22 August 2014 Graham Centre for Agricultural Innovation, Wagga Wagga

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1 FUTURE PROOFING MIXED FARMING SYSTEMS 22 August 2014 Graham Centre for Agricultural Innovation, Wagga Wagga Forum attended (and report compiled by) Kirsty Flower who attended as a MFMG representative Summary An industry wide think tank was held at the Graham Centre for Agricultural Innovation. Around 110 participants, predominantly from NSW and Vic, were challenged to explore potential scenarios for securing the future of mixed farming systems in the region. Three themes were focused on: Creating a resilient mixed farming system To value add or not to value add, that is the question Beyond the farm gate. Business leaders spoke about how they have changed their businesses the opportunities they have identified, the challenges faced, success and failures and their vision for the future. A recurring theme from the speakers was the need for farm businesses to manage the business in a more professional manner financial management, understanding the business drivers, reporting and analysing, to be efficient and effective, collaborate and to have vision. Challenges were noted in the areas of costs of production and Australia s relatively high cost especially for labour, water, energy and logistics. Government policy and commitment to agriculture was raised as a concern. Risks included high debt levels in the farming sector, increasing climatic variability and lack of funding / government support. Opportunities however were highlighted and included increasing world food prices and global demand for protein; customer focus on specialized products (eg. unique in regard health / premium / safe etc.); innovative, resilient and lateral thinking farming sector; improvements in technology. Mixed farming systems have greater options and ability to be flexible in the movement between enterprises. As well as providing risk management, they provide an ability for efficiencies and are attractive to international investment. Group discussion was held, covering all three themes and resulted in the major issues for opportunity, challenge and future vision to collated and presented to the forum. It is planned that these will be summarized into a two to four page submission The future, where to from here.

FUTURE PROOFING MIXED FARMING SYSTEMS 22 August 2014 Graham Centre for Agricultural Innovation, Wagga Wagga Opening address: Scott Hansen, Director DPI NSW (ex MLA Director) 4 objectives - compared

2 FUTURE PROOFING MIXED FARMING SYSTEMS 22 August 2014 Graham Centre for Agricultural Innovation, Wagga Wagga Opening address: Scott Hansen, Director DPI NSW (ex MLA Director) 4 objectives - compared to William Farrer s wheat breeding aim for today Vision Long term look to the future Focus Collaborated Key Note Speaker: Graham Barty, General Manager Austrade, Growth and Emerging Markets How do we position Australia into new markets? We face many major competitors. FOCUS is the key Value add needs to focus on - supply of food security (lock down supply chain, food safety, nutrition). 4 markets for agricultural products Staple foods Sustainable fisheries Horticultural products (highly desirable not necessarily critical to need) Premium products without clear distinctive uniqueness (quality, safety, packaging) Graham used data from Australian Export Grains Innovation Centre for data

3 Data from this web site used to indicate that Australia is one of many suppliers to the markets we are not the food bowl of Asia. What role do we want to play? 2 markets are: China large / need to exploit Not China (rest of world) wanting to ensure supply of production prospect that we provide support for their production and create good relationship. There will be an enormous increase in the demand in Asia currently the breakdown of food demand is similar for Asia / not Asia however by 2050 Asia will have a much greater demand compared to non Asian countries. We can supply product We can supply capability help other partners to increase their own production gives relationship, trust, security of customer. This has been and will be an important aspect for us to consider in establishing future markets. How do we articulate / investigate a high value opportunity? Use the PRETSS (Policy / Research / Equipment / Technology / Skills / Services) trail to Identify, Analyse and Influence Do we have Advantage; Capability and Capacity; Willingness to enter market? Austrade and government assists business through economic diplomacy (at the policy and research level) and with business trade missions (at the equipment, technology, skills and service level). See Appendix 1 for an example of PRETSS. Australia has a unique advantage and opportunities in the area of Water and Energy in agricultural production. In addition the largely untapped area in northern Australia offers opportunities. Australia has dealt with producing in a dry and variable climate, we have the technology and expertise to address this problem. We have ample energy available in the form of gas in northern Australia. This will provide Australia an ability bring new land into agricultural production. There is an opportunity for investment (from Australia and overseas sources) to enable this food source capability. For overseas investors they may see this as an important means to secure their production and supply problems. As well as the land, water and energy position, land in Australia is comparatively cheap and provides annualized growth.

