Agribusiness Bulletin 11 October 2013 - Deloitte

there isn't currently enough home grown capital to support the sector's ... northern crop is on the brink of failure following weeks of hot dry weather – NSW wheat ... according to AUSVEG as the emerging middle class demand safe, quality food ...
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Australia Financial Advisory

Agribusiness Bulletin 11 October 2013 Australian agribusiness a key ingredient in a $250 billion potential windfall to the Australian economy As one of the five super-growth industry sectors worth an extra $250 billion to the national economy over the next 20 years, agribusiness holds the key to Australia’s future prosperity, according to our new report, Positioning for Prosperity? Catching the next wave. As the mining wave continues to deliver prosperity for Australia, albeit at a declining rate, our analysis shows there is vast potential to be tapped in five additional super-growth waves of agribusiness, gas, tourism, international education and wealth management. Global population growth of 60 million per year will increase food demand, with Asia’s growing middle classes set to boost their protein intake. As a result, the size of the opportunity is huge for Australian agriculture. The sector is in the enviable position of having the strongest Australian natural advantage matched by a one of the highest global growth opportunities.

Although, the diverse nature of the sector is a positive it also poses a threat to our ability to translate the many parts into one wave of sustainable growth. However, all of the segments share a common barrier to success which could make the difference between success and failure, a lack of capital. New capital is required to overcome challenges such as funding the succession of an ageing workforce and addressing the infrastructure deficit that leads to supply inefficiencies. Capital is also much in demand to feed and drive the commercialisation of new systems, processes and technology to ensure Australian agribusiness can lead not follow the global innovation agenda. As the current wave of mining subsides, the flow of capital must follow the emerging super sectors including agribusiness. This includes investment by both the private and public sector as well as continuing education with the investment community on the idiosyncrasies of agribusiness investment and the longer term value proposition. The other thorny issue is foreign investment, something that requires a balanced and mature debate; quite simply there isn’t currently enough home grown capital to support the sector’s potential growth. We risk missing our window of opportunity if we make it too difficult for overseas investors to back us. As a delegate with the recent Queensland Government Trade and Investment Mission to China with the Honourable Dr John McVeigh, MP Minister for Agriculture, Fisheries and Forestry, I was fortunate to see many of these factors in play first hand. Of particular interest was the importance of food safety for the Chinese. While the size of the prize is dazzling; the requirement to meet this growing demand not only through scale but also quality cannot be underestimated as well as understanding and working with their supply chain constituents. For a full copy of our “Positioning for Prosperity? Catching the next wave” report please click here. For a recent article published by the ABC covering the report including a full audio interview please click here. For further information please do not hesitate to contact me directly. I do hope you enjoy the article and I would welcome any feedback or comments you may have. Rob McConnel National Industry Leader | Agribusiness

Corporate news Wilmar Sugar has reportedly spent $700 million on maintenance and upgrades in the last five years across its eight sugar mills. The company sees this investment as a key enabler to processing this year’s bumper crop. Sunshine Sugar Mill was awarded the top prize in the food and beverage section of the PACE (Process and Control Engineering) Zenith Awards for its innovative, energy-saving “centrifugal drive system”. The awards recognise ingenuity and innovation in Australian manufacturing. Eastern Australia Agriculture is offering its cotton portfolio, based near St George (Qld), to the market. The 37,000 hectares and 67,000 megalitres in irrigation entitlement are estimated to rank second-only to Cubbie Station in scale and reportedly have the capacity to produce 144,000 bales of cotton a year. Releasing its annual results, Tassal expects that domestic demand for its products will continue to outstrip supply in the short-term, with consumption per capita also growing. Agreements have been reached with the major supermarkets, locking in supply and price terms for two years, and expansion of the Macquarie Harbour facility to 2.1 million fish in the next two years is reportedly on track. Incitec Pivot has urged action on domestic gas prices, calling for gas expansion projects to be made available to domestic users including fertiliser manufacturers to help keep costs manageable and retain manufacturing activities on-shore. A separate report by Manufacturing Australia indicates that gas prices will quadruple by 2015. PrimeAg has reported a loss of $31 million driven by impairment charges and estimated selling costs associated with the asset sale program. This week, shareholders voted in favour of the final portfolio sale to Australian Food & Fibre, with the company now being wound down.

