Australia Echuca Victoria

Transcription

1 Australia Echuca Victoria Commonwealth of Australia Agricultural Competitiveness White Paper 2014

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3 SUMMARY KAGOME Australia is Australia s largest single grower of processing tomatoes and Australia s largest tomato processing company, with operations centred in Echuca, Victoria. The company will process more than 210,000 metric tonnes of locally-grown tomatoes in 2014, as well as increasing volumes of locally-grown carrots and beetroot. KAGOME Australia supplies almost 45% of Australia s domestic consumption of processing tomatoes, assisting major Australian food manufacturers, supply the dynamic retail and foodservice channels. It has an annual revenue of A$50 million, of which an increasing proportion is generated by exports to markets in Asia, primarily Japan, Thailand and Indonesia. KAGOME Australia is keen to expand to 300,000 metric tonnes, increasing export revenue to 20% of annual revenue by The company is a major player in the local community of Echuca Moama, procuring some A$22 million of services and materials from local companies, not including team member salaries or Grower payments. KAGOME Australia welcomes the Australian Government s Agricultural Competitiveness White Paper. The key message in this submission is that it s time for the Australian Government to act. Agriculture in Australia will not survive in the international marketplace if current conditions continue. Serious government action is required to: Improve the competitiveness and profitability of Australia s agriculture Boost the contribution of Australian agriculture to trade and economic growth Build capacity to drive greater productivity and regional development

4 1. KAGOME Australia offers to work further with the Australian Government on increasing agricultural competitiveness. TOP 5 RECOMMENDATIONS TO GOVERNMENT Manage water resources better Communicate consistently the decisions on when Government is going to trade in temporary water, with sufficient lead time to allow for agri-businesses to plan appropriately Improve transport efficiency Issue a strong commitment to (re)building fast and efficient rail freight transport networks in regional Australia, so that agri-businesses can reduce their reliance on road freight, thus reducing freight costs, improving environmental outcomes and increasing Paddock to Plate capability 1.2 Communicate transparently the agreed guidelines on release of environmental water, if available, allowing agri-businesses to plan their seasonal crops and land preparation more accurately 3.2 Standardise the road transport regulations between States, so that A-Double trucks with electronic stability controls can travel on specific and pre-defined roads in both New South Wales as well as Victoria Communicate early the guidelines on environmental water release in future years, if available, so as to create a more even and predictable water market, strengthening this aspect of the Murray Darling Basin Authority. 2. Reduce energy costs Establish equitable solutions to the supply and distribution of Natural Gas throughout Regional Australia, investing in delivery mechanisms that reverse the recent significant increases in Natural Gas prices Extend the fuel tax credit rate for taxable liquid fuels (currently applicable only for off-road activities in agriculture) to heavy truck haulage, where the haulage is an integral part of the logistics of agricultural produce Match equally the private capital expenditure in regional Australia for renewable energy generation, with Government funding specifically supporting co-generation plants, where such projects will benefit a number of agri-businesses in a regional centre, e.g. Echuca Moama Increase incentives for R&D Change the incentive from an increment to their annual tax return, to a simple 50% of funding for capital expenditure (e.g. building laboratories) or Research fees, which deliver new learning s and improved capability for agri-businesses located in regional Australia Assist in the creation of learning hubs or centres of excellence in regional Australia, which will attract higher proportions of Regional Developmental Funding. This concentration of resource allocation will deliver incremental improvements in health care, higher education and wireless communication. In this way more young adults and young families may decide to remain in or relocate to such centres 5. Increase funding for Skill Development Increase incentive payments for agri-businesses to employ young adults commencing their careers in regional Australia, thus enhancing skills locally and stemming the migration of such talent into the major cities Create greater incentives for agri-businesses in regional Australia to employ mature adults looking for life-change relocations to rural areas or re-training after a life in a different industry, so that they can feel they are making a valuable contribution to their new community 5.3 Waive the HECS debt repayment for the year in which a graduate is working in regional Australia within an agri-business and cancel it completely if they remain in the industry located in a regional centre for 5 Years of more

