Where are the growth opportunities in Australian agriculture?
The optimism over the prospects of Australian agribusiness raises the question – where do the greatest growth opportunities lie?
Agribusiness was nominated by Deloitte in Building the Lucky Country: Positioning for Prosperity (BTLC#3) as one of the ‘fantastic five’ industry sectors which has the potential to take over from mining as key drivers of growth opportunities for the Australian economy over time. Of all the sectors in the Australian economy, agribusiness was the sector with the strongest combination of playing most to Australia’s competitive advantages and being a sector producing what the world increasingly wants.
This optimism over the prospects of Australian agribusiness raises a further question – where, within the sector with the greatest growth potential, do the greatest growth opportunities lie?
Australia's current, next and future waves of growth 2013-33
Source: Deloitte Access Economics
By employing the same framework used in BLTC#3 and tailoring for sub sectors of agriculture, Deloitte Access Economics has identified the ‘fantastic five’ of Australian agriculture being beef, lamb, aquaculture, dairy and oilseeds.
The next opportunities in agribusiness
Source: Deloitte Access Economics
This framework includes the agriculture-relevant global ‘demand drivers’ on the vertical axis, such as an increasing global population, increasing wealth of developing economies (increasing demand for higher value food such as protein), increasing ethical considerations in food and fibre production (e.g. animal welfare), and increasing demand for specific attributes of food products (food safety, food security, freshness and health consciousness). All of these demand drivers mean different things to the growth prospects for the different sectors of Australian agriculture.
The agriculture relevant ‘factors of advantage’ on the horizontal axis include themes such as cost of supply (e.g. labour, intermediate inputs, regulatory burden etc.), market access (e.g. trade barriers, spatial proximity), natural resources (e.g. rainfall, soil fertility), innovation and skills (e.g. education, access to technology), the macroeconomic environment (terms of trade) and supply chain efficiency.
Overall, compared to many other countries, Australia’s key advantages lie in its large area of arable land, relatively low land use conflicts (with urban and industrial expansion), its high biosecurity status, relative ease of doing business, technological readiness, high education levels, an innovative culture and its close proximity to export markets. Trade barriers (such as the removal of tariffs under free trade agreements) are also contributing further to Australia’s competitiveness.
Australia’s key disadvantages are its regulatory burden, rainfall, water availability and water reliability, low soil fertility, aged workforce and high labour costs. As with the demand drivers, these advantages and disadvantages have very different implications for different parts of Australian agriculture.
Beef, lamb and dairy
The key reasons for the optimistic positioning of the three livestock sectors of beef, lamb and dairy include the high demand for protein as a result of higher incomes particularly in Asia, the premium quality attributes of Australian meat and dairy, and Australia’s reputation for safety and security of supply. In addition, the growing concern for animal welfare should favour Australian livestock overall (compared to other countries) which is more comprised of free range animals than our competitors. Other Australian key advantages in red meat production include lower barriers to entry, and the ability for red meat production to occur on marginal land of Australia of which we have plenty (and can mean a low opportunity cost to red meat production from grazing).
One tempering aspect on demand is the recent decline in red meat domestically. The few disadvantages for Australian red meat production compared to other agriculture sectors Australian beef and lamb businesses are typically smaller operators and are widely dispersed meaning lower economies of scale and economies of density respectively. Dairy businesses, on the other hand, are larger and more regionally clustered meaning spillover effects from innovation are realised more readily and more specialised supply chains are possible.
Aquaculture’s strong global opportunity positioning is due to the; high demand for protein from rising incomes and demand increase from population growth. This is because fish have relatively high input conversion ratios (compared to other animal proteins) and require relatively little land area meaning fish represent a relatively efficient source of protein. Aquaculture also presents as a viable and sustainable alternative to decreasing wild fish stocks with the OECD and Food and Agriculture Organisation (FAO) suggesting that global fisheries growth (of 17% by 2023) is likely to come from aquaculture by which time aquaculture will represent 49% of all fisheries production globally. Furthermore, the widely publicised health benefits of fish appeal to an increasingly health conscious consumer base, particularly domestically. The land and/or ocean area available for aquaculture in Australia is extensive and aquaculture is not as affected by Australia’s natural resource restrictions of soil fertility and lower and unpredictable rainfall. Aquaculture’s regulatory burden, however, is considered higher on average than other agriculture sectors due to the requirement to hold permits, licences or quotas, environmental regulations (e.g. managing waste and spread of disease) and also export controls and food safety.
Oilseeds expected strong global demand is linked to its demand for both food products (from higher incomes) and biofuels (as alternative to fossil fuel sources). Temperate oilseeds are also seen as a more sustainable alternative to tropical oils such as palm oil (which is responsible for deforestation in tropical areas). Consumer health preferences are also likely to shift demand to oilseeds over less healthy animal-based oils or tropical oils. Australia’s key advantages of large land area for broad acre cropping and biosecurity status are highly relevant to oilseeds. In addition, oilseeds production is highly mechanised therefore it is not as affected by Australia’s high labour cost environment as some other labour-intensive sectors.