Theme 1 Creating a resilient mixed farming system David Sackett, CEO, Growth Farms Australia Growth Farms Australia manages investment in Australia in Sth NSW & Vic 25,000 ha crop and considerable

4 Theme 1 Creating a resilient mixed farming system David Sackett, CEO, Growth Farms Australia Growth Farms Australia manages investment in Australia in Sth NSW & Vic 25,000 ha crop and considerable livestock. Vision remain competitive Nationally and Globally. The key issue is quality and cost. Nationally, competition is not really focused on eg. for skilled labour resource we compete with mining industry. Mixed farming is attractive for investment as it provides the greatest scope for flexibility of management eg the movement of resources between crop and livestock and the ability for these enterprises to have synergies. Options Agriculture is capital intensive land, plant and equipment. It has a low labour requirement and we need to produce at low cost for global competitiveness. David put up gross margin profitability for prime lamb; beef; wool and crop enterprises for the rainfall zones 500, , > 650mm). The following data gives a broad indication of the information provided: Prime Lamb Situation Analysis, Holmes & Sackett Jun 2010 for MLA. ISBN:

5 David highlighted that The future for lamb production looks very good with NZ production declining Wool sector needs productivity gains otherwise this enterprise profitability will keep dropping Cropping questioned why there were not the productivity gains in the high rainfall zone > 650mm Beef not as profitable as meat sheep. Very important to have efficient livestock and cropping enterprises. Emphasis needs to be placed on the slippage or cost in moving from cropping to livestock production in the system. Value adding has to be competitive on a global basis. David did not think that value adding was a prospect for Australian agriculture to focus on. Sam Archer, Chair, Riverina Local Land Services Vision For regenerative business - more than resilient and sustainable, the business (farming) needs to be renewable and building the asset base. Sustainability is just maintaining the status quo. As well as being agile, adaptive and resilient the business must address the triple bottom line and be able to manage climate, price and risk. Sam sees that the challenges for agriculture The trade off with land use, where farming land is having to compete with urban and recreational land demand. Highly regulated (and increasingly so) Government control / requirements. Very volatile output especially with cereal and grain production. Despite farm consolidation, there is still considerable range in size of farms need to bring all along cannot just focus on the profitability issues of the larger farms. Farm debt has doubled in the last 15 years, but there has only been a small increase in income this is a major concern for business resilience let alone trying to step into new business areas such as value adding. There are concerns in the areas of Labour R & D Land tenure Biosecurity / incursion threats Govt policy and commitment to agriculture (policy needs to have continuity, be long term, be enabling and holistic) Rural / urban disconnect Domestic supermarket control Opportunities are there in overcoming the challenges.

6 Impediments to change Funding Government policy Information Options demonstrating success Low commercial remunerations/ benefits Need to manage risk; develop agile farming systems; embrace technology and innovate. Murray Scholz, Producer and Nuffield Scholar Vision / Trends Agriculture will increase the uptake of science and technology, be more labour efficient, increased specialization, adapting to environment better utilization of resources. Strengths Resilience through diversity Synergies between different enterprises Adaptability to change. Weaknesses Increased level of management Conflicting aims of different enterprises Variable climate. Opportunities Desire globally for protein Technology and science lifting production and management Improving adaptability to climate. Threats Declining terms of trade Cost of technology Increased climatic variability. Overall we need to be better managers to be able to stay ahead.

