Strategic Investment Plan Macadamia Industry

Transcription

1 Strategic Investment Plan Macadamia Industry

2 Table of Contents Introduction 4 Executive Summary 5 Identifying opportunities to improve productivity of the existing orchard base 6 Identifying and advocating opportunities for orchard development and expansion 8 Sharing knowledge and facilitating the implementation of productivity improvements across the industry 12 Optimising the value of Australian macadamias in new and existing markets 16 Promoting industry successes to increase the confidence and investment of the macadamia industry 24 Preparation of this Strategic Investment Plan 28 Phase 1 - Situational analysis and issues paper and investment of the macadamia industry 28 Phase 2 - Scenario analysis 28 Phase 3 - Consultation 29 Phase 4 Draft plan and industry feedback 30 Preparation of this final SIP 30 Supply: Growth of the global macadamia industry 32 Demand: Economic and social changes 32 Key issues 32 Sustainability: The continued viability of farm investment 33 Industry Situational Analysis 35 Macadamia production 35 Growers 36 Markets 37

3 Strategic Investment Plan Investment objectives 38 Strategic investment areas 40 Program areas 41 Action Plan 43 Objective 1: Sustainably increasing the productivity of Australian macadamia farms 43 Identifying opportunities to improve productivity of the existing orchard base 43 Identifying and advocating opportunities for orchard development and expansion 46 Extension & Adoption Program 50 Objective 2: Optimising the value of the Australian macadamia industry across the supply chain 54 Objective 3: Improving stakeholder confidence in the Australian macadamia industry 63 Monitoring and evaluation 67 Overall plan performance 67 Selection of R&D providers 71 Review of the SIP 71 Alignment with Commonwealth Rural R&D Priorities 72 Financial analysis 74 SIP investment forecast 74 Economic cost benefit analysis 77 Recommendations to levy adjustments 80

4 Introduction The Australian macadamia Strategic Investment Plan (SIP) was developed in consultation with key macadamia industry stakeholders. The consultation process was broad and inclusive allowing all levy payers and other relevant stakeholders to provide targeted and detailed input. The SIP includes a solid understanding of realistic supply and demand, and the realistic contribution which research and development (R&D) investment could make towards grower returns through optimising the return on levy funds, and maximising the industry s leveraging of that investment. The SIP also builds on the foundations of the SIP and developed in the Australian Macadamia Strategic Marketing Plan (SMP) for The industry today is facing latent and unmet demand from markets and is suffering from a decline in productivity. Recent levy spending has seen R&D budgets in deficit while a surplus of marketing funds remains. The recommended future split of levy funds is an allocation of 60% to R&D and 40% to Marketing, effective from the 2016/17 financial year. The split is currently 35% R&D and 65% Marketing. It is noted that other levy splits were assessed when determining the new ratios. The R&D and Marketing programs identified in this SIP are recommended on the approval of these changes to the levy split. An earlier implementation of the modified levy split is preferable and would allow greater funding to be directed to the Extension and Adoption Program for the investment in the macadamia industry. 4 Macadamia Industry Strategic Investment Plan

5 Executive Summary This SIP is the culmination of extensive background analysis and stakeholder consultations across the macadamia industry, including: a comprehensive analysis of the key political, economic, social, technological, legal, and environmental issues affecting the industry from a supply and demand perspective both in Australia and globally a series of workshops with key industry representation from growers, owners, handlers, processors, marketers, Horticulture Australia Limited (HAL) and government input from R&D and Marketing subcommittees, Industry Advisory Committee (IAC) and independent regional growers. 1. Sustainably increasing the productivity of Australian macadamia farms 2. Optimising the value of Australia s macadamia industry across the supply chain 3. Improving stakeholder confidence in the Australian macadamia industry Three key investment objectives have been identified: In establishing these objectives, the industry identified that increasing industry productivity and optimising value were of greater importance and that achieving these objectives will contribute greatly to improving stakeholder confidence. To achieve these objectives, R&D and Marketing levies will be directed towards the following key strategic investment areas: Identifying opportunities to improve productivity of the existing orchard base Identifying and advocating opportunities for orchard development and expansion Sharing knowledge and facilitating the implementation of productivity improvements across the industry Optimising the value of Australian macadamias in new and existing markets Promoting industry successes to increase the confidence and investment of the macadamia industry Macadamia Industry Strategic Investment Plan

6 Identifying opportunities to improve productivity of the existing orchard base The Productivity Programs An holistic and integrated approach covering pest, disease, canopy, orchard floor, nutrition, pollination and machinery access management Headline key performance indicator for program Increase SKR/ha from 0.8 tonnes/ha to 1.2 tonnes/ha Key activities Identify and develop orchard management systems which consistently improve productivity outcomes in relation to: canopy management soil and nutrition management crop protection harvest and handling technologies ensuring consistency of quality and integration of safe food handling Design and implement paddock level monitoring systems to enable grower progress to be determined Conduct a mixture of field and laboratory research and grower trials Produce data and recommendations to inform the Extension and Adoption Program 6 Macadamia Industry Strategic Investment Plan

7 Key outcomes The development of evidence based holistic management systems which answer the key questions surrounding declining productivity tailored to specific regions and farm types Agreement around productivity targets for various regions and production systems which support and encourage adoption of new practices A limited and highly focused new research program targeting key knowledge gaps and productivity risks The understanding that extension activities will be undertaken in partnership with the Extension and Adoption Program The critical mass of cross disciplinary research activity which will encourage effective engagement from our research partners Key challenges and risks Managing a cross disciplinary program to deliver holistic management systems Developing research briefs with sufficient clarity and focus for R&D provider engagement Achieving strong collaboration between R&D partners and industry An adaptive and innovative approach will require strong Industry leadership Program KPIs Increase saleable kernel per hectare from 0.8 tonnes/ha to 1.2 tonnes/ha Increase farm value per hectare by 5% at a compound annual growth rate (CAGR) Macadamia Industry Strategic Investment Plan

8 Identifying and advocating opportunities for orchard development and expansion Future Orchards Varietal Improvement Program Expand the production base through new varieties Headline key performance indicator for program New plantings of 1,000 ha in 5 years, including maximising the adoption of new varieties Key activities Breeding new varieties that are smaller, higher yielding and meet consumer requirements Identifying new rootstocks that are dwarfing and disease resistant Identifying and supporting the conservation of wild populations Developing evidence based recommendations for new plantings through regional trials Developing economic models to support investment in new plantings Developing nursery propagation systems that can meet industry requirements 8 Macadamia Industry Strategic Investment Plan

9 Key outcomes New varieties that are 30% or higher yielding with comparable consumer perceived quality Dwarfing rootstocks developed as part of a comprehensive small tree program Clear recommendations for new planting for existing and potential growing regions Sound economic rationale for investing in new plantings and orchard replenishment Clean, quality, true-to-type nursery stock available in sufficient quantity Remaining wild populations are protected and managed and the germplasm protected Key challenges and risks Establishing an effective breeding program and regional variety testing with limited financial resources Ensuring a planned and effective rollout of new varieties Gaining levy payer support for breeding and attracting new investment for R&D programs Breeding new varieties that deliver a substantially better increase in productivity and/ or quality to justify the investment Loss of capacity through government organisations to undertake breeding work Program KPIs New plantings of 1,000 ha in 5 years, including maximising the adoption of new varieties Licenses for production of top 10 varieties awarded Conservation funding to secure the ongoing protection of the germplasm Orders taken for first 150,000 trees of new varieties Macadamia Industry Strategic Investment Plan

10 Future Orchards New Orchard Systems Expand the production base through next generation orchard systems Headline key performance indicator for program 200 hectares of greenfield plantings each year adopting recommendations for maximising orchard productivity Key activities Integration of all relevant research and practice to deliver the next generation of orchard management systems Participation and involvement in the multi-industry small tree program Continued research to develop a sound understanding of macadamia tree physiology Continued research on biological crop protection practices Development of a multi-disciplinary, multi-agency future orchard systems program Develop economically viable replanting technologies and practices Key outcomes Greater confidence to invest in new orchard development Expanded production base and increased production Improved orchard productivity Greater adoption of best practices and innovation including cultural and biological crop protection practices; reduced soil loss; tree architecture and orchard design; and mechanisation 10 Macadamia Industry Strategic Investment Plan

