation partnerships – Promoting industry investment in agricultural research, development and technology – PANEL DISCUSSION.. 14
  6. Learning how to reach and connect with potential buyer partners in a new market 15
  7. Food consumer insights and trend forecasting. 16
  8. Mapping sweet returns for farmers – Advances in supply chain tracking at Wilmar Sugar 16
  9. Selling our skills – Opportunities for exporting Australia’s farming expertise – PANEL DISCUSSION.. 17
  10. Farming automation, robotics, driver assistance, drones and the new remote farmer – PANEL DISCUSSION.. 17
  11. The new digital agribusiness – Precision agriculture and data analytics in agriculture – PANEL DISCUSSION.. 17
  12. Riding back up on the sheep’s back – A 100 year vision of Australian agribusiness – ROUND TABLE. 18

 

Disclaimer – Anson Advisory strives to make the information in this report as timely and accurate as possible, but makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the presentations used, and expressly disclaims liability for errors and omissions in the contents.

The views included in this document are not necessarily the views of the author.

Conference Day One Thursday 16 July 2015

 1.    Fostering a healthy, vibrant and prosperous rural Australia

The Hon Joel Fitzgibbon MP, Shadow Minister for Agriculture

From Mining Boom to Dining Boom

Australian agriculture needs to go to the world, as it won’t come to us. Aust. agriculture must apply a concerted strategy to ensure the agricultural industry is part of the ensuing ‘Dining Boom’.

Australia

  • Location to SE Asia is advantageous
  • Has rich natural resources
  • Lacks funds for competitive advantage. Has historically relied upon financial capital of others.
  • Needs $600B in investment in agriculture in next 10yrs + $400B in investment in ag by 2050 to meet world needs
  • Need to invest $42B/year over next 20yrs

Investment in Aust. mining was $632B in 10yrs to 2014

Investment in Aust. Agriculture was $141B in 10yrs to 2014

 

The Foreign Investment Review Board analysed $160B investment proposals in FY14 but only $3.4B was actually invested.

Will Australian Superannuation funds invest in agriculture?

Australian market share and productivity is decreasing for agriculture.

 

 

2.    Taking a strategic national approach to “whole of value chain” productivity improvement for food and fibre products

Dr Brian Keating, Executive Director, CSIRO Agriculture, Food and Health Sector

1ton of cabbages is worth more than 1ton of steel in Beijing now àsupports the concept of ‘Dining Boom’.

Agriculture is a ‘Sea of Opportunity’

  1. Global content – drivers of food price spiked in 2009 due to:
    1. Decrease in global food stocks
    2. Poor weather / drought conditions
  2. Productivity is NOT everything, but it is almost everything”, Nobel Prize winning economist, Paul..
    1. China is a net importer of food since 1996
    2. Brazil has tripled agri exports since 2000.
  3. => the world is NOT waiting for Australia, it is off doing it!
    1. Paddling harder is not the answer, we have to do things better/differently
  4. Innovation World rankings:
    1. Australia
      1. = 10th place for Innovation inputs
      2. = 81st place for Innovation output efficiency
    2. NZ
      1. 13th place for Innovation inputs
      2. 66th place for Innovation output efficiency
    3. Netherlands
      1. 11th place for Innovation inputs
      2. 12th place for Innovation output efficiency
  • Netherlands is good example of Agriculture Innovation Efficiency
  1. Professor Mark Dodgson – a guru of innovation
    1. http://researchers.uq.edu.au/researcher/1177

Australian logistics are in-efficient – it costs more to move a container across Sydney than it does to get it from Sydney to Shanghai.

 

3.    What do investors look for in an agribusiness asset?

Chairman – David Foote, Chief Executive Officer, Australian Country Choice

PANEL DISCUSSION

PANELISTS

Mark Barber, Portfolio Manager, Laguna Bay Pastoral

Tim Faulkner, Director, Kidder Williams

David Sackett, Chief Executive Officer, Growth Farms Australia

Matthew Fitzgerald, Partner, Herbert Smith Freehills

How to decide on Agri investments:

  • Look for deals that are happening e.g. Saputo put Australian dairy industry on the map
  • Large deals promote Australia internationally but NOT domestically (i.e. Superfund investment)

Finding opportunities:

  • overseas institutional organisations have a long term horizon for their investments
  • European investment firms are very difficult to get a lead in.
  • Network with a very attractive product/proposition
  • You need a good advisor
  • Austrade is under utilised
    • Help co-ordinate international visits etc. e.g. China

David Sackett

  • Manages $400m of agri investments
  • 10% Chinese investors – they are difficult to deal with, have a language barrier & culturally different
  • We’re only seeing the beginning of Chinese investment in Australia
  • Chinese approvals by SOE’s are very hard compared to Aust. Foreign Investment Review panel

If you want good deals, make the potential investor pay for advice, otherwise you get too many tyre kickers & time wasters.

