Reviving Australia’s export markets

Australia is a major agricultural exporter, but we also import a lot of foodstuffs, which means Australia’s domestic markets are open to international competition.

The value of global agricultural trade has grown considerably in recent years, at an average rate of approximately 8 per cent annually since 2000. For some regions of the world, such as Central and South Asia, South East Asia, Africa and the Middle East, the annual rate of growth has exceeded 12 per cent. That is much higher than the growth in most other traded commodities.

But over the same period, the value of Australian agricultural exports has been increasing at a rate of only 5 to 6 per cent a year. This means that in global agricultural trade terms, Australian agriculture is losing market share. We need to redress the balance.

Look at the key features of Australia’s agricultural export performance over the decade to 2014 (the most recent date for which comprehensive international statistics are available):

• The total value of our agricultural exports in 2014 exceeded US$41 billion, and has been growing at an average of 5 per cent per annum over the last 15 years.
• Beef was Australia’s most valuable agricultural commodity export. The average annual growth rate in the value of beef exports has been significantly higher than the overall annual growth rate in the value of all Australian agricultural exports.
• The annual rate of growth in the value of canola exports to 2014 was one of the highest of any commodity, averaging annual growth of 15 per cent, although this figure was achieved off a relatively low base. This was the fastest rate of growth for any of Australia’s 15 largest export commodities over the period.
• At the other end of the scale, the annual value of processed dairy products was growing at the slowest rate of any of our major exported commodities over the period.
• The value of wool exports continues to decline from the high values recorded during the mid to late twentieth century. The value of wool exports has only grown by an anaemic 1.4 per cent per annum over the past 15 years.
• The annual rate of growth in the value of exports of the 15 largest commodity export categories was approximately 6 per cent per annum, while the remaining commodity export categories (24 per cent of total agricultural exports) only grew in value by an average of 2 per cent per annum.

There have also been a number of significant changes in the export destinations for Australian agricultural products. These include:

• Nearly half of Australian agricultural exports by value are now exported to North Asia – China (including Hong Kong), Japan and Korea.
• The annual rate of growth in the value of agricultural exports to the ASEAN bloc nations was higher than for any other region, averaging over 10 per cent per annum for the period to 2012. Exports to ASEAN nations accounted for 22 per cent of the total value of agricultural exports in this period.
• The value of agricultural exports to the major European nations is growing at an average of just 1 per cent per annum, significantly lower than the average for all Australian agricultural export destinations. Subsequently, the proportion of the value of Australian agricultural exports destined for Europe is falling.

Australia’s absolute growth in trade to Asia is masking the fact that we are losing relative market share. Despite the growth in value of Australian agricultural exports to these regions, other agricultural exporters are having more success at capturing these emerging markets. Brazil and other Latin American nations in particular have experienced a rapid growth in the value of their agricultural exports to these regions, as have the US, China and Indonesia.

Higher exports, lower market share
All this means that Australia, which thinks of itself as a major agricultural exporter, is losing ground. This trend needs to be reversed, and quickly, if Australian agricultural is to fulfil its promise.

There are many reasons Australian agriculture has not been able to capture a greater share of the growth in agricultural trade over the past two decades. The product mix has not suited Australia. Much of the growth in agricultural trade, in Asia in particular, is in feed grains and oilseeds, both of which are used as feed for the intensive livestock (pork and poultry) and aquaculture sectors that are growing rapidly in this region in response to growing demand for protein in diets.

Another problem is that Australia is running up against natural limits of growth. Australia is a large country, but there is not a lot of extra land available for cropping, and neither is there a lot of extra water.

We can’t easily expand the area of our farmland, nor the volume of production. The grains sector has tended to specialise in producing higher quality milling grains, but Australia’s variable climate and limited supply of water for irrigation means that oilseed production is limited.

In the past Australian agriculture has been successful in increasing the value of commodity export categories, such as canola, beef, wine, sheep meats, live cattle and cotton. All these commodity products have experienced rapid demand growth in emerging Asian markets, and Australia has some specific comparative advantages in their production.