11 Key challenges and risks Long term, multifaceted nature of the research Attracting investors up to $500m needed Climate change Insufficient resources to make a difference Fluctuations in the AU$ Availability and affordability of new land Loss of research capacity through government organisations Program KPIs 200 hectares of greenfield plantings each year adopting recommendations for maximising orchard productivity Macadamia Industry Strategic Investment Plan

12 Sharing knowledge and facilitating the implementation of productivity improvements across the industry Extension & Adoption Program A proactive systemised extension and adoption program that is focused on packaging industry knowledge and driving industry adoption to increase orchard productivity and profitability. Headline key performance indicator for Program Increased SKR/ha from 0.8 tonnes to 1.2 tonnes/ha Key activities Identify key stakeholders Identify and understand grower capacity (demand, interest, ROI) Develop a systemised pathway of communication to growers including: adaptable to a range of differing issues utilising a range of distribution channels Acquire information from industry measurement and monitoring program to identify grower demand and the subsequent required R&D products/outcomes Formation of an annual operating plan (AOP) for the program with key stakeholders Provide capacity to resource industry emerging issues: operations would be undertaken on a quarterly basis meeting with key stakeholders, understanding the issue and resourcing potential solutions. 12 Macadamia Industry Strategic Investment Plan

13 Key outcomes Integrated extension program for the key practices influencing productivity measurable improvement in adoption for each targeted practice Increased stakeholder confidence and new investors More consistent and predictable production volumes and kernel quality levels Key challenges and risks Managing and implementing a cohesive and consistent message through the industry shared pathway Lack of grower demand for R&D outcomes Lack of stakeholder engagement and confidence in Extension and Adoption Program Program KPIs Increase SKR/ha from 0.8 tonnes to 1.2 tonnes/ha Macadamia Industry Strategic Investment Plan

14 Industry Measuring and Monitoring Establish an industry dashboard to measure and monitor the achievements/progress of productivity at the industry and individual enterprise level Headline key performance indicator for program Successful launch of a draft dashboard and usage levels (how to quantitative measures) Key activities Continue to conduct annual grower benchmarking Continue and expand the grower demographic study Coordinate group sessions on a regional basis to share best practice Develop monitoring of new-to-industry investment in macadamia farming Issue an annual industry progress statement 14 Macadamia Industry Strategic Investment Plan

15 Key outcomes Activities become a regular and integral part of ongoing industry infrastructure that supports improved decision making and investment analysis A clearer and shared understanding of industry progress across all stakeholders Encourage new, knowledgeable investment in the industry Key challenges and risks Measurement and management tools needed to extend from specific project measurement and embrace broader industry analysis Inability to develop a sustainable resource to undertake and complete these tools Information presented doesn t inspire confidence in stakeholders Industry participants not buying-in to the process which limits industry feedback and input and thus the relevance and effectiveness of the dashboard Program KPIs Maintain minimum 50% grower participation in benchmarking while extending the number of benchmark metrics gathered Successfully launch draft dashboard Deliver annual industry progress statements to schedule Macadamia Industry Strategic Investment Plan

16 Optimising the value of Australian macadamias in new and existing markets Identify and deliver the most compelling features that influence consumer willingness to pay Headline key performance indicator for program Build a consumer price that can maintain <25% movement off the average farm gate price Key activities Undertake a product segmentation analysis to map optimum ROI market opportunities including in shell and kernel Research to test price elasticity by market segment, prioritise most desirable product attributes and understand consumer behaviour In consultation with marketers prioritise market opportunities by industry capacity, capability and best returns Develop solutions to improve our delivery of the most desirable product attributes such as sensory quality, health benefits, CSR/sustainability, food safety, other quality factors Undertake further research as needed to support product attributes such as health positioning, sensory quality Develop tools (fact sheets, trade detailers) to assist marketers in their delivery of product attributes Assess opportunities for sharing information with other origins where there is greater financial reward in doing so 16 Macadamia Industry Strategic Investment Plan

17 Key outcomes Segmentation analysis that clearly shows the best ROI opportunities by segment by region/country by volume and that provides a map of best product fit within the industry business model constraints Market advantage with the Australian industry having the best understanding of the macadamia consumer and competitive landscape Practical tools that marketers can use to add value to their own businesses Key challenges and risks Obtaining marketer buy-in to a new way of segmenting the market and changing practice The ability to deliver on specific desirable product benefits may be difficult to achieve or beyond our control That the timeframe to research results may be lengthy Program KPIs Increase consumer awareness scores of product attributes (relevant to target region) Achieve a wholesale premium over other tree nuts of 50% over the average Maintain <25% movement off the average farm gate price Macadamia Industry Strategic Investment Plan

18 Capitalise on the Australian Advantage Position the Australian industry as the leader and key source of reliable, valuable information. Build on existing communication platforms and messaging to deliver core brand messages to consumers, customers and industry stakeholders under the Australian brand Headline key performance indicator for program Wholesale premium over other regions of 10% above the average Key activities Maintain and further develop platforms including the global website and social media channels Maintain and further develop communication tools including the trade blog, newsletters Maintain existing and develop new customer databases Ongoing development of new messaging Ongoing development of compelling content and collateral including images, recipes and videos Monitoring programs to track effectiveness Key outcomes Confidence in Australian brand communication and that Australian brand platforms are the go-to reference point for consumers, customers and stakeholders Consistent look and feel across all communication platforms in line with brand guidelines Availability of information on the right product for right market 18 Macadamia Industry Strategic Investment Plan

19 Key challenges and risks Managing a broad range of platforms, tools and languages Keeping the messaging fresh and relevant Managing expanding number of platforms as digital technologies advance and managing user transition when decommissioning underperforming platforms Program KPIs Wholesale premium over other regions of 10% above the average Wholesale premium prices (10% above the average) for Australian macadamias over other origins achieved +50% of the time Macadamia Industry Strategic Investment Plan

20 Drive consumer awareness of the macadamia story Target consumers directly to promote the benefits of macadamias using cost effective new technologies and channels Headline key performance indicator for program Increased consumer awareness scores of product attributes (relevant to target region) Key activities Build on the success of previous campaign strategies to refine, develop and implement annual consumer campaigns for priority market segments Monitor effectiveness of campaigns with pre-determined KPIs Where appropriate share content between agencies Ensure customers and stakeholders are informed about activities prior to implementation Key outcomes Market advantage for Australian marketers through tailored messaging to the right end customer Increased visibility of Australian macadamias to customers Increased reach of the Australian macadamias marketing messaging Campaigns will support activities of marketers 20 Macadamia Industry Strategic Investment Plan

21 Key challenges and risks Managing multiple agencies and personnel Sourcing new agencies in global markets if needed Ensuring that all agencies uphold brand guidelines and messaging Managing the effective closure of campaigns if needed Program KPIs Achieve media coverage reach in excess of 40 million Increase consumer awareness scores of product attributes (relevant to target region) Macadamia Industry Strategic Investment Plan

22 Leveraging our investment through the supply chain Leverage our investment internally and through the supply chain by effective management of the program and by providing more information and reasons to adopt industry strategies and messaging in commercial businesses. Headline key performance indicator for program Maintain primary marketer engagement at minimum 80% of primary marketers Key activities Coordinate and manage the overall marketing program (MDM) Subscribe to research and information databases Collate and analyse research and information Prepare and distribute reports on the program, research and information through the brand platforms and databases Co-ordinate events to bring together industry participants to learn more about the program and activities Co-ordinate forums for industry participants to work together on developing risk mitigation strategies and scenario planning 22 Macadamia Industry Strategic Investment Plan

23 Key outcomes Marketing program is managed to a high standard Reports, research and information distributed to agreed timeframes Annual operating plans are developed and distributed to agreed timeframes Australian industry well placed to react to changing market circumstances Program messages are adopted by secondary marketers within their own communication plans Key challenges and risks Managing a broad range of subscriptions and information Managing competitive tensions Program KPIs Maintain primary marketer engagement at minimum 80% of primary marketers Increase engagement with secondary marketers by 5% per annum Macadamia Industry Strategic Investment Plan