7 Theme 2 To value add or not to value add, that is the question. Bob MacSmith, Director, MSM Milling Outlined the move from farming to agribusiness (milling), joint venture / expansion and now processing 100kT canola / year, marketing of canola oil, branding and production of livestock products. Challenges that must be addressed in venturing into value adding / other business opportunities: Understand the drivers of the business Make contacts approach correctly / appropriately and be genuine Develop relationships with those involved from marketing all the way to production. Bob s motto is Our people are our business. Think strategically. Opportunities in value adding: Allows more level of control and diversification in the business not exposed to risks like climate as much. Makes assets work hard. Requires proper financial management and reporting. With tight controls and productivity, will come a successful business Social benefit through more employment. Increasing demand for protein globally (as food and in aquaculture and other livestock industries for feed) Increasing demand for Health safe products (eg gluten free, high fibre, allergy free) specialized markets. Ability to take more control of your product and the supply chain eg in logistics (storage, freight). James McNaughton, Owner, Knights Meats and Deli, Wagga Farm background but has sold his farm and ventured into the meat retail business. Challenges farmers to sit in the retailer s seat pay attention to marketing and customer requirements / demands. Since purchasing the meat retail business, there has been a change in purchasing in the domestic market (by households) more take away and prepared meals available leading to less demand from hotels/ clubs for meat; control of the market by supermarkets in their customer loyalty programs and other means of attracting business away from independent food retailers. To address this change, James and his wife have strived to remain unique. Providing healthy food options (gluten free, lactose free, catering for religious beliefs, organic etc.) for whatever is demanded by the customer. Specialization has been utilized to provide value added product which is high value though less demand. Products are aimed to have maximum convenience. Always looking to new products.

8 Marketing - Emphasis is placed on the story of the product and using this as a selling point. Importance of service and staff training. Utilize social media for advertising best and cheapest and a form where customers are able to be involved in developing products Importance of sourcing quality product (meat), ensuring supply at an appropriate price. Problem for all in agriculture and agribusiness in Australia is the low price domestic environment food here is too cheap and viability of agriculture is therefore threatened by this. Neil Druce, Director, Green Grove Organics. Neil has been an organic farmer for a long period of time and has entered value adding area initially through the production of liquorice. Decisions for this direction were based on the high return / value adding on the wheat input, no other competitors in the southern hemisphere, cheap facilities available (mill and confectionary plant). Further business enterprises have followed in production of organic chocolate and tourism. All enterprises have synergies eg. the tourism acts to market the confectionary enterprises. Challenges Opportunities Need for farmers to have joint partners which can provide: skills, confidence and funding. Farmers are resilient / lateral thinking / innovative. Value adding provides social benefit in regions employment, bringing outside money into regions.

9 Theme 3 Beyond the Farm Gate Tim Reeves: Demand for food on a global scale is starting to increase food prices. This cannot be turned into profit without efficient, effective and post farm gate operations. Angus Woods, Director, Woods Grains Historically a family farm operation. Since 2001, the family diversified into grain processing (business purchased) and moved into other marketing areas (eg container export). This opportunity arose with family members returning to the farming business who had financial background and implemented financial rigor to the business; deregulation of grains industry and ability to enter the grain export market; growth in chick pea industry and climate risk reason to diversify the farming business. From 2012, Woods Grains has ventured into a collaboration with CSU to investigate innovative food products. Challenges Costs Volume margins Growth pains increasing need for financial management, staff, customer focus, compliance (Q & A, OH&S even greater at an export level and when competing with large international companies). Competition Weather Collaboration in R & D Opportunities Changing consumer trends protein and fibre Increasing awareness of health eating Looming global food crisis especially in the area of protein Ability to retain talent Better image for agriculture Vision: For increased corporate funding, increased awareness of Paddock to Plate, increased uptake of technological advances. angus.woods@woodsgrain.com.au