Aust. Superfunds are not interested in Agri investments because:

  • Agri doesn’t get good publicity
  • Low barrier to exit for superfunds / they can easily exit the investment

Agri Yields

  • CF can be weather dependent
  • Land appreciation – need a long time frame to appreciate
  • Investor can’t afford to overpay as can have long periods of no gain
  • Institutional investors have long time frames (15-20yrs) and are patient

Currently not much Chinese investment in Aust. Agriculture but there is a lot in commercial properties.

Expect an increase in Chinese investment in Aust. Agriculture (mainly beef & horticulture production) in the next 10yrs.

There is still a lot of value still to add to horticulture!

Once a sector is being ‘talked up’, it’s probably too late to invest.

Beef production in Northern Australia – ~1% capital appreciation on land àprobably one of the lowest returns.

Must ask the investor for their expectations on:

  • Yield
  • Capital growth
  • Risk + climate risk

=> diversify the portfolio

Australia poses good opportunities for agricultural investment because:

  • Timber production investors likely to convert to another system
  • Close proximity to Asia
  • Diversified portfolios with a competitive advantage
  • Low sovereign risk
  • Agriculture is a professional industry
  • Sugar industry has substantial potential for alternative crops. It’s also a good investment at the moment due to low sugar price.
  • The only place you get large scaled beef production is north of Tropic of Capricorn àbreed cattle & move them south to fatten.

A $10m farm is too small for institutional investors.

High net worth families want to own the whole operation and not likely to partially invest in a particular operation.

Greatest opportunity is for producers to utilise Agri-management consultants to increase production efficiency. Producers need to measure, project and analyse everything to maximise efficiency – producers historically not strong at the paperwork or documented strategy.

People are still looking in the past for yields (~4% from 2009). Long term yields should be 8%.

4-8% yields are realistic. Prior to GFC yields were 15% because land appreciated strongly (require a long-term view for these types of gains).

Land being leased is yielding 4% in 2015 (if doing nothing else other than just owning the land). Therefore an agricultural operation MUST return profits on top of this.

 

4.    Selling the clean and green Australian brand – growing market opportunities for organics, sustainable and ethical produce – PANEL DISCUSSION

PANELISTS

Michael Sutton, Special Counsel, DibbsBarker

Marg Will, Chief Executive Officer, Organic Systems and Solutions,

Secretariat, Organic Industry Standards and Certification Council

Dr Andrew Monk, Chair, Australian Organic

Ben Copeman, General Manager, National Association for Sustainable

Agriculture, Australia (NASAA)

Australian Competition & Consumer Commission focus on:

  • Credence claims (where the consumer cannot independently verify the claims for themselves and must trust the seller. An example of a credence claim is a claim that a product is ‘environmentally friendly’.) in 2014
  • Marketing truths (the product actually does what it claims to do) in 2015

Dr Andrew Monk

  • Australian Organic Industry worth $1.72b/yr
  • Australian citrus exported to China has grown by 40% in the last 12mths.
  • Australians expect safe agricultural products.
  • Chinese don’t expect safe agricultural produce, but they want a clean/green product.
  • Koreans are very concerned with food safety – 70% of Korean food is imported ($3.7billion).

 

Taste – Chinese want Australian products that are sold and enjoyed in Australia, the USA etc. They DON’T want a product produced specifically for a ‘Chinese taste’.

 

5.    Understanding food export demand – findings from the Export Market Insights Database

Dr Barry McGookin, General Manager Innovation, Capabilities and Skills, Food Innovation Australia Ltd

Food Innovation Australia – have outlined 5 growth sectors

  1. Food & Agri
  2. Advance manufacturing
  3. ? – missed
  4. ? – missed
  5. ? – missed

Industry growth fund has $63m to undertake collaborative projects. This is NOT yet announced but soon will be!

Food Innovation Australia – Growth area priorities

  1. Remove unnecessary regulation
  2. Increase engagement between researchers & industry
  3. Increase capability to engage with international markets

Information sources:

  • sciu.com.au – Victorian University + Institute for supply Chain logistics – great source for export market reports.
  • DFAT, Austrade, ABARES, ABS
  • United Nations
  • American FDA

Export market insights – from www.sciu.com.au

  1. Asian market distribution
  2. Trends & variation
  3. Expected future
  4. Total demand & Aust. Competition
  5. Trends & shares

Parknshop.com/webshop/welcome – is an online platform to shop for groceries/beverages/etc. for Hong Kong & surrounds.

www.fial.com.au/export – Excellent for market research & strategy development

 

Keys to success

  • Collaboration is essential
  • Need real time detailed information to make the right decisions.

