Bar set low for a ‘do no harm’ China-Australia FTA

Recent public comments of senior Australian government ministers suggest they are increasingly confident a free trade agreement with China will be concluded by the end of the year.

For its part, Beijing has also offered hints an agreement will be reached within the same time frame. The speculation is a grand signing will take place in mid-November when Chinese President Xi Jinping will be in Brisbane for the G20 meeting.

Given that governments from both countries have staked their credibility on such a schedule, it is more likely than not pen will be put to paper next month.

But the significance of an Australia-China FTA is at least as much about diplomacy as it is about economics. The reality is that the Australia-China economic relationship does not really need an FTA to flourish. Agreements on all access in various sectors are concluded constantly without need for it to be part of a grander sounding FTA. Meaning the excitement behind the likely conclusion of an agreement will exceed the actual significance of such an agreement.

Bored into agreement

Let’s begin with what an FTA actually is. Rather than comprehensive economic agreements covering broad aspects of one’s economy, they tend to end up as rather piecemeal agreements covering specific sub-sectors that negotiators chose to target. Additionally, rather than expressing a broad meeting of minds, philosophies and policies between two economies, they contain extremely detailed provisions.

For example, there might be something about “processed dried stone-fruit” attracting a lower tariff than “semi-processed dried stone-fruit” with appendixes indicating what “processed” and “semi-processed” means, what constitutes a “stone-fruit”, what proportion of the product has to have dried fruit in its ingredients for it to be classified as “dried fruit”, and which stone-fruit are excluded from the provisions etc. It is no wonder that trade negotiators tend to admit the side that becomes bored first tends to lose.

Moreover, when one signs an FTA, especially with China, they tend to be treated as much as political and diplomatic agreements as well as economic ones. In this context, the Tony Abbott government has understood the “me too” mentality in Northeast Asia and played intra-Northeast Asian jealousies well. With Australia having signed FTAs with Japan and Korea, China pushed its own negotiators to fast-track an agreement with Australia.

Foreign investment thresholds

However, since Beijing needs the FTA for political and diplomatic purposes, it will want the appearance of a breakthrough in China-Australia relations. This will come in the form of China insisting that no Foreign Investment Review Board (FIRB) process is required for Chinese investment into Australia under one billion dollars, whether this be investment by Chinese state-owned-enterprises (SOEs) or private firms.

Such a threshold has been applied to Japan and South Korea under Australia’s FTAs with those countries. As China wants the FTA to demonstrate that it too has a special economic partnership with Australia, even if there are strategic and political differences, Beijing will insist on being treated the same as other Northeast Asian neighbours in this context.

For Australia’s part, this was always only really a political sticking point that Canberra will likely relent on. As surveys such as the annual Lowy Institute Poll demonstrate, there is widespread public suspicion of Chinese foreign direct investment (FDI), most of it being undertaken by state-owned enterprises, even if the reasons for such suspicions are not well formed or articulated. In opposition, Abbott appeared to share some of these fears. But in government, his tone seems to have changed. After all, FDI entering into Australia still has to play by Australian rules and follow Australian laws and regulations.

The reality is that the vast majority of Chinese FDI applications into Australia have been approved over the past decade, despite some high profile knock-backs. All indications are the Abbott government will accommodate Beijing’s insistence to raise the threshold to one billion dollars knowing that almost all Chinese FDI applications would have passed the FIRB test in any event. Besides, Canberra will be happy to reduce this hurdle for Chinese firms since FIRB is only an advisory body, albeit an influential one, and the relevant minister can still knock back FDI applications on national security or other grounds.

In return, Australia will receive better access to the Chinese domestic market for our diary and agricultural goods, but this would have occurred in any event without an FTA since provincial governments in various Chinese markets have been agitating for high quality imports in these sector and would have formally and informally made it possible for Australian firms to more easily access those provincial markets.

When it comes to Australian access to the services markets such as legal and financial, we are likely to receive some concessions. But the real barriers to entry in these Chinese markets are local ones at the regulatory and social levels, and an FTA will not reduce these barriers.

The bottom line is that both countries want an FTA for diplomatic reasons. The major, headline concessions that both sides will offer carry few costs to the conceding country, would have occurred in any event, or were already happening in practice. If the acceptable standard is that an FTA should “do no harm” at the very minimum, then that low threshold will be met in November.

The Conversation

John Lee does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

 

Organic poultry producer to re-enter Asia

Australia's largest organic poultry producer, Inglewood Poultry Farm, is preparing to re-enter the Asian market.

The company, which is a subsidiary of RM Williams Agricultural Holdings, entered into receivership last year, and reportedly owed around $60m to the Wespac Bank.

Inglewood Farms has since been bought by the Youngberry family, who have since worked to re-establish trade links into Hong Kong, ABC Rural reports

Inglewood Poultry Farm CEO Katrina Hobbs told the ABC’s Queensland Country Hour that developing niche markets is the way into the Asian market.

“We are quite small when it comes to feeding somewhere like China,” Hobbs said.

“We need to look for niche markets that we can handle and we need to look for the right partners and build the relationships.

“It's not about profiteering from one deal, it's about the future.

“We need to have a long term view.”

Hobbs said chicken portion exports to Hong Kong will complement the local side of the business.

“We're looking to send product very shortly.

“They're looking for the wings and the thigh meat.

“In Australia, we tend to have more of a demand for the breast so it's great to have a utilisation of the carcase.”

 

Beefing up meat exports

We all know it: Australia’s ‘clean, green’ reputation overseas gives our food and beverage products a serious competitive edge, and the meat industry is harnessing it to boost exports. By Danielle Bowling.  

