Produce
Growing your business • AUTUMN 2013
In this issue
Cotton industry overview
Blueprint for Australian agriculture
Succession planning
Economic update
trailblazers
Proudly supported by Westpac
Australian Agribusiness today is a country mile from the old days. From next
generation farmers and cutting-edge technologies to revolutionary techniques
and innovations, there’s an exciting new world of endless possibilities. So it’s good
to know while you’re forging ahead, we’re backing you up.
Our experienced Agribusiness teams live and work in your community and share
your vision to see your business grow. From purchasing rural or investment
property to new farm equipment right through to your day to day working capital
and personal banking requirements – we’re here to help.
Talk to us today about how we can support you.
visit westpac.com.au/agribusiness
© 2013 Westpac Banking Corporation ABN 33 007 454 141 AFSL and Australian credit licence 233714. WBC3017/NSW/RMW/2503
Welcome
to the second issue of Produce,
Westpac Agribusiness’s magazine
for the agriculture sector
At Westpac, we are dedicated to helping
you find financial solutions for all your
agribusiness needs.
Graham Jennings
Nothing can replace the
rapport created through
meeting face to face and
discussing ideas in person.
No matter what industry you’re involved in, nothing can
replace the rapport created through meeting face to face
and discussing ideas in person. It’s something the entire team
here at Westpac believes in—and it helps inform our dealings
with all our agribusiness clients, no matter where they are
farming around Australia.
In our second issue of Produce, we delve deep into the
cotton industry and provide an overview of how different
agricultural sectors are expected to perform in 2013.
Although we’re only half-way through the season,
cotton farmers are coming off the back of a high-performing
2011–12 and this good fortune looks set to continue. We
take a look at new developments in the cotton industry,
from groundbreaking farming techniques, equipment and
seedstock, to trade and legislation updates. We reveal some
emerging trends in cotton and examine prospects for the
industry, here and abroad.
You’ll also find an introduction to the key findings from the
first-ever Blueprint for Australian Agriculture report, released
by the National Farmers’ Federation in February.
And we explore an issue of huge importance, but one often
neglected: succession planning. Remember that we’re always
here to offer you guidance and to help you plan a handover
strategy for your farm.
Finally, we chat with David Chomley, our Premium
Agribusiness Manager in country New South Wales.
Please enjoy this issue of Produce.
Graham Jennings
General Manager
Regional Commercial & Agribusiness
The Westpac Group
Autumn 2013
1
96%
of the cotton fibre
grown in Australia is
sold to other countries.
1000
different insects can be found
in a typical cotton crop.
43
species of cotton
can be found
around the world.
215
pairs of jeans can be
produced from a single
227kg bale of cotton.
Cotton
The word comes from
qutun, or kutun, an
Arabic term used to
describe any fine textile.
China
is the world’s largest
cotton importer
and producer.
1830
1992
In this year, Australia
produced a world-record
2.2-million-bale crop.
1250
cotton farms operate in
Australia, each averaging
467 hectares.
In this year, Australia shipped
its first cotton cargo, comprising
three bags, to England.
500
million people are able to be
clothed by cotton produced
by Australia’s growers.
Hibiscus
is the genus of plants to
which cotton belongs.
Cotton facts
Sources: Cotton Australia, Cotton Catchment Communities , The Australian
Contents
06
head of Editorial
Michael Butler
editor
Alarna Haigh
Production editor
Paul Rodger
SENIOR SUb-Editors
John Piggott, Merran White
16
CONTRIBUTORS
Fleur Bainger, Jeremy Chunn,
Cameron Cooper, Joanna Hall,
Sasha Tohme, Susan Webster
HEAD OF design
Shane O’Brien
designer
Whitney Moothoo
studio manager
Narinder Kaur
production coordinator
Rhys Prosser
Triple A Angus Stud
ACCOUNT MANAGER
Liz Keene
liz.keene@edgecustom.com.au
ACCOUNT DIRECTOR
Scott Crisp
CEO
Eddie Thomas
Print management
SOS Print
Produce
GrowinG your business • AuTuMn 2013
PRODUCE IS PUBLISHED ON
BEHALF OF WESTPAC BY:
Edge Sydney
51 Whistler Street,
Manly, NSW 2095
Edge Melbourne
Level 5, 115 Elizabeth Street,
Melbourne, Vic 3000
Disclaimer: The information included in this magazine
is correct as at March 2013 and is intended for interest
only. The opinions and views expressed in
this magazine are provided in the writers’ personal
capacities and are their sole responsibility. Their
publication does not imply that they represent the
views or opinions of Westpac or Edge and must neither
be regarded as constituting advice on any matter
nor be interpreted as such. The reproduction of
advertisements in this publication does not in any way
imply endorsement by Westpac or Edge of products or
services referred to therein. No part of this publication
may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise,
without the prior permission of the publisher. A
selection of the images featured in this publication
has been sourced from Thinkstock photos and
Getty Images. Business Essentials trading as Edge
ABN 22 062 493 869.
Page 10
How Chinese
demand for
cotton is
affecting global
production,
imports and
exports in 2013.
Page 16
A summer
round-up of the
the beef, dairy,
wool and grain
industries.
In this issue
Cotton industry overview
Blueprint for Australian agriculture
Succession planning
Economic update
Read online
This issue of Produce
magazine can be viewed
online at: www. westpac.com.au/
agribusiness
Cover: Julia Goss/Getty Images
Page 18
Succession
planning
can be tricky
business, so
make it easier
with the right
advice.
Regulars
18
04 News
32 On the land
Industry
06 Cotton: research and innovation
10 Cotton: industry update
14 Blueprint for progress
16 Agribusiness round-up
Life
18 Sweet succession
22 Winter wonderlands
25 Rescue chopper charity
Data
26 The economy
28 Interest rates
30 The dollar
Autumn 2013
3
$407b
Did you know ...
Workforce decline tackled
... is the estimated total value of family
businesses that will change hands over the
next decade as Australia’s baby-boomers—
farmers included—bow out and retire.
Curtin University in Western Australia has joined a national
science network to address the growing demand for skilled
professionals in Australia’s primary industries.
In an attempt to attract new students, the Curtin Primary
Industry Centre for Science Education (PICSE) activity centre
is promoting various work and research opportunities in the
food and agriculture sectors to WA high schools.
“As part of the Curtin PICSE program, students will be
exposed to cutting-edge research and will be shown
the importance of science to primary industry,”
says Gina Pearse, science education officer
and leader of the centre.
PICSE activities will include
industry-placement scholarships
that enable students to work
alongside researchers and a
five-day camp showcasing career
and research opportunities.
Source: news.curtin.edu.au
Source: Bankwest Inherited Housing Report (2010)
The things they bring in …
Snake meat, a witchdoctor’s bag with dead rodents attached,
skinned frogs, a tiger’s penis and products made of elephant
dung are some of the items travellers have tried to bring into
Australia since the beginning of 2012.
Tim Chapman, first assistant secretary for border compliance
at the Department of Agriculture, Fisheries and Forestry, says the
items could introduce serious diseases and pests into Australia.
“Biosecurity protects Australia’s plant, animal and human
health by reducing the risk of unwanted pests and diseases
arriving in the country,” Mr Chapman says.
Source: www.daff.gov.au/about/media-centre
Bees, please
The buzzing of bees in the garden is a
sound that’s synonymous with spring.
But an international decline in the
honeybee is prompting scientists to
develop plans to ensure their survival.
Researchers say a decline in the insects
could devastate dinner plates, with
honeybees responsible for the pollination
of many crops including apples, soybeans,
citrus fruits and avocados.
To help boost the population, the Rural
Industries Research and Development
Corporation has launched a guide
highlighting pollen and nectar planting
choices from backyard to bush.
Gerald Martin, chairman of the Pollination
Program R&D Advisory Committee, says
65% of agricultural production relies on
bee pollination, which helps ensure new
fruit, vegetables and seeds.
At the same time, honeybees are
coming under pressure from urbanisation,
bushfires and changing agricultural
and land management practices.
Source: www.rirdc.gov.au/news
4
Produce
FAST
FACTS
Fast fact 1
farms
Exports
reached a
record high
of $36.4 billion
in 2011–12.
Source: ABARES
Fast fact 2
CAMELs
Their milk does
not curdle
but it can be
fermented and
used to make
cheese.
