25 Royal Tues 1600 1730 SASHA COURVILLE
Thank you. Well, good afternoon, everyone. I'd like to do four things in this short few minutes.
One is explain what exactly is natural capital. A second is explain why NAB cares about natural
capital, and third, talk through the links between good management of natural capital and farm
performance, and last, outline what is NAB doing to support customers in managing natural
capital risks and in and taking advantage of opportunities.
So to start off, what exactly is natural capital? Natural capital is everything that nature provides
to us that we depend on for healthy economy, for healthy agribusinesses, but we don't necessarily
pay for them. There's a whole range of ecosystem services that underpin the productivity of
agriculture-- things like soil formation and erosion control, water purification and filtration
processes. Broader services like climate regulation and carbon sequestration-- these are all
ecosystem services.
For Australian agriculture, one of the most significant limiting factors for us in terms of our
productivity is water. Well, water is natural capital. Likewise, good soils are critical for the
productivity of agribusinesses. Yet ABS estimates of the incremental effect of land degradation
on the value of land and the lost profits from agriculture production are sobering. Over the past
10 years, the cost of land degradation has increased significantly, And in 2010-100, cost more
than $600 million in lost profits.
Another way to look at natural capital is to consider different kinds of capital. So we understand
financial capital and built capital. We have good accounting frameworks and tools to bring them
into decision-making structures. We have an understanding of human capital. We have a bit of a
fuzzier understanding of social capital and natural capital. But these are all critical components
of successful businesses, successful regions, successful countries and economies.
So using the concept of natural capital, we can make visible the economic drivers and benefits of
good environmental management. So why does NAB care about natural capital? So NAB is
Australia's largest agribusiness bank. We've been around supporting customers for 155 years.
And we want to be around to support customers for the next 155 years.
Now, within the broader context of the discussions we've been happening around global
population growth, climate variability issues, among other things, we're going to need to be able
to do more with less. The only way to do that is off the back of a strong natural capital asset
base. Good management of natural capital plays an important role, all else being equal, in farm
productivity, profitability, and resilience.
We already know that our customers are ahead of us in thinking about natural capital issues and
what it means for their businesses. So we surveyed over 5,400 customers, and asked them
questions around natural capital and what issues were important to them. And what we did find
out was that the top three rated natural capital issues of concern were soil health, energy costs,
and water scarcity, followed by runoff in biodiversity after that.
Very significant numbers if you tend to look at it. I don't know if you can read it, but the yellow
or the whites and blue, the yellow is people that rated it importance between a seven and eight of
10, and the blue is rated nine or 10, very important. So we have 89% of customers saying soil
health is rated seven or more on that scale 10. 86% rated energy costs the same way, and 84%
rated water scarcity as that critical issue.
Interestingly-- we'll go to the next slide-- 74% of our customers in the survey had already made
changes to their businesses as a result of natural resource sustainability constraints in the last two
to three years. We found the fruit and vegetable growers were most likely to have made changes
to their businesses, at around 88%. And the issues they were focusing on were water scarcity is
66%, soil health at 52%, reducing energy costs, 49%, minimising runoff, 36%, and managing
waste at 32%.
However, it's important to look beyond that and look at, well, there's 77% of crop growers and
76% of livestock producers who have made natural capital improvements as well in the past two
to three years. Intentions to make changes in the near future are highest among those who have
already made changes in the past and also business in a growth phase. Horticulture businesses
were also most likely to intend to make changes in the near future.
So we're listening to our customers and are supporting them in making investments that
strengthen their own business models but also improve their natural capital base. So let's unpack
this relationship between good management of natural capital and far performance. In terms of
productiviy-- we'll play around with these concepts a little bit-- we can see from customer
insights as well as industry research that things like sustainable grazing practises can result in
significant increases in stocking rights off the back of reinvestment in natural capital assets,
namely soil health and biodiversity.
For example, customers-- the Agricultural Information and Monitoring Services, AIM-- ran plant
trials of native grasses, so grazing trials of native grasses, across multiple properties in South
Australia and New South Wales. They converted large paddocks into small paddocks through
fencing and water investments and managed grazing and pasture recovery. They maintained
vegetation cover and had higher water infiltration and fewer weeds.
This all resulted in 47% increase in stocking rights and a 26% increase in pasture growth along
with higher gross margins. Or another-- and this is an MLA case study of Gilgai Farms near
Geurie, New South Wales. It shows similar results. So through a shift to cell grazing and pasture
cropping, they tripled their carrying capacity through three drought years. They have all but
mitigated herbicide drenching and fertiliser use through a focus on biological farming practises,
and now have 182 species of grasses, forbs, and shrubs.
Similarly, at Natalie Williams, a Nuffield Scholar who presented at ABARES here last year, who
was a farm near Jericho in Queensland, significantly invested in their natural capital base and
saw improvements over 15 years of pasture going from class D to class A, dramatically
increasing their carrying capacity, just blitzing all their neighbours. They've also reduced their
import costs through reduced mustering, chemicals, and lower methane emissions.
So Natalie's case highlights that in addition to increased output, sustainable agriculture can also
deliver reduced input costs that can contribute to profitability. And these can cut across, reduce
fertiliser and pesticide use to energy, water costs, and even new revenue streams through turning
waste into new products.
So looking at the prospect of rising energy costs across Australia, there are significant
opportunities to reduce bills through investing in energy efficiency upgrades. In 2011, Climate
Works did some research on the dairy industry and found that the average dairy could cut costs
by 19% through investments in refrigeration and water heating systems. More recently, Dairy
Australia has been implementing an extensive energy efficiency project that including energy
audits of 1,300 farms.