By and large, Australian consumers like buying Australian products because they trust the processes involved in their manufacture. Campaigns like Australian Made are built on the premise that there is a real appetite in retail for locally produced products, and that manufacturers will benefit greatly from clearly communicating – both here and abroad – that they are True Blue.

Of course overseas markets also show keen interest in certain Australian products, especially food, and Meat and Livestock Australia (MLA) is taking full advantage of it with the launch of its True Aussie brand position and identity.

Officially released at trade shows in China and the US in May, the True Aussie logo will be used for lamb, goat and beef in all export markets. Previously, these three red meats were marketed under different logos in different regions, but Stephen Edwards, Business Manager of global marketing at MLA, says having them come together under one umbrella brand will make promoting Australian meats overseas easier and more consistent.

“It’s something which we’d been discussing for a while and something which our stakeholders had asked us to look into, which we obviously did. We went through a lot of consumer insights into what people believed Australian beef and lamb was all about,” he told Food magazine.

As a result, the True Aussie brand position and logo were created, and it’s based on the three unique selling points of Australia’s agricultural and food manufacturing industries.

“[Firstly], we believe Australia is the ideal home to be raising cattle and sheep. The second part is about trusted partners. So trusting the producers, the farmers of Australia, that they have good sustainable practices in place; they raise animals with animal welfare in mind – there are industry standards that back that up, all the way through to the end user who uses the products, that is, chefs and butchers. So we’re just celebrating how good our supply chain really is, and it really is second to none in the world.

“And the third part of it is pure enjoyment, not only of the product, but when you buy a piece of Australian beef or lamb in an overseas country, you’re really buying into the Australian thing as well,” he says.

Edwards admits that MLA wasn’t convinced on the use of the word ‘Aussie’ until its due diligence process indicated that export markets associate the word with reliability, quality and food safety – pillars which the local manufacturing industry prides itself on.

“We saw that there was a lot of recognition for the word ‘Aussie’, and when we first saw it we weren’t all that enamoured with it, mainly because I think the word ‘Aussie’ has different connotations for Aussies, but when you go overseas you see that Americans, Japanese, they see us as Aussies, and they see us as straightforward, honest, laid back people and I think that’s what we wanted to portray.”

The True Aussie logo is being rolled out in all export markets and is already being used in two of the largest retailers in Japan.

The rollouts are being supported by regional specific strategies, depending on the export market and there’s also room underneath the logo to insert a tagline that ties in with the region and the needs and/or values of its customers.

“We have the highest standards of traceability and food safety in the world and that, in some regions, will dial up different messages. In emerging growing markets like South East Asia and the Middle East, they’re very keen on knowing where their products come from. Especially somewhere like China, where everyone sees the amount of food safety issues they have, simply because they don’t have the infrastructure in place. So when they look at food, they want to know where their product comes from and they want to know that it’s a safe product. When they talk about Aussie products, they know it’s Australian, it’s safe; it’s sort of a given now. So we need to keep reminding people that that is the case,” says Edwards.

“In other markets it’s just as important, like in Korea and Japan, but we’ve got to dial up different attributes there; we’ve got to dial up that it’s a high quality product, it’s good tasting, good for you and that there are nutritional benefits there too.”

Capitalising on interest from China
The logo will be rolled out in China like it will in all other export markets; it’ll actually be a little easier there, Edwards says, because “we kind of have a clean slate” in China, with no pre-existing recognised logos.

Despite this, China is a fairly new growth market and MLA has plenty of work to do in the region. The government is pushing for a Free Trade Agreement, and Edwards says that now that FTAs have been achieved in Korea and Japan, China is the top priority.

“The beef and sheep meat industries are working very closely with the government to ensure that if and when we do get an FTA, not only do we have good market access as far as elimination of quotas and tariffs, but we also have the ability to demonstrate our food safety credentials and make sure that we lessen the risk of any technical barriers. For example, they might say we can’t bring chilled products in, and we need to make sure the Chinese government is across exactly what our industry can deliver.”

Edwards is confident that the True Aussie logo will be used on all meat products, although there was a push for it to only be used for top quality products like high quality grass fed and high quality grain fed beef.

“If you look at a box of trimmings, they could go into making hamburgers or meatballs or bakso balls in Indonesia. You want that [logo] on the carton, and there are quite a few exporters now who are looking to put the True Aussie logo on their cartons because even though it’s a commodity product, you’re still competing with the likes of Brazil and the US, so you want to make sure that people see that it’s an Australian product, and straight away they know it’s safe and it’s a good, clean product.

“In my opinion it doesn’t matter where your product [is positioned], you still want to make sure that people know it’s Australian,” he says.

The opportunity that China represents to Australian producers has definitely surged over the past two years or so, Edwards says. This is due to a number of factors, including the region’s diminishing herd size, with a growing number of Chinese people moving away from rural areas to pursue opportunities in manufacturing.

Consequently, there is a growing middle class in China, and they’re earning more money. “When you look at the rise of the middle class in places like China and the Middle East, you note one thing: when the middle class in Australia gets a bit more disposable income, it’s ‘I need a new TV’ or ‘I need a new car’. When the middle class in those emerging markets gets a little bit more money, they want to eat better, and their staples are chicken and pork, which are quite cheap proteins. We’ve done a lot of market research, and beef is seen to be the king of proteins in those regions of the world, so they aspire to be eating those proteins. They want to eat more beef and, a) because China has a lot of food safety issues, and b) because the herd is diminishing, they need to import a lot more products.

“So it’s been a boom not only in China, but also in the Middle East. Exports for beef and lamb have gone through the roof in those areas,” says Edwards.