Source: www.fao.org
Fast fact 3
FARMs
Australia has
about 134,000
farms, 99%
of which are
locally owned.
Source: NFF
NEWS
Waste not, want not
Up to half the world’s food production—about two billion
tonnes—is thrown out as waste every year, a UK study says.
The study by the Institution of Mechanical Engineers found
food waste can be attributed to several factors, including
the buying policies of large supermarkets, the cosmetic
appearance of produce and inefficiencies
on-farm and in the supply chain.
According to the report Global Food:
Waste Not, Want Not, between 30%
and 50% of the four billion tonnes of
food produced annually goes to waste.
Source: www.bbc.co.uk/news
AgriNews
Facts at a glance, industry
information and the latest
updates from around the traps
App dishes
dirt on soil
CSIRO
Want to have access to the most up-todate soil information at any location
around the country in seconds? New
mobile device technology means you
can now instantly visit Australia’s national
soil databases thanks to a new iPad app.
Called SoilMapp, it provides
information such as a soil’s depth, acidity,
salinity, carbon content, water-holding
capacity and other attributes to help you
make on-the-spot decisions about how
to more effectively manage your land.
Whether you’re a farmer, an agronomist
or just plain curious, the app delivers
detailed scientific information on soils
no matter where you are.
Source: www.csiro.au/en/portals/media
weeds
Did you know ...
may one day be a thing of the past thanks to adaptive use
of the same technology that heats the microwave oven.
Dr Graham Brodie, of The University of Melbourne,
has developed a prototype machine that can successfully
focus microwave energy at ground level, killing weeds in
seconds. He says herbicide resistance and environmental
concerns limit the chemical options available to manage
weeds. But microwave treatment is immediate, chemicalfree and leaves no residue.
Sweetcorn a
weapon against
blindness
A new Australian
variety of sweetcorn
could hold the key to
fighting blindness. The
‘Supergold’ variety is
high in zeaxanthin, a
pigment that gives corn
its distinctive colour.
Studies have shown a
link between high intake
of foods containing
zeaxanthin and a lower
incidence of age-related
macular degeneration,
the leading cause of
blindness in the western
world. AUSVEG says
‘Supergold’ will contain
enough of the pigment in
half a cob to help improve
eye health.
Source: AUSVEG
Source: www.nff.org.au
Autumn 2013
5
Cottoning on
The cotton industry’s history of innovation is paying off in spades
Words: Susan WEBSTER
6
Produce
Industry
Last year’s sale of Cubbie Station put
the 96,000-hectare cotton enterprise at
the pivot-point of Australian agriculture.
The nation’s most valuable farm was sold
to a consortium, comprising Chinese
company Shandong RuYi Scientific and
Technological Group and Australian-owned
Lempriere Group, for $240 million in
October 2012.
With Shandong RuYi holding an 80%
stake in the company, the sale raised
questions about foreign ownership
of land assets, water, land use, and
profitability versus productivity in
the wider Australian consciousness.
While the first three stirred public
sentiment, the profit/productivity nexus
remains the more pressing concern.
Constant improvement
Although a bag of cottonseed arrived
with the First Fleet, the cotton industry
did not really hit its straps until about 50
years ago, when American ‘agripreneurs’
set up farms around the Namoi River in
New South Wales. Initiated by foreign
capital and expertise, especially the US
model of large-scale, mechanised irrigated
farming and the use of chemical inputs,
the industry enjoyed the flow-on effect of
investment in infrastructure, a strong supply
chain through co-operative and corporate
structures, and a ready export market.
Production soared. In 1934, Australia
produced 17,000 bales; by 1971, it was
87,000. Now, as the entire industry pulls
out of 10 long, dry years, cotton continues
to surpass production records. Australia is
the world’s fourth-largest cotton exporter
and seventh-largest producer behind
China, India, the US, India, Pakistan,
Brazil and Uzbekistan.
A combination of factors have
contributed to this rise, says Adam Kay,
CEO of Cotton Australia.
“On a global scale, demand for fibre
is growing and cotton is the number one
natural, with the alternative being synthetic
fibre made from refined oils. Australia has
a yield three times better than the global
average, which highlights the efficiency
of our relatively small industry,” he says.
“What’s more, growers have confidence
in the research the industry does and
are fast adopters of new technologies.”
Autumn 2013
7
“When the CSIRO releases new varieties,
farmers pick them up and go with it.
It’s a fantastic partnership.”
In fact, the industry’s fortunes are seeing
expanded plantings—cotton is being grown
in NSW as far south as the Victoria border.
But the industry has been working
on boosting quality as well as quantity.
Australia’s cotton exports make up 10%
of the world’s total high/medium-grade
cotton volumes. A 2009 global survey found
Australian cotton ranked lowest for
foreign-matter contamination. Dallas Gibb,
product program leader for the industry’s
FIBREpak project, says Australian growers
now receive a $20–$25/bale premium,
worth more than $80 million a year.
The Cotton Research and Development
Corporation reported in 2010–11 that the
previous eight years had seen important
quality criteria, such as fibre length,
improve ‘significantly’. Opportunities
remain for premium-quality fibres, with
cotton grown to specifications of 60Ne,
lifting to 70Ne and even 80Ne (Ne—
Number English—measures thread
thickness; higher numbers indicate finer
threads). Work on developing an extra-long
staple could see a 60%–80% premium on
standard cotton prices.
8
Produce
Clockwise
from LEFT:
New roundmodule
harvesting
technology;
GM varieties;
some GM crops
require refuge
planting; and
fibre qualilty.
This continual research and development
is another factor contributing to the
industry’s success, says Kay. “Farmers invest
in research through the CRDC and then
adopt the output,” he says. “One example
is with biotechnology and genetically
modified varieties—when the CSIRO
releases new varieties, farmers pick them up
and go with it. It’s a fantastic partnership.”
Currently, new varieties are being
developed for greater water use efficiency,
pest and disease tolerance, and yields.
In 2000, the first genetically modified
herbicide-tolerant cotton was introduced;
since then, GM cottons have been credited
with an estimated 30% reduction in overall
herbicide use and a 46% reduction in the
use of residual herbicides.
Meanwhile, in 1996, Australia’s first
GM cotton trait, Ingard®, was released
commercially, containing a single gene from
the soil bacterium Bacillus thuringiensis (Bt).
Over the following eight seasons, Ingard
crops required 44% less insecticide than
conventional crops.
Then, in 2002, Bollgard II®, containing
two Bt genes of resistance, was approved
for commercial use, resulting in 85% less
insecticide use.
The impetus for adopting insecticidal
GM technology was the speed with which
the pest Helicoverpa armigera (cotton
bollworm) had developed resistance to
insecticides in the preceding decade.
Entomologist Professor Peter Gregg
INDUSTRY
explains: “H. armigera in particular had
a long history of resistance to insecticides
delivered as sprays, and had destroyed
cotton industries in many parts of the
world. Bt is just another insecticide,
even if it’s delivered in a novel way.”
The response has been mixed, partially
because GM technologies can impact
management practices. For example,
Bollgard II must be planted with a refuge
crop to breed moths susceptible to the
proteins in Bollgard II cotton.
Another issue was that the use of
insecticides usually resulted in a decline
in beneficial predatory insects. Dr Moazzem
Khan, from the Queensland Department
of Agriculture, Fisheries and Forestry, led
research that found lower rates of
registered insecticides, combined with
salt or petroleum spray oils, provided
good control—with fewer negative
effects on beneficial insects.
“Mixing salt with a registered chemical
allows the chemical rate to be reduced by up
to 70% without reducing effectiveness, which
is a big saving to the industry,” he says.
Water of life
After weeds and pests, the other big-ticket
item for cotton farmers is water. “The
industry is always looking at how to get
more crop per drop—how to produce
more fibre per unit of water—and the
past decade has seen a 40% improvement
in water use efficiency,” Kay says.
Furrow irrigation accounts for more than
80% of the total irrigated area and can
return efficiencies in excess of 90% with
optimal management. While some growers
use pressurised irrigation systems, these
are expensive and require regular use to
return cost benefit, so the lower capital
cost of furrow systems suits the industry’s
highly variable water supply.
However, as furrow irrigation is typically
more labour-intensive, automated surface
irrigation with adaptive real-time control is
being explored as an alternative. Kay adds:
“The Federal Government, through its
Water for the Future program, is partnering
with farmers to increase water efficiency
infrastructure—a win-win for both parties.”