 

6.    Changing Asian food demand: implications for Australian food producers and manufacturers

Dr Brian Moir, Senior Economist, ABARES

Food demand in Asia is expected to double in the next 40yrs from a dollar point not tonnage.

From 2007 to 2050:

Income to increase 278% ($/person)

Agricultural food consumption to increase 103%

Population growth to increase 28%

 

Asian food production will increase to provide most of the demand, but imports WILL need to increase.

Japan – population is decreasing in 2015

Korea – population expected to decrease by 2050

India – have a policy of self-sufficiency (want to produce own food)

  • Meat is not widely consumed, as majority are vegetarians
  • Demand for fruit & vege & dairy to dramatically increase

ASEAN – increase imports for meat, frege (fruit & vege), dairy, wheat

  • Want high quality, high value products = Australian Export opportunities

China – population expected to decrease by 2050, but urban population will increase

  • Urban consumers consume
    • More meat, dairy, sugar, frege
    • Less grains (50% of rural areas)
    • Dollars spent on food (up to 4 times as much as rural population)
  • Australian export opportunities to China are expected to increase by:
    • Beef 268%
    • Dairy 165%
    • Fruit 100%
  • There is high world competition to export to China. Therefore Australia must;
    • be competitive relative to other countries
    • Reduce barriers to export
    • Business planning to consider the changing asian food consumption trends
  • Australian beef exports to Korea are expected to increase due to KAFTA (free trade agreement).

The Mining Boom to Dining Boom – will not come to Australia. Australia must go to it otherwise other countries will take our place at the table.

 

 

  1. Where does Australia stand on agribusiness? Comparing Australian performance and potential on a global stage

David Dyer, Principal, McKinsey & Company (a global agri consulting firm)

  1. Australian competitiveness challenge – Australia had nearly 25yrs of unbroken economic growth up to 2009. Growth was from:
    1. Strong terms of trade
    2. More capital
    3. Increased productivity
    4. Additional labour
  2. Australian;
    1. Agriculture is 0.8% more competitive than USA.
    2. Mining is 0.2% more competitive than USA.
    3. Manufacturing is -1.1% more competitive than USA.
    4. Logistics is -0.2% more competitive than USA.
  3. 4 billion world consuming class in 2015

4.2 billion world consuming class in 2040

20 million consuming class in Australia 2015

The world needs to produce more food in the next 10yrs than it has in the last 10,000yrs

Australia is not capturing the world market and its competitiveness as well as it could => other countries are growing faster than Australia.

NZ has unlocked its dairy potential ->11% growth. Australian dairy has had 0.1% growth over the same recent period. This is because:

  • NZ had economies of scale in dairy processing
  • NZ has Free Trade Agreements (low or no import duty)
  1. Chinese consumers increasingly willing to pay for food safety and quality. 80% of consumers are willing to pay more for food quality. NZ has done this by creating a solid brand around NZ dairy.
  2. How do you crack into the world market?
    1. Divide China/India into clusters of megacities, each with distinct characteristics. You need to understand the market in each of these clusters – which is easier than on a whole country basis. Target <8 clusters is simpler, cheaper and more effective rather than say 200 cities in China.
  3. Increase competitiveness through:
    1. Data analytics & robotics à new technology & innovation
    2. Optimise farming operations à need to increase by 50% over next 20-30yrs
    3. Increase supply chain transparency
    4. Increase downstream operations
    5. Embrace your customers

Ask potential exporters if they are ready to export.

  • Understand their ambition for wanting to export
  • Exporters need to attract talent to the organisation
  • Understand their Point of Difference to establish their niche

Fonterra has done all the above very well.

Australian agriculture;

  • where scale is important, we need to find a way to collaborate to generate scale
  • look at industry regulations
  • political reform is difficult. To change, start with regulatory barriers which have the greatest effect.

 

8.    Building brand Australia – developing a strong name for Australian produce

Nick Nichles, General Manager – Marketing, Online and Business

Practice, Australian Trade Commission (Austrade)

Your brand is what people think of you. It’s a promise. A good brand is a promise kept.

If you’re going to say something, you’d better back it up.

Background – Australian food production is fragmented and varied. We need a unified voice and can achieve a lot more together than separately. Generally, consumers choose Australian products first.

Food + experience trends are very popular. They are a reason to travel to Australia.

Provenance = knowing where food comes from.

Australians are not known for innovation.

www.austrade.gov.au

  • Great site for market research for global views on Australian agricultural products.
  • Provide infrastructure for companies to market Australian products
  • Has images of food that appeal in specific markets

We should: leverage our Australianness in a way that suits you/your product/s

Different things are different to different markets.

Australian national brand has an ascendancy.

