JOHN HINE AND ASSOCIATES PTY LTD

www.developqld.net.au 74 Ballinger Crescent Albany Creek Qld 4035 Tel: 07 3264 4568 Mob: 0432 027 744 Email: john@developqld.net.au ABN: 45 136 596 779

NATIONAL FOOD PLAN PERSONAL SUBMISSION In general, the comments made in my Submission to the Issues Paper on 21 July 20122 stand. Personal Background These comments are made following some 15 years experience in the area, as a public servant in the Qld Department of State Development, while working in regional Qld and as a consultant. Summary of Issues It is difficult to provide a summary of the complex issues in the Australian food industry but it is suggested that the following are critical;
Given that Australian food exports are falling and imports rising, it may be that the existing structures developed to support the food industry need re-thinking. The industry and government needs to increasingly address issues from the perspective of individual businesses, not as an industry. There are now fewer industry wide issues. While a sound macroeconomic environment is necessary, this is only a foundation for business development. Incentives have to be developed to stimulate businesses to change and adapt, because simply relying on market forces is no longer enough. The Australian food industry needs to move away from bulk commodities to niche markets. The lower cost and capacity for scale of production in some developing nations means that Australia will struggle to compete on price alone. However, niche markets can be large. Business skills are and will continue to be one of the most critical areas. Our long history of protection via tariffs, distance and regulation meant that many areas of our food industry (and other industries) did not develop their business skills, especially international business skills. Developing these skills is a slow process. Businesses along the food chain will need to cooperate at a much higher level than they do now for us to compete on the scale and quality needed, even for niche markets. Given that Singapore, with a population approximately the same size as Qld is a bigger player in world agriculture than Qld, while having practically no agricultural production of its own, suggests Qld, and Australia, has failed to exploit its comparative advantage.

Why Does Australia Need a Food Plan? A national strategy for our food (and many other industries) is needed due to our declining competitiveness. Our declining competitiveness in shelf stable processed food products and fresh horticulture (as with apples and potatoes from New Zealand) continues.

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At the same time, there seems to be;

Growing interest in international institutional investors to purchase Australian farm and food processing operations. Recent examples include; o Willmars purchase of CSR Sugars milling operations. o Olams purchase of Qld Cotton. o Terra Firmas purchase of Consolidated Pastoral. o A Chinese groups purchase of Cubbie Station. o A Turkish company was rumoured to be considering purchasing Inghams Chickens. o At least two North American superannuation funds have bought into Australian farm businesses. A reluctance by Australian institutional investors to buy Australian farm and food processing companies, as seen in; o The plans by Prime Ag to de-list from the ASX as they cannot get local investment. o The failure of Qld sugar cane producers to buy the CSR sugar mills, even though the mills were on the market for many years. o The failure of any Australian group to put forward an acceptable bid for Cubbie Station, despite this being in receivership for three years.

It would be useful to know if there are any aspects of the regulatory system that affect the investment decisions of Australian investors in such situations. Seizing New Market Opportunities What the government plans to keep doing is supported. However, it would be of interest as to what is meant by the statement on p1 of the Green Paper summary, Work cooperatively with the food industry to capitalise on new opportunities. I am not clear how this is being done now, except via Austrade, the Export Market Development Grants and R&D Tax Incentives. Government programs need to be based around the principle that in general individual businesses identify and seize new market opportunities, not industries. An industry in modern times is generally created by an individual business which then involves other businesses in its plan to grow that new opportunity. A classic example is seedless watermelons. The company One Harvest saw the niche, paid to have the variety developed, and thus owns the plant variety rights, and then contracted out the growing of the watermelons to growers all around Australia so these melons are available virtually all year round. Other proposals listed would be useful, including;
a more determined effort to improve market access. This of course is easier said than done. better infrastructure. Although how this might be determined is not clear. The difficulty of identifying the right infrastructure of course goes well beyond the food industry. reviewing export and import control systems. Complaints by AQIS continue. Requiring third party certification for all food exports that they meet FSANZ Food Standards Code requirements could be considered. This is no more than is required by many other nations for their own food standards. It would also be low cost to implement, with the majority cost being placed onto the importer.

