8th August 2014
The Hon. Tony Abbott MP, Prime Minister of Australia
The Hon. Warren Truss MP, Deputy Prime Minister, Minister for Infrastructure and Regional
Development
Parliament of Australia
The Green Paper on Developing Northern Australia: Ridley Corporation’s response
Dear Prime Minister Abbott and Deputy Prime Minister Truss,
Ridley Corporation applauds the Government for commissioning a White Paper to explore
Australia’s opportunity to develop the economic potential provided by the northern regions of
the country. We also support a strong bi-partisan approach in partnership with industry to
address the outcomes of the white paper. An important natural advantage is the AgriFood
industry; hence Ridley also supports outcomes and recommendations which are aligned with
those of the Agricultural Competitiveness White Paper. Australia must be united in its
approach to government policy and direction to successfully deliver on the potential for
sustainable economic growth.
Northern Australia is unique in its proximity to Asia and its much publicised growth in middle
class demand for safe, quality and sustainable food. The region provides enormous potential
to improve the development, productivity and competitiveness of agricultural land, as well as
the value-adding agri-food supply chain. However, there are key challenges to our ability to
realise this potential, some which are similar to those faced by the southern regions of
Australia, however they are further exacerbated by its climate, its geography and its sparse
populations. This often means that despite the longer-term potential in the North, scarce
resources and capital are often re-directed towards more established and developed
Southern economies.
The role of Government
This brings into question the role of government in the development of North Australia.
Arguably government must create favourable platforms for private sector investment,
particularly in times of public sector resource scarcity. Furthermore, the approach to
prioritising limited public sector funding needs to strategically focus on areas of market
failure, such as commercially critical infrastructure in areas of low density population, which
are holding back a qualified private sector desire to invest and greater industry growth.
The AgriFood Industry advantage
Agriculture and farming underpins the strength and profitability of other agribusinesses and
manufacturers in the supply-chain, Ridley is one such company. Ridley is Australia’s largest
independent supplier of animal nutrition solutions We support food producers in the poultry,
dairy, aqua, pig, cattle, sheep, horse and pet food sectors. We are ASX listed (RIC) with
over 650 employees spread across regional Australia. We have more than 20 sites with an
annual turnover in excess of $800m. Specifically in Australia’s north, Ridley has a
supplements manufacturing mill in Townsville. Our production and supplementary feeding
program helps support the pastoral industry in Northern Australia, which contributes 57
percent of the region’s total agricultural production and 45 percent of the entire national
heard1.
To reinforce Australia’s role as an AgriFood leader, it is important to build strong AgriFood
supply chains. Competitive supply chains are highly interdependent, where a successful
manufacturing and processing industry is also dependant on a thriving agricultural industry.
This is especially true of animal feed where both our customers and suppliers are often
farmers. This interdependence between agriculture, processing and manufacturing is also
evident in many other agribusiness sectors such as dairy processing and manufacturing,
meat processing, gain handlers and marketers...etc. Australia has a natural competitive
advantage in its AgriFood and to achieve the enormous potential Australia is capable of,
government policy must consider both agriculture and manufacturing.
Resilient AgriFood supply chains will enable industry to benefit from this country’s natural
competitive advantages, which lie in our geography and proximity to Asia. This is particularly
true of Northern Australia. Australia’s abundant, fertile and diverse land coupled with our
relatively small and resilient population, which provides us with the highest rate of arable
land per capita in the world. We can however choose to use these qualities to our advantage
by creating a competitive environment for our agribusiness to flourish, or choose to take
1
ABARES 2013b.
them for granted. Developing Northern Australia will require long term vision and a genuine
desire from government to make the regulatory and fiscal changes necessary to enable
profitable private investment.
Strong and integrated supply chains extend well beyond the farm-gate and include agriprocessing and value-added agricultural products. There exists a strong economic multiplier
effect in processing and manufacturing, which Australia can apply to its inherently
competitive industries, notably AgriFood. This is an industry in which Australia not only can
be competitive, but should be competitive. Policies and taxation should reflect the
importance of manufacturing to competitive agriculture.
To appropriately support a competitive AgriFood industry in Australia, a common and strong
brand is necessary to promote the strengths and advantages Australia holds compared to
our numerous global AgriFood competitors. They include Brazil, the United States of
America, and the European Union, among many others with varying strengths in different
commodities, processing and manufacturing. Australia is not alone in trying to capture the
growing lucrative premium market in Asia and elsewhere. The competition is laudable and
credible branding can provide the necessary cut through for the gaggle of international
brands.