10 Richard Carn, Chairman, Southern Ag Grain (SAG) This business has 250 farmer shareholders and is an unlisted public company. Initially starting as a joint venture with Emerald Group in grain accumulation. Other plans for biofuel plant business were scrapped (not a good business model to take a high quality food source and produce a fuel). Other joint ventures have been entered into: storage facility business and solar power buying. SAG and distribution business for Emerald Grain is now owned by Sumimoto. As well as being of benefit to the Australian company in marketing, there was a desire by the Japanese company to have a relationship with the farmer and the SAG company provided this connection. Richard outlined that in the future, the logistics for grain will be controlled and owned by the large bulk grain companies the integrated supply chain: storage, freight and port. Challenges Counterparty risk Cost of processing Extracting extra value from the supply chain. Farmer independence not being collaborative. Opportunity into the future - Market will continue to be least cost but there is an opportunity for collective groups eg. in the creation of value in area of providing and marketing of product to specification (eg. Blending high and low quality grades to meet specification and extracting the increased value). John Brady, CEO, Kagome. Kagome is a large organization with $70M turnover, the main enterprise being tomato production and value added products. Challenges Increasing regulation Need to be increasingly competitive Lack of domestic pricing competitiveness of water, power and logistics. Water limiting for Australian agriculture. There are also problems with our capacity to convert water to saleable products and the cost structure to deliver price competitiveness of the product. Access to water is also an issue especially in the area of irrigation. Business needs continuity of supply and pricing. Energy Natural gas though we have supply, the cost is not cheap. Currently Australia has power cost which is double of that in California and it is likely to increase by 50% by There is a discrepancy in the cost to smaller business, with large corporations being given Government support and reduced power costs (eg. Alcoa pays $14 / megawatt hour whilst Kagome pays $100). There needs to be a more equitable pricing system. Fuel tax credit should also be available for the transport of agricultural product to the point of value adding. Logistics there are limitations in the lack of port access to export markets. Road freight is expensive. Rail infrastructure is antiquated. There is also a lack of regulation across the states in relation to logistics.

11 Appendix 1 An example of PRETSS from the Austrade website 25 August 2014 Overview of Australian Dairy Industry Australia has a diverse dairy manufacturing sector and Australia is the world s fourth largest exporter of processed dairy products. The dairy industry is Australia s third largest agricultural food industry, with farm gate value of production valued at A$ 4 billion. With a national herd size of 1.6 million dairy cows, the dairy industry is very competitive with notable achievements in herd genetics, pasture management and supplementary feeding regimes. The average cow milk yield in Australia has doubled from 2,850 litres per year to around 5,750 litres per year over the past three decades. Australian dairy cows currently produce around 10 billion litres of fresh milk each year of which 75% is processed into approximately 1 million tonnes of manufactured dairy products. Dairying is well established across a number of regions of Australia. Manufacture of value added longer shelf-life products that include cheese and specialised milk powders are concentrated in the south east region of Australia. Over the last couple of years investments in the Australian dairy industry has shifted from production capacity to research and product development. Twenty years of investment in larger state of the art spray driers, cheese making facilities, protein extraction equipment and blending plants has placed Australia at the forefront of tailor-made manufactured dairy products. Australian Dairy Capability A Global PRETSS Approach The Australian dairy industry is highly competitive at a global level with expertise spanning technologies, equipment, dairy products and advisory and consulting services which can be offered for the Indian dairy sector using the global PRETSS approach. Australian dairy industry capability covers; Policy Developing framework for industry growth Legislation and regulatory mechanism Integrated Dairying Management (IDM) Monitoring and compliance Dairy ecosystem management Research Breeding and genetics New product and process development Climate change issues Innovation in packaging Equipment Milk processing UHT methodology Pre and post-farm gate equipment Cold chain systems and transport logistics Technology Electronic dairy herd identification Automated dairy management systems Labelling and packaging Value added processing Shelf life preservation Services Quality assessment and certification Pasture and grazing management Facility design Animal husbandry Advisory and consultancy services International marketing Skills Food hygiene and safety standards Facility maintenance Preventive maintenance Productivity enhancement Skill development Training Ongoing Knowledge enhancement

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