Other issues that could be considered include;

reviewing cooperatives legislation to ensure that groups not directly involved in the growing or processing of food can be investors and gain Board membership. It is understood that such new generation cooperatives are used in the USA to develop biofuels projects. It is also understood that

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current cooperatives legislation does not allow investment by groups without a direct interest in the project. Such broader cooperatives legislation may even allow non-farm cooperatives eg energy cooperatives to focus on renewable energy, as is happening in the USA. While farmer cooperatives have not been particularly successful in Australia, cooperatives such as Danish Crown, http://www.danishcrown.com/, appear to be very successful in that it is Europes biggest exporter of processed meat and approximately half of the pork used to make bacon in Australia comes from Danish Crown. Flora Holland, the large flower wholesaling group, see http://www.floraholland.com/en/about-floraholland/, is also a cooperative. Flora Holland also sells flowers for growers in Israel, Kenya and Ethiopia. Their auction building at Aalsmeer is the fourth largest building in the world. programs to improve the business skills of farmers. ABARES data shows that the average Return on Investment (RoI) of Australian farmers is 1% while the top 25% of farmers have an RoI of 10%. This suggests serious issues with business skills. Farm size is relevant but an RoI of 1% may be economically unsustainable. The debate about the Wheat Export Act suggests that some wheat growers seek the security of a single desk as they lack the business skills to cope in an open market. programs to break down the notorious reluctance of farmers to work together. This is a challenging issue but one that needs to be addressed if we are to get the scale we need for export and processing. the reputation of Australian farmers as unreliable suppliers, as shown by several previous DAFF studies, is linked to the wider business skills issue. Chasing spot markets may seem useful in the short term but longer term supply contracts may well give a better average price in the longer term. the cost of exploring and then developing a new market can be a barrier. Programs such as the former National Industry Extension Service (NIES) assisted with the cost of engaging consultants for this kind of project. The criteria for Export Market Development Grants needs to allow for such market development work, given that most new market opportunities of any size would be most likely exportbased. the problems in farmers gaining R&D support for proprietary research may limit their capacity to respond to market signals. R&D Corporations often; o have annual rounds, which can be a problem in that a new opportunity needs to be explored quickly. o require a new project to be approved by a committee, which often includes their competitors. Also, committees are often conservative in approving new research projects, which means a cutting edge project may not get funding. o have tended to fund industry-wide research rather than proprietary research. New market opportunities will generally come from scientific or market research done by a company. Food processors can use R&D Tax concessions to develop new food products. Farmers need access to similar support. R&D Corporations have had problems in getting outcomes from research into new kinds of automation. Special purpose automation is essential in realising new opportunities. Farmers, or even R&D Corporations, need to invest in companies which are better at developing new equipment than public sector research groups. New opportunities may require that a new crop be grown off-shore or a new processed food product be made off-shore. Such projects are often higher in risk than projects done wholly within Australia. The criteria for Export Market Development Grants need to allow for such work. commercialising research is often difficult and expensive. Food processors can gain assistance to commercialise research from bodies such as the Australian Institute for Commercialisation. It is important that farmers can be eligible for such assistance. there are a number of ways whereby farmers can be gain equity in a new project without having to buy shares. These include shares being offered for the signing of long term contracts. These options should be explored and promoted.

A Competitive and a Productive Industry What the government plans to keep doing is supported.

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However;
a sound national innovation system is important but such an innovation system should not be limited to public sector R&D. It is suggested that Australia may be spending too much on public sector R&D. A more effective way may be to assist businesses undertake more of their own R&D and so build on public sector R&D. R&D Tax Concessions and similar mechanisms are important here. Public sector science is generally good science but questions arise such as; o is it the right science. o If many Australian companies are too small to commercialise more basic research, should we be funding the current level of basic research. o whether the relatively large numbers of young people doing higher degrees in basic science are learning the right skills. It may be better to have these young people working in companies and doing their higher degrees in applied research. there is a real case for promoting the establishment of locally owned and managed applied research groups that can address specific local issues and which have the confidence of local farmers. An example is the Birchip Cropping group, see http://www.bcg.org.au/. This is an incorporated, not-forprofit research group in Western Victoria that now employs more than 20 scientists and others working on local issues. it is suggested that it is of little use to promote careers in science, including agricultural science and food science, unless businesses are prepared to pay good salaries for such graduates. While, generally, graduates in law and accounting earn better salaries than graduates in science, more young people will often elect to study accounting and law. As the key with any idea for a new product or process is to first identify the business opportunity, rather than the do the science, it may even be better to spend money on innovative business education than science education and outsource the scientific research to companies in say India. concerted industry-led action to promote skills development in agriculture is important but again labour shortages in agriculture are due to the low wages and salaries paid to agricultural workers. Also, given problems with drought and flood mean that work is not continuous, it is not surprising that farmers find it hard to get workers. There seems to be only two options here; o Pay higher wages. o Apply special purpose automation to reduce the level of labour needed so that higher wages can be paid. New ways to support the development of such automation are needed and some suggestions will be made below. current plans to reform drought policy by assisting farmers to develop longer term strategic plans are supported. In addition, work on improved environmental management suggests that this may also be linked to improved coping with drought. reducing red tape is an issue that continues. However, having sat down with industry associations in the past, as a public servant, and asked for specific problem areas, few could be nominated. An illustration of the problem is the gulf that exists between the processed food sector and the nutrition sector on what are appropriate regulations for functional foods, health claims and complex foods.

Other issues that could be considered include;

developing new ways to assist individual farmers, groups of farmers or groups of farmers and agricultural processors undertake proprietary R&D. Normally, companies would use R&D Tax Concessions. However, it is understood that farmers are ineligible for these tax concessions. Rural R&D Corporations need the capacity to fund commercial-in-confidence research, on an on demand basis, rather than waiting for annual rounds. Therefore, simply increasing funding for rural R&D is not necessarily the answer. programs to assist farmers improve their business skills. Agriculture is increasingly a market led sector, rather than a production led sector, and so improved business skills are relevant. This links to the debate about residual protection for wheat exports through the Wheat Export Act as some wheat farmers seek protection following deregulation of wheat exports. Programs such as Enterprise Connect could be useful. The range of small business workshops, webinars and other short training courses developed for non-farm businesses could be adapted for farm businesses. recognising that the efficiency of the logistics system is an integral part of a competitive and productive food industry. Therefore improved business skills are needed by the various players along the different

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elements of the diverse food logistics systems. Programs such as Enterprise Connect could be useful. The range of small business workshops, webinars and other short training courses developed for nonfarm businesses could be adapted for logistics businesses. Presumably R&D Tax Concessions are also available for logistics businesses. industry specific training, as identified by the environment scans of the Agrifood Skills Council, see http://www.agrifoodskills.net.au/?page=Scan. This is a detailed and imaginative survey of the skills needs of the agrifood industry. Importantly, the scan found that, for many agrifood sectors, a broad range of skills in many areas was needed rather than a depth of skills in a limited area, as needed by many non-food industries. This kind of information needs validation and extension in order to meet real industry needs. other specialist skills in addition to general business skills and the kinds of skills identified by the Agrifood Skills Council. These include; o Animal welfare skills o Quality management skills such as Six Sigma o Spatial information skills, for land use management. an alternate system for country of origin labelling that is clearer to consumers than the current Made in Australia/Product of Australia labels would be useful. The difficulty of doing this given the complexity of food processing and the range of local and internationally sourced ingredients is recognised. both farmers and food processors using special purpose automation to improve productivity and reduce costs. However, it is suggested that previous efforts using public sector R&D labs may not be the most effective approach. Projects led by companies specialising in the development of automation, linked with relevant CSIRO and university groups, could be more effective.

Regional Australia The statement is made on p2 and 3 of the Summary of the Green Paper that the Commonwealth is providing funding for a range of support for regional Australia in infrastructure, water, energy, communications, health, skills and the environment. The challenge in providing such support is that many regions do not have any clear strategy or vision on how the food industry might develop in their region. This makes it difficult to identify and fund required infrastructure. Indeed, given that many of the farms and food processing businesses in regions are small, there are often few large private sector investment plans in the public domain as compared to many such plans in the mining and gas regions in Qld. Therefore, infrastructure may to go to those regions where there are private sector investment plans in the public domain. Regional Development organisations could be encouraged to develop strategic plans for the food industry in their area, as a supporting tool for forward planning for infrastructure. Investment in Innovation and Knowledge It is clear that innovation is central to the survival of any industry sector. However, it is suggested that, as innovation is companies doing new things, much of the current public sector R&D is about science and not innovation. This is not to suggest the science funded by the various R&D Corporations is not of high quality. It is just that public sector R&D, with results in the public domain, is rarely linked directly with innovation by a particular company. The surest way to assist companies with innovation is through programs that assist those companies engage in proprietary R&D, generally in house. Therefore, programs such as Enterprise Connect and the R&D Tax Concessions are important.

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Maintaining Australias Food Security The list of activities that the Government plans to keep doing is supported. However, it is suggested that the best way to ensure the security of Australias food supply is to assist and encourage the companies in the food chain to be competitive. At the same time, it is understood that;
Australia does not make tin pate, which means that in an emergency, with any limits to imports of tinned food or tin plate, Australia could make only a limited amount of tinned food. Australia imports a significant percentage of its vegetable seeds. If this is true then it makes us vulnerable if there was any limit to imports.

Improving our Natural Resource Base The list of activities that the Government plans to keep doing is supported. However, the level of comment by players in the farm sector, even by some industry leaders, suggests that many in the farm sector have not fully grasped the link between sound natural resource management and profitable farming. At the same time, many in the green movement also do not appear to have grasped this link either and continue to make what seem to be almost ambit claims for environmental protection, without allowing for farm profitability and even regard for sound science. This is so sad as there is ample evidence that sound science yields significant productivity improvements as well as good environmental outcomes. For example, refusing to allow managed hunting as a way to control feral animals in regional Australia, with no real alternative, means that many areas of regional Australia have high numbers of feral dogs, cats, pigs, camels and horses with probably disastrous effects on the environment. Also, some areas may well have significantly higher tree coverage than was experienced for much of the last say 40,000 years, when people used fire farming to manage tree cover, improve grassland and prevent major bush fires. This higher level of tree cover may lead to out-of-balance animal life and plant life as well as possibly higher soil erosion due to reduced grass cover. Major bush fires, as seen in southern Australia, surely have disastrous effects on the environment. Small scale fires seem to have a positive impact on much of regional Australia. Carrying out cost benefit analyses of some examples of good environmental management, where farmers have improved soil quality, grass cover, crop yield and soil water holding from the application of modern scientific approaches and have improved production and profitability, would be helpful. If these cost benefit analyses have been done, then the results seem not to have been well communicated to the farming community. The other factor that seems not to have been absorbed by much of the rural sector is that many supermarkets and restaurant chains are responding to the growing environmental, and broader ethical concerns of their customers, by requiring proof that higher levels of environmental protection and animal welfare are being applied. For example, some supermarkets are requiring that beef sold is from cattle not treated with growth hormones. McDonalds, in responding to persistent claims of beef produced unsustainably, is John Hine and Associates Pty Ltd Page 6

developing a sustainable beef production system. The soft drink manufacturer Coca Cola is funding scientific studies of the impacts of farming on the Great Barrier Reef, presumably so it can confidently claim it is using sustainably produced sugar in its drinks. Those in the beef and sugar cane industries who claim that their industries are not harming the Reef do so in the light of scientific evidence that there is sediment run-off to the Reef lagoon of 14 million tonnes a year. Some of this comes from urban activities and not from farming. However, to claim that this loss of top soil is insignificant does their cause no advantage. Whatever the origins of this topsoil, an annual loss of topsoil of 14 million tonnes a year is unsustainable. There then seems little alternative for farmers to apply sound scientific and economic analysis to natural resource management, and to be able to prove that they do this. Failure to do this may mean that land use management schemes are developed by supermarkets and restaurant chains that are not as soundly based as they might be. Much more research seems likely to be necessary on land use management in our fragile environment. This is a clear case where public good flows from public sector R&D. There is also a case for promoting locally owned and managed applied research groups to translate this broad research in land use management into practical land management systems applicable to specific regions, with their own soil types and microclimates. Supplying Safe and Nutritious Food The Green Paper is correct that Australias food is as safe as any diverse food system can be. The availability and affordability of nutritious food is probably better than it has ever been. There is clearly an issue with obesity and this is a complex social and physiological issue. However, unless the food industry generally responds to the issue of obesity and high calorie foods with high salt and high fat then community pressure and the pressure of strained health budgets may force a Commonwealth Government to intervene at some stage in the future. Contributing to Global Food Security This can best be done by having a competitive food industry, able to grow food and export this food. However, Australian farmers need to realise that;
Farmers in China, India and Africa will improve yields as farms in those countries get bigger and they get better access to education and knowledge of modern farming systems. The significant recent international investment in farm land in Africa, some two million square kilometres, is likely to give significant production levels of commodities, which will likely impact on price.

So, Australian farmers cannot be complacent about new opportunities automatically flowing from increased world food demand. It may even be that Australian farmers will need to invest in farming off-shore to fully gain from this expected growth in international demand. There can therefore be no letup in reform to improve infrastructure, regulations, skills growth and R&D, and the uptake of this research, in its broadest sense. John Hine and Associates Pty Ltd Page 7

Improving the Way We Work Together Given the scale of current and potential new competition, there is an absolute requirement for all the public and private sector players along the food chain to work much more closely together. This requirement extends from;
farmers, who need to act on the premise that generally their competitor is in Brazil etc and not down the road. Large markets need scale to meet their needs and scale comes from farmers working together. Farmers also need to work together on R&D projects and novel solutions for transport and logistics. For example, joint ownership of rail wagons may be needed. companies in food manufacturing, food product development, packing and marketing need to recognise their core skills and develop collaborative relationships to bring new products to market. Small companies will rarely have all the skills needed. the State and Commonwealth Governments, who need to work together to make Australia one national market. This is not the time for narrow arguments about States rights. the Commonwealth Government needs to recognise that, while the Commonwealth public service has excellent high level policy skills, these people may lack the detailed knowledge of how businesses work together to develop practical regulations and operating systems. Locating the National Heavy Truck Regulator in Brisbane and the National Rail Safety Regulator in Adelaide were sound decisions. the various farm industry associations and R&D Corporations need to realise the scale of the challenge and put aside rivalries and personal issues and drive reform and change.

There is a need for more engagement between the Commonwealth and the States and my personal experience some time ago was that the Commonwealth and many State agencies lacked the drive to make reform happen. This must change, given the scale of international competition. A National Food Council may well be relevant but the participants would need to recognise the scale of the challenge from developing nations and drive change and reform. The issue of supermarkets, regulation and competition is complex. There are many comments from diverse players that supermarkets are;
unreasonably driving down prices. not recognising the costs of product development and that unless there is recognition of the cost of product development there may well be a decline in new products. lacking longer term commitment to individual suppliers and need to recognise that assisting a good supplier to become better may be more productive than constantly changing suppliers. This nurturing approach to suppliers has been called the Toyota system in the car industry. not recognising that a sustainable competitive advantage is unlikely to come from constantly cutting prices.

An Australian supermarket that seeks to grow its business may well have to expand overseas, given the current extent of retail ownership by both Coles and Woolworths. Developing the National Food Plan A review in five years is suggested. Given that;
this is the first time such an integrated policy approach has been tried. the complexity of the issues. the international scene is constantly changing, a review before five years may be needed.

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