Presentation to UWA 2012 Institute of Agriculture Industry Forum

Transcription

1 Presentation to UWA 2012 Institute of Agriculture Industry Forum 19 July 2012 Hello everyone - thank you all on behalf of the Australia China Business Council for the opportunity and honour to address you today. My name is Duncan Calder and I am the President of the ACBC here in Western Australia. I am also a partner of an accounting firm but I will be speaking today in my ACBC capacity and the views expressed are my own. My presentation is titled Australia and China Cooperation in Agriculture for Win-Win. I will address these points: The importance of food security to China The challenges facing Australian agribusiness The opportunity for win-win outcomes I will also touch on barriers to achieving this co-operation, Finally, I will close with a brief advert for the ACBC. 1

2 China has 21% of the world s population but only 8.5% of the world s arable land and just 6.5% of the world s water reserves. Agricultural production in China is water intensive. Water is a very serious issue for China. China s rapid urbanisation over the last 30 years has swallowed up farmland, and diminished water resources. Today, China has 89 cities with a population greater than one million. 50% of Chinese people live in urban areas. A generation ago, that was less than 20%. McKinsey forecast that by 2030, this will increase to 65%. Between 1996 and 2006, China lost 6.5% of its total arable area. The adverse effects of climate change are potentially damaging to food security with a recent report by the UK-based Centre for Low Carbon Futures projecting marked increases in drought severity across much of Asia. These trends are of genuine political concern in Beijing. 2

3 So, having looked at the challenges facing food production in China, let s look now at the demand side. Here, the picture is very different. Food consumption in China has increased at an average annual rate of 23.4% from US$57 bn in 2000 to US$463 bn in This growth rate is five times faster than that of India. China now consumes the second most amount of food of any country in the world, behind only the US. China s GDP per capita has grown more than five fold in the past decade from just over US$1000 to over US$5,000. However, the growth in income has not been even across the country. Like other growing emerging economies, urban incomes in China have increased at a much faster rate. In 1978, China s annual consumption of meat was eight million tonnes. It is now 71 million tons more than twice that of the United States. As with other advanced economies, with rising incomes, the per capita consumption of staple foods in China has declined, with exponentially 3

4 increasing demand for higher quality and higher protein. This chart shows the increasing Chinese urban per capita consumption of beef, mutton, poultry and milk. China produces and consumes more than half of the world s pigs each year. There has been a tremendous increase in demand by China for agricultural produce like soybeans and corn as animal feed. Today, China consumes 25% of the world s soybeans, 20% of the world s corn and 16% of the world s wheat. It was not that long ago, in 1979, that one in three people in China went hungry. China and her leaders have since done an exemplary job in feeding the Chinese people. China s leaders have long set a target of 95% self sufficiency in four key grains rice, wheat, corn and soya beans. The importance of a stable food supply to China s social cohesion and hence its political stability cannot be overstated. 4

5 First, the agriculture sector plays a critical role in feeding the people, particularly the rural population, where rice is a staple for 60%. A hungry person is an angry person Second, rising food prices as a result of supply shortages have a profound impact on inflation. China s inflation last year averaged about 6% with as much as 2 percentage points due to rising food prices Third, the agriculture sector employs onethird of China s total labour force with nearly seven out of every ten rural workers employed in agriculture Fourth, the increasing divergence between urban and rural incomes is causing deep splits within China. A strong agriculture sector is one way to rebalance China s income disparity towards the rural areas. The importance given to agriculture by China s leaders can be seen in China s 12 th five year plan. The plan seeks to promote modernisation of the sector by: upgrading agriculture infrastructure; 5

6 preserving farmland; and growing productive capacity through farmland consolidation and increased grains production. Over the medium term, to achieve its 95% self sufficiency target, China will need to produce 580 m tonnes of grains by 2020, up from a 2010 level of 546 m tonnes. The loss of arable land and water constraints mean that the Chinese government will find it increasingly difficult to meet its target. For example China has become a net importer of wheat since What happens in China now has a much more immediate and significant impact than in the past. There is a simple law called the Law of the Chinese Percentage. And that law is - by virtue of its size, any small percentage change in China will have a big impact on the world. If for whatever reason there is a shortfall in food production in China, it will have a big impact on world supply and on world prices as China turns to international trade channels. 6