We would like to recognise the commendable efforts of Austrade in the research, analysis
and development of messaging and groundwork for a national food brand. However
government budget cuts have prevented the next stage, which consists of the development
of a brand identity and imagery. This hiatus will potentially damage the momentum created
in addressing Australia’s fragmented market. Ridley strongly supports the development,
completion and effective implementation of a compelling national food brand. We will
continue to advocate, explore and lead solutions to maintain the current momentum with
relevant industry associations, such as the Australian Food and Grocery Council
Agribusiness Council. However even if a national food brand is industry lead, government
involvement and support is still necessary to address alignment and the fragmented State
Government branding in this space. A successful and united ‘Brand Australia’ can only exist
through joint government and industry investment and collaboration.
Infrastructure
Despite the Abbott government’s commendable emphasis on infrastructure investment,
further focus is required specifically on rural and regional infrastructure. This is especially
relevant to Northern Australia, and includes an effective and timely NBN roll out, rail
infrastructure, road & port infrastructure, and services.
North Australia already has a number of large scale infrastructure projects in the pipeline.
However, many important projects fail to make the cut as National funding is prioritised on a
‘risk and return on investment’ basis which often focuses on short-term returns. Using this
narrow criterion, projects in southern and more densely populated regions of Australia are
favoured. To address the potential medium to long term opportunities in Northern Australia
and to enable viable and substantial private investment; the government will also need to
address the infrastructure investment market failure in North Australia, and not only the
market opportunities with greatest short-term return. Where there is a reasonable
opportunity for the private sector to profitably fund infrastructure projects in more populated
southern regions, government should focus on creating favourable regulatory and fiscal
platforms rather than co-funding. This will enable greater funding to be directed towards
areas of market failure and of substantiated potential growth.
Australian agribusiness need a holistic and connected view of infrastructure investment
strategies and harmonisation. This view requires an identification of competitive
infrastructure pipelines from farm gate to domestic and/or foreign customers. For example,
rather than investing in roads in isolation, which may divert the transport of product from
potentially more effective transport channels and increase heavy vehicle traffic, governments
and industry can collaborate to identify the most efficient combinations of infrastructure for
different AgriFood sectors and in different geographic locations. This might look like b-double
standard roads at the farm-gate, then nationally consistent rail infrastructure across multiple
States to competitive ports. These infrastructure pipeline solutions need to be viewed in the
national context to address situations where transport infrastructure is incompatible due to
different rail gauges in different States.
Taxation and fiscal policy
Processing and manufacturing are capital intensive by nature. In a highly competitive world,
best in class machinery and technology require a taxation regime which includes accelerated
capital depreciation to enable Australian companies to innovate and to stay ahead of the
curve. Australia’s high cost of labour, relative to other arguably more competitive
manufacturing nations in our region, is another important reason to encourage automation
through capital investment in machinery and technology. As the cost of labour is unlikely to
dramatically decrease in Australia relative to competitive next best alternative, it is important
for agribusiness to operate using the most cost effective and productive technology,
processes and number of employees.
Talent, education and training
Sustainable sources of talent need to be created in tandem with creating economic growth
opportunities. The decreasing pool of graduates in agricultural sciences and experienced
AgriFood candidates is an Australia-wide challenge. However the isolated nature of much of
North Australia can compound the difficulty in attracting short or long term human resources.
Education among farmers is critical to their ability to maximise farm profitability. Tertiary
education, including Agricultural Colleges, is a good foundation for improved farming
practices. However, much can be achieved in the short to medium term through on-the-job
training, best practice awareness and capability building. Formal Government support for
industry led farmer training and education programs would go a long way to accelerate a
transition to improved farm practices and profitability – particularly for the most promising
farms which are struggling to step up without the support to do so.
A consistent and positive approach should also help attract young and new entrants into the
agricultural talent pipeline. Like many agribusinesses, Ridley is concerned by the lack of
interest from young talent and is investing in programs to promote agribusiness. These
programs include alliances with universities, sponsoring PHD candidates, supporting women
in manufacturing forums and an emerging leaders program among others. However, much
more can be done through greater industry and government cooperation.
