The ongoing drought did not put a damper on the delegates’ enthusiasm for the 2019 Australian Grains Industry Conference (AGIC) held July 31-Aug. 1 in Melbourne.
The annual event focused on farm production, domestic and global market outlooks and innovation in technology as well as current global events such as Brexit and the China-U.S. trade war, and Australia’s relationship with China.
A CEO forum on the second day of the conference featured Shayne Elliot of ANZ, Donald McGauchie of NuFarm and AA Co., and Brendan Bourke, Port of Melbourne, sharing their thoughts on the current business environment, challenges and opportunities for Australian agriculture
McGauchie said agriculture continues to operate in a challenging environment.
“We can’t get away from seasonal impacts as we’re going through a period of enormous fluctuation and variability,” he said. “It’s very challenging. Agriculture’s position in the global marketplace has been difficult for a while and the emergence of China and its relationship with the United States and how that plays out is going to have a massive influence.”
McGauchie said customers are moving away from commodities to wanting information on product and how the company produces it — something that will require customers paying a premium.
Elliot pointed out world growth has slowed and that the banks’ golden period was over as households were unable to take on more debt.
“The nature of the economy is changing, whether that be people with regular jobs and pay slips or businesses that don’t have physical assets such as consultants,” Elliot said. “The fastest growing employment in Australia is people with three jobs; it’s still small but largest growing. The nature of small business is changing as it’s becoming much more service orientated.”
When asked about the current trade war between China and the United States, all agreed that the tension was having an impact on Australia.
McGauchie said Australia was currently being squeezed between its strategic alliance with the United States and its trading alliance with China.
“Australia’s government has taken positions in the past that should have been more nuanced,” he said. “This has squeezed AA Co. as an exporter to China. There is an opportunity for Australia to act as a good third party between the United States and China but current rhetoric is making this harder.”
Elliot, however, suggested Australia would be wise to diversify its trading partners to reduce its reliance on China.
“I understand it (China) is a huge market that buys a lot of stuff,” he said. “However, we should have learned that from the U.K. experience in the 1970s when things changed at the stroke of a pen. One of the things I get frustrated with is that it is really difficult to get Australian companies to focus away from China rather than look at Vietnam, India and Indonesia.”
Elliot added that the United States still presented major trading opportunities for Australia and that Australian businesses with investment there were doing well.
McGauchie agreed, saying the United States presented the biggest opportunity for red meat and that AA Co. had recently opened an office in Los Angeles, California, U.S.
When asked about the contemporary Australian economic environment, themes of infrastructure investment, the need for government to do more in financial policy and a bipartisan agreement on energy policy were addressed.
McGauchie said much of Australia’s spending was focused on mining, and it has neglected road, rail and other “ordinary” infrastructure.
“In the 1970s, three-quarters of the bulk grain crop into Geelong would have been railed in whereas the bulk now is by road,” McGauchie said. “The Victorian government is investing in rail to try to rectify.”
Elliot agreed that investment in infrastructure was needed but noted that the United States has its success in soft-infrastructure investment such as education that Australia should also consider for the long-term success of its economy.
Bourke emphasized the need to invest in rail and that the government had a role in both investing in infrastructure and creating an environment that encourages private sector investment in the right areas. He said improvements to rail that allow for double-stack container movements, for example, will improve efficiency and encourage more grain onto rail.
“You will get modal shift when it makes sense,” he said. “Rail has the capacity to improve outcomes (in supply chain efficiency).”
As the discussion progressed, the panel was asked about the current state of Australia’s energy policy and the impact of climate change on the industry. All agreed the current partisanship around energy policy was not helpful and was hurting businesses that are crying out for certainty.
“We need bipartisan support and a policy where ideology is taken out and for it to be sensible,” Bourke said.
Elliot added the government needed to implement an energy policy and that it needed to be understood by business.
When talking about climate change, Elliot said it was influencing the bank as it asks its top 100 emitters how they plan to transition to lower emissions and also take this information to explore ways it can finance the plan.
It also was impacting the bank’s lending decisions as it changes the risk profile of customers and shifts previously low-risk customers on marginal country to higher risk as climate change impacts rainfall, etc.
McGauchie discussed the company’s plans for renewables and the need for infrastructure.
“AA Co. has approval for 2,000 solar cells but government has not set up the infrastructure needed to connect it to the grid despite a desire for more renewables,” McGauchie said when asked about the company’s initiatives in reducing its carbon footprint.
China-U.S. trade analysis
In a separate panel discussion, the global political trade environment, in particular China and how it interacts with the world, were discussed.
When analyzing the trade war between the United States and China, it was noted that China was playing a long game and ultimately agriculture was the industry most severely impacted by the current round of tariffs.
It was pointed out the optics of the trade war may play well for short-term politics but that ultimately the financial impacts on the United States were likely to be more profound than those experienced by China.
Philippa Jones, CEO, China Policy, said China is preparing new structures or trading blocs where it sees a benefit such as its efforts to build trade relationships among other northeast Asian countries.
Jones added this was detrimental to Australia because it undermined the existing systems it relies on for world trade.
Melissa Conley Tyler, director of diplomacy, Asialink, University of Melbourne, referred to the Asian Investment Bank as another example of an initiative led by China that would foster trade through the investment in infrastructure.
Tyler went on to say it was an example that highlighted the conflict between Australia’s trade relationship with China and strategic partnership with the United States.
“Australia signed up on the last possible day, offending Washington and at the same time offending China, too (for not signing earlier),” Tyler said.
During the panel discussion, it was noted that the Australian federal government recently had used language and rhetoric that took a hard line against China when a more measured and nuanced response would have been better.
Jones said she’d noticed a shift in sentiment within China toward foreign business with a growing wariness.
In discussing the challenges of the relationship between China and Australia and whether government rhetoric had a negative impact on trade, Jones said China’s strategy was not to rely on one country to supply all its needs for a particular commodity.
Referring to barley, Jones said China was not likely to rely solely on Australia to source the grain and that Australia’s best way of managing it should be to diversify to include other trading partners.
Building trade relationships
The need for Australia to build trading relationships with countries other than China was a recurring theme throughout the conference.
Ken Eriksen, senior vice-president at IEG Vantage, Agribusiness Intelligence, U.S., pointed out that India was a significant economy and has the potential to surpass China in terms of population. He also noted there was a shift toward a higher protein diet in India, even though meat consumption is discouraged in the country for religious reasons.
On Brexit, the panel said the U.K. is likely to experience a contraction in the short term as it would take time for the country to negotiate trade deals.
Tyler said countries in the E.U. that had contemplated an exit of their own are rethinking their stance as they view Brexit as a massive “own goal” by the U.K.
As in past conferences, discussion on rail and the need for investment was prominently featured. The federal government’s inland rail project, when completed, will connect Melbourne and Brisbane with an expected rail journey of under 24 hours and with 98% reliability. Currently, the journey takes 30 hours with 80% reliability.
Michael Clancy of the Australian Rail Track Corp. said the inland rail project was already underway with work and approvals. It is expected to be completed by 2025.
Clancy said the project presented significant challenges, including the building of a tunnel under the Toowoomba ranges. He also said planning approvals were complex as track that made up the network passed through different states that have their own planning laws.
Clancy said the upgraded rail infrastructure would allow for heavy trains to be driven on the network, something that already was starting to happen.
Michelle Kerr of Riordan Grain Services said inland rail would open up the supply chain in the north and provide better access for customers.
“Twenty-four hours travel time will be a big opportunity and opens up the sorghum market to Victoria,” Kerr said.
Clancy noted that it was not just the rail infrastructure that is needed but also support along the supply chain and access.