 

 

9.    Making the most of Chinese e-commerce opportunities for Australian food producers and manufacturers

Sophy Lui on behalf of James Hudson, Chief Executive Officer, NSW Branch, Australia China

E-commerce total sales volume in China in 2009 was $0 Yuan, by 2014 it was $3 billion Yuan. Mainly due to young consumers.

Chinese consumers buy online:

  • Package snacks
  • Toys
  • Honey
  • Skin care products (=40% of online sales value in China)

How to get started with e-commerce into China – from Austrade. You must provide:

  1. Product & brand selection
  2. Product information
    1. Validate certificate
    2. Pictures of your product
    3. Detailed descriptions (ingredients, weight, size, safety standards, pricing)
    4. Design the selling point
    5. Customs clearance material
  3. Register your trademark in China & as Australian Made (if not yet registered)

A single brand will NOT have an impact in China, BUT if you include the Australian Made symbol/logo/brand, you will get increased market penetration.

There are expectations that within 3years, 70% of all products will be sold on-line, & 30% will be sold in store.

In 2015, 30% of all products are sold on-line, & 70% are sold in store.

  • Therefore, be ready for this major change.

There is a language barrier with middle class in China, however not such a barrier for young consumers.

 

10. Tackling market access for Australian agribusiness – PANEL DISCUSSION

PANELISTS

Andrew Tomkins, Director of Agriculture, TPI Enterprises

Andrew Hudson, Board Director and Chair – Trade Policy Committee, Export Council of Australia

Michelle Christoe, Executive Director, Australian Horticultural Exporters Association (AHEA)

Australia can now grow poppies in Vic, NT & Tasmania, due to improved regulations. Australia is the highest producer of morphine.

FTA’s are great, BUT China still has 39 other restrictions on imported produce e.g. Fruit must be washed in the correct temperature water.

If you’re exporting to China, get your documentation right, otherwise you can get fined.

It is difficult to get fresh produce exported to China because of biosecurity issues – you will need to be a trusted exporter to ‘dance’ in this arena.

Air freight to USA, as at 31/7/15 could require 100% scanning of produce à would be cost prohibitive. Regulations are still being resolved as at 16/7/15.

The USA is already scanning 100% of produce imported to Australia.

Efic – assists SME’s (small to medium enterprises) in exporting.

 

 

11. Building human capacity, diversification and intensification of production at Echo Hills Farm

Peter Thompson, Owner, Echo Hills Farming Co, north of Roma

Peter produces grass-fed cattle without hormones + farms (chickpeas, mung beans, forage crops, pasture)

He has a number of non-farm investors in his enterprise and creates a ‘win-win partnership’ with them, as the land has more uses than just farming.

Diversification is key to success. They have:

  • PeterpoinTTM (planting point for a hoe)
  • Wife works off-farm as a physiotherapist & travels 60km each way to work
  • He is a coach of ‘inner circle’ (a life business coach)
  • Have a wilderness area set aside for ecotourism – they setup a partnership with an eco-tourism group which uses their wilderness area
  • Their beef goes to Teys
  • Their grain goes to feedlots as they pay a higher price
  • CSG mining occurs on their property, as other groups have rights and responsibilities to the land/resources, BUT food production and clean water have ‘right of way’. Peter has not seen any negative effects of CSG mining on his property yet.
  • He is always prepared to learn from others to improve everything

Chinese investors will buy into Australian agriculture by forming a long term family relationship to get a sustainable supply of food. Chinese are keen to remove the ‘middle men’.

 

12. The smart and savvy future farmer – the science of growing production yields – PANEL DISCUSSION

PANELISTS

Holger Meinke, President, Australian Council of Deans of Agriculture – absent

Matt Barton, Mixed Enterprise Farmer and Advisor, Resource Consulting Services. www.rcs.au.com

Strategy – Create a simple business, promote profitability and manage redundancy.

Bad things happen – use them to profit. Optimise our erratic climate.

What are innovations that increase margins in the North Australian pastoral zone?

  1. To increase weaning rate in Barkley Tablelands à controlled mating didn’t work because the Mickey bulls came in when the herd bulls were absent. => Year round breeding & tried to get majority of calving in the wet season.
  2. In Winton, his client had a weaning rate of 50% and couldn’t increase it. Therefore they ran two herds
    1. Cows in calf (~40% of the total herd)
    2. Dry cows (~60% of herd)
  • They decreased production but dramatically decreased production costs (mustering & supplements) => resulting in an overall increase in profitability.
  1. Cropping – input costs are increasing dramatically + erratic climate => produce overall low margins.

àThey converted to a mixed farm rotation scheme => overall production decreased but so did input costs èincreased overall margins (expect a minimum of 5% margin)

  1. Another operator found their cattle cost of production is $0.30/kg dressed weight without animal health treatments (drench etc.). If the grazier finds a sick animal, he euthanizes it and does a post mortem to find the cause of the sickness, giving him an indication of what the rest of the herd maybe experiencing.
  2. There is NO SILVER BULLET.