7 Will the world be ready if and when that happens? Let s move on to some of the challenges facing us here in Australia. 1. We have had insufficient expenditure on Research and Development. China is a leader in R&D. China overtook Japan last year to become the second largest investor in R&D in the world. China is a great potential source of innovation. There is huge opportunity for Sino Australian collaboration to commercialise research. 2. We have an ageing farming population and falling agri-graduate numbers that means we are facing agricultural labour and skill shortages. China produces more than 100,000 agriculture graduates and post-graduates 7

8 each year; we produce less than one thousand. Perhaps China can be part of the solution. 3. We have limited capital. Many of our agribusinesses are highly leveraged and it is often difficult to raise capital to expand businesses and to seize consolidation and growth opportunities. Chinese companies, in contrast, have access to significant capital reserves, in particular for investment in projects that address pressing national issues such as resources and energy security and, of course, food security. In his 2012 Government Work Report, Premier Wen Jiabao emphasised food security, saying that China will encourage companies to buy, invest and joint venture in agriculture. 4. We have a lack of critical infrastructure in transport and processing. 5. Our farmers feel like they are producing more and more for less and less and they often have no security of offtake. China can potentially provide long term offtake agreements. 8

9 6. We face intense competition globally with many of our competitors receiving greater levels of Government subsidisation and having the benefit of free trade agreements with China that favour their produce 7. We have many owners of Australian agriassets who are looking for exit strategies. China again provides potential solutions. But, having talked about our challenges, we must also remember our many strengths: We have a healthy, clean, green image We have achieved large productivity increases and have expertise in using climate sensitive precision agriculture techniques We have relatively low sovereign risk and are seen to be a reliable source of supply We run a healthy agricultural trade surplus with agri exports almost triple our agri imports. And we have the potential to significantly increase output. I would now like to touch on how Australia can help to meet China s food security needs and how China can help us, so both sides can achieve win-win outcomes in agriculture. 9

10 China is increasingly becoming an important market for our agricultural exports. In the decade to 2010, Australia s agriculture exports to China increased by over 60% to A$4.6 billion. China s percentage share of Australia s agriculture exports doubled - from 7% to 14%. For Western Australia, our major agriculture and food exports to China are wool, crayfish and pearls. Austrade has also identified Chinese interest in a range of Australian products. This range is likely to expand as Chinese palates becomes more westernised. Dairy is a key area where Australian producers have a strong reputation for health and cleanliness.. The melamine contaminated milk scandal of 2008 which killed six Chinese children has meant 10

11 that Chinese consumers often do not trust their own milk products. Food safety is very much front of mind for Chinese consumers and those with money are prepared to pay premium prices for quality produce. This is a great opportunity for our dairy producers to sell more milk to China and in fact, to invest in dairy farms there. New Zealand s Fonterra group has already opened its third dairy farm in China. This year alone China will import 100,000 dairy cows to add to its growing herds. More than one third will be supplied by Elders here in Australia. So, let s summarise some of the exciting opportunities for co-operation and win-win outcomes: Collaboration in R&D projects to commercialise China s great research and to exploit technology to raise agricultural productivity Collaboration in sharing human resources. Also the sizzle factor of Chinese investment can potentially make agriculture more attractive and appealing as a career choice 11

12 Securing Chinese capital for transportation for power and water and processing infrastructure such as abattoirs and flour mills can enable us to develop Australia s large tracts of unused or under-utilised land Sharing Australian expertise in securing productivity increases and sharing Chinese expertise in irrigation Partnering to deliver exit strategies for farmers Partnering to jointly commercialise water conservation and management practices. And last, but not least, finally agreeing a Free Trade Agreement with China. The picture that emerges overall is that there is certainly a lot of upside potential for Australian agricultural exports to China. We are just scratching the surface of the Chinese market. There are, however, barriers to realising these opportunities. First and foremost is community sensitivity to foreign direct investment. 12

13 Unfortunately, the Australian media often overstates the reality of Chinese investment.. China accounts for only 0.9% per cent of total foreign investment in Australia far less than the 27 per cent owned by US investors and the 23 per cent invested by the British. In fact, Chinese investment applications as a whole, fell from the peak in 2008/2009 of $26.6 billion to $15 billion in last year. So, as a country, Australia is now facing falling investments from China. And this in my view is more concerning to our economy than any perceived issue that may arise from too much Chinese investment. 13