Just a few months ago in August, V&V Walsh, a West Australian meat processor, signed a deal worth an estimated $1 billion with China’s Grand Farm. The five year agreement is between the Bunbury company, the Inner Mongolian government and China's Grand Farm, which is the region’s largest red meat importer, despite only supplying one percent of the Chinese market (the ABC reports it aims to increase this to three percent).

While not all dealings with China will be on the grand scale of that between V&V Walsh and Grand Farm, Edwards is urging local manufacturers and meat processors to make the most of growing export opportunities by being as visible as possible at industry events and trade shows.

“There’s a lot of enquiry coming out of China. Our Beijing office is getting inundated with calls from people wanting to import Australian beef or lamb … There are a lot of trade shows happening in China, and not only in China, there are a lot of Chinese buyers going to different trade shows around the world. We’re seeing a lot of Chinese buyers and importers travelling to trade shows to find products they can import. So it’s very important, I think, for MLA to facilitate trade events with exporters so we can be seen out there under one banner and that umbrella brand of True Aussie,” he says.

 

Japan to get a taste of Australian wine

48 Australian brands will be showcased tomorrow at the biggest trade tasting in Japan, Wine Australia Tasting (WAT).

Nearly 500 trade and media guests are expected to attend the event, which is timed to precede the peak of Japan’s wine consumption from mid-autumn and throughout winter.

Through the WAT, exhibiting importers and wineries will have the valuable opportunity to (re)connect with Japanese buyers and local wine media.

Guests will taste close to 300 Australian wines and discover their diverse styles, stories and personalities at this large format tasting. There are 48 brands registered to participate including McWilliam’s, Vasse Felix, First Drop, Chain of Ponds, Brown Brothers and Sirromet.

Wine Australia’s regional manager for Asia, Hiro Tejima, said events like the WAT create new opportunities for brands to engage an increasingly sophisticated Japanese wine consumer as well as an emerging demographic of younger wine drinkers.

“The biggest opportunity in the Japanese market is building on the perception of Australian wine and creating an emotional connection between the brand and the wine drinker. It becomes about more than just the quality of the wine, brands need to also engage people with the story of the wine, where it comes from, the people who made it and the terroir of the region.”

The coming ratification of the Japan-Australia Economic Partnership Agreement (JAEPA), expected to make access to the Japanese market easier for winemakers, will also encourage a more balanced approach by brands to the greater Asian region.

“It’s encouraging to see the WAT strongly supported by the Australian wine community. It’s our biggest event in the Japanese market and we’re again fully subscribed with almost 50 individual wine brands participating,” Tejima said.

Alongside the WAT, an education workshop and guided tastings will be offered by Wine Australia’s certified A+ Australian Wine Trade Specialists. They’ll offer practical tips to local trade on promoting Australian wine in the retail and restaurant environments.

 

McGuigan signs landmark deal with China’s largest food trader

Owner of the McGuigan wine label, Australian Vintage, has signed a landmark deal with the state-owned COFCO, China’s largest food processor, manufacturer and trader.

According to SMH, the deal will see McGuigan Wines established as the strategic partner for Australian wine throughout China within the new International Wine division of COFCO. McGuigan Wines will accompany brands from Argentina, Chile, the US and France.

Australian Vintage CEO Neil McGuigan said China is one of the most exciting emerging markets for the global wine industry, with the Chinese rapidly developing a keen appetite for premium red and white wines.

"Securing this partnership is a great honour for the McGuigan brand, not only for the opportunity to partner with a company of COFCO's stature and credibility but because they are a forward-thinking wine distribution company that understands the need to take the Chinese consumer on the wine journey,” he said.

"COFCO has one of the best distribution footprints in China, and the creation of its imported wine division, where the McGuigan brand will sit, will enable our full portfolio of award-winning, McGuigan wines to reach consumers across the entire Chinese market.”

 

To grow agriculture in Australia, farmers need to think like miners

It’s perhaps fitting that mining magnate Andrew Forrest is in the vanguard of a move to position Australia as a major food supplier to China. Fitting, because if the plan is to work, Australian agriculture needs to take some tips from another successful exporter to Asia: the mining industry.

A substantial increase in food production will require major improvements in the efficiency of existing systems, plus the expansion of farming into new areas. That will mean spending an estimated A$600 billion to upgrade and add to the ageing network that currently supports Australian farming, in much the same way that the resources industry paves the way for its activities by building roads, rail, ports and even entire towns and cities.

Industry and federal and state governments want to increase Australia’s food production in order to contribute to the unprecedented global demand for food, particularly in China.

The renewed interest in agriculture is also partly due to the new free trade agreements with major importers of our food, including China, India, Japan, South Korea and the United States.

Many people, including the federal government, see northern Australia as having significant potential for food production. In a Green Paper released earlier this year – and which is open for public comment until Friday 8 August – the government pledged that:

No longer will northern Australia be seen as the last frontier: it is, in fact, the next frontier.

A dose of realism

Yet this enthusiasm needs to be balanced with careful consideration of the scale of investment in infrastructure needed for agriculture. Indeed, recent agricultural assessments in northern Australia have highlighted the lack of transport and other infrastructure in areas that are being considered for food production, such as the Flinders and Gilbert catchments.

It could be argued that the lack of supporting infrastructure is probably one of the main reasons why Western Australia’s Ord River Scheme has not been as successful as predicted, and past mistakes should be avoided.

The expansion of agriculture across northern Australia will be influenced by the availability of natural resources (soil, water) and capacity (people, communities). But any significant expansion will also depend on the infrastructure that is necessary for food production, transport, processing and marketing.

The movement of food in Australia relies heavily on road and rail networks, which are mainly concentrated in eastern, southeast, southern and southwest Australia. Transport networks largely radiate from capital cities, because urban areas are a major destination for food and also contain export facilities such as ports and airports. From cities, the transport networks penetrate into regional population centres and areas that have historically been major agricultural regions.