Consistent messaging regarding best practice in farming across various industry players,
government and educational institutions will assist farmers to cut through the ‘noise’ to
improve their productive practices. As the pastoral industry is so prominent in North
Australia, this should specifically include a focus on increased pasture improvement
practices to drive better feed conversion efficiencies. Animal feed can be one of the highest
input costs for farmers; however an advanced understanding of feed ratios can also be an
important contributor to on farm productivity, profitability and growth.
Government funding
The criteria attached to many forms of government funding are dependent on the number of
employees directly generated by the investment in question. More employees per project
does not necessarily equate to more competitive and sustainable agribusinesses or
industries which will contribute to the Australian economy well into the future. This is a short
term view of investment returns. The most competitive and sustainable processing and
manufacturing businesses have lean employee numbers but more importantly, they are
capable of generating a considerable multiplication in economic benefits and increase
employment in the supply chain.
A more sophisticated criteria for government funding aimed at processors and
manufacturers in AgriFood supply, should consider job creation in the total supply chain as
well as direct employment and other strategic factors contributing to the Australian economy.
This will result more effective use of limited government funding, and an improved capacity
to address market failure where it exists.
Policies which encourage and support collaboration in the supply chain and across
agricultural sectors can help reduce fragmentation, and strengthen economic synergies. For
example, Ridley can help improve farmer profitability and sustainability through consistent
and quality animal feed, which improves yields and heard health, the quality of milk, meat
and eggs...etc. These improvements translate into better returns at the farm gate, and also
provide a superior product and branding proposition to engage new and existing food
markets. There are many other examples where improved collaboration through the
AgriFood supply chain can improve farm gate and agribusiness profitability. Farms cannot
operate in isolation to a competitive supply chain.
Innovative financing
This collaboration can also extend to financing solutions. Financial innovation can help
alleviate challenges at the farm-gate and smooth out the Agricultural cycles. Partnership
opportunities exist between farmers, agribusinesses and the banks to explore adapted
financing solutions and risk sharing models, especially where there is market failure.
For example in the Dairy industry, during the lactation period farmers generally have good
cash flow, which they can spend on the farm and on appropriate supplementary feeding.
Consistent supply of high quality supplementary feeding throughout the year is a proven
practice across Australia’s best dairy farmers in a bid to improve milk quality and volume.
However out-side of the lactation cycle, cash flow is often much tighter and some farmers
will cut their spending, including spend on feed. This will directly impact their yields and
quality of product when the lactation cycle comes back around, providing the farmer with
less revenue and less profit – a vicious cycle.
The ability to provide farmers with consistent financing throughout the peaks and throughs of
their industry cash flow cycles, combined with improved education in effective farm and
financial management techniques will depend on the ability of farmers, agribusiness and
banks to collaborate on innovative solutions to match.
Innovative financing solutions can also extend to Public Private Partnerships (PPP), where
risk sharing models can be adapted to the cyclical nature of agriculture, which also impacts
the AgriFood supply chain. Agribusiness is a long-term proposition. Some projects may
require government to assume a greater proportion of risk in the short-term, and given
specific milestones, hand-over more risk to private investors in the medium to long term.
Improved international market access
International market access for Australian AgriFood products is critical to our
competitiveness in Australia as in the northern regions, as our small domestic market alone
will not enable economies of scale. This is widely acknowledged, accepted and is evident
from the fact that Australia exports 60% of its produce. However, value-added (processed
and semi-processed) products often receive less attention in trade negotiations than
commoditised agricultural produce – both are important to achieving maximum benefits from
supply chain integration and creating an economic multiplier effect. Economies of scale
through improved trade access create a critical mass for manufacturing in Australia. A lack
of critical mass leads to a negative cycle of plant shutdowns, then manufacturing ‘clusters’
start to break up threatening the viability of the entire industry.
Ridley supports the encouraging inroads that the Abbott government has already made on
the recent finalisation of Korea Australia Free Trade Agreement, the Japan Australia
Economic Partnership Agreement (JAEPA) and efforts to progress a Free Trade Agreement
with China, as well as through the Trans Pacific Partnership negotiations (TPP). Traditional
Tariffs still pose a competitive disadvantage when compared to countries where they do not
apply, and these efforts are a step in the right direction. We encourage the Federal
Government to continue its efforts to further improve tariff liberalisation for Australian
Agriculture and improve its focus on AgriFood processing and manufacturing.
