BEN NIXON. Associate Director of Global Agribusiness Research, ANZ UWA FUTURE FARM 2050

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1 BEN NIXON Associate Director of Global Agribusiness Research, ANZ UWA FUTURE FARM 2050

2 GREENER PASTURES The Global Soft Commodity Opportunity for Australia and New Zealand UWA FUTURE FARM 2050

3 Key themes Australia and New Zealand stand to capture an additional A$ trillion and NZ$ trillion respectively in agricultural exports between now and However, both countries face significant headwinds and it doesn t follow that seizing the prize will happen of its own accord. Maximising growth will require overcoming capital constraints, skill shortages, land-use conflicts and inefficient water markets, unfocused R&D and extension services, rising supply chain costs and market access limitations. Australia and New Zealand agriculture will need to find innovative ways to attract domestic and foreign investment between now and 2050: A$600 billion and NZ$210 billion will be needed to enable production growth A further A$400 billion and NZ$130 billion will be needed to support farm turnover Leadership and commitment from all stakeholders will be critical in unlocking the full potential of Australian and New Zealand agriculture. 3

4 Strong demand growth expected Global agricultural demand Index Growth drivers Rapid convergence Scenario T e x t > 1 2 Rising incomes Lead to higher calorie diets Lead to more land and water resource intensive diets Population growth From 7 billion in 2011 to 9.3 billion in 2050 FAO Forecast 3 Increasing use for biofuels Could account for up to 7% of agricultural demand in 2050 * Vegetables includes pulses, spices, roots and oil crops; Other Animal products includes milk, eggs, aquatic products and cheese and excludes meats Source: FAO; UN; PJP Analysis 4

5 Potential for sustainable resource expansion is limited Global land area Percent of total area Agricultural land area Million hectares Urban and other areas 100% Desert Forest Area Non-crop Agricultural land area Crop Source: FAO 5

6 with particular shortages in key growth markets Arable land* Hectares per capita 2.15 Annual renewable water supply* Million litres per capita 75.6 Continents Major growth markets Selected exporters * Land and water data for Renewable water supply includes freshwater only from surface and underground sources, which include rainfall Source: FAO 6

7 Productivity growth may not be sufficient to fill the gap Average annual growth rate by period Total Factor Productivity Grain yield* Rapid convergence scenario Possible range of future demand growth during FAO scenario * Global production of maize, rice and wheat divided by area harvested of these crops Source: Total factor productivity in the global agricultural economy: evidence from FAO data, Keith Fuglie

8 Enormous prize for Australia and New Zealand Real export revenues* Australia, A$ Billions New Zealand, NZ$ Billions High Case Base Case Growth drivers Developing economies converge faster than Base Case Australia/NZ production shift to higher value products by: Producing more differentiated commodity products Manufacturing value-added products in niche areas Global agricultural demand grow at 1.3% p.a. with Australian/NZ exports growing faster reflecting: Current product mix Historic performance * Revenues expressed in real 2011 dollars. Real commodity prices are assumed to remain constant Source: FAO; Australian Bureau of Statistics; Australian Bureau of Agricultural and Resource Economics and Sciences; Statistics New Zealand; PJP Analysis 8

9 Internal capital is insufficient to fund future needs Agricultural capital requirements year 1* Australia, A$ Billions 2 7 Cumulative gap to 2050 is A$515 billion Other farm Broadacre Infrastructure Dairy New Zealand, NZ$ Billions 1 3 Cumulative gap to 2050 is NZ$110 billion Other farm Dairy Infrastructure Sheep & beef Production growth Capital required for: Capital sourced from: Farm Internal + = Total - Debt - = turnover equity Gap * Based on Base Case export growth scenario Source: Australian Bureau of Agricultural and Resource Economics and Sciences; Australian Bureau of Statistics; New Zealand Ministry of Agriculture and Forestry; Capital IQ; PJP Analysis 9

10 Both countries need to overcome major challenges Key Area Challenge Capital Resources R&D Farmers cannot raise sufficient capital to fund growth and support farm turnover Skill shortages and succession concerns due to ageing farmer populations Escalating land-use conflicts and inefficient water markets Agricultural R&D programs lack focus and coordination Knowledge Adoption Large gaps in farm performance, both in yield and profit Supply Chains Declining performance and increasing costs Market Access Insufficient understanding of needs of growing markets and little progress outside FTAs Competitive Position No longer low cost producers for major commodities Insufficient emphasis on building differentiation 10

11 UWA FUTURE FARM 2050 THANK YOU