 

Major road and rail networks in Australia Supplied

Much of northern Australia lacks decent road and rail networks. Expanding agriculture will therefore require a large-scale investment in this infrastructure. And, crucially, this infrastructure needs to be in place before significant food production begins.

This is where agriculture could learn from the resources sector. Mining firms typically invest billions of dollars in infrastructure before digging anything out of the ground. The large up-front investment is justified by the relatively quick and substantial flow of money once the operation finally begins. Of course, it helps that large mining companies have ready access to money and credit.

Putting the cart before the horse

In contrast, it is not uncommon for agricultural production to start before infrastructure is in place, and for that infrastructure to be progressively added as production expands. But this model will not work for the magnitude, and predicted time-frame, of the increased food production envisaged across northern Australia. The government has a very important role in contributing to infrastructure development across northern Australia as part of nation building.

The agricultural industry must itself look at non-traditional sources of capital for infrastructure. Resource companies' recent major investment in the northern beef industry is an interesting development, which illustrates the capital reserves of resource companies, their large investment potential, and their capacity to drive major transformations in how industries operate.

It’s the kind of thinking that northern Australia needs.

The road to the north

At the moment, northern Australia is not ready for large-scale agricultural expansion. Infrastructure is still concentrated around traditional areas of food production in other parts of the country.

Take beef, for example, where facilities for processing and marketing are mainly found in eastern, southeast, southern and southwest Australia. If beef production is to increase substantially in northern Australia, infrastructure will need to be a priority consideration. The new beef abattoir near Darwin is a rare example of new infrastructure driving production, rather than the reverse.

 

Beef industry infrastructure, including feedlots (red), abattoirs (black) and meat processing facilities (blue). Supplied

Similarly, grain infrastructure (silos, export facilities) is found mainly near existing rail links. Expanding grain production into northwest Australia, partly in response to climate variability and change, would require major investment in storage and transport infrastructure.

Wheat infrastructure, including grain silos (red) and export facilities (green). Supplied

Dairy is a slightly different question, as the future could see the current pasture-based system give way to intensive, larger-scale production – a move that would need lots of new transport and processing infrastructure – or a broad retention of the existing system.

Major dairy processing facilities Supplied

Can Australia capitalise?

If Australia is going to benefit from booming global food demand, perhaps we need to focus more on investment, rather than other issues such as free trade agreements and land sovereignty. Trade deals are important, but we need to make sure we can actually deliver the goods.

According to an analysis by ANZ, Australia needs to plough A$600 billion into agriculture by 2050 if it is to realise the opportunity from the global increase in demand for food. Much of that investment will need to be in infrastructure, rather than production.

Without this funding, Australia’s ageing road, rail and ports will come under increased pressure, while whole new systems will need to be constructed if the north is to join other parts of the country as a major farming area.

That’s why farming should take its cue from the mining industry, where billions of dollars are routinely invested up-front for projects that typically last for 15-20 years. If managed correctly, agriculture lasts much longer than that, potentially creating opportunities for rural and regional communities that will last for generations.

The Conversation

Michael D’Occhio receives funding from Meat and Livestock Australia and has confidential funding agreements with three veterinary pharmaceutical companies.

Beverley Henry, Chris Taylor, Luciano Gonzalez, and Robyn Alders do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

 

Private equity looms over Australia’s wine industry

It is sometimes said that at least investors in vineyards can drink their losses. Indeed, it’s been a rocky few years for the Australian wine industry. External pressures have been challenging and much of the industry is in a deep malaise. This is most true for smaller producers, and even more especially true for those at the bottom of the industry’s value chain – the growers of non-premium wine grapes.

The pressure was ramped up in May’s with a bid from private equity firm Kohlberg Kravis Roberts for Treasury Wines Estate (TWE) – the owner of the renowned Penfolds – at $4.70 per share. Joined this week by fellow New York-based hedge fund Rhône Capital, the offer was upped to $5.20. In the absence of something better, or the bidders getting cold feet, the offer looks likely to succeed.

Foster’s foray

Times were not always so tough for small producers. Throughout the 1990s, both wine production and export prices grew steadily, marking a renaissance for an industry long seen, at home and abroad, as trailing the traditional wine growing regions of Europe in terms of quality and efficiency.

Steeped in the history of the South Australian wine industry, Penfolds led the growing recognition of quality Australian wine with Grange (once Grange Hermitage), generally considered one of the world’s great reds – with a price tag to match.

In hindsight its acquisition by Foster’s in 2005 was a disaster, more so for Foster’s than the Oatley family, who cashed out their stake acquired when they rolled their Rosemount business into Southcorp Wines previously.

Foster’s takeover was driven by the view that the beer industry was mature and lacking in growth, and thus Foster’s management wanted something more exciting. They certainly found this through the acquisition of wine producers.

Beer and wine – what could possibly go wrong?

As it turned out, just about everything went wrong! Beer and spirits are essentially industrial products, while wine is deeply rooted in agriculture. External factors beyond the control of the company did not help – including a soaring Australian dollar, drought, powerful retail buyers and a production glut producing intense competition from other “new world” producers for sales.

Foster’s spun off the various wine businesses that it had assiduously acquired into TWE in 2011. Independent of Foster’s, TWE did well for a time, before falling foul of the buying power of Australia’s retail duopoly of Coles/Wesfarmers and Woolworths in late 2013 and 2014. This was especially true in the vital lead-up to Christmas 2013, when sales slumped and profit projections were downgraded.

What next for Australia’s wine industry?

