Federal Budget 2018 A considered view for agribusinesses

The recent federal budget once again highlighted the fundamental importance of agriculture to the Australian economy, particularly during the current economic transition.

For sectoral growth much beyond the rate of natural population, and assuming Australian’s don’t suddenly decide to massively increase their consumption, production increases will require new markets, lest the domestic market be swamped. Conveniently, the world’s greatest concentration of middle-class consumer population growth is centred on our ASEAN and north Asian neighbours, a single flight or comparatively brief container-ship journey away.

Beyond any marketing hype, Australia’s food and fibre exports are underpinned by a range of intangible assets; perceptions a consumer in Asia’s rapidly expanding middle class holds about the essence of Australian products. This ‘clean, green, safe’ trope affords Australian producers the ability to command a price premium in export markets versus competitors, such as Peru or South Africa.

The value of this intangible asset, the goodwill and trust in ‘brand-Australia’ is incalculable. This exists in the primary produce space solely due to the very real and robust science-based biosecurity regime maintained by farmers, growers and producers across the country, and at all levels of government. Australia’s unique pest and disease freedom profile enables us to export produce with more lenient treatment and disinfestation methods than our competitors, enabling produce to arrive quicker, and in better condition – further supporting the price premium.

However, Australia is not alone in seeking to service premium export markets, nor in its ‘clean, green’ positioning. Many would argue that product from Canada or New Zealand for example, offers the same intangible characteristics.

How then does Australia maintain its competitive edge? How do we supply increasing amounts of high-quality food and fibre into offshore markets, ahead of the competition? The government believes that it has a role to play – a role worth $224 million in this year’s Budget.

The Budget contained five main agriculture measures; chemicals, forestry, pest animals and diseases and a heavy emphasis on export and its supporting biosecurity architecture.

Systems modernisation such as the $10.1 million for the digital transformation of the Australian Pesticides and Veterinary Medicines Authority, and the $6.3 million focused on improving access to minor use chemicals, whilst a win for the sector in general, were minor announcements compared to the $122 million funding applied to biosecurity. This included $20 million to assist the Tasmanian Government in combating a fruit-fly outbreak – the bane of horticulture exporters, and a real risk in market closures.

Other notable announcements, including the $10.5 million towards realising a ‘single window’ for international trade, and funding to improve GPS accuracy and satellite imagery in regional Australia, are sorely needed upgrades to our national trading infrastructure. While the ‘single window’ initiative is a recycled 2016 election commitment, these upgrades will enable producers’ use of advanced digital farming techniques to increase production efficiency, and more accurate weather forecasts, assisting in production planning to increase quality and yield. Unfortunately, the government failed to invest in the Mobile Blackspot Program, which tries to improve connectivity in regional communities – a key request of the nation’s peak farming organisation, the National Farmers’ Federation, who consequently scored the budget a ‘B’ grade.

The $20 million earmarked for an SME export hubs program and extension of the export growth centres will assist small and medium enterprises (SME’s) to access international markets, although the details remain under wraps. These SMEs will be key partners of Austrade, which itself received $3.2 million to develop a new national brand – a topic that has dogged the export sector for years, since previous funding was short-sightedly removed following an earlier change of government. Recent collaboration within the agriculture sector, which launched its ‘Taste Australia’ positioning offshore, has begun to show signs of success, and the industry will no doubt be closely invested in the new branding exercise.

Major infrastructure to upgrade key regional freight routes will boost producers’ ability to export, through the proposed investment of $3.5 billion in the Roads of Strategic Importance program. Moving perishable product from source to consumer, or ‘paddock to plate’ requires a complex international logistical interplay between a cast of actors; from farmers, abattoirs and packers to hauliers, freight forwarders, shippers and importers, not to mention the accompanying regulatory oversight and associated bureaucracy. Efficiency improvements in all parts of the supply chain will add to other initiatives such as inland rail and incremental connectivity improvements including the Toowoomba airport, and increased airfreight capacity such as direct Tasmania-China flights to increase producers’ ability to export.

Legal access into overseas markets is equally as critical as the domestic infrastructure underpinning Australia’s ability to service them, with Australia’s Agriculture Counsellor network expanded in the Budget by six positions to a total of 22. As the governments’ in-market representatives, the Department of Agriculture’s highly competent counsellors have the often-thankless responsibility of tackling barriers to trade and negotiating and maintaining access for Australia’s agricultural produce. The additional six positions should be viewed in the context of broader industry interest in export, and Australia’s limited ability to engage with overseas counterparts to progress access requests, due to resourcing constraints. The additional positions and funding provided in the Budget, including funds for the technical and scientific research underpinning market access requests, aims to alleviate some of this strain, enabling farmers to export more produce to more markets, and under better conditions.

For shippers, the announcement of a new $10.02 biosecurity levy per 20ft container (or equivalent), or $1 per tonne levy on non-containerised cargo, will be unwelcome news, adding additional cost. These new levies which come into effect from 1 July 2019 are anticipated to raise $360 million and will fund additional border biosecurity measures, although the compatibility of this announcement with the governments cost-recovery guidelines has been questioned.

The budget, whilst neither revolutionary nor transformational for agriculture, recognises the reality that Australia’s competitiveness is underpinned only by strong science-based systems, and made competitive by advanced production techniques and incremental efficiency improvements. A solid ‘B’ grade seems appropriate, and an acknowledgment of its effort to plug some immediate systemic gaps, better positioning Australian agriculture for an export-oriented future.

As always, should you have any questions, do not hesitate to contact your adviser.