The industry is also seeing the patenting
of biodegradable monolayers to reduce
evaporative losses from water storages.
Reaping the rewards
Meanwhile, out in the fields, new picking
technology delivers round bales that
improve harvest efficiency. In the three years
since their introduction, round-module
pickers have radically altered harvesting
dynamics and uptake by farmers has been
swift. Two seasons ago, they accounted for
40% of the national crop; last season they
collected 80%; next season it is projected
that 90% of the crop will be harvested this
way. “That’s a pretty quick adoption rate
for a $750K piece of machinery,” Kay says.
“The average Australian cotton farm is a
family-run business ... so the rapid take-up
of these machines is testament to our
commitment to innovation.”
The reason for the uptake is simple:
instead of employing labour-intensive
separate operations, the new machines
combine the picking, module-building and
wrapping processes almost automatically.
Improvements extend beyond the farm
gate—for example, technological advances
in the ginning process boost lint cleaning.
The industry is adopting real-time
monitoring to manage moisture during
ginning, using humidification to lower
costs and curb fibre damage.
With an industry best management
program, myBMP, being used to improve
operations and sustainability, it seems there
is plenty more good news to come.
Autumn 2013
9
10
Produce
Industry
Cotton:
the comeback king
After suffering through a long drought, cotton is back
and it’s in record-breaking form
Words: Susan WEBSTER
Autumn 2013
11
For the past two years, cotton has broken
the economic mould and defied the rules
of supply and demand.
Global production has been swamping
consumption by an average of 10%. There
have been three consecutive years of
oversupply and the global stocks-to-use
ratio has been the highest since the end
of World War II.
Since March 2011, the world has seen
a 55% rise in cotton stocks. Typically, that
should send prices plunging.
But so far in 2012–13, prices have shown
surprisingly little volatility. The Cotlook A
Index averaged 83 cents/pound midway
through 2012–13, well above the longterm average of 69 cents.
Index volatility normally averages 34%
in a season. But for the first five months
of 2012–13, that range was only 9%.
So why the cushioned ride for cotton?
The China connection
The International Cotton Advisory
Committee (ICAC) believes the reason is
China. Since 2010, the world’s biggest user
of cotton has also been its biggest buyer.
By the time China reaches the expected
end of its buying spree in March 2013, it
will have stockpiled 40 million bales—more
than a year’s supply. Put another way, China
has amassed approximately half the world’s
total cotton stocks.
According to the ICAC, this explains
why prices have not been more volatile
and why production is not throttling back
significantly.
Yet globally, the industry is contracting,
with only the US, forecast at 11% higher,
In some countries, notably the US and
Turkey, competition with grains and
soybeans is strong.
expected to increase production this
season. Australian production is expected
to drop 23% to 4.3 million bales.
And by 2013–14, the soft landing might
be getting bumpy.
There is no certainty that China will
support international prices, and Northern
Hemisphere producers are selling their new
crops at lower prices than they did last year.
The US Department of Agriculture
expects China to consume 36 million bales
in 2012–13, a 5% dip in year-on-year
comparisons.
The ICAC projects that the global cotton
area will contract by 9% to 31.5 million
hectares and total production will decrease
by 11%–14%, depending on rainfall. This
would be the second consecutive season
of decline in cotton production and the
smallest output in four years.
Crop competition
Other factors add to the mix. In some
countries, notably the US and Turkey,
competition with grains and soybeans is
12
Produce
strong. For 2013–14, the ICAC is predicting
big production downturns in those two
countries, of 25% and 30%, respectively.
International cotton prices were 20%
lower in the first four months of 2012–13
compared to the same period last year;
prices of maize, soybeans and wheat were
at least 15% higher. Plus cotton is generally
more expensive to produce than those
competing crops, generally needing
more fertiliser, pesticides and fuel.
And, as the ICAC notes, “a small gain
in cotton prices could constrain the
increase in demand”.
One major source of uncertainty
regarding projections of short-term global
cotton supply and use stems from China.
The cotton market knows the China
National Cotton Reserve Corporation
(CNCRC) will continue buying Chinese
cotton until the end of March 2013, no
matter the expenses involved. But how
the CNCRC will manage the national
reserve after that is a big unknown.
The ICAC assumes China will import
Industry
Clockwise
from LEFT:
Australian
cotton farmers
are set for
another record
harvest; the
quality of our
product is
world-class;
a handsome
plant; roundmodule
cotton-picking
machines
increase
efficiency of
harvesting.
Key figures
$2.5 billion
less cotton in 2013–14 than it needs to
fill the gap between consumption and
production, and that the national reserve
will contract slightly to make up for this
difference. Import demand from Turkey,
Bangladesh and Pakistan is expected to
grow significantly.
The cotton industry will not lose the shirt
off its back. But these are, according to the
ancient Chinese curse, interesting times.
Supply and demand
The Chinese have a lot to do with cotton’s
fortunes, although, depending on future
quota levels, 2013–14 might see less of
our product heading to that marketplace.
Matthew Bradd of Ecom Commodities
said: “We anticipate Australia’s new crop
will sell into traditional markets in Indonesia,
Thailand, Korea and less into China, based
upon less quota being released.
“We expect the sideways trading in
New York futures to continue, with the
US70 cents/pound finding support.”
Exports for Australia’s 2012–13 period
are projected to decline 5% from a year
earlier. It should be noted that the 2011
crop was a record, and earned $2.6 billion
in exports.
In recent times cotton has attracted
some big-name investors—not only the
headline-grabbing purchase of Cubbie
Station by a Chinese company, in
partnership with Australian-owned
Lempriere Group but, more recently,
the 13% stake in Namoi Cotton by
US-listed giant Louis Dreyfus.
At the farm gate, the early indications
are at last turning hopeful. After months
languishing at lower than break-even,
prices have risen, from $360–$380/bale
in October to $400–$420/bale in January
and February. Growers with uncommitted
cotton are taking heart, and there is talk of
a 17% price lift over the next 12 months,
which would encourage more cotton
plantings.
Fortune favours the brave, and the
Australian cotton industry has always
been braver than most.
The average value of Australia’s
cotton exports exceeded $2.5bn
over each of the past two seasons.
$12 billion
The total value of the global cotton
market in 2011 (prices peaked at
246.14 cents/pound, a new record).
$460
Long-term average per-bale price
for Australian cotton, calculated
over 21 years (1991–2011).
66:34
The ratio of the cotton crop grown
in NSW compared to Queensland.
1.5 million
Average Australian cotton
production, in bales.
Source: Cotton Australia
Autumn 2013
13
On the right track
In a first for the agriculture sector, a blueprint outlining its desired
future has been created, informing its actions for the next four decades
Words: Fleur Bainger
Peter Walton/Getty Images
Trying to reach a new, far-off destination
without a map can be hard going,
particularly if you’re travelling with a
directionally challenged back-seat driver.
Not everyone likes unfolding the map,
but most people would agree that it will
help you find your destination. And now,
agriculture has applied that method of
thinking to itself.
After a year of Australia-wide
consultations, surveys, workshops and
round-table discussions with nearly 4000
stakeholders, agriculture’s map for the
future, the all-important Blueprint for
Australian Agriculture, has been released.
The report, which was presented to
industry on 14 February, identifies the
sector’s key issues and, importantly,
signposts the ways in which to address
them over the long term. Significantly,
the blueprint marks the first time the
entire industry has come together to
form goals and find solutions that it can
work towards for the next decade and
beyond, looking as far ahead as 2050.
14
Produce
The National Farmers’ Federation
spearheaded the blueprint’s creation but
its CEO, Matt Linnegar, says the industry
as a whole needs to carry out the ‘big
picture’ plan. “Its future implementation
and success relies on the input of the
collective industry,” he says. “We must
work together to ensure the future we
wish to see … and the blueprint is just
the starting point in doing this.”
After listening to farmers across the
country declare their most pressing
concerns and obstacles, the blueprint’s
authors have distilled them to seven
overarching categories—each of equal
importance—on which to focus.
The first, titled ‘innovation and research,
development and extension’, concentrates
on increasing research funding and widely
implementing study findings to improve
industry performance.
The second, ‘competitiveness’, aims to
embrace global markets and access foreign
and domestic funding. It also seeks to
improve telecommunications and supply-
chain infrastructure by using a dedicated
taskforce and cutting red tape. Building
‘Brand Australia’ is an important goal.