What the Treasury Wines buyout means for the remainder of the Australian wine industry is an important question. KKR and Rhône clearly see an opportunity to cut costs and build profits before selling the business off in a few years. Likely casualties in such a scenario will be the less profitable labels that produce low margin, low priced wine. This process was already underway at TWE, but will likely accelerate under the new ownership.

For many grape growing communities, this process may spell disaster. Already struggling with prices that barely cover the cost of picking, a smaller industry more focused on premium wine will likely see a mass exodus of producers within SA’s Riverland, Victoria’s Murray Valley and the NSW Riverina.

The upside for the bidders will be building the penetration of their major labels, especially Grange and the remainder of its ‘icon and luxury brands’ into Asia, and especially China.

China’s love affair with (premium) wine

China’s love affair with imported premium wine is symptomatic of wider trends. An escalation of both import volumes and average prices per bottle to China have been driven by gift giving and extravagant hospitality. KKR and Rhône see this trend as likely to continue, in spite of the mooted austerity drive of top Communist party officials.

Chinese consumers of wine are generally within its upper economic echelons, and for them consumption of imported wine is as much about status symbolism as the product itself. Thus, for Australian wine producers hoping to replicate Penfolds’ success, the challenge will be to get the right balance between price, volumes and market image.

This won’t be easy. Penfolds has both an established brand story and access to Chinese consumers through its distribution network. For smaller producers, replicating both of these will be a challenge. Groups like Australia’s First Families of Wine are attempting to do just this in a collaborative manner. As private companies, their success is hard to gauge, but their premium products and strong brands should hold them in good stead.

Longer term, the prospect of a hundred million middle-class Chinese drinking imported wine (albeit of the more humble, non-premium variety) regularly is an enticing prospect for Australian exporters. What the last two decades have shown, however, is they will have strong competition. Barriers to increasing supply of such wine from producers in Chile, New Zealand and South Africa are limited. Even if exports in wine volumes in these lower priced products increase, margins will be scant.

In this regard, the future for wine grape growers throughout inland Australia does not look good. Combined with perennial problems of water scarcity and salinity, images from Steinbeck’s Grapes of Wrath come to mind. Managing the social and economic consequences of this for inland wine grape growing regions will be an important challenge.

The Conversation

John Rice is a member of the Australian Labor Party and the National Tertiary Education Union.

Nigel Martin does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

 

Strong growth expected for milk industry: IBISWorld

Milk and milk alternatives, including soy and grain milk, are expected to post strong revenue growth over the next five years to reach $4.2 billion by 2019-20, IBISWorld has found.

Between 2014-15 and 2019-20, revenue across all categories is forecast to grow by an annualised 3.9 percent.

“Increasing consumer health consciousness, the continuing promotion of the benefits of milk and dairy, and the diversification of tastes as new milk alternatives emerge are all driving a gradual increase in milk consumption and revenue for the industry,” said IBISWorld Australia general manager, Daniel Ruthven.

A growing demand for health food products that are perceived to be low in fat while also offering higher protein levels, essential minerals and iron has driven the growth for dairy alternatives including soy and almond milks.

The soy and almond milk production industry posted annualised growth of 5.9 percent between 2009-10 and 2014-15. Above average growth of an annualised 4.3 percent is expected through 2019-20.

"While traditional dairy products are high in calcium, they are also high in cholesterol. Soy milk, almond milk and other plant-based dairy alternatives are typically protein-rich and low in fat and sodium, making them appealing to health-conscious Australians," said Ruthven.

Over the next five years, new investment capital is expected to benefit the milk and cream processing industries – which in recent times has struggled due to adverse weather – with the sectors expected to enjoy revenue growth of an annualised 4.4 percent to reach more than $2.4 billion in 2019-20.

Exports
Another industry at the mercy of the weather is milk powder processing, however strong export demand has kept the industry buoyant and increased the price premium for Australian milk powders overseas. IBISWorld expects that 70 to 75 percent of Australian milk powder is bound for overseas markets, with revenue forecast to jump by an annualised 3.1 percent over the next five years to reach $1.6 billion in 2019-20.

Australian producers are expected to continue to target growing overseas markets, with exports including fresh, long life and dehydrated milk worth more than $38 billion to the Australian economy per annum.

"Australian dairy farmers typically produce far in excess of our nation’s needs. Fresh milk has largely been unsuitable for export, as it has a short shelf life, but we are increasingly seeing examples of milk being airfreighted to Asian markets. Traditionally, fresh milk has been processed to make cheese, or dehydrated to make milk powder," said Ruthven.

"The growing demand for quality dairy products, including milk, in Asia has been most recently demonstrated with initial shipments of fast-tracked fresh milk to China. Since early 2014, dairy co-op Norco has transported drinking milk to Chinese consumers within seven days via airfreight. This is a remarkable development for the just-in-time model, particularly considering that it previously took 21 days for milk products to pass Chinese quarantine.”

Free trade agreements with Korea and Japan are expected to increase demand for Australian dairy products, and IBISWorld expects increasingly strong demand from the top four foreign markets: China, Singapore, Indonesia and Malaysia.

"Further free trade agreements, including the Trans-Pacific Partnership Agreement and the bilateral agreement with China, are expected to boost Australia's exports of milk and milk products.

"Despite significant progress being made with China, the country maintains substantial trade barriers. It has demonstrated a willingness to negotiate on reducing some tariffs following a 2008 trade agreement with the world's largest dairy exporter, New Zealand. A similar agreement between Australia and China could hold the promise of an incredibly valuable – and increasingly wealthy – market for our exporting dairy farmers," Ruthven said.
 

Aussie wine exports: average value up, total exports down

Despite a decline in total exports, the last financial year saw a rise in the average value of wine, according to a report released by the Australian Grape and Wine Authority.