Reductionism à treats symptoms

Holism à treats causes, looks at the whole business

Animals don’t compact soil, it’s the poor soil health which causes the compaction. Some people try to study the silos and NOT the whole system.

“Man is a funny animal. He can only see the writing on the wall when his back is up against it.”

Conference Day Two Friday 17 July 2015

 

13. Marketing and market development for food products

Jayne Gallagher, Product and Market Development Manager, Australian Seafood CRC Ltd

–         Founded Honey & Fox, www.seafoodcrc.com, jayne.gallagher@seafoodcrc.com

Research what your consumer actually wants, rather than just the produce you’ve always produced because that’s what you’ve always done.

There are a lot of elements that go into a proper marketing campaign

  • There are no shortcuts
  • Do the research
  • Offer a clear value proposition
  • Be an industry leader
  • Don’t reinvent the wheel. There is already other Australian organisations doing international marketing -> work together.
  • Develop relationships with every element/aspect in the market.

 

14. Unlocking northern Australian agricultural development opportunities

Dr Peter Stone, Research Director, CSIRO Land & Water Flagship

Dr Andrew Ash, Senior Research Leader, CSIRO Climate Adaptation

National Research Flagship

In 1880 there was 3million cattle north of the Tropic of Capricorn.

In 2015 there are 18million cattle north of the Tropic of Capricorn.

North Australia is already a food bowl. Most things will grow in northern Australia. You can’t grow plants which need certain chill requirements.

Total area = 350million ha

  • 6million ha available for cropping
  • 5million ha of potential irrigated arable land
  • Currently feeds 60million people, but could potentially feed 140million people
  • Irrigation will increase yields by 100% (2 fold)
  • 2million giga litres of rainfall per year
    • >80% evaporates through plants
    • <15% makes it to rivers
    • >2% to ground water
  • For every 1% drop of flow into the Gulf of Carpentaria, there is a 1% drop in fish production
  • There is generally a 50% water loss when transferring from a dam to the crop
  • It is possible to irrigate 1.5million ha in Northern Australia
    • Would need 90 dams to capture enough water
    • Would cost $45billion to build
    • This would increase the crop by 5%
      • And feed an extra 7.55million people
    • Average annual rainfall 400-800mm/yr
      • 4 co-efficient of variation = very high

-> Very high rainfall variability, even with climate change in the next 40yrs

 

North Australia Food Studies 2014 report by CSIRO & ABARES

Catchment systems:

  • Ord river – 865giga litres, irrigates 50,000ha, 95% water reliability
  • Mataranka
  • Flinders Gilbert
  • Pilbara
  • Dawson
  • Darling Downs

Crops are varied

  • Grains & pulses à gross margin <$1,000/ha + freight costs => a loss
  • High value horticulture à gross margin >$10,000/ha + freight costs =>high fluctuations in profit
  • Industrial crops à gross margin >$1,000/ha => if processing locally, it is feasible
  • Poppies à profitable

Exported crops are often more profitable than Australian markets.

If significant debt is used to fund crop development and have two crop failures, it is very difficult to repay the debt over 10years.

 

Key messages:

  1. Irrigated agriculture can add significant value
  2. Water does NOT guarantee financial returns
  3. Supply chains need re-thinking => export from Darwin is very expensive. i.e. Cheaper from Darwin-Sydney- China than from Darwin-China.
  4. New markets needed for high value products
  5. Processing facilities needed where production is at scale e.g. Sugar, cotton, peanuts
  6. Need to look for integration and value add e.g. Beef sector, aquaculture
  7. Infrastructure needs vary significantly between regions e.g. Supply chains & processing facilities for the Ord river
  8. Plan for the un-expected shocks
  9. Labour and agri-services are critical to success
  10. Manage the whole system and scale up slowly, otherwise we are setting it up for failure.

 

Flinders Gilbert region – by CSIRO

  • Have conducted very detailed analysis as investment prospects
  • Without water you only get 2 productive years out of 10
  • To construct water & land cropping will cost ~$10,000/ha
    • à CSIRO modelling shows it takes a 15 year cash flow before get a profitable system
  • => the best option is to pick out little blocks with very good soils and water access throughout NT/Qld and upscale
  • The key element is getting the produce to market

 

 

15. Meeting the growth and profit challenge in horticulture

Harry Debney, Chief Executive Officer and Director, Costa

(Harry was very well spoken, to the point and could clearly outline his points/strategy. I can see why he is the CEO of a very successful company.)

Costa Group had a $900m turnover in 2015 = Australia’s largest horticulture group.

  • Is 120 years old
  • 6yrs ago the group was unstructured with 14 categories
  • 73% of production is sold to retailers (Coles, Woolworths, Aldi)

In order to transform the group into today’s success story, they implemented strategy.