But overall, for a decade or more, Australia has had relatively flat productivity growth in the agriculture sector. Units of output per unit of input haven’t been increasing, which means we haven’t been finding new and cheaper ways to do things. We have not been innovating, or adding value. That has meant that our global competitors have been catching up with us in terms of their production and their capacity.

The problem is made even worse by the fact that we haven’t given enough thought to what we need to do improve the situation. It should be obvious that the way to increase the value of our production is to lift the value of our products – in other words getting more value from what we are already producing.

Telling the Australian story
Australia needs to think beyond producing bulk commodities. There are very limited growth opportunities in that direction. Instead, we need to start thinking about what will appeal to the new breed of global consumers who have more money in their pockets.

Our past success has made us complacent. There is simply no reason to assume that Australia’s proximity to rapidly growing markets in Asia provides an advantage over other national agricultural exporters. Australian agriculture needs to do more – much more – to move up the value chain, and to increase the unit value of agricultural exports. That is the best way to compensate for the lack of potential to increase the volume of agricultural production available for export.

That means changing our concept of value add and what it means. True value add means more than just food processing. It means changing the way animals are treated or the way crops are grown. And not only do we have to do that – we then have to let people know we have done it. There needs to be a story behind the production system – a process known as marketing.

Unfortunately, the Australian agricultural industry has done a poor job at marketing itself internationally. If you want to appeal to a wealthy consumer in China or India, it’s about more than just the quality of the product. That has to be right, but it’s also about the story behind this product. They need a compelling reason to pay more for an Australian product.

It’s a lot more than branding or sticking a green kangaroo logo on everything. We need to tell a story – and Australia has some fantastic stories to tell:

• Australia uses some of the lowest levels of inputs of virtually any country. We use fewer artificial fertilisers and chemicals than most other agricultural nations.
• We have a very high level of biosecurity. As an island continent with strict and well enforced quarantine laws we are free of many of the plant and animal diseases prevalent in other countries.
• We can trace and track product better than most. Our logistics systems are very good. Because of our internal distances we have to get fresh product to all corners of the country very quickly to meet domestic consumer needs. Getting it overseas is really not much more difficult.
• Australia pays very high levels of wages to workers working in the industry, while many other countries are based on extremely cheap agricultural labour. Australia has the original fair trade model. This is not necessarily a disadvantage, because of the high level of skill of staff employed in the sector.

All these things amount to a very strong, very positive story that should resonate with consumers who are concerned about the environment, who are concerned about ensuring people are treated fairly, and that the products that they are buying will not do them any harm.
But we have no common storyline around all this. We need to get the message out. To do that we need a combination of things. We have to start from a factual base, but we need to build emotion into it as well. It’s a combination of economics and statistics with storytelling. We need to put together a package of information about the nature of the production, the environment, and the way in which animals and crops are treated and grown.

It is a very good story, but we rarely see it as a selling point. Yet at the same time we see consumer demand in places like China absolutely skyrocketing for those sorts of products with those sorts of attributes.

Another problem is our lack of consistency and our failure to speak with one voice. It would be ideal if everyone who ever left Australia to sell product had the same story, that they understood it and could talk sensibly about it. The Kiwis do this very well. But we do not.

There are cultural and historical reasons why. Australia started off as six separate colonies, and whether we like it or not many of our laws and our systems are still state based. Each state has its own Department of Agriculture, and we end up with trade delegations from Queensland going to China one day, followed by New South Wales the next day and South Australia the day after that. Buyers in China have no idea where these places are, and don’t care. There needs to be a consistent message, and coordinated marketing.

The importance of biosecurity
Australia has a very good record in disease freedom and food safety – what is usually called biosecurity. When the mad cow disease outbreak occurred in the early-2000s, Japan and Korea immediately shut their borders to any imported product from a country that had the disease.