The latest Wine Export Approval Report June 2014 states that the average value of bottled wine exports grew by six percent to $4.77 per litre, while bulk wine exports grew marginally to $1.02 per litre.

However, total Australian wine exports declined by two percent to 684 million litres, valued at $1.78 billion.

Bottled exports of wine above $7.50 per litre increased by four percent to 31 million litres. Although small in volume terms with a five percent share, this segment is valued at $442 million annually, representing a 25 percent value share.

White wine exports increased by three percent to 287 million litres, representing a 42 percent volume share.
AGWA’s acting chief executive, Andreas Clark, said growth was strongest in the ultra-premium segment (above $50 per litre).

“The ultra-premium segment grew by 25 percent to a record 0.95 million litres and valued at $76 million. It’s an early positive indicator of a reversal of the downward trends that were set in place when the global financial crisis took hold in late 2007,” he said.

“We have continued to see decline in the volume of Australian wine exports, mostly in the red wine segment with exports declining by six percent to 383 million litres and accounting for a 56 percent volume share.”

UK and Europe
The UK remains Australia’s biggest export market by volume. While overall volumes declined, bottle wine exports above $7.50 per litre increased by 14 percent to 2.2 million litres.

North America
Higher price segments recorded growth in the US with exports above $7.50 per litre increasing by eight percent to 4.3 million litres.

The under $5.00 price segment saw decline by seven percent to 100 million litres, with total exports to the US declining by 15 percent at 161 million litres valued at $432 million.

Bottled wine exports to Canada followed a similar trend, with premium wine segments on the rise. The strongest growth was seen in exports above $10.00 per litre, with volume up 16 percent to 1.6 million litres.

Bottled exports below $5.00 per litre to Canada declined by 11 percent to 18 million litres.

Asia
Australia was not immune to the slowdown in the China imported wine market with Australian bottled exports declining by eight percent to 33 million litres and bulk wine exports declining by 26 percent to three million litres.
The decline stabilised in the last three months with the sharp declines in the volume of premium Australian wine exports recorded in late 2013 easing.

Other Asian markets had strong results in premium wine exports including Singapore, Hong Kong, Malaysia, Thailand and Taiwan, particularly in the second half of the financial year.

 

Asian export opportunities: The Week in Focus [video]

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In our latest Week in Focus video, we discuss the growing export opportunities for Australian food manufacturers in Asia.

Food magazine journalist, Aoife Boothroyd, talks about the AFGC's partnership with Austrade, which has seen the production of a series of reports aimed at deepening the industry's understanding of export opportunities in Asia.

We also look at the recent signing of the Japan Australia Economic Partnerships Agreement.

 

Support builds for Forrest’s “Team Australia for Asia”

Support is building among business leaders and policymakers for Andrew Forrest’s push to elevate Australia as a secure food exporter to China and Asia, in the initiative the billionaire is calling the Australian Sino 100-year Agricultural Partnership.

Forrest said he had spoken to Chinese Premier Li Keqiang about the idea and wanted to unite the food industry in a “Team Australia” campaign to sell food to China, The Australian reports.

Anthony Pratt, executive chairman of packaging group Visy, welcomed the plan and stressed there needed to be a regional approach.

“I commend the Team Australia approach for food exports, which I’ve been proposing for two to three years,’’ Pratt said. “The focus should not just be China, but should also include Japan, India, Indonesia and Korea — we should fully leverage our imminent free trade agreements, which the Abbott government has shown such great leadership and execution in securing.’’

Federal Agriculture Minister Barnaby Joyce also backed Forrest’s plan. “We can have a symbiotic relationship with China in that they want a quality, premium product and we can provide it,” Joyce said. “If you want to create confusion, there’s no surer way than to have the NSW food forum and Queensland food forum and South Australian food forum, because you differentiate them in such a way that each is smaller than New Zealand. You have to band together under a national banner.”

Forrest wants to secure a high-level summit between policymakers and business leaders from China and Australia in the next two months, ahead of the G20 meeting in Brisbane in November. “I’m writing to major food producers, pulling us all together so that we have a Team Australia — Team Food Australia for Asia — coming together to give a united voice,” he said. “Not one state over another, one industry over another, one producer over another … Team Australia coming together to finally get those supermarket shelves packed full of Australian produce.’’

Trade Minister Andrew Robb said the quest for food security was a huge opportunity for Australian agriculture, particularly if Chinese and other foreign capital could be channelled into big projects in northern Australia.

“It’s without a doubt the century of food and water security and we have vast tracts of largely undeveloped agricultural land in the north, and an enormous opportunity in the established areas with the application of more technology and better water management to collectively double the output from Australia,” Robb said. “What we don’t have, and they do have, is capital, and they also have growing demand.”

Australian Food and Grocery Council chief Gary Dawson said the Team Australia approach was desperately needed.

“The opportunity is real but it won’t be realised unless we lift our game,” Dawson said. “Twiggy (Mr Forrest) is right when he says Australian food is just not visible on Chinese supermarket shelves — and that’s backed by the trade stats showing our share of China’s food imports has halved over the past decade.

“Australia’s opportunity is to provide premium-priced, high quality food backed by some of the highest food safety standards in the world, to the growing cadre of wealthy consumers willing to pay a premium for it.”

Last month, Forrest bought Harvey Beef in a deal believed to be worth $40m.

Harvey beef is WA’s biggest beef exporter, and the only one accredited for exports to China.

Forrest pledged to invest in upgrading the abattoir which processes about 145,000 cattle per year and plans to open up live cattle exports to China.

 

As India and China transform, Australian manufacturers must follow

As Australia laments the decline of its manufacturing sector, China is actively taking steps to accelerate its move up the value chain.