  1. Adopted a new strategy
  2. Over hauled their personnel to reduce to 6,000 employees
  3. Fixed the balance sheet to permit growth
  4. Implemented strong fiscal disciplines on P&L, CF & investments
  5. Have to run the business from where it operates, not a city
  6. Divested non-core assets & businesses
  7. Injected new equity & suddenly the banks wanted their business
  8. Diverse location of farms à for continuity of supply & risk mitigation
  9. Very risk averse

Business model – 3 parts:

  1. Farming
  2. Packing
  3. Marketing/distribution

Costa Group now grow 42% of Australian mushrooms (one of their production categories) under warehouse type (industrial) conditions (protected cropping) – reliable and removes risks (pests, labour).

Protected cropping is now a large part of their business because:

  • Mitigates environmental risk/variables
  • Is a more controlled environment meaning a more consistent product
  • Allows greater protection of Intellectual Property (IP)

Berries

  • Blue berries are the fastest growing international market
  • Costa group have formed a 50% JV with Driscoll Australia for berry production. Driscoll’s is their brand name for this JV and is a berry market leader.
  • Are growing berries on the Atherton Tablelands
  • International operations in Morocco & China – 182ha planted in Morocco for the UK & European markets
  • 50% cropping under protected cropping or hydroponics
  • Australian labour costs $25/hr à is too expensive for world competition

Tomatoes

  • Large glass house tomato production in Guyra, NSW.
  • Allows IP protection à which is extremely important

Bananas – now growing in Far North Qld

Marketing to the retail channel

  • Large scale direct farming
  • Unique IP portfolio
  • Consistent quality 52week supply
  • Protected cropping was 30% in produce earnings in 2010 à in 2015 is 75%

è produces a profitable business with a reliable cash flow

Return on Investment (payback) à expect 20% on EBITDA

Payback on glasshouse & hydroponics à 18mths to 2yrs (to recoup the setup costs of this infrastructure)

People management

  • Be very clear of the business model and objectives with time KPI’s (key performance indicators) i.e. 6mthly KPI’s
  • Must create a sense of ownership by the employees
  • Management to be very open with employees to create the sense of ownership
  • Capability program reviewed quarterly to increase employee capacity

 

16. Implications of the Food and Grocery Code of Conduct

John Kench, Chairman, Johnson Winter and Slattery

Horticultural Code of Conduct (CoC)

  • To take effect on 1/8/16 with strict prohibitions which go against what retailers have historically wanted
  • Will strike out the retailer clause for the unfair terms of supply contract
  • Requires nothing from suppliers (supposed to be in suppliers favour)
  • Suppliers need a copy of all contracts with retailers/wholesalers
  • The effectiveness of the CoC is supposed to be reviewed in 3years (August 2019)
  • CoC is meant to control retail behaviour
  • Retailers hate the ‘effects test’ section of the CoC
  • 42 classes within the CoC
  • Has effected structural change within the horticulture industry by creating a new ‘default’ buyer, offering the best possible terms to suppliers
  • Competes with retailers
  • Forces retailers to bid against the code
  • Retailers can’t charge for ‘shrinkage’ etc.
  • Requires acting in ‘good faith’ – means acting for good of the supplier
  • Gives suppliers a huge advantage from 1/8/16
  • Suppliers can say ‘no’ to retailers
  • Creates supplier bargaining power
  • ACCC has unprecedented audit powers of documents à access to intimate trading matters
  • Appears to be very bad for retailers and very good for suppliers => giving more power to suppliers
  • Presenter believes retailers have not yet fully comprehended the impact it will have on them
  • Government will NOT introduce laws to break up the duopoly of Coles/Woolworths as they would have to compensate them for potential losses. Government had to compensate Telstra for billions of dollars when they mandated other telco’s could use their infrastructure.

The inequality of marketing power allows Coles/Woolworths to control markets.

 

 

17. Building farming innovation partnerships – Promoting industry investment in agricultural research, development and technology – PANEL DISCUSSION

PANELISTS

Gerard Davis, GM Innovation and Technology, Australian

Agricultural Company

Rob McInnes, Partner, Dibbs Barker

Dr Nigel Preston, Research Director, Agricultural Flagship, CSIRO

Alice Woodhead, UQ, IP Protection & traceability

Often Australian pre-package meat products sold through China will be copied within 3-4 days of the product hitting the market by Chinese/Indian companies. They substitute with poor quality buffalo meat, the packaging will be a poor copy (incorrect spelling of brand name, poor copy of logo, etc.) but it still decreases the potential market of the Australian product.

Some Chinese companies focus on copying Australian products within 24hrs of them being marketed internationally.