24 Promoting industry successes to increase the confidence and investment of the macadamia industry Demonstrating sustainable, safe, and high quality industry products and practices Raise positive awareness of the quality and safety of Australian macadamias, the commitment to environmental stewardship and market leadership Headline key performance indicator for program The average/total asset value of the industry has increased 5% at a CAGR Key activities Establish 3rd party food safety accreditation and traceability to individual farm Identify and promote industry initiatives that reward quality kernel production on farm Identify and develop case studies that demonstrate industry environmental stewardship and good practice Increase awareness amongst industry participants of access to alternative funding sources Develop leasing and share farming support tools Develop economic tools to support continued farming investment decisions Key outcomes Higher levels of awareness of the Australian macadamia story Greater trade and consumer confidence in the safety and quality of Australian macadamias Greater production focus on quality and safety Improved community support for the industry in production areas Increased investment in the industry along the supply chain 24 Macadamia Industry Strategic Investment Plan

25 Key challenges and risks Collation of data and information necessary for monitoring and promoting industry performance Assisting growers who demonstrate quality and good practice to achieve premium pricing Lack of grower/processor support and participation Industry practice does not meet expectations Continuing short crops mitigate against quality payment Program KPIs The average/total asset value of the industry has increased 5% at a CAGR Maintain minimum 50% grower participation in benchmarking while extending the number of benchmark metrics gathered All growers to seek accreditation to internationally recognised food safety and handling standards Macadamia Industry Strategic Investment Plan

26 Securing broad industry, trade, community support and engagement Build confidence in the strong commercial future of the industry Headline key performance indicator for program Generate over 250 pieces of positive media coverage Key activities Implement strong positive communication with levy payers regarding industry and levy program achievements Develop active communication with the supply chain providing market intelligence and analysis on a quarterly basis Support industry and community initiatives that communicate positive messages about a growing and sustainable industry Use the data and information from the industry dashboard program Develop economic tools to support investment decisions along the supply chain Key outcomes Greater support and participation of levy payers in the program and industry Maintain the level of support and increase the level of participation of the supply chain in market growth and development 26 Macadamia Industry Strategic Investment Plan

27 Key challenges and risks Engaging national and international media Engaging the financial sector Managing adverse publicity over individual incidents Sustaining high Australian currency against international competitors Factors that influence farm sales beyond industry control Program KPIs Generate over 250 pieces of positive media coverage Achieve media coverage ratio (editorial to recipe) of 80%/20% Make economic tool available to prospective investors based on evidence gathered through dashboard Macadamia Industry Strategic Investment Plan

28 Preparation of this Strategic Investment Plan Phase 1 - Situational analysis and issues paper and investment of the macadamia industry A comprehensive situational analysis was conducted, examining the global industry trends and issues. The methodology adopted was a PESTLE (Political, Economic, Social, Technological, Legal, and Environmental) analysis. Each of these dimensions was analysed across three key aspects of the industry: Supply: an examination of issues related to the production of macadamias, nationally and globally Demand: an examination of issues related to customer and consumer demand to purchase macadamias Sustainability: an examination of the longer term viability of the industry and the ability to meet challenges of supply and demand in a financially sustainable manner over the longer term. The issues paper was intended to identify key challenges facing the industry, significant events, potential opportunities, and identify the possible impacts. It is not an exhaustive analysis of every single issue the industry is facing, nor does it contain recommendations. The complete issues paper can be found in Appendix A. Phase 1 also included an analysis of the outcomes of past initiatives, including: canopy management AVG Demographic study market development projects benchmarking study Phase 2 - Scenario analysis Arising from the issues paper, it was identified that the current supply forecasts for the macadamia industry, locally and globally, were inconsistent with the data identified through the situational analysis. Accordingly, the Queensland Government Department of Agriculture, Fisheries and Forestry (QDAFF) was asked to revise the forecasts for local production based on the most recent benchmarking study. 28 Macadamia Industry Strategic Investment Plan

29 A subgroup of the R&D committee also developed a number of scenarios examining the impacts of growing productivity and increasing the selling price of macadamias and the combinations of these impacts required to sustainably grow the local industry. As part of this analysis, the Industry Reference Groups (IRG) for R&D and Marketing conducted an assessment of the previous program and future opportunities in each of their perspective areas and expertise. R&D IRGs include: industry development orchard management crop protection varietal improvement handling and quality Marketing IRGs include: USA Asia Europe domestic new markets market research Phase 3 - Consultation The consultation phase of the project included a series of workshops with key industry representation from growers, owners, handlers, processors, marketers, HAL, government departments and input from R&D and Marketing subcommittees, IAC and independent regional growers. The first workshop focused on dissecting the situational analysis and the issues paper, critically assessing the validity and relevance of the analysis and identifying which issues were of critical importance to the industry. This workshop also included a briefing from QDAFF on the preliminary results of the 2013 benchmarking study. The second workshop involved the development of investment logic maps (ILM - appendix C) by the Victorian State Government, and which were adopted by other state and federal government departments, to assist in improving major investment decisions. The ILM identified and weighted the key problems facing the industry, the benefits of solving those problems, the strategic interventions that are required to solve those problems, and the key activities required to deliver those strategic interventions. Macadamia Industry Strategic Investment Plan

30 Phase 4 Draft plan and industry feedback The ILM became the basis for the first draft of the SIP, an 11-page summary of the key components of the plan. Feedback on this draft was sought via: the planning reference group, including the steering committee, Queensland and NSW government representatives, HAL representatives and growers a series of MAC group meetings held with growers and other stakeholders in macadamia growing regions, to outline the SIP and gather their reaction and comment Preparation of this final SIP The final SIP was prepared and subsequently endorsed by the AMS and adopted by the Macadamia IAC, for recommendation to the HAL Board. Economic cost benefit analysis An economic evaluation of this SIP using a cost benefit analysis has been undertaken. The economic evaluation is a formal assessment process that draws from a range of tools to provide rigour and comparison between competing research investment areas and thus enhances the overall plan. The assumptions underlying the economic analysis were validated based on past performance data and validated for their reasonableness with the AMS and QDAFF. These key assumptions include: 1. percentage of the macadamia industry production base affected by the proposed investment 2. change in macadamia production volume expected 3. probability of investment success 4. investment required by HAL and others (order of magnitude only) 5. lag before macadamia growers receive investment benefit A summary of the economic cost benefit analysis is provided in the table on the following page. 30 Macadamia Industry Strategic Investment Plan

31 Objectives PV Benefits PV costs NPV BCR Enviro Social 1 Sustainably increasing the productivity of Australian Macadamia farms $36.5m $7.9m $28.6m Optimising the value of Australia s macadamia industry across the supply chain $29.4m $9.9m $19.5m Improving stakeholder confidence in the Australian macadamia industry $0.8m $0.15m $0.65m 5.33 Key strong environmental / social outcome moderate environmental / social outcome minor environmental / social outcome From the above table it can be seen that the SIP delivers a balanced program of investments with each SIP objective and is forecast to deliver a positive Benefit Cost Ratio (BCR) for macadamia growers. Macadamia Industry Strategic Investment Plan

32 Key issues A number of key issues were discussed during the SIP workshops. A comprehensive issues paper has been developed and is included in Appendix A. The analysis however has been distilled back to three key issues: supply, demand, and sustainability, which exist at both the macro (global and national) and micro (individual farm) level. Supply: Growth of the global macadamia industry Global production of macadamias is increasing which presents a critical challenge for Australia as new players emerge and threaten Australia s market dominance. In the period, it is expected that global macadamia production will grow by more than 40%. Australia s forecast macadamia production, however, is relatively flat. As a result, Australia s market share is expected to decrease over time, from ~31% in 2012 to ~23% by While Australia would still be the largest, or second largest, producer of macadamias globally, the limited growth in Australia s production is seen as a key challenge. Demand: Economic and social changes Global urbanisation Across the globe, populations are experiencing rapid urbanisation, which is leading to greater per capita incomes, changes to dietary patterns, and is promulgating the Western lifestyle. In turn, these major global shifts are driving increased demand for certain foods such as tree nuts (including macadamias). Health consciousness Food consumption patterns around the globe have undergone dramatic changes over the past 10 years. The demand for foods with health and wellness qualities, increased knowledge and awareness of nutritional profiles are forming strong trends that are beginning to dominate the consumption decisions of large, affluent demographics. The health and nutritional benefits of macadamias is driving strong demand in these health conscious markets. Global economic climate Recent problems in the global economy have had a significant impact on the demand for macadamias across key markets. US and European economies have recently dropped but are forecast to rebound, while there are growth economies in Asia. Demand for macadamias is susceptible to fluctuations in exchange rates. The buy prices for macadamias across key markets have also contributed to changes in demand. 32 Macadamia Industry Strategic Investment Plan