Historically a low-cost operating environment, China was once an attractive option for multinational companies seeking to minimise production costs. However with a burgeoning middle class aspiring for a better place in the global ecosystem, the cost advantages are rapidly eroding.

A Bloomberg Businessweek article examined how tech manufacturer Knowles has grappled with these changing conditions, and their experiences aren’t unique.

The rapid increase in wages, increased cost of doing business – physical infrastructure and raw material – and a higher Yuan are all contributing to manufacturing cost pressures. These challenges, and the pace at which they are taking place, are forcing multinational companies in China to rethink their local strategy to remain competitive.

For those firms not in a position to move up the cost/quality curve, an attractive option is to shift their operations to other parts of Asia where labour costs are still a fraction of China’s, such as the Philippines or Vietnam.

Increasingly multinationals are also facing hiring competition from local private and state-owned enterprises. Temporary relocations from rural areas to larger cities for work are also common in parts of China, with employees returning to their families after a year or two.

It is no surprise then for companies to be investing in employee engagement programs. In one instance, a leading manufacturer of building products in Guangzhou has made a considerable investment in employee engagement programs to achieve a staff turnover rate of 20% (which they identify as being well below the average at comparable companies).

“Indigenous innovation”

Led by the government’s 9% growth target for the production of sophisticated goods, China has concentrated on improving its business and governance environment to create a high value-adding manufacturing industry, as opposed to its traditional low-cost, low value-added ecosystem.

In doing so, their focus has been on “indigenous innovation” – creative production nationally that is less reliant on foreign capabilities.

Analysis conducted by the Royal Bank of Scotland and Bloomberg indicated a shift in job types away from traditional textile and clothing, to computers and communications. Medium and high-tech goods production has increased from 40-60% over the past two decades.

While China is transforming itself into an advanced manufacturer, India is actively promoting itself as a manufacturing hub. India’s recent 11th Five Year Plan (2007-12) showed 28.5% jobs growth in the manufacturing sector. India plans to create an industrial corridor between Delhi and Mumbai, investing in vital support infrastructure such as power plants, water facilities and transport infrastructure.

Alongside this global manufacturing and trading hub, will be the creation of seven “Smart Cities”, while at the Third Global Innovation Roundtable (GIR) 2013 in Delhi, there was also discussion of incorporating industry-university clusters, as well as virtual clusters.

How can Australia compete?

All this means that Australian manufacturers need to be prepared for increasing competition in higher value manufacturing, and consider a wider range of options when looking to offshore operations.

So where should Australia place its efforts and how does it retain its competitive edge? My recent article on Asian value chains clearly establishes the economic case for Australia to deepen its engagement in Asia. But more needs to be done. UWA Professor Tim Mazzarol’s recent piece on the “big shift” in manufacturing – from controlling assets and stocks to leading global knowledge networks – makes this case too.

This accords with calls by industry minister Ian Macfarlane for Australia to expand its industry base to cover new industries and products and transform relationships between research, skills, training and industry.

This ethos of collaborative competition will serve Australia’s interests well in moving up the value chain of activity, allowing Australian companies to lead new developments.

At the micro level, Australian companies must start to foster an enabling culture that moves individuals from thinking about ‘my’ role to ‘enabling another’s' role within the company.

But a prerequisite is the creation of a high skilled, globally minded workforce, which needs to begin through schools, universities and even into organisations.

Sustained interventions at different levels of the ecosystem in education, management and industry will enable a national culture that drives future productivity, innovation and entrepreneurship. Education must be the avenue by which we not only prepare individuals for jobs, but help them to become creators of jobs.

The Conversation

Dr Christopher Vas is the recipient of the 2014 Endeavor Australia India Education Council Research Fellowship. He is also one of the Chief Investigators in the Singapore Government funded research project on benchmarking productivity and innovation in Singapore's manufacturing sector.

This article was originally published on The Conversation. Read the original article.

Forrest buys Harvey Beef for $40m

Harvey Beef has been sold to mining billionaire Andrew Forrest in a deal believed to be worth $40m.

Harvey beef is WA’s biggest beef exporter, and the only one accredited for exports to China, The West Australian reports.

Forrest pledged to invest in upgrading the abattoir which processes about 145,000 cattle per year and plans to open up live cattle exports to China.

The deal signed in Perth between Forrest’s company Minderoo and a Hong-Kong based private equity fund returns Harvey Beef to local hands for the first time in almost a decade.

“Following detailed discussions with the Chinese leadership, we are determined to ensure that the Australian agricultural industry’s future in China is just as bright as our mining future,” Forrest said.

The Harvey Beef plant is 140km south of Perth and employs about 300 people.

“We hope this acquisition will send a strong message of confidence in the future of the industry,” Forrest said. “To provide confidence to increase supply and make Australia the supplier of choice to meet Asia’s long term food security requirements.”

Forrest has been pushing to secure a deal with China for live cattle exports since last year.

Forrest and Australian agribusiness Elders have been working together to create a supply chain into China and talks with senior Chinese officials in WA surrounding the relaxing of Beijing’s strict quarantine laws represent a significant step towards the venture becoming a reality.

Minderoo will take ownership immediately and has no plans to change the current management team.

 

Murray Goulburn invests $127m in cheese and formula factories

Dairy processor Murray Goulburn will invest $127 million in cheese and infant formula factories in Victoria and Tasmania.

The investment includes $70 million on a new cheese cut and wrap factory at Cobram, Victoria and forms part of the processor’s plans to boost exports, especially value-added cheese and infant nutrition, to Asia, the ABC reports.