Other news Joanne Grainger has won a second term as president of the Queensland Farmers’ Federation. Meanwhile, Michelle Allan has been named the first female Chair of Meat & Livestock Australia – women in ag The live export ship that returned to Australia due to mechanical issues in early September has recommenced its journey. Animal welfare checks were completed prior to departure, confirming that the livestock were in good condition despite their extended stay on board – live export / animal welfare The rainfall differential between north and south New South Wales is driving price signals for this season’s wheat crop; Newcastle prices have been $10-$15 per tonne higher than Port Kembla. Many commentators fear the northern crop is on the brink of failure following weeks of hot dry weather – NSW wheat Summer crop options for the Mallee region were explored at a recent field day. Trials during the recent run of “wet” summers indicate that summer pulses and grasses can be useful fodder crops, but at the expense of future winter crop yields (due to soil moisture and nutrient depletion) and increased risk of attracting pests and diseases – southern summer cropping options Parasitic soil nematodes are in “plague proportions” in some Central Queensland cotton fields, according to agronomic investigations of poorly performing crops from last year. Growers are being warned that crop rotation remains the best current method for treating affected areas, potentially reducing the area planted to cotton this year – emerging pests Stakeholders (including local government, state government, cotton growers, transport companies and gins) in the St George region have met to discuss control measures for volunteer cotton so that the over-wintering populations of pests such as mealy bug, whitefly and aphids are minimised, thus reducing early season pest populations for the new season crop – pest populations A new $30 million cotton gin for Dirranbandi (Queensland) is gaining support. The Cubbie Station gin is expected to ease throughput delays in years with large lint volumes and increase the proportion of the local crop ginned locally – cotton capital investment The Northern Territory Cattleman’s Association sees the recent Indonesian interest in northern cattle properties as an acknowledgement of the comparative advantage of beef breeding in Australia – playing to our beef strengths Ruralco has reportedly secured a number of senior personnel from the Elders live export team – live export expertise Tightening lamb supply (attributed to the early, warm spring weather) is lifting saleyard spring lamb prices – spring in lamb prices As a result of the New Zealand drought, spring lamb numbers this year are estimated to be 2 million head lower than last year with expectations of prices lifting $15 to $100 per head. Export markets are expected to take 76% of production (or 18 million head) – NZ lamb The Eastern Market Indicator for wool surged more than 10% in recent weeks on the back of tightening supplies and favourable trends in the exchange rate. The tightening supplies are not a surprise to commentators who follow wool testing volumes; August testing volumes were down a fifth on the previous year – wool markets Planting loans, favourable prices and excellent cutting conditions are supporting confidence in the NSW cane industry and expectations of a bumper crop next year, according to NSW Canegrowers Association – cane come back Australian vegetable exports to South Korea, China, Indonesia and PNG have doubled in the last five years according to AUSVEG as the emerging middle class demand safe, quality food – emerging markets The Australian Prime Minister has confirmed he will push for a free trade agreement with China within the year, pointing to the benefits realised by the New Zealand economy in recent years – free trade The Indonesian government has announced permits for an additional 75,000 head of slaughter-ready cattle, but sourcing suitable cattle could be difficult according to commentators in the live export industry given the relative shortage of lighter, younger cattle in the north this year – live export markets

A report from Oxfam suggests that export rice prices could increase 25% over the coming decades due to poor harvests and logistic disruptions caused by climate change – climate change The outgoing Chinese Consul General for Western Australia has counselled Australia to look to agriculture as the new economic growth opportunity with China – foreign interest Scientists from the University of Queensland have used a method known as speed breeding to reduce the time to develop a stripe rust-resistant variety of wheat. By exposing the trial plants to continuous light the scientists have been able to produce up to eight generations of wheat per year, decreasing the trial period by 75% – speed breeding For more information including our wider team please visit www.deloitte.com/au/agribusiness. Rob McConnel National Industry Leader | Agribusiness Tel: + 61 7 3308 7300 [email protected]

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