Dr Preston (CSIRO)

  • thinks it’s never been a better time to export
  • CSIRO has the patent on Wi-Fi and been paid ~$350million in royalties
  • Enforcing patents is more successful in China than in the USA

Australian Agricultural Co (AACo)

  • Management are transforming the company from a cattle company to a beef producer
  • Strive for best product in every market segment from mince to Wagyu segments
  • Innovative business unit
    • Focus on many parts of the business
    • AACo looking to develop technologies that will benefit their business first and then with partners who grow with them, as AACo has already developed the markets
    • AACo may sell the innovation to other groups, but not their focus

Fonterra – has bought Chinese companies to control the distribution of milk products in China (the reverse of what we generally see in Australia)

  • RFID technology aims to control adulteration/counterfeiting of Australian products from source to retail

  

18. Learning how to reach and connect with potential buyer partners in a new market

Mr Josh Gordon, Project Officer Industry Development, DPI

Mr Ian Sanders, Manager International Engagement, DPI

Export is:

  • Difficult
  • Expensive
  • High risk

Government will help with (from a NSW perspective):

  • Food industry supplier directory (nsw.gov.au)
  • Trade missions – August 2015 is the Hong Kong Food Expo
  • Business development
  • Regional Industries Investment Fund (RIIF) – grants to assist industries to export
  • Regional export advisers – there are 6 in NSW
  • Export accelerator programs – marketing/travel programs
  • Export capability workshops
  • International offices can help with research on potential buyers – USA, Indonesia, China, Malaysia, United Arab Emirates
  • Significant & Premium Investor Visa assistance – allows investors to invest in NSW businesses
  • Premier’s export awards
  • Referrals to service providers
  • Bilateral chambers
  • Food safety and biosecurity status
  • International engagement unit

The business must work with DPI early on in the process, not just at the end.

Talk with DPI to work out where they may help, grants etc.

 

19. Food consumer insights and trend forecasting

Martin Kneebone, Managing Director, freshlogic

www.freshlogic.com.au

Freshlogic are specialist food market researchers and analysts with deep expertise in consumer research and interpreting market and supply chain conditions. We have built a unique set of data collection and analysis tools that inform us about household consumption back through to how foods are produced and supplied. These capacities allow us to deliver more detailed and accurate analysis and respond faster with more insightful solutions tailored to your business’ needs.

  • Tracks every retail food advertisement each week à~7,000/week with the information provided to their clients
  • Analyse food consumer shopping trends in Australia

Food market trends:

  • Shopping frequency is increasing – consumers shop 3-4times/wk, spending ~$50
    • M-Thurs – want quick easy shopping
    • F-Sunday – happy with a fruit market experience
  • Demand for prepared food
    • Consumers use supermarket as their fridge and are happy to pay a premium, as there is less waste
    • A huge growth market at the moment
  • Intensity of retail competition
  • Elevated opinion leader status of chefs – brought on by TV programs e.g. MasterChef

UK & French markets

  • Way more advanced than the Australian market
  • Have moved away from the ‘bricks & mortar shops’ à going to on-line retail of food.
  • Rabo bank predicting UK & French markets will have 15% of on-line food retail

In China, 30-40% of food is being bought online

www.dish’d.com – provides boxed meals. Is very popular at the moment.

Domestically, Australians throw away 20% of products. If we move to pre-packaged meals, will decrease waste and therefore buy less overall

Provenance has evolved from ‘local’ to a ‘connection with my food’ à consumers want to understand the food.

See Barossa food advertisement- Be consumed – is an excellent video with Nick Cave music.

https://www.youtube.com/watch?v=MoMp-V_CRdc

‘Made in Australia’ is just not good enough anymore.

Health awareness is a growing trend – informed consumer looking for products with or without particular ingredients to increase health benefits.

Consumers are seeking simplification amidst confusion

Food markets around the world will see more change in the next 5-8yrs than the whole industry has seen in the last 25yrs. Food distribution model will no longer be via supermarkets.

 

 

20. Mapping sweet returns for farmers – Advances in supply chain tracking at Wilmar Sugar

Raymond De Lai, GIS Manager, Wilmar Sugar

Wilmar sugar:

  • Processes 35million ton cane/yr, ~ $1.2billion
  • There is 23,000 cane blocks/paddocks in the Herbert cane area
  • Use GIS via a smartphone App to predict yields on ~50 farmers blocks
  • Have GPS on all cane harvesters (250 harvesters across the whole business)
  • Clean seed (cane treated in hot water before planting) gives an 83% increase on yield/return
  • High speed harvesting damages the stool and decrease the following years production

 

 

21. Selling our skills – Opportunities for exporting Australia’s farming expertise – PANEL DISCUSSION

PANELISTS

Cheryl Stanilewicz, A/g Assistant General Manager, Food and Agribusiness, Austrade from Sally-Ann Watts

Dr Denis Blight, Chief Executive, The Crawford Fund

Australia can feed 60million people at the moment, but could feed 150million indirectly if we export our IP (Intellectual Property).