5 About this Submission KAGOME Australia is a vertically integrated company, delivering a provenance that final consumers can enjoy, which few competitors internationally can match. It is continually developing intellectual property and advanced capability across the following areas; Varietal R&D Designing tomato varieties which deliver performance attributes demanded by customers in Australia and in Asia, e.g. Lycopene, Viscosity, Brix, etc. takes years to perfect, as each variety is grown and assessed for the potential to deliver against exacting standards Planting & Growing Whether Direct Seed or Transplants, the choice is made dependent on the customer s requirements, soil content, and timing of the harvest. All tomatoes are grown above sub-surface irrigation tape, which delivers water and nutrition direct to the plant s roots Harvesting & Logistics From the Australia Day weekend to mid-april, the Harvest is a 24:7 operation, with up to 13 Harvesters feeding 15 metric tonne Bins with fresh processing tomatoes day and night for 70 to 80 days every year. B-Doubles bring 3 bins each time to the Plant in Echuca Processing & Manufacturing 4 evaporators and 3 production lines are fed by 100 B-Double trucks every 24 hours during the Harvest Season. The Plant in Echuca now has a capacity of 4,500 metric tonnes per day and will soon have its own waste water treatment facility and sauce making production line KAGOME Australia has invested over A$30 million in upgrading processing plant and farming operations, since It is keen to continue to invest in expanding operations, especially to carrot and beetroot, provided the operating environment is more favourable. Australia represents about 1% of the world s processing tomato production, while California alone accounts for more than 25% of the world s total production. Thus Australia is totally dependent on cost structures that operate globally and customers of Australian tomato Dice, Paste and Passata can shop the globe for similar specifications and better prices. The key to future proofing the Australian processing tomato industry is managing down the in-put costs, so that products are priced competitively to imported options from the USA, Europe and China. KAGOME Australia welcomes the Australian Government s initiative to critically examine the competitiveness of Australian agriculture, and appreciates the invitation to make a Submission to development of an Agriculture Competitiveness White Paper. KAGOME Australia has prepared this Submission with a view to horticultural industries and agri-businesses operating in regional Australia, using its experience as a reference. The Submission focuses on 5 issues, each of which has a significant impact on the future viability of the industry, because (alone or) combined they will determine competitiveness of the Australian processing tomato industry. KAGOME Australia proposes actions and recommendations under each issue, which are within the responsibility of the Australian Government and would immediately alleviate impediments or enhance opportunities for Australian agriculture. The 5 issues addressed in this submission are: 1. Water resources 2. Energy costs 3. Transport efficiencies 4. R&D 5. Labour and skills The Submission makes reference (on Page 20) to some other considerations that impinge on the competitiveness of Australian agriculture. However, this submission is deliberately brief, and so additional information or extra supporting evidence can be provided at any time. KAGOME Australia would like to work further and in more detail with the Australian Government, in the development and implementation of the Agricultural Competitiveness White Paper. To contact us: KAGOME Australia 54 Cornelia Creek Road Echuca, Victoria Phone: CEO: John Brady: johnb@kagome.com.au