Non-tariff barriers to trade such as quotas, adequate infrastructure, and bureaucracy can
present just as much a barrier to trade as traditional barriers. For example, importation
documentation cannot be sent to Indonesia before the product has left port, however it takes
longer to process the documentation than it does to transport from Australia to Jakarta –
causing Australia to lose some of its competitive advantage in proximity. This causes delays
and build-up of product in the Port of Jakarta which is too small to accommodate, and leads
to expensive storage costs. Many organisations chose to divert product to Singapore or HK
first before returning to Jakarta to avoid more expensive bureaucratic delays. This imposes
additional costs in an already inefficient and uncompetitive supply chain.
Another important non-tariff barrier includes non-acknowledgement of internationally
recognised science, which is used to delay (sometimes indefinitely) the opening of markets.
For example, there is no formal recognition from China and Indonesia that heating of meat
products, notably rendered meat products, inactivates the Avian Influenza (AI) virus. Hence
when there were AI outbreaks as was the case in Australia at Maitland in November 2012
and Young in October 2013 (non-deadly strains to humans), these countries shut down
market access to all Australian poultry products. These restrictions are still in place at the
time of writing despite an official declaration by the OIE (The World Organisation for Animal
Health) officially declaring Australia AI Free. Indonesia would like to send a team to perform
a risk assessment in country. International politics will always pose challenges to free trade
and investment, however these challenges can be minimised by formalising processes,
agreements on science based practice and logic to manage bio-security (sanitary and Phytosanitary) and improving transparency.
Industry standards
Australia has some of the highest bio-security, sanitary, phyto-sanitary and environmental
standards in the world. However, many of these standards differ from State to State causing
confusion, inconsistency and inefficiencies. In the animal feed industry there is the National
Feed Standard, yet there is very little government resource to help industry to raise
awareness and to assist in the implementation of these standards. Animal feed mills need to
be designed fit for purpose, and use effective management techniques to prevent disease
and medication cross-transference. If not addressed, these issues create a concern for the
safety of animals and humans, put our international trade at risk and impact the sustainability
of Australia’s primary industries.
Protecting food quality and safety is paramount and industry has not been idle in putting
resource towards addressing this gap. For example, the Stock Feed Manufacturers Council
of Australia (SFMCA) established the FeedSafe standard, to which Ridley is certified across
all feed mills and strongly supports. The Feed Ingredients Additives Association of Australia
(FIAAA) also supports Australia’s National Feed Standards. However much more can be
done to educate and assist feed millers to raise their standards, through improved resource
at the Department of Agriculture and consequent collaboration with key industry players and
associations.
Developing Northern Australia
As agricultural markets become increasingly global, some of the most competitive
agricultural supply chains are integrated beyond the farm gate and can leverage geographic
advantage where it exists. North Australia has an opportunity to take advantage of being on
the doorstep to Asia’s growth markets. Australian agribusinesses doesn’t necessarily need
to own the entire supply chain to be competitive, however it can control it, influence it and in
this way become a driving force for growth.
Australia's northern markets and population density is too small to commercially justify the
rural infrastructure needed to ensure competitive cost to market, through effective transport
and to ensure cost effective and productive rural operations. Therefore government support
is needed in this case of market failure to enable growth through further substantial private
investment in the north. This includes fast tracking rural access to competitive
telecommunications infrastructure. Improved infrastructure will also contribute to stronger
rural communities, and make it easier for companies to operate cost effectively and
efficiently - preventing jobs from moving to more urban areas.
Farmer education and capability building will be an important catalyst to successfully
implementing necessary change and generating innovation. Importantly improved farming
practices, such as pasture management and an improved understanding of feed ratios, will
enable sustainable growth and profitability. Fostering a vibrant domestic AgriFood processor
and manufacturing supply chain, through accelerated capital depreciation, more
sophisticated innovation and investment government support criteria, improved government
resourcing to address non-tariff barriers to trade and enforce industry bio-security standards.
We look forward to the release of the White Paper on Developing Northern Australia. Upon
request, I would be delighted to be contacted to elaborate on any of the above points.
Kind regards,
Tim Hart
Managing Director and Chief Executive Officer
Ridley Corporation