33 Sustainability: The continued viability of farm investment Critically linked to the economic drivers of supply and demand, the financial sustainability of macadamia farmers is of key concern. Farm viability is driven predominantly by yield: the volume (kg) of saleable nut kernel per hectare multiplied by the price per kg of kernel. Major weather events and inconsistent farming practices have led to volatility in both production volumes and the price point achieved for macadamias. Fixed costs for farmers are unlikely to change, and thus increasing farm yield (through production volumes or price increases) are essential to macadamia farming remaining a viable investment versus other agricultural or horticultural crops. The 2013 benchmarking study revealed significant variability in the production yield of saleable kernel per hectare across the growing base. There exists a small number of farms that are producing strong volumes of saleable kernel per hectare, however there is also a long tail of farms with poor production yield per hectare. Gaining a stronger understanding of the key farming practice drivers of higher yield and disseminating this knowledge to a broader farming base is essential to increasing the industry yield. Linked to production yield of saleable kernel is the ability to demand premium prices. Where production volumes are volatile, then there is some reticence from food manufacturers to invest in new product lines where supply cannot be guaranteed. By improving the production yield, and thus the availability of quality nut, greater investment from food manufacturers can be stimulated to achieve stronger farm gate prices. Macadamia Industry Strategic Investment Plan

34 Supply Macro lens Global supply of macadamias will increase significantly over the next 5 years Australia s market share in macadamia production is expected to decrease significantly as new players emerge unless local production is increased Micro lens Maintaining farm viability is a critical challenge in attracting new farmers to the macadamia industry and retaining existing farmers Opportunities for improving farm viability include increasing production yields and diversifying revenue streams Demand As global supply increases, global demand for macadamias must also grow in line with supply or macadamia prices globally will be driven down Maintaining the price premium of Australian macadamias will be a critical challenge to reduce exposure to global commoditisation Maintaining stronger local markets for macadamias can assist in reducing the industry s exposure to foreign exchange rate fluctuations and downturn in international economies Sustainability The Australian macadamia industry faces a number of sustainability issues going forward, including geographic concentration significantly increasing exposure of production volumes to the effects of extreme weather events, pest and disease, and attractiveness of the industry to farmers Individual farms face challenges with sustainability as farm yields are affected by poor management techniques, impact of extreme weather events on production, and pest outbreaks 34 Macadamia Industry Strategic Investment Plan

35 Industry Situational Analysis Macadamia production The total number of macadamia growers in Australia is estimated at approximately 700. The AMS has a representation of approximately 650 financial members, or approximately 93% of the total number of macadamia growers in Australia. The annual production of macadamia in-shell from has fluctuated from 29,500 tonnes to 39,000; a growth of approximately 25%. Calendar year Production nut-in-shell tonnes at 10% moisture content Percentage change ,500-11% ,800 18% ,200-13% ,700-2% ,700 47% ,500-19% ,900 24% ,800-5% ,000-14% ,500 4% ,500-5% ,500-20% ,000 37% Macadamia Industry Strategic Investment Plan

36 Current estimates are that the Australian industry has about 5.2 million trees covering an area of 15,000 hectares, with the majority of these trees located in Northern Rivers (47%) and Bundaberg (32%). Region Hectares (%) Production over a 12 year average Production over a 4 year average Northern Rivers Bundaberg Gympie South East QLD Mid Coast NSW Other Total Over 98% of the trees grown in these regions for commercial purposes are the macadamia integrifolia species, with their ages varying from newly planted to over 40 years old. Of the total trees planted it is estimated that 45% are mature (15 years plus), 30% in the early bearing stage, and 25% not yet bearing. Growers Based on a grower demographic study conducted by the AMS (approximately 93% of total macadamia growers) it was found that the average macadamia grower was male (87%), over 65 and based in NSW. Age demographic % of growers > Macadamia Industry Strategic Investment Plan

37 Markets Australia s market distribution of Australian macadamias is approximately 37% domestic and 63% international. Of the international markets, Japan, the USA, Europe, China, and Malaysia represent the largest market share. 100% Australian Production 37% of total Domestic Market 63% of total Overseas Market % age of section % age of total 95% 35% Kernel 5% 2% Other (ie nut in shell) 32% 20% Japan Kernel 16% 10% US Kernel 22% 14% Europe Kernel 19% 12% China Nut in shell 8% 5% Malaysia 3% 2% Singapore Kernel 3% 2% Thailand Kernel <0.1% <0.1% Korea <0.1% <0.1% Taiwan Note that some percentages may be affected by rounding Source: Australian Macadamia Society; Australian Nut Industry Council (ref 300a) 63% 22% Grocery/Retail Snack 27% 9% Product Manufacturing 6% 2% Food Service 5% 2% New Zealand 40% 5% Chinese Consumption 60% 7% Re-exported to EU & US Since 2009, the global sales of Australian macadamia kernels (across all markets) reduced from a total of 12.k in 2009, to 8.7k in This 30% drop in global sales can be attributed to reduced production, which indicates there is latent unfulfilled demand globally. The reduced production can be attributed to severe adverse weather conditions experienced in Australia in recent years, however, in 2012 production did grow and reflects the industry working to recover from the effects of extreme weather events. Macadamia Industry Strategic Investment Plan

38 Strategic Investment Plan Investment objectives Through the Strategic Investment Planning process, 3 key investment objectives were identified to deliver the industry vision of a profitable and sustainable industry supplying quality Australian macadamias for a global market. In establishing these objectives, the industry identified that objectives 1 and 2, pertaining to the increasing industry productivity and optimising value were the objectives of greater importance and that addressing them will contribute greatly to the third objective of improving stakeholder confidence. Objective One: Sustainably increasing the productivity of Australian macadamia farms In addressing the key issue of growing supply of Australian macadamias to the global market, investment required in research and development to improve the production yield quality saleable kernel of Australian macadamia farms. This productivity growth will come from a combination of improving the production yield existing farms through improved farming practices, and through growing the plantation base of macadamias Australia to ensure sustainable production future generations of macadamia farmers. the is of of in for 38 Macadamia Industry Strategic Investment Plan

39 Objective Two: Optimising the value of Australia s macadamia industry across the supply chain In comparison to other macadamia growing regions, Australia has a relatively high cost base. Accordingly, it is essential that the Australian macadamia industry avoids the commoditisation trap and ensures that Australian macadamias are perceived as a premium product. In doing so, the Australian macadamia industry needs to leverage its recognised global strengths in food handling and safety, food quality and innovation in new product development to develop products that appeal to the growing middle class. This also requires investment in researching and grooming new and emerging markets, domestically and internationally, and the development of tailored product messaging to demand a price premium over competing macadamia producing nations and other tree nuts. Objective Three: Improving stakeholder confidence in the Australian macadamia industry Following a number of years of extreme weather events and impacts on production yields, there is a perception that confidence amongst farmers is low. Despite there being many positive achievements by the industry, human nature is such that isolated negative stories gather momentum and one can lose sight of the bigger picture. A strong and vibrant industry, across the entire supply and value chain, is required to achieve the industry vision. Raising awareness of the strengths of the Australian macadamia industry and building confidence in the strong commercial future of the industry is essential for retaining existing farmers and attracting new investment into the industry. Macadamia Industry Strategic Investment Plan

40 Strategic investment areas To achieve the three key investment objectives, five key strategic investment areas were identified, through which, the R&D and Marketing levies will be directed: Key investment objectives Strategic investment areas Sustainability increasing the productivity of Australian macadamia farms Identifying opportunities to improve productivity of the existing orchard base Identifying and advocating opportunities for orchard development and expansion Sharing knowledge and facilitating the implementation of productivity improvements across the industry Optimising the value of Australia s macadamia industry across supply chains optimising the value of Australian macadamias in new and existing markets Improving stakeholder confidence in the Australian macadamia industry promoting industry successes to increase the confidence and investment of the macadamia industry 40 Macadamia Industry Strategic Investment Plan