6 1. ISSUE 1. WATER RESOURCES Tomatoes, as with many of the high value annual fruits and vegetables for export, have an obligatory requirement for supplementary summer water. A well-managed tomato crop in northern Victoria or southern NSW requires about 6 megalitres (ML) of irrigation water per hectare (Ha), delivered by sub-surface irrigation drip tape, producing about 100 metric tonnes of tomatoes per Ha, with a farm-gate value of A$100 per metric tonne. This is world s best practice. The KAGOME Australia processing plant also operates at world s best practice. Paddocks located in areas south, east and north of the Echuca Plant, deliver increased flexibility for varietal performance and reduce exposure to un-seasonal weather events that could negatively impact crops. Echuca is located on latitude 36South, while Los Banos in California (centre for processing tomatoes in the US) is 37North and Lisbon, Portugal (centre for processing tomatoes in Iberia) is 38North. Australia has the best tomato production and processing systems in the world, and to capitalise on this, KAGOME Australia forward-writes contracts with reliable and long-term purchasers. In turn, it must be able to assure reliability and consistency of supply. The alternative is to take whatever the spot market offers from time to time, greatly reducing financial return to Australia. The capacity of KAGOME Australia to be highly competitive in the international marketplace depends on the reliability and consistency of production, and this in turn relies almost totally on an assured reliable supply of irrigation water. Water reform and management of water resources is complex, and management of Australia s water resources for irrigation has advanced greatly over the past two decades, largely on the basis of tradeable water rights. But major difficulties still remain. The Australian Government is the largest owner of water in the Murray-Darling Basin, and too often, irrigators are left guessing as to what will be the Australian Government s action in the water market. Even with the trading of water providing the mechanism to move water to the highest value users, there is still no assurance that the required amount of water will be available at all or from year-to-year. Information on the amount of environmental water to be released, if available, for irrigation purposes needs to be released early, so that agri-businesses can plan and plant accordingly. KAGOME Australia is not able to rationally forward plan stock-flows or adequately manage production and business risk, without such information. As a result the company is forced to take a more conservative approach to supply-chain management, sacrificing opportunity and losing international competitiveness. One of the original principles for water trading is that the trade should be governed by an understanding of its agricultural value as well as its environment one. River systems in temperate Australia are well equipped to accommodate highly fluctuating seasonal river flows and extended dry periods. They make best advantage of winter flows, but water is still withheld from high-value summer to supply summer environmental flows. The Murray-Darling Basin Plan ensures that 970 GL of water flows through the lower lakes. This year there has been a natural flow well in excess of this, but there has been no complementary release or storage allocation for irrigation. Progressively over the past eight years, the Government has bought back 0.5 million ML of the 1.5 million ML of the water previously available in the Goulburn Valley for irrigation. KAGOME Australia proposes that this buy back of water in itself, does not create a major impediment for the competiveness of the high-value agriculture in the international market place, provided there are sufficiently sophisticated and effective systems in place to manage the water and its release. However, the systems used by water authorities to manage the water storage and to manage the release of water for irrigation are sadly inadequate. Recommendations to Government: 1. Communicate consistently the decisions on when Government is going to trade in temporary water, with sufficient lead time to allow for agri-businesses to plan appropriately 2. Communicate transparently the agreed guidelines on release of environmental water, if available, allowing agri-businesses to plan their seasonal crops and land preparation more accurately 3. Communicate early the guidelines on environmental water release in future years, if available, so as to create a more even and predictable water market, strengthening this aspect of the Murray Darling Basin Authority.

7 2. ISSUE 2. ENERGY COSTS Food processing and value-adding along any agricultural supply chain always requires high energy input. Tomato processing as well as many agri-business endeavours requires investment in plant and machinery in regional Australia. KAGOME Australia energy costs are the second highest input costs across the farming and processing operations. High levels of energy are required especially in the processing lines for cooking and dehydration of product. 1. Natural Gas Natural gas is the dominant form of energy use for the processing plant at KAGOME Australia. The cost of this Natural Gas, however, has risen steeply over the last few years, and it is continuing to rise. Note: The 2015 price is contracted; the 2017 price is as already notified by Natural Gas supplier This is a staggering three-fold increase over ten years, elevating the commodity to the second highest cost in KAGOME Australia s operations. The company can find no evidence of anything like the magnitude of the Australian price rise in any competitor countries. Australia is on track to become the world s largest exporter of Natural Gas in the world, but in so doing is creating a Natural Gas shortage domestically that is increasing energy costs to Australian industry. There does not appear to be a mechanism, as in the United States of America, whereby Natural Gas is not exported unless domestic demands are met first. The extraordinary increase in Natural Gas prices in regional Australia both in real terms and relative to our competitors severely hinders the international competitiveness of Australian agriculture and food processing At the same time Australia is providing cheap energy to the advantage of our competitor countries KAGOME Australia is continuing to invest heavily in modifications to the processing plant to increase energy efficiencies in an attempt to offset the rise in energy costs to whatever extent it can. But there is no way that any of the new technologies which are currently available can increase energy efficiencies to the magnitude required for the company to continue to operate on an even playing field with its major international competitors. Furthermore, as KAGOME Australia continues to try to expand its operations, the company has discovered that the infrastructure for supply of any additional Natural Gas to the processing plant has become inadequate. In 2013, the company was forced to spend A$600,000 (+ GST) to build an additional spur line between the main Natural Gas line valve (on the Kyabram Road) and the processing plant entrance, to ensure reliability of Natural Gas supply and avoidance of breaching the peak volume limit. Price of natural gas in California: 2000 A$4.40/GJ) 2013 A$4.40/GJ 2020 A$4.60/GJ (projected) In real terms this is a decrease in gas costs to the Californian processing tomato industry over 20 years (US Energy Information Administration, Annual Energy Outlook 2013).