$15billion = the annual education export of Australian universities

Global food demand to increase by 50% by 2030, and 70% by 2050.

 

 

22. Farming automation, robotics, driver assistance, drones and the new remote farmer – PANEL DISCUSSION

PANELISTS

Greg Dennis, Founder, Scenic Rim 4Real Milk

Professor Tristan Perez, Professor – Leader Agricultural Robotics, Queensland University of Technology

Dr James Underwood, Senior Research Fellow, Australian Centre for Field Robotics, The University of Sydney

Ed Fagan, Manager, Mulyan Farm

Phillip Lyons, Director, Falcon UAV

Greg Dennis – was offered $0.41/L for raw milk by Parmalat. This was below cost of production (~$0.50/L), so he started marketing his own milk. They now employ 27 people and their on-farm tour shows ~15,000 people/yr through their operation. This helps them cross promote the farm and its produce.

Phil Lyons – www.falconuav.com.au

Unmanned Aerial Vehicles (UAV’s) are now designed for agriculture. You can fly over your farm without licences, however if you charge for the service, you need a UAV operator’s licence + RPAS licence

Can map low performance areas à therefore only apply fertiliser where it’s required

“Innovation is what defines Leaders & Followers”, Steve Jobs.

23. The new digital agribusiness – Precision agriculture and data analytics in agriculture – PANEL DISCUSSION

PANELISTS

Amanda Castray, Acting Director, Sense-T

Professor David Lamb, Professor, Precision Agriculture Research Group, University of New England

Mark Pawsey, General Manager, SST Software Australia

David Eyre, GM R&D, NSW Farmers

Mark Pawsey – SST software called ‘AgX’- www.agxstore.com = digital agronomy + precision agriculture

  • Use multiple systems with their property data to provide a whole group of services. It saves entering the same data to a number of service providers.
  • Value of Australian horticulture is ~$9.9billion
  • 50% of produce doesn’t make it to market because of inefficiencies in the supply chain
  • Higher returns enable investment in better practices & sustainability
  • aginnovators.org.au

 

 

24. Riding back up on the sheep’s back – A 100 year vision of Australian agribusiness – ROUND TABLE

Round Table Leader: Laurenz Ramdohr, Head of Business Consulting Australia, Ipsos

ROUND TABLE MEMBERS

Peter Schutz, Chairman, Food Innovation Australia Ltd

Murray Wilton, General Manager of Agriculture, Royal Agricultural Society of NSW

Catherine Barnett, Chief Executive Officer, Food SA

Michelle Christoe, Executive Director, Australian Horticultural Exporters Association (AHEA)

Georgie Aley, CEO, Australian Institute of Food Science and Technology

Catherine Barnett

  • We need to;
    • extract value
    • Value adding is not always the best option e.g. Southern rock lobster is most expensive lobster in the world when it’s exported live
  • In last 100 years
    • 50% of animal species/varieties been lost
    • We use only 4% of plant species daily
    • 12 plants & 5 animals à 70% of food production systems

Peter Schutz

  • We need to:
    • Breed more varieties to increase genetic diversity
    • Use indigenous foods
    • Allow foreign investment in farms
    • Develop northern Australia

Georgie Aley

  • In the future
    • meat may not come from animals, we may have cultivated meat
    • 3-D printing may replace supermarkets

Michelle Cristoe

  • Business as usual is not an option
  • We need to:
    • incremental crop improvements
    • make better use of food produced (improve distribution efficiency)
    • look at the full or whole cost of food
    • decrease meat consumption for our health
    • decrease dependency on fossil fuels for energy in food production
    • accommodate changing marine zones with climate change

 

 

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About the Author
Stirling Tavener is a senior consultant with Anson Advisory, providing virtual CFO (Chief Financial Officer) type services to businesses and agribusinesses, aiming to improve the profitability and management ease of client businesses. Often a more structured and corporate-type approach is sought by clients to develop and implement strategy, efficiency, profitability and business development to promote growth. By using an experienced professional to problem solve, trouble shoot and coach, business owners can up-skill quickly and cost effectively for a fraction of the cost of a full-time CFO. The objective viewpoint an external professional can add to a business is priceless, as the lack of emotional attachment provides unbiased feedback to systematically improve operations. This external approach is great when assisting multiple owners of a business to determine fair and efficient decision making processes. Anson consultants can help setup suitable governance systems and processes to ensure the 'right approach' is taken for all owners. Other areas of specialty are; agricultural enterprises, grant writing, business development, business analysis and improved management reporting, business plans and cash flow projections to assist bank & government grant funding applications, negotiations for asset sales or purchases, land tenure and project management.