41 Program areas 11 programs have been identified to support the strategic investment areas: Program The Productivity Program Future Orchards - Varietal Improvement Program Future Orchards - New Orchard Systems Extension & Adoption Program Industry Measuring and Monitoring Enhance the Value of the Macadamia Product Capitalise on the Australian Advantage Aim Provide a holistic and integrated approach covering pests, disease, canopy, orchard, floor, nutrition, pollination and machinery access management Expand production base through new varieties Expand production base through next generation orchard systems Develop a proactive systemised extension and adoption program that is focused on packaging industry knowledge and driving industry adoption to increase orchard productivity and profitability Establish an industry dashboard to measure and monitor the achievements/progress of productivity at the industry and individual enterprise level Identify and deliver the most compelling features that influence consumers willingness to pay Position the Australian industry as the leader and key source of reliable, valuable information. Build on existing communication platforms and messaging to deliver core brand messages to consumers, customers and industry stakeholders under the Australian brand Macadamia Industry Strategic Investment Plan

42 Program Aim Drive Consumer Awareness of the Macadamia Story Target consumers directly to promote the benefits of macadamias using cost effective new technologies and channels Leverage our Investment through the Supply Chain Leverage our investment internally through the supply chain by effective management of the program and by providing information and reasons to adopt industry strategies and messaging in commercial businesses Demonstrate Sustainable, Safe, and High Quality Industry Products and Practices Raise positive awareness of the quality and safety of Australian macadamias, the commitment to environmental stewardship and market leadership Secure Broad Industry, Trade, Community Support and Engagement Build confidence in the strong commercial future of the industry 42 Macadamia Industry Strategic Investment Plan

43 Action Plan The Program areas have defined activities that will deliver outcomes aligned with the strategic investment and investment objectives: Objective 1: Sustainably increasing the productivity of Australian macadamia farms Identifying opportunities to improve productivity of the existing orchard base The Productivity Program Aim: Provide a holistic and integrated approach covering pests, disease, canopy, orchard, floor, nutrition, pollination, and machinery access management. Key activities: to be undertaken by AMS, the R&D Committee and relevant research provider partners. Activity: Identify & deliver orchard management systems which consistently improve productivity outcomes in relation to: Year 1 Year 2 Year 3 Year 4 Year 5 Canopy management: optimise performance of productive canopy while maintaining sustainable management practices Soil and nutrition management: management practices that continually enhance soil health and nutrition Crop protection: integrated approach to crop protection, including cultural, biological and chemicals; maintain access to suitable crop protection compounds; engage crop protection stakeholders (crop protection companies) Macadamia Industry Strategic Investment Plan

44 Activity Year 1 Year 2 Year 3 Year 4 Year 5 Harvest and Handling technologies: systems that reduce loss and cost, and maximise quality; ensuring consistency of quality and integration of safe food handling Design and implement paddock level monitoring systems to determine grower progress Conduct a mixture of field and laboratory research and grower trials Produce data and recommendations to inform the Extension & Adoption Program 44 Macadamia Industry Strategic Investment Plan

45 Outcomes The development of evidence based holistic management systems which answer the key questions surrounding declining productivity tailored to specific regions and farm types Agreement around productivity targets for various regions and production systems which support and encourage adoption of new practices A limited and highly focused new research program targeting key knowledge gaps and productivity risks The understanding that extension activities will be undertaken in partnership with the extension and adoption program The critical mass of cross disciplinary research activity which will encourage effective engagement from our research partners Key challenges and risks Managing a cross disciplinary program to deliver holistic management systems Developing research briefs with sufficient clarity and focus for R&D provider engagement Achieving strong collaboration between R&D partners and industry An adaptive and innovative approach will require strong industry leadership Program KPIs Increased saleable kernel per hectare from 0.8 tonnes/ha to 1.2 tonnes/ha Increased farm value per hectare by 5% at a CAGR Macadamia Industry Strategic Investment Plan

46 Identifying and advocating opportunities for orchard development and expansion Future Orchards The Varietal Improvement Program Aim: Expanding the production base through new varieties Key activities: to be undertaken by AMS, the R&D Committee and relevant research provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Breeding new varieties that are smaller, higher yielding and meet consumer requirements Identifying new rootstocks that are dwarfing and disease resistant Identifying and supporting the conservation of wild populations Developing evidence based recommendations for new plantings through regional trials Developing economic models to support investment in new plantings Developing nursery propagation systems that can meet industry requirements 46 Macadamia Industry Strategic Investment Plan

47 Outcomes New varieties that are 30% or higher yielding with comparable consumer perceived quality Dwarfing rootstocks developed as part of a comprehensive small tree program Clear recommendations for new planting for existing and potential growing regions Sound economic rationale for investing in new plantings and orchard replenishment Clean, quality, true-to-type nursery stock available in sufficient quantity Remaining wild populations are protected and managed and the germplasm protected Key challenges and risks Establishing an effective breeding program and regional variety testing with limited financial resources Ensuring a planned and effective rollout of new varieties Gaining levy payer support for breeding and attracting new investment for R&D programs Breeding new varieties that deliver a more sustainable increase in productivity and/or quality to justify the investment Program KPIs New plantings of 1000 ha in five years, including maximising the adoption of new varieties Licenses for production of top 10 varieties awarded Conservation funding to secure the ongoing protection of the germplasm Orders taken for first 150,000 trees of new varieties Macadamia Industry Strategic Investment Plan

48 Future Orchards New Orchard Systems Aim: expanding the production base through next generation orchard systems. Key activities: to be undertaken by AMS, the R&D Committee and relevant research provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Integration of all relevant research and practice to deliver the next generation of orchard management systems Participation and involvement in the multi-industry small tree program Continued research to develop a sound understanding of macadamia tree physiology Continued research on biological crop protection practices Development of a multi-disciplinary, multi-agency future orchard systems program Development of economically viable replanting technologies and practices 48 Macadamia Industry Strategic Investment Plan

49 Outcomes Greater confidence to invest in new orchard development Expanded production base and increased production Improved orchard productivity Greater adoption of best practices and innovation including: cultural and biological crop protection practices reduced soil loss tree architecture and orchard design mechanisation Key challenges and risks Long term, multifaceted nature of the research Attracting investors up to $500m needed Climate change Insufficient resources to make a difference Fluctuations in the AU$ Availability and affordability of new land Program KPIs 200 hectares of greenfield plantings each year adopting recommendations for maximising orchard productivity Macadamia Industry Strategic Investment Plan

50 Sharing knowledge and facilitating the implementation of productivity improvements across the industry Extension & Adoption Program Aim: a proactive systemised extension and adoption program focused on packaging industry knowledge and driving industry adoption to increase orchard productivity and profitability. Key activities: to be undertaken by AMS, the R&D Committee and relevant research provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Identify key stakeholders Identify and understand grower capacity Develop a systemised pathway of communication to growers including: > adaptable to a range of differing issues > utilising a range of distribution channels Acquire information from industry measurement and monitoring program to identify grower demand & the subsequent required R&D products /outcomes Prepare an AOP for the program with key stakeholders Provide capacity to resource industry emerging issues: > operations would be undertaken on a quarterly basis > meeting with key stakeholders, understanding the issue and resourcing potential solutions 50 Macadamia Industry Strategic Investment Plan

51 Outcomes A recognised industry knowledgebase and communications collateral identifying clear recommendations for growers on how to improve farm productivity Increased stakeholder confidence and new investors More consistent and predictable production volumes and kernel quality levels Key challenges and risks Managing and implementing a cohesive and consistent message through the industry shared pathway Lack of grower demand for R&D outcomes Lack of stakeholder engagement and confidence in Extension & Adoption Program Program KPIs Increased SKR/ha from 0.8 tonnes to 1.2 tonnes per hectare Macadamia Industry Strategic Investment Plan

52 Industry Measuring and Monitoring Aim: establishing an industry dashboard to measure and monitor the achievements/progress of productivity at the industry and individual enterprise level Key activities: to be undertaken by AMS, the R&D Committee and relevant research provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Continue to conduct annual grower Benchmarking Continue and expand the grower Demographic Study Coordinate group sessions on a regional basis to share best practice Develop monitoring of new-to-industry investment in macadamia farming Issue an annual industry progress statement Outcomes Activities become a regular and integral part of ongoing industry infrastructure that supports improved decision making and investment analysis A clearer and shared understanding of industry progress across all stakeholders Encourage new, knowledgeable investment in the industry 52 Macadamia Industry Strategic Investment Plan

53 Key challenges and risks Measurement and management tools needed to extend from specific project measurement and embrace broader industry analysis Inability to develop a sustainable resource to undertake and complete these tools Information presented doesn t inspire confidence in stakeholders Industry participants not buying-in to the process which limits industry feedback and input and thus the relevance and effectiveness of the dashboard Program KPIs Successful launch of a draft dashboard Maintain minimum 50% grower participation in benchmarking while extending the number of benchmark metrics gathered Annual industry progress statements delivered to schedule Macadamia Industry Strategic Investment Plan

54 Objective 2: Optimising the value of the Australian macadamia industry across the supply chain Optimising the value of Australian macadamias in new and existing markets Enhance the value of the macadamia product Aim: Identifying and delivering the most compelling features that influence consumers willingness to pay. Key activities: to be undertaken by AMS, the Marketing Committee and relevant research or service provider partners. Outcomes Segmentation analysis that clearly shows the best ROI opportunities by segment by region/country by volume and that provides a map of best product fit within the industry business model constraints Market advantage with the Australian industry having the best understanding of the macadamia consumer and competitive landscape Practical tools that marketers can use to add value to their own businesses Key challenges and risks Obtaining marketer buy-in to a new way of segmenting the market and changing practice The ability to deliver on specific desirable product benefits may be difficult to achieve or beyond our control Timeframe to research results may be lengthy 54 Macadamia Industry Strategic Investment Plan

55 Program KPIs Maintain <25% movement off the average farm gate price Achieve a wholesale premium over other tree nuts of 50% over the average Increase consumer awareness scores of product attributes (relevant to target region) Awareness metrics for Australian region: Origin +60% (currently 50%) Health (good for you) +85% (currently 79%) Storage (correct storage conditions) +30% (currently 13%) Awareness metrics for Japan region: Beauty/skin benefits +25% (currently 16%) Premium +50% (currently 45%) Origin/Australia +20% (currently 5%) Hawaii -10% (currently 21%) Souvenir/gift -10% (currently 16%) Awareness metrics for Taiwan region: Source/Australia +40% (currently 36%) Health (good for you) +40% (currently 28.8%) Awareness metrics for South Korea: Source/Australia +60% (currently 52.7%) Health (good for you) +40% (currently 28.0%) Macadamia Industry Strategic Investment Plan

56 Activity Year 1 Year 2 Year 3 Year 4 Year 5 Undertake a product segmentation analysis to map optimum ROI market opportunities including in shell and kernel Research to test price elasticity by market segment, prioritise most desirable product attributes and understand consumer behaviour In consultation with marketers, prioritise market opportunities by industry capacity, capability and best returns Develop solutions to improve delivery of the most desirable product attributes such as sensory quality, health benefits, CSR/ sustainability and food safety Undertake further research as needed to support product attributes such as health positioning and sensory quality Develop tools (fact sheets, trade detailers) to assist marketers in their delivery of product attributes Assess opportunities for sharing information with other origins where there is greater financial reward in doing so 56 Macadamia Industry Strategic Investment Plan

57 Capitalise on the Australian advantage Aim: position the Australian industry as the leader and key source of reliable, valuable information. Build on existing communication platforms and messaging to deliver core brand messages to consumers, customers and industry stakeholders under the Australian brand. Key activities: to be undertaken by AMS, the Marketing Committee and relevant research and service provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Maintain and further develop platforms including the global website and social channels Maintain and further develop communication tools including the trade blog and newsletters Maintain existing and develop new customer databases Ongoing development of new messaging Ongoing development of compelling content and collateral including images, recipes and videos Monitoring programs to track effectiveness Macadamia Industry Strategic Investment Plan

58 Outcomes Confidence in Australian brand communication and that Australian brand platforms are the go-to reference point for consumers, customers and stakeholders Consistent look and feel across all communication platforms in line with brand guidelines Availability of information on the right product for the right market Key challenges and risks Managing a broad range of platforms, tools and languages Keeping the messaging fresh and relevant Managing the expanding number of platforms as digital technologies advance and managing user transition when decommissioning underperforming platforms Program KPIs Wholesale premium over other regions of 10% above the average Wholesale premium prices (10% above the average) for Australian macadamias over other origins achieved +50% of the time 58 Macadamia Industry Strategic Investment Plan

59 Drive consumer awareness of the macadamia story Aim: target consumers directly to promote the benefits of macadamias using cost effective and new technologies and channels. Key activities: to be undertaken by AMS, the Marketing Committee and relevant research and service provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Build on the success of previous campaign strategies to refine, develop and implement annual consumer campaigns for priority market segments Monitor effectiveness of campaigns with pre-determined KPIs Where appropriate share content between agencies Ensure customers and stakeholders are informed about activities prior to implementation Outcomes Market advantage for Australian marketers through tailored messaging to the right end customer Increased visibility of Australian macadamias to customers Increased reach of the Australian macadamias marketing messaging Campaigns will support activities of marketers Macadamia Industry Strategic Investment Plan

60 Key challenges and risks Managing multiple agencies and personnel Sourcing new agencies in global markets if needed Ensuring all agencies uphold brand guidelines and messaging Managing the effective closure of campaigns if needed Program KPIs Achieve media coverage reach in excess of 40 million Increase consumer awareness scores of product attributes (relevant to target region) Awareness metrics for Australian region: Origin +60% (currently 50%) Health (good for you) +85% (currently 79%) Storage (correct storage conditions) +30% (currently 13%) Awareness metrics for Japan region: Beauty/skin benefits +25% (currently 16%) Premium +50% (currently 45%) Origin/Australia +20% (currently 5%) Hawaii -10% (currently 21%) Souvenir/gift -10% (currently 16%) Awareness metrics for Taiwan region: Source/Australia +40% (currently 36%) Health (good for you) +40% (currently 28.8%) Awareness metrics for South Korea: Source/Australia +60% (currently 52.7%) Health (good for you) +40% (currently 28.0%) 60 Macadamia Industry Strategic Investment Plan

61 Leveraging our investment through the supply chain Aim: leverage our investment internally and through the supply chain by effective management of the program and by providing more information and reasons to adopt industry strategies and messaging in commercial businesses. Key activities: to be undertaken by Australian Macadamia Society (AMS), the Marketing Committee and relevant research and service provider partners. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Coordinate and manage the overall marketing program (MDM) Subscribe to research and information databases Collate and analyse research and information Prepare and distribute reports on the program, research and information through the brand platforms and databases Co-ordinate events to bring together industry participants to learn more about the program and activities Co-ordinate forums for industry participants to work together on developing risk mitigation strategies and scenario planning Macadamia Industry Strategic Investment Plan

62 Outcomes Marketing program is managed to a high standard Reports, research and information distributed to agreed timeframes Annual operating plans are developed and distributed to agreed timeframes Australian industry well placed to react to changing market circumstances Program messages are adopted by secondary marketers within their own communication plans Key challenges and risks Managing a broad range of subscriptions and information Managing competitive tensions Program KPIs Maintain primary marketer engagement at minimum 80% of primary marketers Increase engagement with secondary marketers by 5% per annum 62 Macadamia Industry Strategic Investment Plan

63 Objective 3: Improving stakeholder confidence in the Australian macadamia industry Promoting industry successes to increase the confidence and investment of the macadamia industry Demonstrating sustainable, safe, and high quality industry products and practices Key activities: to be undertaken by AMS and industry participants Activity Year 1 Year 2 Year 3 Year 4 Year 5 Establish 3rd party food safety accreditation for growers and traceability to individual farms (e.g. Freshcare or other international equivalent) Identify and promote industry initiatives that reward quality kernel production on farm Identify and develop case studies that demonstrate industry environmental stewardship and good practice Increase awareness amongst industry participants of access to alternative funding sources Develop leasing and share farming support tools Develop economic tools to support continued farming investment decisions Macadamia Industry Strategic Investment Plan