8 2. Fuel for heavy vehicles KAGOME Australia, and indeed most of the agriculture and food processing facilities in regional Australia, is totally dependent on road transport for (1) inward delivery of supplies, (2) internal movement of agricultural product (e.g. paddock to processing plant) and (3) outward delivery of the processed product. Distance is the tyranny. The energy costs for transport are directly related to the extent to which the agricultural and processing operations are located within regional Australia, and away from city centres. Rarely are the fuel costs for heavy vehicle freight as high for our main international competitors due to shorter distances and cheaper fuel. As with other energy costs, the high cost of truck transport in regional Australia has a severe negative impact on our agricultural competitiveness. Trucking movement of freight is 10% of KAGOME Australia s total cost structure Highway cost of diesel (at time of writing) California: A$1.05 per litre Echuca: A$1.63 per litre The fuel tax credit rates for taxable liquid fuels (diesel and petrol) for heavy vehicles travelling on any public road in Australia is 12c per litre, independent of the distance travelled and independent of the proximity to city centres. The fuel tax credit rate for off-road activities in agriculture is over 3 times this amount at 38c per litre. KAGOME Australia cannot even claim the higher fuel tax credit rate for transport of tomatoes by truck from its paddock to its processing plant. There appear to be abundant opportunities to extend the higher fuel tax credit rate to certain trucking operations in regional Australia, in particular where those operations are an integral part of Australia s agricultural industries. 3. Electricity In many ways, electrical energy and energy from Natural Gas are interchangeable in the processing operation at KAGOME Australia. However, at the moment there is no cost advantage to a switch to electricity. In any case, the regional infrastructure for delivery of electrical power to KAGOME Australia is not adequate for any expansion of supply. There are precedents in regional Australia where an industry may be provided with electricity at a price that allows it to increase or at least maintain its international competitiveness. The Alcoa aluminium smelter at Portland (Vic) is provided with electricity at a price that is linked to the world price of aluminium. The Alcoa smelter uses about 10% of the total energy generated in Victoria, and electricity is delivered and available to Alcoa at a price of A$14 per MWh. In contrast, electricity is being delivered and available to KAGOME Australia, a company that likewise is attempting to increase or at least maintain its international competitiveness at a price of A$100 per MWh. Independently of our efforts to decrease the costs of grid power, KAGOME Australia also sees much advantage in a greater focus in regional Australia on renewable energy. Because of the high capital costs of establishing renewable power generation, KAGOME Australia sees that Government assistance is required for the building of generation facilities for renewable energy across regional Australia, and then for the setting of cost structures for renewable power that substantially reduces the energy costs to food processing industries in regional Australia. Recommendations to Government: 1. Establish equitable solutions to the supply and distribution of Natural Gas throughout Regional Australia, investing in delivery mechanisms that reverse the recent significant increases in Natural Gas prices 2. Extend the fuel tax credit rate for taxable liquid fuels (currently applicable only for off-road activities in agriculture) to heavy truck haulage, where the haulage is an integral part of the logistics of agricultural produce 3. Match equally the private capital expenditure in regional Australia for renewable energy generation, with Government funding specifically supporting co-generation plants, where such projects will benefit a number of agri-businesses in a regional centre, e.g. Echuca Moama