Fortunately, Australia had acted on the risk of that disease some 15 years earlier and had never had an incident, so we retained access to what are probably two of the most expensive beef markets in the world. That continued all through the 2000s when our competitors like Canada, the US, Brazil, Argentina and the Europeans were all locked out. It really highlighted the importance of the biosecurity systems we have here in Australia and the fact that we’ve been able to maintain them.

We are helped by the fact that we’re an island nation, and we haven’t got porous land borders that things move across and are difficult to control, but even so we have always had a very strong focus on biosecurity. But we haven’t capitalised on it as much as we could have.

We’ve had issues needing an urgent response that we’ve managed very well, such as equine influenza in horses and Newcastle disease in poultry. Our excellent biosecurity systems meant that both were quickly managed and subsequently eradicated.

Food safety is also a very big issue in dairy. China has had major problems with contaminated milk, for example. Australia has a very strong record. The key is getting milk down to a safe temperature and then maintaining the cold chain right through to the consumer. That comes back to our excellent logistics. Because of the distances in Australia, we’re very good at it – after all, Australia invented refrigeration for meat export.

So how do we gain better access to foreign markets? Are bilateral or multi-lateral free trade agreements enough, or should we be doing more in terms of government or industry initiatives?

Australia’s free trade agreements with Japan, Korea and China are a great step forward. We never got far with multilateral trade agreements in the World Trade Organisation. But rules can be modified and conditions can shift. There is a need for constant vigilance on how those systems are working and the specific rules that need changing or modifying.

And once your product is in that market and consumers get a taste for it, there is a much lower propensity for governments to then subsequently restrict it, because it is then a political issue in the home market as well. Once you get your foot in the door, you can build greater momentum and greater access to that market over time.

Adding value
Australia has very good technologies in food processing, which also means opportunity. In many cases our production systems at the farm level are unique. For example, our sheep and cattle industries are based on grazing, and our broad acre cropping industries are almost entirely rain fed.

When you look around the world, those production systems aren’t all that common. Globally, irrigation is much more common. The main sources of protein are aquaculture, pork and poultry, not grass-fed sheep and cattle. Some of the African and South American countries have similar production systems, but not so much in Asia where pork and poultry are the main sources of protein.

And it is not just product. Some of the technology and expertise we have here is very good and exportable to those nations. Australian farmers are very big users of technology, which helps their productivity enormously. We’ve been driven to it because wages are quite high in Australia, so there’s quite a strong pressure to substitute away from labour and use technology wherever you can.

Australian farmers are quite technology savvy, compared to some of their counterparts internationally, and that has been a big focus on the way production systems have evolved here. Crop farms in Australia are generally many times larger and produce many more tonnes of grain than what you see in international farms, and that’s partly as a consequence of technology.

As we improve technology, does price become less important as a buying factor? We had the example of the pork industry selling premium priced and quite expensive pork into China and the fact that it becomes very much a question of quality rather than price.

We are seeing this happen in some of our production sectors, but it needs to happen a lot more. It is least evident in grains and oil seeds, because predominantly they reach the consumer as a processed product. Consumers don’t get to see where it comes from, and they’re probably not very interested anyway.

But when it comes to red meat and many horticulture products, there’s a great deal of interest in where it came from, who produced it and how it was produced. That creates an opportunity for premium products in those markets. It’s not a one size fits all, but certainly in the livestock industries and in the horticulture sector there are real opportunities, and also in fibres, such as wool and cotton, where there are opportunities for premiums based on our quality.

Australian agriculture has wonderful opportunities globally. But we need to change our way of thinking, and the way we address those opportunities. Nothing less than the future of Australian agriculture is at stake.


About the author: Mick Keogh is Executive Director of the Australian Farm Institute, an independent policy research institute that conducts research into strategic policy issues of importance to Australian agriculture. In 2016 he was named the first ever Agricultural Commissioner of the Australian Competition and Consumer Commission (ACCC). He has also been chairman of the National Rural Advisory Council (NRAC), a statutory body which provided advice to the Minister for Agriculture, Fisheries and Forestry, and is a member of the CSIRO Sustainable Agriculture Flagship Advisory Committee.