64 Outcomes Higher levels of awareness of the Australian macadamia story Greater trade and consumer confidence in the safety and quality of Australian macadamias Greater production focus on quality and safety Improved community support for the industry in production areas Increased investment in the industry along the supply chain Key challenges and risks Collating data and information necessary for monitoring and promoting industry performance Assisting growers who demonstrate quality and good practice to achieve premium pricing Lack of grower/processor support and participation Industry practice does not meet expectations Continuing short crops mitigate against quality payment Program KPIs The average/total asset value of the industry has increased 5% at a CAGR Maintain minimum 50% grower participation in benchmarking while extending the number of benchmark metrics gathered All growers to seek accreditation to an internationally recognised food safety and handling standard 64 Macadamia Industry Strategic Investment Plan

65 Securing broad industry, trade, community support and engagement Aim: building confidence in the strong commercial future of the industry Key activities: to be undertaken by AMS and industry participants. Activity Year 1 Year 2 Year 3 Year 4 Year 5 Implement strong positive communication with levy payers regarding industry and levy program achievements Develop active communication with the supply chain providing market intelligence and analysis on a quarterly basis Support industry and community initiatives that communicate positive messages about a growing and sustainable industry Use the data and information from the industry dashboard program Develop economic tools to support investment decisions along the supply chain Macadamia Industry Strategic Investment Plan

66 Outcomes Greater support and participation of levy payers in the program and industry Greater support and participation of the supply chain in market growth and development Key challenges and risks Engaging national and international media Engaging the financial sector Managing adverse publicity over individual incidents Sustaining high Australian currency against international competitors Factors that influence farm sales beyond industry control Program KPIs Generate over 250 pieces of positive media coverage Achieve a ratio of media coverage (editorial to recipe) of 80%/20% Make economic tool available to prospective investors based on evidence gathered through dashboard 66 Macadamia Industry Strategic Investment Plan

67 Monitoring and evaluation Implementation of this SIP will be closely monitored by the Macadamia IAC and HAL. Measurement and reporting will be at two levels. Overall plan performance The overarching aim of the plan is to lift Australian macadamia production while maintaining, or improving, the price received for Australian macadamias, leading to increased grower profitability. Productivity Increased productivity can be achieved by: increasing the total hectares planted increasing the yield from planted hectares. In increasing productivity, this plan is specifically focused on increasing the saleable kernel rate per farmed hectare: SKR is used as a measure of quality to ensure that the Australian industry maintains its premium positioning. measuring per farmed hectare ensures that there is a strong focus on efficiency of farming efforts rather than simply expanding the farming base in an inefficient and unsustainable manner. Achievement against this goal can be derived from sales performance at the aggregate level, with the ultimate goal of increasing the average SKR/ha from 0.8 tonnes/ha to 1.2 tonnes/ha over a baseline 14,000ha plantation base, with annual incremental increases achieved each year. Price premium As a global food commodity, macadamia pricing will always be influenced by global production supply and demand. While Australia is, at present, the largest producer of macadamias globally, it does not hold a monopoly position that allows dictation of global prices. Macadamia Industry Strategic Investment Plan

68 Accordingly, success should be measured by Australia s ability to attract a price premium versus other macadamia producing nations, either through superior product, or through stronger segmentation and targeting of markets. In wholesale markets, Australian macadamias should achieve a premium over other regions of 10% above the average, with wholesale premium prices for Australian macadamias over other origins achieved more than 50% of the time. KPIs have been developed at the Program level, including those in the table below: Program Aim The Productivity Program Increase saleable kernel per hectare from 0.8 tonnes/ ha to 1.2 tonnes/ha Increase farm value per hectare by 5% at a CAGR Future Orchards - Varietal Improvement Program New plantings of 1,000 ha in 5 years, including maximising the adoption of new varieties Licenses for production of top 10 varieties awarded Conserve funding to secure the ongoing protection of the germplasm Orders taken for first 150,000 trees of new varieties Future Orchards - New Orchard Systems 200 ha of greenfield plantings each year adopting recommendations for maximising orchard productivity Extension & Adoption Program Increase SKR/ha from 0.8 tonnes/ha to 1.2 tonnes/ha 68 Macadamia Industry Strategic Investment Plan

69 Program Aim Industry Measuring and Monitoring Maintain minimum 50% grower participation in benchmarking while extending the number of benchmark metrics gathered Successfully launch draft dashboard Deliver annual industry progress statements to schedule Enhance the Value of the Macadamia Product Maintain <25% movement off the average farm gate price Achieve a wholesale premium over other tree nuts of 50% over the average Increase consumer awareness scores of product attributes (relevant to target region) Capitalise on the Australian Advantage Wholesale premium over other regions of 10% above the average Wholesale premium prices for Australian macadamias over other origins achieved +50% of the time Drive Consumer Awareness of the Macadamia Story Achieve media coverage reach in excess of 40 million Increase consumer awareness scores of product attributes (relevant to target region) Macadamia Industry Strategic Investment Plan

70 Program Aim Leveraging Investment Through the Supply Chain Maintain primary marketer engagement at minimum 80% of primary marketers Increase engagement with secondary marketers by 5% per annum Demonstrating Sustainable, Safe, and High Quality Industry Products and Practices The average/total asset value of the industry has increased 5% at a CAGR Maintain minimum 50% grower participation in benchmarking while extending the number of benchmark metrics gathered All growers to seek accreditation to an internationally recognised food safety and handling standard Securing Broad Industry, Trade, Community Support and Engagement Generate over 250 pieces of positive media coverage Achieve a ratio of media coverage (editorial to recipe) of 80%/20% Economic tool made available to prospective investors based on evidence gathered through dashboard 70 Macadamia Industry Strategic Investment Plan

71 Selection of R&D providers The macadamia industry will require the support of external R&D service providers to execute the SIP. Selection of R&D service partners will need to be carefully managed and consideration must be given to broadening the R&D supply base beyond government departments. The successful enterprise(s) selected to undertake this work must: have the confidence of growers and stakeholders to contribute to data (e.g. nurseries, processors, marketers) be able to deliver to commercial timeframes at a commercially competitive cost be sufficiently linked to the AMS to enable information to be integrated into other industry programs have a track record of delivering similar outcomes to underpin investment. Review of the SIP The SIP and progress in achieving its objectives will be formally reviewed by the macadamia IAC each year. The IAC Chairman (together with HAL) will determine the timing and process for the annual review. If changes are required to the SIP as a result of the annual review process, these will be made by HAL, with formal advice then to members of the macadamia IAC and AMS Board. Macadamia Industry Strategic Investment Plan

72 Alignment with Commonwealth Rural R&D Priorities Industries utilising the Australian Government-enabled levy process (which delivers matching funds for R&D) are required to ensure their SIP (and therefore levy-funded activities) are aligned with the government s established priorities for Rural R&D. The Commonwealth Rural R&D Priorities are: Rural R&D priority Description 1. Productivity and Adding Value 2. Supply Chain and Markets 3. Natural Resource Management 4. Climate Variability and Climate Change 5. Biosecurity 6. Innovation Skills 7. Technology Improve the productivity and profitability of existing industries and support the development of viable new industries Better understand and respond to domestic and international requirements and improve the flow of such information through the whole supply chain, including to consumers Support effective management of Australia s natural resources to ensure primary industries are both economically and environmentally sustainable Build resilience to climate variability and adapt to and mitigate the effects of climate change Protect Australia s community, primary industries and environment from biosecurity threats Improve the skills to undertake research and apply its findings Promote the development of new and existing technologies This macadamia SIP closely aligns with the Australian Government Rural R&D Priorities as follows: 72 Macadamia Industry Strategic Investment Plan

73 Strategic investment area Identifying opportunities to improve productivity of the existing orchard base Program The Productivity Program Rural R&D priorities Identifying and advocating opportunities for orchard development and expansion Future Orchards - Varietal Improvement Program Future Orchards - New Orchard Systems Sharing knowledge and facilitating the implementation of productivity improvements across the industry Extension & Adoption Program Industry Measuring and Monitoring Optimising the value of Australian macadamias in new and existing markets Enhancing the value of the macadamia product Capitalise on the Australian Advantage Drive Consumer Awareness of the Macadamia Story Promoting industry successes to increase the confidence and investment of the macadamia industry Leveraging our Investment through the Supply Chain Demonstrating sustainable, safe & high quality industry products & practices Securing Broad Industry, Trade, Community Support and Engagement Productivity and adding value Supply chain and markets Natural resource management Biosecurity Innovation skills Technology Climate change and climate variability Macadamia Industry Strategic Investment Plan

74 Financial analysis SIP investment forecast Year/budget $ /15 15/16 16/17 17/18 18/19 Totals Levy The Productivity Program Future Orchards - Varietal Improvement Program Future Orchards - New Orchard Systems Extension & Adoption Program Industry Measuring and Monitoring Enhance the Value of the Macadamia Product Capitalise on the Australian Advantage Drive Consumer Awareness of the Macadamia Story R&D $438 $400 $450 $450 $450 $2,188 Mkt $0 $0 $0 $0 $0 $0 R&D $479 $400 $400 $400 $400 $2,079 Mkt $0 $0 $0 $0 $0 $0 R&D $0 $100 $115 $115 $115 $445 Mkt $0 $0 $0 $0 $0 $0 R&D $393 $443 $600 $600 $600 $2,636 Mkt $0 $0 $0 $0 $0 $0 R&D $122 $50 $100 $150 $150 $572 Mkt $0 $0 $0 $0 $0 $0 R&D $0 $0 $300 $300 $300 $900 Mkt $200 $200 $80 $80 $80 $640 R&D $0 $0 $225 $225 $225 $675 Mkt $300 $300 $75 $75 $75 $825 R&D $0 $0 $0 $0 $0 $0 Mkt $857 $900 $900 $900 $900 $4, Macadamia Industry Strategic Investment Plan

75 Year/budget $ /15 15/16 16/17 17/18 18/19 Totals Leveraging our Investment through the Supply Chain Promoting Industry Successes to Increase the Confidence and Investment of the Macadamia Industry Levy R&D $0 $0 $284 $300 $300 $884 Mkt $390 $583 $200 $200 $200 $1,573 R&D $0 $0 $50 $50 $50 $150 Mkt $0 $0 $0 $0 $0 $0 HAL & other overheads R&D $228 $150 $381 $391 $391 $1,540 Mkt $232 $262 $173 $174 $174 $1,016 Annual R&D budget $1,660 $1,543 $2,905 $2,981 $2,981 $12,070 Annual Marketing $1,980 $2,245 $1,428 $1,429 $1,429 $8,511 budget Total $3,639 $3,788 $4,333 $4,409 $4,411 $20,581 Macadamia Industry Strategic Investment Plan

76 Year/budget $ /15 15/16 16/17 17/18 18/19 Totals Income based on averages Crop (tonnes) 36,000 38,000 40,000 42,000 44,000 SKR 29% 29% 29% 29% 29% TOTAL LEVY ( $72.65) $3,540 $3,556 $4,364 $4,536 $4,697 $20,692 Marketing 65.0% 65.0% 40.0% 40.0% 40.0% R&D 35.0% 35.0% 60.0% 60.0% 60.0% Total R&D (incl. matched) $1,792 $1,724 $3,173 $3,292 $3,398 $13,379 Surplus/Deficit $132 $181 $269 $311 $416 $1,309 Total Mktg $1,748 $1,831 $1,190 $1,244 $1,299 $7,313 Surplus/Deficit -$232 -$414 -$238 -$184 -$130 $-1,198 Total Program Funds $3,540 $3,556 $4,364 $4,536 $4,697 $20,692 Surplus/Deficit -$100 -$233 $31 $127 $286 $111 Notes: Interest and other income is included Crop size shows a 5% increase per annum It is assumed the levy split change will be effective from the 16/17 year Across Industry program levy increase from 2.5% to 5% is incorporated Levy collection cost total is correct, however the budget will not reflect a 60:40 (R&D:Marketing) split until the levy change takes effect Please note that due to rounding of figures some totals may be affected 76 Macadamia Industry Strategic Investment Plan

77 Economic cost benefit analysis The economic cost benefit analysis for the macadamia industry SIP uses benefit cost analysis techniques as described by Council for Rural Research and Development Corporation Guidelines (CRRDC updated 2009). Analysis was completed at the objective level and all forecast benefits and costs are expressed in 2013 Australian dollar terms. Five BCA s were completed, including varietal improvement, market research, technology, crop protection and handling and quality. The Present Value of Benefits (PVB) and Present Value of Costs (PVC) were used to estimate investment criteria of Net Present Value (NPV) and BCR at a discount rate of 5% real. The PVB and PVC are the sums of the discounted streams of benefits and costs. The discounting is used to allow for the time value of money, and the discount rate of 5% is that specified in the CRRDC Guidelines. In addition to private benefits accruing to macadamia growers, there are likely to be spillover community environmental and social benefits associated with implementing the SIP. Spillover benefits are identified but not quantified in this analysis. Benefit cost analysis is reliant on data and assumptions and this information was assembled from the Industry Situation Analysis and expanded with the assistance of HAL, the AMS, and QDAFF. Key data and assumptions that drive the analysis are outlined below. General assumptions Discount rate is 5% Consumer Price Index inflation is 3% per annum Net Present Benefits are calculated over a 30 year period Current production area is 14,000 ha Current production cost is $6,000 per ha Average farm asset value is $159,428 per farm Average farm size is ha Kernel recovery rate is 30% Baseline price for in-shell is $2,800 per kg Annual investment required for each SIP objective and the year in which investment will occur is sourced from the SIP budget Macadamia Industry Strategic Investment Plan

78 Calculation of benefits A conservative approach was taken to calculate benefits delivered by the plan. Proportion Objective Investment required Description of benefit Probability of outcome of benefit attributable to SIP investment Sustainably increasing the productivity of Australian macadamia farms $7.9m over 5 years Increase the annual production from 0.8 tonnes/ha to 1.2 tonnes/ ha, benefit accruing from % 90% Optimising Increase the the value of average sale price of Australia s macadamia industry across $9.9m over 5 years macadamia kernels by 10% per tonne on a straight line basis 80% 90% the supply from 2014/15 to chain 2018/19 Improving Increase the asset stakeholder confidence in the Australian macadamia $0.15m over 3 years, from 2016/17 value of macadamia farms per hectare by 5% CAGR over the period of the SIP 10% 10% industry (2014/15 to 2018/19) 78 Macadamia Industry Strategic Investment Plan

79 Summary of benefits analysis The results of the analysis are summarised in the table below: Objectives PV Benefits PV costs NPV BCR Enviro Social Sustainably increasing the productivity of Australian Macadamia farms $36.5m $7.9m $28.6m 4.62 Optimising the value of Australia s macadamia industry across the supply chain $29.4m $9.9m $19.5m 2.96 Improving stakeholder confidence in the Australian macadamia industry $0.8m $0.15m $0.65m 5.33 Key strong environmental / social outcome moderate environmental / social outcome minor environmental / social outcome Macadamia Industry Strategic Investment Plan

80 Recommendations to levy adjustments The strategic investment planning process raised the issue of the adequacy of the current levy split between R&D and Marketing within the context of the priorities and activities they felt need to be addressed. Some concern was expressed that the current levy split (i.e. 65% Marketing and 35% R&D) is no longer right and that a greater proportion should be allocated to R&D programs. The current levy split was established under vastly different circumstances to those the industry finds itself in today. Previously, the industry forecasted significant growth in production volumes and required substantial investment in marketing programs to gather market intelligence, developing an Australian macadamia branding strategy, and to stimulate demand in consumer markets. The industry today is facing latent unmet demand from markets and is suffering from a decline in productivity. Recent levy spending has seen R&D budgets in deficit while a surplus of marketing funds remains. Accordingly, it is recommended that the AMS seeks to adjust the levy split to reflect the current industry needs. The recommended future split of levy funds is an allocation of 60% to R&D and 40% to Marketing, effective from the 2016/17 financial year, or sooner if possible. 80 Macadamia Industry Strategic Investment Plan