9 3. ISSUE 3. TRANSPORT EFFICIENCIES IN REGIONAL AUSTRALIA Fast, efficient and effective transport is a cornerstone of profitable operations for KAGOME Australia in regional Australia. Essentially all of the transport operations are by road i.e. supply of inbound materials, internal movement of product from the paddocks to the processing plant, and outward delivery of the processed product. KAGOME Australia would prefer to have more options for transport, so to be able to better match our transport functions with the most efficient and cost-effective means of delivering that transport. The company does not have the option of rail freight transport servicing the Echuca area. KAGOME Australia does not agree with the argument that rail freight services are necessarily slow and inefficient. The rolling resistance of rail is one-ninth the rolling resistance of rubber tyres on road obviously providing the potential for greater fuel and operational efficiencies. Most businesses in Australian manufacturing are developing tighter just-in-time delivery systems that appear easier to service with trucks. KAGOME Australia believes that this is not necessarily the case, and that effective development of rail transport, coupled with modern systems of logistic control and communication would provide just as effective and timely transport of materials as road and probably in the longer term, more highly effective and cost-efficient transport throughout regional Australia. Australia s rail infrastructure is well below world s standards Standard for train freight in Canada: 10,000 tonnes per train 40 tonne axle load weight $20/tonne farm to port (wheat) Standard for train freight in Australia: 2,000 tonnes per train tonnes axle load weight $70/tonne farm to port (wheat) Nonetheless, for international competitiveness of Australian agriculture there has to be substantial upgrades and redesign of Australia s rail freight to create a number of highly efficient inland container terminals with radiating feeder lines, and fast transport from the inland terminals to the export ports. Transport from the inland terminals would be matched with shipping availability and/or timetables reducing the expensive storage bottlenecks at the port facilities. KAGOME Australia sources tomatoes from both northern Victoria and southern NSW. Our factory is only 5 kms on the Victorian side of the border. Some inconsistencies in trucking regulations between Victoria and NSW increase our transport costs. B-double trucks are allowed in both Victoria and NSW, but A-doubles are allowed only on NSW roads. B-doubles can carry 42 tonnes per load, A-doubles 54 tonnes per load, a 30% increase. Obviously there are increased efficiencies to KAGOME Australia s operations with the use of larger trucks. However, when tomatoes are transferred from NSW using A-doubles, the trucks need to uncouple on the NSW side of the border, and re-couple as a smaller truck for a shuttle-service of product movement for the last 5 kms. Recommendations to Government: 1. Issue a strong commitment to (re)building fast and efficient rail freight transport networks in regional Australia, so that agri-businesses can reduce their reliance on road freight, thus reducing freight costs, improving environmental outcomes and increasing Paddock to Plate capability 2. Standardise the road transport regulations between States, so that A-Double trucks with electronic stability controls can travel on specific and pre-defined roads in both New South Wales as well as Victoria KAGOME Australia recognises that there are major difficulties for governments to upgrade train tracks in Australia, or to facilitate the upgrade. Most of the tracks are now owned privately by a single company within any one region in Australia. There is minimal (if any) market competition for train freight in any one region.

10 4. ISSUE 4. R&D INVESTMENT The capacity of KAGOME Australia to be competitive in the international market place is heavily dependent on its abilities implement world-best practice at all levels of its operations. This does not mean that the company can just copy the best practices from elsewhere, but rather competitive advantage relies on its ability to innovate and able to tailor the best options to local conditions. KAGOME Australia is committed to research and development. It has a strong collaborative relationship with the Australian Processing Tomato Research Council, operating under Horticulture Australia Limited. It is also exploiting its Southern Hemisphere location to accelerate development for KAGOME Portugal, particularly in the area of varietal performance. KAGOME Australia believes that agricultural research is of a higher quality, is better targeted, delivers better practical outcomes, and provides better return for the research investment when the relevant Australian agribusinesses are completely involved in the research from the outset, and at all stages throughout the research. KAGOME Australia welcomes the election commitment of the Australian Government to allocate an additional A$100 million to the rural research and development councils to increase their capacity to deliver cutting-edge technologies, continue to undertake applied research, and to focus on collaboration. However, KAGOME Australia believes that to maximise the value of this additional research funding, the Government needs to create a more attractive environment for the private sector to contribute to the research both financially and in-kind. In this way, stronger partnerships could be formed with industry in this research leading to greater long-term benefits to agriculture, to regional Australia, and to Australia s agricultural competitiveness. Indeed, the same applies for all Government investments in agricultural research. The current tax incentive for business investment in R&D is limited to an incremental 10% deduction. Recommendations to Government: 1. Change the incentive from an increment to their annual tax return, to a simple 50% of funding for CapEx (e.g. building laboratories) or Research fees, which deliver new learning s an improved capability for agri-businesses located in regional Australia 2. Assist in the creation of learning hubs or centres of excellence in regional Australia, which will attract higher proportions of Regional Developmental Funding. This concentration of resource allocation will deliver incremental improvements in health care, higher education and wireless communication. In this way more young adults and young families may decide to remain in or relocate to such centres