The next theme, addressing ‘trade
and market access’, draws on the
opportunities in Asia and building
new and innovative—perhaps even
unconventional—trade agreements
with countries such as China and India.
‘People’ zeroes in on the need to
build a larger, more flexible and betterskilled workforce while safeguarding
against labour shortages with alternative
technologies. One strategy is to ensure
agriculture is embedded in the national
school curriculum.
Image and perception are recurring
hurdles that ‘agriculture within society’
hopes to clear. By building closer links
with broader society (including activist
groups), working to improve its credibility,
and turning a critical eye on itself, the
sector hopes to foster better relations
all round. Crucially, earning public trust
is strongly desired.
industry
The tug of war between environmental
and economic priorities is considered
under ‘natural resources’. It is hoped the
development of sustainability indicators
will help manage this, along with a
food and fibre production register that
covers land use and soils. Eventually, the
blueprint aims to see farmers earn income
from their environmental stewardship.
The final theme, ‘transformational
issues’, will tackle the unpredictable
times ahead, recognising that the
blueprint must meld to future changes,
such as new technologies that will alter
the way things are done, or deal with
faster, less predictable occurrences,
such as the impact of climate change.
Mr Linnegar says the blueprint’s
recommendations will begin immediately.
“In 2013, we will be starting a series
of forums that will bring together the
decision-makers within the agricultural
sector and the supply chain to drive
the blueprint forward,” he says. “To
date, we have already had interest
from around 100 industry bodies in
being part of the ‘legacy’ phase and
participating in these forums.”
Westpac is one industry body that
will partcipate in the blueprint’s legacy
phase, having supported the project
from the outset.
For farmers and others who love
putting the foot down and getting
the job done, the blueprint is cause
for celebration: it seems set to get the
industry on the right track and heading
to the finish line in prime position.
Visit www.nff.org.au/blueprint to
download the Blueprint for Australian
Agriculture.
‘‘We must work together to ensure the
future we wish to see ... and the blueprint
is just the starting point in doing this.’’
The blueprint’s
themes
ONE
Innovation and research,
development and extension
TWO
Competitiveness
THREE
Trade and market access
FOUR
People
TOP: Westpac
Agribusiness
General
Manager
Graham
Jennings, NFF
president Jock
Laurie and
Agriculture
Minister Joe
Ludwig at the
launch of the
blueprint.
FIVE
Agriculture within society
SIX
Natural resources
SEVEN
Transformational issues
Summer
Autumn
2012–13
2013
15
Agribusiness round-up
How did our farming industries fare this summer?
Words: jeremy chunn
Hear what you will about the dormant
state of the economies of the Eurozone,
but beef exports to the EU last year were
up 16% year-on-year, to 14,949 tonnes.
A lot of the volume can be attributed
to the increase in the region’s grainfed
beef quota from 20,000 tonnes to
48,200 tonnes mid-year, with the result
that in 2012, shipments of Australian
grainfed were 48% higher, at 6263 tonnes,
than they had been the previous year.
Shipped grassfed produce was up slightly
on 2011. The Russians, however, are eating
less of our beef, with orders for last year at
32,162 tonnes, 41% down on 2011.
A weaker Brazilian currency saw orders
from Russia for frozen beef chase value
in Latin America, including Paraguay.
Frozen beef is generally used for further
processing, but exports of Australian
chilled beef, which ends up on plates
at the better restaurants, had a good
year in 2012, up 9% to 1109 tonnes.
The United States is our major
competitor when it comes to quality
beef, and the Russians are taking
bigger orders from the Americans,
but Australia is very close behind.
16
Produce
Triple A Angus Stud
Beef: Europe dines out as South
America takes a bite out of trade
Dairy: nearing boiling point
The heatwave during early January
had minimal effect on the dairy industry,
despite some interruption to collections
in Tasmania and damage reported to
pastures in New South Wales.
Otherwise, the year began well
for the industry, with the first Global
DairyTrade auction for the year pushing
skim milk powder up 4.7% to $US3572
a tonne and whole milk powder up
1.6% to $US3199 a tonne.
But on a local level, resentment still
burns over the milk price war. In the
town of Noorat, southwest Victoria, 600
dairy farmers gathered on 16 January to
discuss ways to alleviate price pressure
inflicted on them by the supermarket
chains’ discounting of fresh milk. The
farmers proposed a tractor blockade
Industry
Philip Quirk/Getty Images
of supermarkets and a consumer levy
on milk to help them remain solvent,
and some have created a new lobbying
group, Farmer Power, to spearhead future
campaigns.
The first priorities are to get government
assistance for struggling farmers and then
to address the farm gate price, said group
organiser Chris Gleeson in February.
Come 20 June, the industry will
recognise its excellent contributors
at the 2013 Dairy Business of the Year
awards, of which Westpac is a sponsor.
Wool: a steady year with
prospects for improvement
Australia is the world’s largest wool
producer, with our flock of 75 million
sheep responsible for more than 21%
of the globe’s greasy wool.
The Australian Wool Production
Forecasting Committee has maintained
its 2012–13 wool production forecast at
345 million kilograms of greasy, an increase
of 0.9% on the previous year. While drier
conditions in South Australia have led to a
fleece-weight reduction, Western Australian
fleece weights have been above average.
To ensure woolgrowers have the best
chance of producing high fleece weights,
Australian Wool Innovation (AWI)
announced in December that over the next
three years, it will be undertaking projects
with the objectives of benchmarking
phosphorous levels in pastures and
unlocking the reserves stored in soil.
In the town of Noorat, Victoria, 600 dairy
farmers gathered to discuss ways to alleviate
price pressure inflicted on them by the
supermarket chains’ discounting of fresh milk.
“Phosphorus is a significant on-farm
input cost and is essential for pasture
growth, productivity and profitability,”
AWI head of on-farm R&D Dr Jane
Littlejohn said. “By identifying the pasture
species that access the other forms of
phosphorous, woolgrowers would have
the opportunity to make better use of
limited phosphorous.”
Despite overall high fleece weights, the
Newcastle Wool Centre closed its doors
after its last sale on 25 February. After
selling wool at this location for about 50
years, woolgrowers in northern NSW will
now have to make their way to Sydney.
Grains: new measure is a
weight on growers
Growers are concerned over Grain Trade
Australia’s proposal to increase the test
weight for the 2013–14 harvest from
74 kg/hL to 76 kg/hL. The test weight
measures the density of the grain, with
hL standing for hectolitre (100 litres).
GrainGrowers says more than 500 of
its members believe the measure should
remain unchanged.
“There is grave concern among
Australia’s grain-producing community over
the proposed increase, with the recent
survey showing over 95% of producers do
not support the test weight increase,” said
GrainGrowers policy group spokesman and
Victorian grain producer Chris Kelly. “We
have not been shown any evidence that
outlines benefit for grain producers—in
fact, we have been shown the reverse.”
He says the proposed new standard will
lower prices because few wheat varieties
reach 76 kg/hL. The organisation surveyed
test weights for samples from the most
recent harvest and found that 12.2% fell
short of the proposed measure. For the
current lower 74 kg/hL standard, just 3.7%
of the samples did not make the measure.
“This is a significant impact for grain
producers and the broader position of the
Australian grains industry,” Mr Kelly said.
GrainGrowers says test weight does
not determine flour yield, adding that it
tested more than 800 samples and found
there was no link between the two. “At
very high test weights flour yields actually
decrease,” it said in a media release.
Autumn 2013
17
LIFE
Sweet
succession
Succession planning is a complex issue often
involving emotional, financial, business and family
considerations. Farmers and agribusiness operators
must not ignore the importance of safeguarding
their business for future generations
Words: Cameron Cooper
F
Monty Rakusen/Getty Images
or many farmers, succession
planning is a topic that is all
too often avoided.
They love the land; it’s been their
life and they dearly want their sons and
daughters to pick up the reins. But often,
they find the thought of transferring the
property and business too hard to consider.
Philippa Taylor, chief executive of Family
Business Australia, says even if farmers do
seek advice on the practical aspects of
succession, they often struggle with the
emotional wrench of retiring.
“If you think about it, why should a
70-year-old who has spent six-and-a-half
days a week, 15 hours a day working on
the farm suddenly decide that he’s got
to step aside to hand over to somebody
else?” she asks. “He hasn’t had time to
learn to go fishing. He probably doesn’t
have any other hobbies. It’s tantamount
to telling him that he’s being put out
to pasture.”
Taylor advises taking a considered,
long-term approach to succession planning
to ensure the handover or sale of an
agribusiness goes smoothly. Westpac
Relationship Manager Michael Peoples
agrees. “Most farm owners understand
that a plan for the future is crucial but for
many the issue seems too vast and they
don’t understand how to tackle it.”
Both agree the broad goals must be to:
• e
nsure all family members understand
the options and feel as though they
have input into the plan;
• work out who wants to be an integral
part of the business and who wants
to opt out or play a smaller role; and
• guarantee the effective transfer of the
business and its associated wealth from
generation to generation.
A team comprising the bank manager,
who acts as a mediator, a financial planner
and a lawyer, who both specialise in tax,
succession and estate planning, assist
with the decision-making process.
Handing over the reins
In a report on inherited housing released
in 2010, it was estimated that within 15
years family businesses worth a total of
about $407 billion would change hands
in Australia as baby-boomers retire.
Richard Shrapnel, a partner at advisors
Pitcher Partners, says this immense
transfer of wealth underlines how
important proper succession planning
really is. Handled well, it can save the
farm—and family relationships. “Family
unity and wealth is often destroyed in
that next generation where you’ve failed
to have the right discussions up front,”
Shrapnel says.
Autumn 2013
19
Clockwise
from above:
Never assume
you know your
family’s wishes;
think about
the future of
the business;
succession is
handled best
when talked
about early;
think about
legacies you
want to leave.
20
Produce
Succession options fit into a number
of categories. Parents can hand property on
to the next generation; sell to a third party;
arrange a partial or total management
buyout; or liquidate the business. The
earlier it’s started, the better, says Shrapnel.
“Those who have done it well are those
who have planned it early. They’ve started
to think about it 10 years out and they have
started to structure their business to allow
it to go to a succession process.”
However, as Westpac agribusiness
customer Philip Swansbra says, the
important thing is just to get it done
even though it’s sometimes easy to
put the planning on the backburner.
“We had thought about succession
planning about seven to eight years
ago but never got too in-depth until
our Westpac Relationship Manager
mentioned it to us,” Swansbra says.
“There are definitely aspects we would
not have considered if we did it alone,
but the process has really been much
simpler than we expected because of the
people who help each step of the way.”
Before starting succession planning,
owners are advised to:
• Think about the desired outcomes. This
may involve transferring or selling the
farm, or providing for a certain amount
of income or capital from the property.
• Consider the family dynamic and ask
family about the roles they want rather
than making assumptions.
• Determine how much the business
is worth, whether it can be divided
up and whether it is carrying debt.
• Examine the likely future of the business
and how it can best be operated.
• Think of legacies and what owners
want to leave behind for the family.
Shrapnel says having such an overview
allows wills, estate planning and legal
structures to be completed while ensuring
lawyers, accountants, advisors and family
members can plan for the future.
Such planning is even more critical for
agribusinesses, he says, because of the
complexity of transferring land assets if
the property is not sold outright for a
capital sum that can easily be divided.
He also suggests dividing the business
into areas, structuring it so that each
family member has responsibility for his
or her part and can begin to build on it.
Likewise, it is essential to ‘tax-test’
any scenarios to ensure the desired
financial outcomes are achievable.
What owners should realise is that
succession plans don’t happen overnight
and can take varying lengths of time
to complete, depending on the size
LIFE
“Family unity and wealth is often destroyed
in that next generation where you’ve failed
to have the right discussions up front.”
Vicki Reid/Getty Images
of the operations, how many people are
involved, and how quickly agreements
can be arrived at.
“For some people it takes 12 months;
another family we’re working with are
about eight months in but still have a
long way to go,” Peoples says.
Not all of this is discussion time, either.
Swansbra says his family’s succession plan
will probably take up to a year, simply
because of the difficulties in scheduling
times when all parties are available to meet.
Mother knows best?
Pitcher Partners is engaged in a study
with the Australian Research Council
and Swinburne University to examine
family business succession. The resulting
report from the ‘Baker Tilly International
Global Family Business Succession Survey:
Dynamics, Barriers, Strategies’ will build
on 2.5 years of existing research and is
expected to be available in mid-2013.
Early findings indicate female heads of
family companies are having a greater say
and questioning the view that the business
must be passed to the next generation.
In addition, while men still prefer
continuing businesses along family lines,
their spouses are becoming more inclined
to express reservations about the possible
impacts on the children’s wellbeing.
Opening lines of communication is
also vital, especially since, in many cases,
farmers find it hard to discuss retirement,
says Taylor. “This is one of the reasons
succession becomes so tricky, because
too much is assumed and not discussed.”
It is for this reason that Taylor advises
choosing neutral third parties to assist the
process, rather than the retiring party’s
long-time accountant or lawyer. This
ensures greater impartiality and helps
keep the focus on business issues.
“An advisor will sometimes be able to
deliver an unpalatable message in a far
more diplomatic manner than the family
member. They’ve seen it all before.”
The checklist
ONE
Set goals and a vision for the
transfer of an agribusiness’s
ownership and management.
A strong constitution
Family businesses often fail to distinguish
between management succession and
equity succession. Typically, family members
are entitled to financial benefits as a result
of a business being handed down, but this
doesn’t mean they have automatic rights
to management or executive roles.
This is where a family ‘constitution’—
detailing criteria for joining the business,
defining roles and responsibilities, and
establishing mechanisms for transfer of
ownership and leadership—can be a saviour.
There is little doubt that a good plan can
deliver crucial benefits for all stakeholders
and family members, increasing the value
of the business, safeguarding its future, and
preserving wealth and career prospects for
future generations.
Taylor restates that it is imperative to be
mindful of the emotional challenges retiring
parents may be experiencing. One way to
ease their concerns is to ensure they have
a genuine role to play under the new
arrangement. “We’ve seen some successful
examples where the grandfather is starting
to mentor the grandchildren, helping them
to understand business,” he says. “That
can make it very meaningful.”
TWO
Decide on options three to
five years in advance of a
handover or sale.
THREE
Identify likely successors and
the role of family members in the
business, if applicable.
FOUR
Appoint external directors or
advisors to help with a succession.
FIVE
Write a family mission statement
or ‘constitution’ to describe family
members’ vision for the business
and their role within it.
SIX
Ensure you have a contingency plan
in the event of deaths or changes
of circumstance.
Autumn 2013
21
Winter
Wonderlands
The mornings are getting chillier and the days
shorter but that’s no excuse to go into holiday
hibernation. Joanna Hall uncovers some getaway
ideas that will put a spring in your step
Best of all worlds
Lake Crackenback, NSW
Nestled in Thredbo Valley on the edge
of Kosciuszko National Park, Lake
Crackenback is a winter playground
for couples and families set against a
spectacular Snowy Mountains backdrop.
It’s only a 15-minute drive to Thredbo if
you’re keen to spend some time engaged
in snow sports, but the lake area itself
is perfect for hiking, mountain biking,
canoeing and fishing—or you can opt
simply to enjoy a log fire and pamper
yourself at Lake Crackenback Resort,
one of Australia’s top spas.
Where to stay: Lake Crackenback Resort &
Spa has apartments and chalets next to a
beautiful lake within striking distance of the
best of this region. Phone 1800 020 524
or visit www.lakecrackenback.com.au
22
Produce
life
Cultural city break
Melbourne, Victoria
If you’re looking for a weekend getaway
with a bit of everything, it’s hard to go past
Melbourne. A quintessential city-break city,
with gracious Victorian-era architecture and
leafy boulevards, it’s a place where you
can take your pick of pastimes: cultural
pursuits, shopping, dining out or barhopping. Or you can go sports-mad: as
well as being the stronghold of the AFL,
Melbourne has an NRL team, a Super 15
rugby side and is home to an A-League
soccer club.
Where to stay: Crown Casino Melbourne
is close to the CBD, has great restaurants
and is ideal if you fancy a bit of a flutter
while you’re away. Phone (03) 9292 8888
or visit www.crownmelbourne.com.au
Get away from it all
Kangaroo Island, South Australia
Treat yourself
Freycinet, Tasmania
Saffire Freycinet
Clockwise
from ABOVE:
Kangaroo
Island is famed
for its coastline;
marvellous
Melbourne
by the Yarra;
the ultramodern and
luxurious Saffire
Freycinet in
Tasmania; Lake
Crackenback is
for adventure.
It’s billed as one of Australia’s ‘superlodges’ and deservedly so. Saffire
Freycinet on Tasmania’s east coast is a
destination in itself, with pure luxury and
indulgence at the core of the experience.
All suites are beautifully styled and
overlook the Hazards mountain range,
Freycinet Peninsula and Oyster Bay.
From Saffire Freycinet you’re also within
easy reach of historic villages, pictureperfect seaside towns, unspoilt national
parks, and fine food and wine.
Where to stay: Saffire Freycinet has just
20 luxurious suites along with an exclusive
day spa, a restaurant, a guest lounge and
a well-stocked bar. Phone (03) 6256 7888
or visit www.saffire-freycinet.com.au
Just 13 kilometres off the coast, Kangaroo
Island is a dreamy kind of place that’s a
nature lover’s paradise with abundant
native wildlife and breathtaking scenery.
Some of the best sights, including
Remarkable Rocks, a cluster of granite
boulders shaped into all sorts of weird and
wonderful forms, can be found in Flinders
Chase National Park. Or there’s Admiral’s
Arch, home to New Zealand fur seals, and
Seal Bay with its colony of sea lions. Tour
groups can watch the seals from a distance
of about eight metres as they sunbathe,
swim and jostle for position on the beach.
Where to stay: Superb for families, Cape
du Couedic Lighthouse Keepers’ Cottages
is a beautifully restored accommodation
precinct right in the heart of the national
park; it’s a terrific base from which to go
exploring. Phone (08) 8553 1185 or
visit www.tourkangarooisland.com.au
Autumn 2013
23
life
Best for chilling out
Broome, Western Australia
Far from the madding crowd, relaxed and
blessed with great year-round weather,
Broome is the type of place that’s perfect
for a winter break—especially if you’re
looking for natural wonders and wildlife.
The town itself has a colourful history and
diverting attractions such as the Pearl
Luggers’ Museum; the Japanese Cemetery
(where hundreds of pearl divers’ graves
attest to the dangers they faced); and
Chinatown, including the Sun Picture
House. But it’s the surrounding area that
draws you in. The long strand of Cable
Beach, red cliffs of Gantheaume Point
and birdlife of Roebuck Bay are just out
of town and show why so many artists and
photographers travel here for inspiration.
Where to stay: Pinctada McAlpine House
is a century-old home that has been
transformed into eight luxurious boutique
rooms set among lush landscaped gardens
and a swimming pool. Phone (08) 9192
0588 or visit www.mcalpinehouse.com.au
Walk on the wild side
Darwin, Northern Territory
Forget images of a dusty ‘last frontier’:
today, Darwin is a cosmopolitan,
multicultural city with a myriad exotic and
diverse experiences to enjoy. At the same
time, it retains a well-earned reputation
as a social town with a distinctly outback
attitude to life. It’s still a knockabout type
of place but nowadays, it’s a great
destination for families with a taste for
adventure, being within easy reach of
Darwin Crocodylus Park and Zoo, the
Territory Wildlife Park and glorious
Litchfield National Park.
Where to stay: Travelodge Mirambeena
Resort Darwin is a good mid-range hotel
right in the middle of town. Phone (08)
8946 0111 or visit www.travelodge.com.
au/travelodge-mirambeena-resort-darwin
Clockwise
from left:
Feast your eyes
on Roebuck
Bay; watch out
for crocodiles
in the Top End;
tiptoe through
the rainforests
of the Daintree.
The Daintree is the only place in the world
where two of the most complex ecosystems,
rainforest and reefs, converge in grand style.
Rainforest and reef
Daintree, Queensland
Imagine stepping out of the world’s oldest
tropical rainforest onto a pristine beach and
you’re wading in warm water as colourful
fish dart around your legs. This is the
Daintree in Far North Queensland: the
only place in the world where two of the
most complex ecosystems, rainforest and
reefs, converge in grand style. The Daintree
represents 0.1% of Australia’s landmass,
yet contains 30% of the country’s frog,
marsupial and reptile species along with
65% of our butterfly and bat species,
and 20% of our bird species.
Where to stay: Daintree Wilderness Lodge
is made up of family-friendly and ecoconscious cabins set deep in the tropical
Daintree rainforest, not far from Cape
Tribulation. Phone (07) 4098 9166 or visit
www.daintreewildernesslodge.com
24
Produce
LIFE
Chopper charity
Cattle producers come out in full force to support a charity fundraiser
for the Westpac Rescue Helicopter Service
Words: Alarna Haigh
Peter Lorimer/Namoi Valley Independent
Left:
A Westpac
Rescue
helicopter lands
at the scene of
a road accident
on the Oxley
Highway, 16
kilometres west
of Gunnedah,
in 2012.
As rain fell around New South Wales
on 1 March, eager cattle buyers and
sellers gathered at the Tamworth
Saleyards’ cattle sale to help raise funds
for the New England and North West
Westpac Rescue Helicopter Service.
The second annual charity event was
an all-round success despite the wet
weather, says Service Community Liaison
Officer Michael Wilson, who promotes
the charity sale and encourages grower
support and donations in the lead-up
to the event.
“The sale went well, all things
considered, what with the rain and all,”
he says. “This initiative has grown with
the support of local farmers and primary
producers and is only successful because
of the generosity of our local
community.”
Approximately five animals were
donated to the charity this year although
at the time of going to press the exact
dollar figure gained from the auction
was unknown.
Donations, both of animals to sell and
monetary donations, are essential for the
running of this regional service, which
relies on a combination of government,
corporate and community funding. The
service is essential to supplying fast
aeromedical transport to about one
million people living over 132,000 square
kilometres of regional NSW.
The four choppers are available 24
hours a day and also specialise in search
and rescue operations throughout the
region. Importantly, the service is free to
those who need it in times of emergency.
Westpac’s Head of Agribusiness, Susan
Bower, was in Tamworth for the sale and
was pleased to see farmers getting
together for such an important
community service.
“For us, helping to bring the Westpac
Rescue Helicopter Service to rural,
regional and remote communities is
part of our commitment to champion
the things that matter most in the
regions we are part of.”
Inspiration for the event is credited
to Anne Legge of the Bingara Volunteer
Support Group. Ms Legge was the first
person to donate two steers, aptly
named Westpac and Rescue, last year,
thereby starting a program that raised
$10,000 in 2012.
Along with the Tamworth event, there
was a fundraising sale held at Gunnedah
on March 15, and Armidale, Narrabri,
Maitland and Scone will hold other
events throughout the year.
TO THE RESCUE
ONE
The Westpac Rescue Helicopter
Service is free of charge for those
in need of emergency care and
transport.
TWO
It operates across the Hunter,
Central Coast, Mid North Coast,
New England, and North West
regions of New South Wales.
THREE
The service’s four choppers
undertake around 1400 missions
every year.
Farmers, stock and station
agents can participate in this
initiative by donating to any
of the agricultural programs.
Call Michael Wilson on
02 6764 9400 for more details.
Autumn 2013
25
The Australian economy
Andrew Hanlan, Senior Economist, Westpac
Momentum
waned in 2012.
Australia’s economy is performing better than most other advanced countries and the unemployment rate remains
relatively low. Even so, Australia is feeling the impacts of a challenging international backdrop and the domestic
economic environment is very different to that prior to the global recession of 2008/09.
Growth to be subpar this year and
next.
GDP growth over the four quarters to December 2012 is likely to be about 3.0%. While in aggregate this is a sound
result, a loss of momentum emerged as the year progressed. However, growth slowed in the second half of 2012,
leading to a soft start to 2013. We have nudged down our GDP growth forecasts for calendar 2013 and 2014, to 2½%
(from 2¾%) and 2¼% (from 2½%), respectively. This reflects softer consumer spending and business investment.
The looming peak
in mining capex ...
Current soft conditions reflect both global and domestic factors. Australia’s terms of trade declined by an estimated
16% over the five quarters to December 2012 on weaker global demand, a fall comparable to the 18% drop during
2008/09. This hit to national income and the associated global uncertainty dented consumer and business confidence.
Compounding matters, the Australian dollar has remained stubbornly strong, despite commodity price fluctuations, as
other advanced economies pursue aggressive, non-conventional monetary policy easing. Contractionary fiscal policy,
as the Federal and state governments’ attempt to repair their budget positions, is another headwind. High household
debt levels and, until recently, declining house prices have weighed on consumers. Not surprisingly, business investment
outside of the resources sector has been patchy, with non-residential building activity particularly weak. Credit growth is
low, stuck at around 3½% annual, as some households and firms continue to seek lower debt levels.
... will be a major
‘shock’.
The nascent
housing
upswing ...
The 2013 and 2014 years will see a rotation in the growth drivers of the Australian economy. Mining investment will
peak and then decline, while conditions in the broader economy will strengthen, led by a housing construction upturn.
A shift to expansionary monetary policy will act to facilitate this rotation of growth. However, our analysis points to the
likelihood that economic growth will remain below trend (judged to be 3¼%) over the two years ahead.
... is unlikely
to fill the gap
completely ...
We expect international conditions to disappoint and anticipate that business will be unnerved by political
uncertainty. The current improvement in world growth will be modest and will quickly fade in our view. The terms of
trade is forecast to decline for four consecutive quarters to June 2014, retreating almost 10%, following a brief and
modest rebound over the first half of 2013. Export volume growth will be constrained over this 2013/14 period. The
Federal election, set for 14 September, risks exacerbating business uncertainty, both in the lead up to the vote and
in the initial months following. We have explicitly built into our forecasts an under shoot of business investment in
the general economy relative to household demand to reflect the negatives of global disappointment and domestic
political uncertainty.
... as headwinds
persist ...
... amidst electoral
uncertainty ...
... and
disappointing
global outcomes.
26
Produce
The looming peaking in mining investment will be a major “shock”. Currently, our forecast is for mining sector CAPEX
spending to decline by almost 20% through 2014. The commissioning of these mining projects will boost export
capacity in the years ahead. However, the major uplift in LNG exports is not due until 2015 and 2016, thus adding
to our concerns of a growth gap.
The risk is that the rotation from mining investment led growth to strength in the broader economy will be a bumpy
one. Significant headwinds persist, notably: the high dollar, fiscal policy tightening and high household debt levels. It
falls then to monetary policy to facilitate this rotation of growth drivers. Interest rate settings are now expansionary. It is
possible to get a home mortgage from a bank for as little as 5.5% which, apart from a brief period during the heart of
the global financial crisis, is cheaper than at any time since the 1960s. However, this easing cycle is different. Yes, the
housing sector is beginning to respond and dwelling approvals have moved off their lows. However, the magnitude
of the response to date, and the likely follow through, is modest by historical experience. In recognition of this, our
forecast for dwelling investment growth is a modest 4½% through both 2013 and 2014. Housing investment as a share
of the economy is little changed over the forecast period, in contrast to sizeable gains achieved in the upswings of the
1980s, 1990s and early 2000s (see chart 4).
OVERVIEW
Chart 1.
Australian economic conditions
Chart 2.
Australian growth mix
Chart 3.
Mining projects
Chart 4.
Housing & mining investment, share of GDP
Chart 5.
Commercial finance and business confidence
Chart 6.
Equipment investment & household demand
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks
and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Autumn 2013
27
Australian interest rates
Bill Evans, Chief Economist, Westpac
The RBA stood
pat in February ...
... as widely
expected.
The narrative around the domestic story was largely similar to the discussion following the December Board meeting.
That is, two extra months of low rates have not provided the Board with much encouragement that things are turning.
For example, investment outside mining is still described as “remains relatively subdued”. The labour market is still
described as “softening somewhat and unemployment edging higher”. Further, new labour market concerns emerged
in the statement, with the Bank noting for the first time that “businesses are likely to be focussing on lifting efficiency”.
The state of the
labour market ...
The ABS’ monthly employment report, released two days after the RBA decision, emphasised that the labour market
remains weak. Despite the unemployment rate holding steady at 5.4% we saw a further fall in hours worked and
another decline in the participation rate. We assess that if the participation rate is steady in any given month, then
around 18k jobs need to be added for the unemployment rate to remain unchanged. Over the last twelve months only
four have registered a net gain in jobs exceeding that threshold. Employment has grown by only 0.9% over the last
year while the working age population has expanded by 1.7%. If workers had not been leaving the workforce, partly
due to being discouraged about job prospects, then the unemployment rate would now be above 6%. I expect that
the Reserve Bank appreciates that point and will be discounting the importance of the headline unemployment rate in
its holistic assessment of the labour market.
... the insensitivity
of housing ...
On the other hand there has been a modest uplift in the Governor’s assessment of the housing sector. House prices
are being described as having “moved higher” compared to the December assessment of “moving a little higher”.
The strength of car sales is recognised for the first time: “the demand for some categories of consumer durables has
picked up”. And the mild reduction in risk aversion by savers is noted: “savers are starting to shift portfolios towards
assets offering higher expected returns”.
... and general
confidence
levels ...
Optimism around the house building cycle looks a little premature, with the recent news that building approvals fell
by 4.4% in December. These numbers are volatile. On a trend basis total approvals are up by 12.7% although private
houses are down by 1% (units up 39%). Given that the cash rate has been cut by 175bps this is a disappointing
response from the housing sector. Despite a modest fall in the currency and a 30% jump in the iron ore price since the
last Board meeting, the Board continues to note the high exchange rate in a context of the observed decline in export
prices. It is clear that the elevated currency is a source of considerable concern for the Bank.
... to the easing
cycle to date ...
The main recent motivation for markets beginning to price out further rate cuts is around developments in the world
economy. In previous statements, the Governor had consistently described risks to the global economy as to the
down side because of Europe. He now qualifies that by talking about these risks having “abated, for the moment at
least “. The wording around China is a little more upbeat with growth being described as “fairly robust pace”.There is
also a clear lift in confidence around the US. One channel for boosting domestic business confidence would be clear
sustained improvement in the US. Equity markets have been boosted in the US and there is conjecture around the
relative importance of the liquidity impact of QE and a genuine improvement in earnings. Optimists argue that the US
market is still fair value. We expect their underlying growth numbers are significantly higher than ours.
... argues the
cutting cycle
is not over.
28
The RBA kept rates on hold and signalled it has scope to ease further after its February meeting. The Bank seemed to be
communicating considerable dissatisfaction with the strength of the domestic economy.
Produce
With the Bank’s major concern being the need to rebalance the economy towards non-mining investment, the Bank
will be closely watching capital expenditure surveys to see if business is responding to the low rates and the more
constructive global environment, or whether more encouragement is required.
OVERVIEW
Chart 1.
RBA cash rate, 3 year swap
Chart 2.
10 year bonds
Chart 3.
Core inflation: 2.3%
Chart 4.
Labour market: remains soft
Chart 5.
Dwelling approvals & RBA easing cycles
Chart 6.
Credit momentum
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks
and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Autumn 2013
29
Australian Dollar
Bill Evans, Chief Economist, Westpac
The AUD has
fallen ...
... against the
dollar and euro ...
Since December, the AUD has weakened against the key currencies: AUD/USD has moved from $1.05 to below $1.03 and
AUD/EUR from €81.2 to €76.8. However it has been unchanged against the Trade Weighted Index (77.5). The offsetting
factor has been a sharp appreciation against the Japanese yen. AUD/JPY has moved from ¥86 to ¥96.
Clearly the key disturbance to foreign exchange markets over the period has been the spectacular fall of the Japanese yen.
... while spiking
higher against
the yen ...
When the Liberal Democratic Party was elected in Japan in mid December it announced a substantial and protracted
fiscal stimulus package in tandem with very strong ‘moral pressure’ on the Bank of Japan to complement this policy
by adopting an explicit inflation target of 2% with the aim to achieve the target “at the earliest possible time” through
“aggressive monetary easing”. Those decisions have triggered spectacular falls in the Japanese yen including a 15%
fall against the Australian dollar since the election.
... as Japanese
investors
took $A profits.
As noted, however, the other G3 currencies have appreciated even further against the yen. This relative performance
reflects a large capital withdrawal from Australia by Japanese investors as they moved to take FX translation profits on
their considerable Australian bond holdings. This reduction in AUD exposure has been occurring over the last six months
but has accelerated since the Japanese election. Westpac’s own proprietary flow data indicates that the Japanese have
been selling their lowest yielding assets (government bonds and semi government securities) and have been net buyers
of higher yielding corporate paper. This search for yield is also pointing to the attractiveness of higher yields in emerging
markets such as Russia, Turkey, Mexico, India, Brazil and Indonesia, to wholesale and retail investors alike.
Commodity
prices & interest
rates ...
The strength of this flow has, for the time being, offset the improved environment for commodity prices over the
period. Spot iron ore prices have increased by 25%; coal prices have stabilised (up 2%); and Westpac’s Exchange
Traded Commodity Price Index has increased by 2%. We see further strength on this front in the first half of the year.
Inventory dynamics in the iron ore market will be a strong positive in the first half of 2013. The non-ferrous metals will
remain supported by the global liquidity environment and the consolidation in global trade that became evident in
late 2012.
... are presently on
the sidelines ...
We are retaining our call for AUD/USD to sit around $1.06 by end March, although the diminished starting point
makes this look somewhat distant.
In that regard the Reserve Bank’s Statement on Monetary Policy which was released on February 8 provides guarded
support for further rate cuts for our view.
... as these global
trends play out.
The Bank’s forecasts are certainly not consistent with a central bank accepting that a desirable equilibrium has been
reached. Forecasts that growth is likely to be around 0.5–0.75% below trend and inflation at the middle of the band
suggest that there is more work to be done in monetary policy. In the near term the critical report will be the Capex
survey which as discussed above was the main motivation behind the decision to lower the growth forecast in November.
If as we expect, the first measure of 2013–14 investment plans disappoint then the Bank may have to reconsider its
assumption that growth will return to 3% in 2014 with a necessary further interest rate cut following.
$A strength
should be
back before long.
While that summation implies that interest rate spreads will be narrowing further before too long, we believe that the
dominant driver of the AUD in the period up to mid year will be a further uplift in global confidence complemented by
ongoing quantitative easing by the major central banks. Confidence will be built around positive expectations in the
US; anticipation of stability in Europe; and confidence that China’s growth rate has stabilised at a “fairly robust pace”
(RBA Governor 5th February). Ongoing balance sheet expansion from the major central banks will complement the
confidence boost to ensure upward pressure on the AUD. While QE will persist in the second half of 2013 a gradual
retrenchment in global confidence will weigh on the AUD. We maintain our call for AUD to be back around USD 1.03
by year’s end and heading back to and then below parity in 2014.
30
Produce
OVERVIEW
Chart 1.
AUD/USD & AUD/JPY
Chart 2.
AUD/EUR & AUD/NZD
Chart 3.
The Australian dollar & 2yr swap spreads
Chart 4.
Australian dollar & US equities: volatility
Chart 5.
The Australian dollar: actual versus fitted
Chart 6.
US dollar cycle to turn from mid to late 2013
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks
and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
Autumn 2013
31
on the land
Talking farming
Hailing from Gundagai in rural New South Wales, David Chomley,
Premium Agribusiness Manager Moree, is well placed to discuss the state
of play for farmers in 2013
left:
Graham
Jennings, John
Seery, principal
of Brighann
Ginning, and
David Chomley
with cotton
at Brighann
Ginning,
Moree.
Q. What options does Westpac
provide to farmers facing adversity?
Q. How did you get involved in
agribusiness?
Q. What is the dominant industry in
the Moree area?
Westpac has a number of options that
are assessed individually. In the event
of major disasters, our natural disaster
policy can help growers with cash flow,
debt restructuring and repayment
deferrals. Westpac understands that
agribusiness is a cyclical business and
will always seek to assist our loyal
clients through tough times.
I was raised on a grazing property
so witnessed the fluctuating fortunes,
resilience and relaxed lifestyle of rural
communities. I joined the banking sector
upon leaving school in 1976. When
Westpac established its network of
specialised agribusiness centres in
the mid-1980s, the opportunity to
be involved was a natural progression.
Broadacre farming, which is split between
winter cereal crops and summer sorghum
and cotton crops.
Q. What are farmers’ common
concerns in your region?
Q. What does your job involve?
I work with major farming enterprises
and support industries situated on the
Macintyre, Gwydir and Namoi rivers in
northern NSW and southern Queensland.
Q. What are your predictions for
cotton yield and quality in 2012/2013?
With plantings almost restricted to
irrigated crops, the planting area has
reduced substantially; however, this year
will still be high by long-term averages. I
expect an average yield of 11–12 bales per
hectare, but favourable growing conditions
and a dry picking window will be critical to
maintaining the quality of the 2012 crop.
Q. What factors are driving this?
Q. What’s your favourite aspect?
Undoubtedly it’s the client interaction
with business owners and operators.
It’s satisfying to develop a deep
understanding of the key drivers
of their business and their success,
and assist them with financial and
management consultation.
32
Produce
The dry end to 2012 left most dryland
growers with no prospect of planting crops
this season. On the other hand, irrigators
had the benefit of both full irrigation
allocations and on-farm storages at the
commencement of planting, the outcome
of two major flood events in late 2011
and early 2012.
There is a general feeling that the political
influence seen in capital cities now
outweighs need for thorough consultation
and communication with the agribusiness
sector. Farmers are also concerned that
coal seam gas mining on farming lands,
and its potential risk to artesian water
tables, is not being paid due consideration.
Q. What is the hot topic for
agri-advice in 2013?
Family succession and intergenerational
transfer of holdings will continue to be
a hot topic. The generally declining
terms of trade for agriculture, coupled
with fluctuating seasonal conditions
and commodity prices, are a constant
challenge. When a family is faced with
restructuring their business enterprise,
this becomes an even more daunting
challenge.
Contact us
Graham Jennings
General Manager
Regional Commercial & Agribusiness
Westpac Group
0417 061 634
gjennings@westpac.com.au
Susan Bower
Head Of Agribusiness
Australian Financial Services
Westpac Group
0478 880 308
sbower@westpac.com.au
Rod Kelly
State General Manager QLD
Regional Commercial & Agribusiness
Westpac Group
0427 224 280
rodneykelly@westpac.com.au
Stephen Hannan
State General Manager NSW
Regional Commercial & Agribusiness
Westpac Group
0419 435 079
shannan@westpac.com.au
Rick Aylett
State General Manager VIC
Regional Commercial & Agribusiness
Westpac Group
0427 249 059
raylett@westpac.com.au
Ben Marini
State General Manager WA
Regional Commercial & Agribusiness
Westpac Group
0419 812 821
bmarini@westpac.com.au
Richard Hockney
State General Manager SA, NT & TAS
Retail & Business Banking
Westpac Group
0427 600 239
rhockney@westpac.com.au
Australia
australia
Proudly supported by Westpac
Right here
here is
is aa pretty
pretty good place to
Right
to be
be right
right now.
now.
Nations everywhere
everywhere are facing tough
Nations
tough challenges.
challenges.
But the
the little
little country at the end
But
end of
of the
the world
world
has now
now become the envy
has
envy of
of it.
it.
Still, ifif anyone’s
anyone’s surprised, it’s
Still,
it’s not
not us.
us.
We’vebeen
been around
around for
for 196
196 years. We were Australia’s
We’ve
Australia’s first
first company.
company.
And we’ve
we’ve seen
seen Australians
Australians face many
And
many highs
highs and
and lows.
lows.
But we’ve
we’ve always
always had a simple
But
simple philosophy.
philosophy.
something’s worth backing, we
IfIf something’s
we back
back it.
it.
Fromthe
the big
big institutions
institutions and
and infrastructure that
From
that helped
helped build
build the
thenation,
nation,
tothe
thelittle
little things
things that
that have
have become part of
to
of the
the fabric
fabric of
of the
theplace.
place.
Becausewhat
what was
was true
true about
about Australians
Australians in the beginning
Because
beginning isis still
still true
truenow.
now;
Withthe
theright
right support
support we
we can
can do just about anything.
with
anything.
At Westpac
Westpac we’re
we’re proud to keep
At
keep supporting
supporting
all of
of the
the things
things that make Australia,
all
Australia, Australia.
Australia.
© 2012
Westpac
BankingCorporation
CorporationABN
ABN 33
33 007
007 457 141
licence
233714.
© 2012
Westpac
Banking
141 AFSL
AFSLand
andAustralian
Australiancredit
credit
licence
233714.
AGP100 11/12