14 Australian media reporting gives the impression that there is a charge by Chinese companies to buy good agricultural land. The ABS recently released agricultural land ownership data based on a survey of 11,000 agricultural businesses. It found that 89 percent of the surveyed agricultural land in Australia was wholly Australian owned. For Western Australia, the figure was 91%. Now, of course, this can be challenged so let s get on with setting up state registers of ownership of our agricultural land. Too much of this debate occurs in a fact free zone and that needs to be fixed. But please let me dispel a myth that the lack of a register means that Chinese State Owned Enterprises may be buying up land all over Australia and we don t know anything about it. This could not be farther from the truth. Our FIRB rules are very precise and tight. If a Chinese SOE invest $1, that s right just $1, into Australia it first needs FIRB approval. So 14

15 there is no doubt that Chinese SOE investment into our agri sector has been tiny. In fact if we look at all approvals last year by the FIRB for foreign investment from all countries - less than 1 percent was in agriculture, forestry and fisheries. Investment into the sector has been falling for the last three years. To date, China s investments in the WA agriculture sector have been few and far between. This is wasteful when you consider that we have a close sister-state relationship with Zhejiang Province, the historical heart of the Chinese agricultural sector. We also have the advantage the the Chinese Consul General in WA, Mme Wang Yiner, hails from Zhejiang. As we celebrate the 25 th anniversary of the sister state relationship between WA and Zhejiang this year, the Department of State Development is planning a forum in September that will facilitate focussed discussion with Zhejiang businesses. It will look at potential 15

16 agri- industry and tourism infrastructure opportunities of mutual interest. Shanghai Zhongfu Group, who are represented in Australia by Bob Hawke, has bid for rights to farm 15,000 hectares under the expansion of the Ord River irrigation scheme; a project that has lacked the investment and transport links of the scale needed but which China can provide. I think the figures clearly show that we are still far, far from selling the farm. Perhaps because China is the new kid on the block, there tends to be unease whenever there is talk of Chinese investment. This is also compounded by the fact that, compared to our traditional partners, China has a different culture and a more opaque political system. The recent 2012 Lowy Institute Public Opinion and Foreign Policy poll showed that Australians had the warmest feeling towards New Zealand, the US and Japan in that order. China was in the middle of the pack. But, importantly, compared to 2011, community attitudes toward China had improved the 16

17 greatest amongst all the countries surveyed. So, we are making some progress. But significantly, on Chinese investment in Australia, the poll again showed that a majority (56%) held the view that the Australian government is allowing too much investment from China. If we filter these views through the reality of the miniscule, actual level of Chinese investment to date, we can see that there is a big disconnect between perception and reality. I am of the view that the whole debate about Chinese participation in our agriculture sector should be reframed. We need to take the first step and work closely and proactively with China and its investors, to guide them on: how best to invest in our agriculture sector, and what are our priority areas for investment so that Chinese investment and capital can help us to increase our long term productive capacity. 17

18 We need to educate the community in order to dispel the fear of the unknown. Let s not forget that foreign buyers can t take the land with them! Chinese interest in our agricultural sector has intensified in the last 18 months and the time for us to work out how best to respond to that interest to our benefit is right now. Indeed Trade Minister Dr Craig Emerson has advised that China and Australia are undertaking a joint study on how we can cooperate in agricultural investment and technology. ACBC is keen to work with industry and government to advance positive investment models and to promote a blueprint for Chinese investment in agriculture. Chinese trade and investment can help Australia s agribusinesses to enter a new era of growth and prosperity. My final topic this morning is a very brief introduction to the Australia China Business Council. 18

19 We are a national-based organisation to promote business, investment and trade between Australia and China. Our sponsors include many companies in the energy and resources sectors, but none yet from the agriculture sector. Please feel free to participate! Our main objectives are: networking, political relationships thought leadership; and lobbying. Chinese people like to deal with people who they know and trust. It is important to understand and appreciate Chinese perspectives and values if you are to seize the opportunities for Australian agriculture from cooperation with China. ACBC can help you to capitalise on these opportunities. So, if you are not a member, we welcome you to join us. 19

20 Thank you all for your attendance and attention. 20