Now, these audits have highlighted a number of savings opportunities, many including no or low
cost, maintenance, or adjusting of running times through to significant upgrades in technology or
machinery, like hot water systems or plate coolers. Likewise, the apple and pear industry's
programme-- very cleverly named What's In Your Business-- found that the average producer
could cut energy costs by 16% per annum.
In the Wambiana grazing trial near Charters Towers in Queensland, which is actually being
talked about in a parallel session, what we found-- this particular trial used five different grazing
strategies that we were applied between 1997 and 2010, though I understand that this trial is
ongoing. It's a 17-year old trial. What they found is that the medium density stocking rights
showed the best results, profitable every year, with animals being 50 to 100 kilogrammes heavier
and in better condition, fetching higher market prices.
Compared with the average North Queensland property-- around 20,000 hectares-- this strategy
was $2 million more profitable. It also correlated with improved biodiversity outcomes. So in
contrast, the higher stocking rate strategy saw a decline in carrying capacity, two times faster
runoff, leading to soil erosion and less infiltration. Now, a key lesson for this particular trial is
that if you took that at any five-year period, you'd get a different result. So it's only by looking at
the longer-term time horizon that you really get a true picture of that relationship.
One of the most important concepts to understand in terms of link between natural capital and
farm performance is resilience. So resilience-- what is it? It essentially is the ability to bounce
back after a system shock. And the speed of recovery is important, and how far you dip down is
important as well. What this means for farmers is you get more consistent returns across good
years and bad. This consistency is critical to be able to plan, manage, and investment in one's
business over time. It also enables the building of long-term, trusting relationships and loyalty
with supply chain partners, because you can deliver consistently year on year.
For example, as a result of no till control traffic and constant innovation in machinery and
optimal use of inputs, one of our customers, a grains farmer in Western Victoria in the Wimmera
has a strong record of consistent crops and higher yields compared to their neighbours even in
dryer years. This is a result of improved soil condition, increased water retention, among other
things, including amazing management.
Another way to think about resilience is through one of our customers who's based on near
Moree. Let's see if I have a slide of them. With reduced water allocations and with increased
climate variability, Dick Estons wanted to diversify his cotton farming business, and looked at
the best crop for the region which would provide the greatest return for the least amount of water
as a limiting factor. And for him, that was oranges. So he's now building an export market for
orange juice with the aim of establishing a sustainable citrus industry in Northwest New South
Wales and Southern Queensland.
In a similar vein, we've seen other customers strengthen their business models while also
improving their natural capital base. So an example of co-generation. Mackay Sugar diversified
their business model through the development of a co-generation plant using waste for gas to
produce clean energy that cuts their energy bill, reduces their reliance on coal, reduces
greenhouse gas emissions, and feeds back into the grid, enough to power a third of the energy to
power Mackay. Now, this produces, at the peak of the season, 38 megawatts per day during the
crushing season from June to November and surplus requirements of up to 27 megawatts
feedback into the grid.
A final example, cattle farmers Martin Royds and Trish Solomon and their Jillamatong property.
The last three are featured in our agribusiness calendar that I think everybody has a copy of for
this year, which features innovative customers doing fantastic stuff from a natural capital
perspective. These guys are also featured in the Soils For Life case study, so there's a lot of
information about them. They've taken a holistic approach to farm management, using rotational
grazing, minimum till, direct sowing, planting trees, and slowing the flow of water on their land.
Using a high concentration of native grasses for grazing, that's ensuring that the pasture is highly
resistant to drought.
They've dramatically increased soil organic carbon levels on their farm. So their average is
around 2.4%, and that's up from less than 1% 12 years ago. They've increased the number of
useful plants from five to 80, and dramatically cut input costs. They have no need for herbicides
or other inputs, because the system is managing itself.
As a result, their stock gained condition year round, even through drought years. They're more
profitable in terms of output per unit of rainfall compared to the average farmer in the region by
a significant multiplier, and they've seen productivity increases from 1.73 hectares per cow to
1.13 hectares per cow.
So what is NAB doing to support customers in investing in their natural capital, in managing
natural capital risks, and taking advantage of opportunities? The first thing is to really understand
customer experiences, needs, and expectations, supporting customers, and exchanging water best
practises, [? what are ?] the innovation, and what is our role to really support them in that.
Second is building banking capability, banker capability, so that customers should be able to
have conversations with their bankers. The bankers should know what's happening in the
industry around best practises, sustainability tools, new opportunities for savings that generate
real returns for their business.
The third is the development of products and services to make it easier for customers to invest in
their natural capital asset base while strengthening their business models. So we've just recently
launched a solar panel finance. It's an asset finance product at discounted rates to support
customers where it may be appropriate to reduce energy costs through solar power. Now, as a
finance product, PV panels have about a lifespan of around 20 years. That's usually the
guarantee. We see payback periods of anywhere between, on average, three to five years,
depending upon where you are, levels of solar radiation, and how much energy you use in the
daytime. Because we're not looking at storage in this particular product.
We're also engaging with industry associations and research organisations to understand what are
best practises, what are tools that already exist out there to support industries in improving their
practises, managing their natural capital well, so that we're not reinventing the wheel, that we can
just understand what the industries are doing and support them.
We're partnering with research organisations to build up that long-term and multisite data sets to
really understand those linkages in a much more comprehensive way. And we're also working to
build natural capital into our credit risk assessment processes over the next three to five years off
the back of engagements with industry associations, with research organisations, to build that
understanding over time so that we're appropriately pricing natural capital into our risk
assessments.
But as a final point, while we think this is the right thing to do for Australian agribusiness and for
Australian society, it's also smart for business. Thank you.