11 5. ISSUE 5. LABOUR, EDUCATION, SKILLS AND TRAINING KAGOME Australia is privileged to have a highly skilled and committed workforce. Our team members are the lifeblood of our company. Access to a strong highly skilled workforce throughout regional Australia is an essential element of Australia s agricultural competitiveness. Decisions of employees to come to, or to remain in regional areas is just as much about lifestyle and opportunities to engage with communities outside of the work environment as it is about the job itself. Government decisions on investments into community infrastructure are largely based on a set of demographic parameters that are applied consistently across Australia. This means that planning decisions are based on population figures within the catch area for a particular service or facility (e.g. one facility per 500,000 people). KAGOME Australia believes that such an approach fails to adequately take into account geographic distances and accessibility of alternatives as it applies in regional Australia. The consequence of this approach is that we have seen over recent decades (and are continuing to see) the progressive decline in government services and community facilities in many regions of Australia. Opportunities for tertiary education are much more limited for students across regional Australia. The brightest young Australians from regional areas move to city locations for high-quality university education. The idea that these people will return to regional Australia to work in agriculture and agriculture-related industries unfortunately has a very low strike rate. Opportunities for the best university education have to be increased for students within regional areas through a greater number of smaller centres throughout regional Australia networked through remote learning facilities and advanced communication. There is also the opportunity to introduce an incentive to attract young people back to regional areas and agriculture after their education by modifying the Higher Education Contribution Scheme (HECS) repayment structures. The HECS debt repayment could be waived for each year that a graduate works in regional Australia in agriculture or agribusiness. This may appear only small incentive on the surface, but the feedback we have received is that the effect could be substantial. When a trade person loses employment in regional areas, it is much harder for them to find alternative work than it is for their city-based counterparts, simply on the basis of opportunity. Often re-training in another field is necessary. KAGOME Australia provides trades apprenticeships, but it is much harder for us to provide adult apprenticeships for re-training. The financial incentives we receive for adult apprenticeships are the same as for a junior apprentice, but our costs are much higher. Recommendations to Government: 1. Increase incentive payments for agri-businesses to employ young adults commencing their careers in regional Australia, thus enhancing skills locally and stemming the migration of such talent into the major cities 2. Create greater incentives for agri-businesses in regional Australia to employ mature adults looking for life-change relocations to rural areas or re-training after a life in a different industry, so that they can feel they are making a valuable contribution to their new community 3. Waive the HECS debt repayment for the year in which a graduate is working in regional Australia within an agri-business and cancel it completely if they remain in the industry located in a regional centre for 5 Years of more

12 OTHER CONSIDERATIONS There are a number of other factors that contribute to Australia s national agricultural competitiveness. While they may not be the cornerstones to success KAGOME Australia consider them important nonetheless. 1. Continual development of Australia s port infrastructure Over recent years there have been major improvements to the infrastructure of Australian ports, essentially all for the export of coal and iron ore. Continual upgrading of ports for export of Australian agricultural products is also needed, including the contemplation of in-land Container ports for direct rail shipment to customers overseas. 2. Even playing field for quality standards of imported foodstuffs Australian based producers of food are required to adhere to appropriately strict food-quality standards in production of the raw material, in processing, and in packaging. But the same, quality standards don t apply to imported foodstuffs. Imported products are merchandised alongside Australia products on the supermarket shelves, and the buyer has no way of knowing that different quality standards apply. AQIS and other agencies do not have the resources capable of imposing the same quality standards on imported foodstuffs, thus such products should not have market access. 3. Accelerated roll-out of National Broadband Network in regional Australia Improved IT and communication facilities are vital for businesses in regional Australia to compete in world markets. Preference should be given to regional Australia for accelerated roll-out of the NBN, so that agri-business can benefit from new technology and communicate across Paddocks and back into a central location. Such on-line real-time information of fact based agriculture statistics would allow agri-businesses to make more accurate decisions, more rapidly.

13 KAGOME Australia 54 Cornelia Creek Road Echuca, Victoria 3564 Phone: