Recently, the globally recognised demographer Bernard Salt published an article titled “Australia sells off farm to feed the world”. In this article Bernard raises some excellent challenges for Australian agriculture at various levels – Production, supply chain, policy and the Intergenerational perspective. From the outset, let me stress that I concur with Bernard Salt’s observations as they are based on empirical evidence obtained through robust research and insightful analysis, therefore the purpose of this article is to put a strategic perspective on the points raised.
Approximately 96% of Australian primary producers are family businesses with the vast majority being multi-generational. This is a double-edged sword of being an extremely powerful competitive advantage, if harnessed and the industry’s “achilles heal” due to the industry’s fragmented, isolationist and fiercely independent nature. As a Family Business Strategist and 4th generation agriculture family member I firmly believe that the leading families in the agriculture sector will respond with innovative business models to exploit the opportunities rather than succumb to the challenges.
So let’s take the article paragraph / major point at a time:
- Global population growth from seven (7) billion to eleven (11) billion within the next eighty (80) years (two paragraphs)
- This not only offers a significant strategic opportunity for food and food production IT also opens up the opportunities for fibres, value adding production waste, bio-energy production and nutraceuticals.
- Australia is certainly on the list of countries that have a comparative advantage HOWEVER we are one of many and some of our competitors are well ahead of us in this respect. One reality is in innovation across production systems where in 1990 Australia was ranked number one (1) or two (2) depending on which data set you looked at. We are now number nine (9) and slipping quickly
- This highlights the “backward and internally looking” R&D business model as much as industry fragmentation
2. Global grain production has increased 2.5 times in the past 56 years and will have to increase another 1.6 times at least in the next 75 years (three paragraphs)
- The major drivers of this increase over the past 56 years have been agronomics, production systems change, scale of machinery and operations and plant genetics HOWEVER this has plateaued in the past 15 or more years
- Climate change / seasonal fluctuations will intensify in the future PLUS we are “raping” our major production asset, the soil, to an extent that what has worked in the past WILL NOT work in the future
- We will have to look at all forms / disciplines of “engineering” to extract the production gains required – this will be above ground, underground, structural, software and megatronics – Everything in between
- Not only do we have to extract more out of each plant (or animal) we have to do this while improving the soil asset
- Multi-level land use comes into play here – Refer later in the article
- Our comparative advantage cannot be based on this “clean / green” paradigm because our competitors are ahead of us now – We need to look at a wider definition and segments of advantages relating to “food provenance” in its widest form
3. The value of agriculture to the Australian economy PLUS the trends relating to “ownership and control” including shortening of the supply chain (eight paragraphs)
- The industry is a relatively small proportion of the nation’s GDP HOWEVER the multiplier effect is not well articulated ESPECIALLY its impact on regional development and innovation
- The article nominated some large foreign ownership assets across beef, dairy, sugar, food processing, grain and fish – Of the eight (8) or so mentioned China did not feature at all
- Of real note was the reality that these large “corporate” foreign owners are mostly very large family and / or privately owned businesses
- Of significance is the New Zealand ingenuity that has accelerated its agriculture sector well past Australia’s
- Supply chain control has resulted in these large foreign players creating the “aggregation funnel” where they control the creation of product volume that is marketed globally
- The article does not go into the “commodity” nature of all the nominated products however all of them are globally traded commodities therefore currency exchange, market targeting with specific products and all other commercial factors come into calculation of the “raw product” purchase equation
- The more recent trend in the acquisition of key strategic infrastructure (ports and air ports) has further corporatised the logistics into the downstream supply / value chain – This has a number of impacts on Australian production and food provenance comparative advantage
- Highlights the reality that foreign investors (private, State owner, corporate or hybrid) have identified the opportunity and the infrastructure constraints within Australia and are prepared to capitalise on these
- Opens up additional opportunities for Australian production off take to be shifted into more markets. This is also aligned with the FTA platforms
- Opens up the opportunity for biosecurity threats and other product contaminants to be imported into Australia effectively negating one of our strongest comparative advantages
- Enables product ownership to be domiciled off-shore therefore reducing the taxation receipts available to the nation
- Land ownership is still vastly skewed to Australian with the UK and USA being the top two foreign ownership countries of origin. However this is shifting quickly with the Middle East and China moving up the scale quickly
- It raises the questions relating to the “willingness” of financial institutions, including Australia’s big four banks to lend to a corporate model from off-shore rather than “back” home grown businesses to enable them to become global players incorporating a short supply chain
- Of recent times we have seen Australian Funds, Canadian Funds and other off-shore investment into significant family business enterprises such as ACC and NAPCO resulting in the ability for these businesses to target very specific markets
4. Impact on regional communities and the next generation (two paragraphs)
- Stripping out the “human” component of the operational resource bundle has had and is having a significant adverse impact on rural communities nationwide. The more recent mining development phase has also seen the next generation achieve education in non-agricultural disciplines
- This has a positive affect when viewed through a strategic lens because it enables this generation to bring something else to the family business table HOWEVER unless the inter-modal infrastructure development program is not accelerated rapidly Australian agricultural opportunity will vanish or at the very least be taken over by forward thinking off-shore investors be they individuals, sovereign funds or country backed State Owned Enterprises
- While Bernard Salt has made an assumption as to what the next generation of farming will look like, as a family business strategist, I tend to differ to some degree. I am old enough to have seen the failure of the straight corporate enterprises a number of times in Australia due to our completely unsubsidised industry PLUS their inability to manage the soil asset. While I am not stating that we should sit back and let history repeat itself BECAUSE IT WILL NOT – What I am stating and have pursued for a number of years is the development of a “corporate business structure based on family values” as tis will ensure sound asset management, continued innovation in production systems AND the protection of the wider “food provenance story”
- Australia currently produces sufficient primary production off-take to feed / clothe 60 million people therefore the retention of a clear focus on export market development and alignment of this within shorter supply chains is where the real benefits will come. Yes we can develop more land, we can produce more off-take and we can feed potentially 100 to 120 million people HOWEVER it will require
- Strong and long term thinking strategic leadership at all levels of government
- An acceptance of the real value of primary production to the REAL definition of sustainability (Economic, Financial, Social and Environmental – YES in this order)
- Significant focus on regional development including hard and soft infrastructure that accepts a long lead in utilisation period (take the Wellcamp Airport as a prime example)
- The development, support (from financial and other institutions) and establishment of new and disruptive agricultural production business models based on the “corporate business structure with family values” model
- A massive shift in Australia’s agricultural policy focus AWAY from the current “welfare and drought” model to that of a “good season” model
- A complete overhaul of Australia’s current broken R&D business model that in effect is a “cost shifted” model where Universities and State Government departments have shifted their operational costs onto the primary producer’s P&L via statutory R&D levies. Steve Baxter is extremely scathing of Australia’s R&D model and he has experienced it through a number of perspectives. Australia MUST have an RDC&E model – Research, Development, Commercialisation and Extension – to ensure the funds have a real and commercially measurably value to the production sector and the post farm gate supply chain
- Finally, primary producers themselves must embrace a new paradigm of collaboration and cooperation that can be elevated into the “corporate business structure with family values” business model. This is critical to retain the next generations of family business producers including their resilience, production knowledge and systems innovation
- Bernard’s concerns and the domestic reality of our assets and population growth (two paragraphs)
- Complacency is certainly one aspect when it comes to our own resources and their development PLUS our willingness to “raid” those of other countries as they do Australia’s.
- Why and How is this complacency so entrenched into the Australian psyche are questions that we must address. We need to address this for the sake of the next generations, regional communities and the Australian economy.
- There is absolute reality in Australian and global agriculture that is “what constitutes a viable family business in agriculture?” – If we go back two generations this has quadrupled at least in that period. This means that NOW we need at least five times the production off-take to sustain a family business than what it required 40 to 50 years ago. NOTE I did not say “size” but rather concentrated on the physical off-take BECAUSE this encompasses those innovative producers who have altered their production mix and production systems to sustainably extract more from the same resources
- Tradition plays a big part in Australia’s complacency AND this is not restricted to the production sector. In actual fact Australia’s policy makers, consumers, financial institutions and especially the research institutions are potentially more deeply trapped in a traditional paradigm about agriculture than the producers are.
- Bernard Salt’s last sentence stating that “Australia’s rural entrepreneurial energy is being shared by foreign interests” is a critical statement because it can determine our agriculture future
- Australia as a country can leave it up to foreign interests to be the entrepreneurs and exploit our resources OR
- Australia as a country can get behind Australian agriculture family business and ensure the “corporate business structure with family values” business model is driven to ensure Australia maintains its own agricultural production destiny
In closing, Australia has a significant role to play in feeding the global population PLUS our increasing domestic population HOWEVER it does require significant disruption at all levels of all four segments of the agricultural supply chain
Upstream – The supply side of the equation in relation to inputs, consumables, resources and innovation
Downstream – The post farm gate barriers and numerous “ticket clippers” NEED to be rationalised to shorten the route to the consumer
Internal – The fundamental structures and business models of the production / operational units
Allied – The policy, R&D, professional service, financial and other stakeholders who influence outcomes without having the risk / reward responsibility or accountability
The strategic opportunities are there for the taking – It just needs to be “attacked” in new ways and with new expectations.
Lloyd Russell is a 4th generation family business member and an accredited family business advisor who is based in Brisbane while servicing clients throughout Australia and internationally. Lloyd is a specialist in family business strategy and governance with a particular focus on inter-generational transfer. He has more than 30 years’ experience in senior management and is an accredited neuroscience practitioner.
Contact Lloyd on 0413 549 748 or email@example.com
Website – www.tcbsolutions.com.au