As the mining sector slows and the Australian economy readjusts to a “new normal”, the agricultural sector will undoubtedly represent the next big boom for Australia’s economy, writes David Thomas.

As demand for food security, safety and sustainability is propelled by swelling and evolving populations in the emerging world, there are a new wealth of opportunities for Australia’s agricultural sector. In fact, Australia is poised to capture between A$ 0.7 – 1.7 trillion in agricultural exports by 2050. This boom in global agricultural trade will play a crucial role in correcting the worldwide imbalance in productivity growth and resources.

 

New emerging middle class consumers require access to sufficient, safe and nutritious food to meet their dietary needs and food preferences and to live an active and healthy life. Food security is particularly important for China for four main reasons: sustainability, demand, political stability and national sovereignty. China is home to approximately 21 percent of the world’s population; however it has only 8.5 percent of the world’s arable land and only 6.5 percent of the world’s water reserves. China currently consumes 25 percent of the world’s soybeans, 20 percent of its corn, and 16 percent of the world’s wheat and in just three years, its consumption is expected to exceed US$1 trillion. With the Chinese population expected to reach 1.462 billion by 2030, China knows that it will be unable to provide food security for its entire population despite a desire for self-sufficiency.

By contrast, Australia consumes only 40 percent of its agricultural produce. So what are the opportunities?

 

As rising incomes and energy prices erode China’s competitiveness in manufacturing, and China’s emerging middle class acquire a taste for western food, it will become a unique multi-layered consumer market for global agriculture.  Following the global financial crisis, there was a significant spike in food prices around the world which saw over 40 million people slip below the poverty line and caused social unrest in Asia, Africa and the Middle East. Food prices are expected to remain high in the future due to global supply constraints. With the global population expected to increase from 7 billion to 9.3 billion people by the middle of this century, food security is at the forefront of everybody’s mind. In addition, as economies move away from traditional fossil fuels to new forms of renewable energy (eg bio-fuel) the need for non-dietary consumption crops will further enhance the demand for agricultural resources.

 

There is a big role for the Australia-China relationship to play in the growing global demand and supply of secure food. China needs Australia’s technology, innovation and management experience to achieve significant productivity growth levels.  By 2030, the Asian region will account for two-thirds of the world’s middle class, over 3 billion people, spending over US$55trillion. An emerging middle class of this scale will see demand surge for higher quality and higher protein food and drinks. Since the 1980s productivity boom, the agricultural sector in China has not seen yields above 1997 levels and there have been major concerns about the quality and reliability of their local produce. A recent survey of 4,000 people in eight big cities like Shanghai and Beijing found more than 73 percent of local residents regarded their local food as either “unsafe” or “very unsafe”. As a result, China has been an agricultural importer since 2003, with a deficit of US$33.7billion in 2011. With its long term goal of 95 percent self-sufficiency, China has a long way to go to improve productivity on a massive scale.

 

The agricultural sector in China is facing some obstacles, including agricultural ownership structures, urbanisation, soil quality and remediation. The Chinese government is aware of these hurdles and agriculture is a main focus of the current 12th five year plan. China’s high rate of urbanisation alone is expected to create additional demand of 4 million metric tons of grain, 800,000 tons of vegetable oil and 1 million tons of meat every year as urbanisation encroaches on agricultural land, reduces the rural labour force and underpins changing consumption patterns. Concurrently, China’s crop land is expected to decline from 135 million hectares in 2003 to 129 million hectares in 2050.

 

Australia is well placed to capture this demand gap and profit from China’s consumer market growth. China is progressively opening up its agricultural sector and supply chain to foreign investors, with its most recent change effective from January 2012, whereby it revised its approval system for agricultural investment categories.

However, whilst working to improve, upgrade and open up its domestic agricultural sector, the next big wave of outbound investment is likely to target opportunities in the major agricultural regions of Eastern Europe, Latin America, Africa and Australasia.

 

Australia and China represents a unique partnership opportunity. While China’s competitive advantage lies in its infrastructure, Australia’s infrastructure bottlenecks and underinvestment are widely regarded as a major constraint. Australia’s reputation for quality and its strong regulatory system places it as an attractive agri-destination for Chinese businesses, investors and local governments. However, despite this enormous opportunity for growth, a great deal of fear exists amongst Australians regarding food security, foreign investment and the potential for a monopoly and pricing interference.

 

Much is being written about the pros and cons of foreign investment in Australia but, in terms of investment into the agri sector, the proposition for Chinese investors is simple. By investing in food production (ie infrastructure, technology, research and processing capabilities), the Chinese are offering Australian farmers and food growers the opportunity to double (or treble) their production whilst halving their costs. The surplus can be exported (at a profit) to emerging consumers in Asia. A ‘win-win’ for everyone with the Australian farmers focusing on what they do best (farming the land and upgrading food production with new capital) and the Chinese benefiting from a reliable and sustainable supply of high quality agricultural produce from a country that is already the largest recipient of Chinese outbound investment (in the mining and resources sector).

 

Perhaps we should heed the immortal words of Franklin D Roosevelt when we weigh up the issues surrounding Chinese investment into our agricultural sector: “We have nothing to fear except fear itself”! ■