"Our objective is to target Australian milk to the highest growth markets in Asia," Murray Goulburn managing director, Gary Helou said.

Helou hopes Murray Goulburn’s investment will encourage dairy farmers to expand their operations and increase milk production, a sentiment that echoes that of Chobani Australia's managing director, Peter Meek, who recently told Food magazine he's concerned Australia's milk supply is not increasing.

“Easily the biggest issue is that we’ve been in long term decline for milk creation and that needs to turn around. Farming needs to be seen as a core industry for Australia. I’m not sure it is yet. There’s certainly a lot of talk about dairy and particularly dairy being the next big growth opportunity for the country.

“Nothing would please me more to see significant growth in terms of dairy production. Anything that supports driving more milk being available is something we’d always look to support," Meek said.

 

 

Australian Brewery wins export deal with Japan

Craft brewer, The Australian Brewery, has successfully negotiated an export deal with Japan.

The company will have its canned craft beers distributed throughout Japan by its biggest beer importer, Konishi.

According to The Australian Brewery, exporting beer to Japan is notoriously difficult, but the new free trade agreement will see export tariffs lifted and as such, local producers have been clamouring to secure new contracts.

“Exporting to Japan is a big deal for any brewery,” Australian Brewery marketing manager, David Ward said. “Beer accounts for two-thirds of all alcohol consumed.”

Specialising in canned beer, The Australian Brewery was the first craft brewer in Australia to install a canning line and Ward said export markets are becoming more and more interested in smaller, boutique brands.

"We are noticing a real shift in people seeking craft beer both here in Australia and overseas.

“This is a good sign for Australian craft brewers looking to expand into these overseas markets.  Some of us have already dabbled in America, Europe and Asia, with companies such as Coopers, James Squires and others making the shift,” he said.

In September last year the company announced it had secured two distribution deals in India after Austrade India invited The Australian Brewery to supply its product at an Australian Craft Beer promotion in Dehli.

The Australian Brewery Pale Ale and Pilsner will be available in hundreds of outlets across Japan including at supermarkets Kinokuniya and Seijo Ishii.

 

Plans for biggest dragon fruit farm in Australia

Vietnam’s CT Group hopes to become the world’s biggest exporter of dragon fruit, and has plans to grow up to 10,000 hectares of the fruit in the Northern Territory.

According to the ABC, if the plan gets the go-ahead, the farm will be the biggest of its kind in Australia.

The CT Group has met with members of the Northern Territory government detailing its plans, and the NT Primary Industry minister, Willem Westra van Holthe, said the company currently has a lot of small farms growing dragon fruit in Vietnam, which makes logistics difficult.

"So what they're looking for is a big-scale farm, and the Northern Territory is a place they're seriously looking at, and they're looking at something like 10,000 hectares of dragon fruit in the NT,” he said, before adding that he thinks CT Group’s plans in Australia are a “terrific idea”.

"It would provide jobs for Territorians, I have no doubt about that. They'll need to buy irrigation equipment, set the farm up, they're talking about a processing facility as well, so there will need to be some building and there'll definitely be some significant benefits flowing just from that,” he said.

 

Taylors Wines wins big in China

Clare Valley winery, Taylors Wines, has won the Australian Wine of the Year Trophy at the China Wine and Spirits Best Value Awards, for its 2010 Promised Land Shiraz Cabernet.

Following on from its 2013 Australian Wine Producer of the Year title at the same show, the winery this year took home 12 awards, including three Double Gold and six Gold medals across its Promised Land and Estate ranges.

Australian wineries dominated the 2014 competition, winning a total of 351 medals, ahead of Italy (139 medals) and Portugal (96 medals).

Taylors Wines managing director Mitchell Taylor said it was a significant coup for Australian wine producers to be recognised in such an important market.

“With a burgeoning middle class, China is now the biggest consumer of red wine in the world and holds real potential for Australian winemakers,” he said.

“Building our reputation in the Chinese market has been an important part of our company strategy for many years. Achieving great success at prestigious competitions such as the China Wine and Spirits Best Value Awards goes a long way towards realising this.”

Proving China’s growing appetite for top quality drops, Taylors Wines’ Visionary Cabarnet Sauvignon 2009 is packaged in a commemorative six litre bottle and sells for $5,000. Four of the 10 bottles produced have been snapped up by wine connoisseurs in China.

You can catch up on other recent wins by Taylors Wines here, here and here.

Last year Mitchell Taylor, who is chairman of the Australia’s First Families of Wine organisation, went to China with a number of other wine industry figures as part of a marketing co-operative to share the story of Australian wines to the Chinese market.

 

Can Australia win from FTAs in the Asian Century?

Australia and South Korea are entering a Free Trade Agreement (FTA), but before you think “advanced Western country gains access to a large Asian market”, think again.

Economic powers have shifted seismically to the East Asian region (China, Hong Kong, Japan, Korea, Singapore, Taiwan), raising the question of who actually benefits from an FTA in the new world order, the so-called Asian Century.

China appears to be prioritising its Asian neighbours, including South Korea, over Australia, despite Prime Minister Tony Abbott’s ambition to have an FTA signed with China by the end of the year.

South Korea is more competitive

Korea has surpassed Western economies on most key economic dimensions. In the 60 years following the Korean War, the southern part of the Korean peninsula has become one of the most dynamic and sophisticated economies in the world, whereas in contrast, Australia’s competitiveness has dropped, and falls short on key macroeconomic dimensions.

According to the World Economic Forum (WEF), Australia ranks 21st in terms of global competitiveness, Korea ranks 25th. But in terms of innovation and sophistication, Korea is 20th and Australia 26th, in terms of infrastructure Korea ranks 11th and Australia 18th; for the macroeconomic environment it’s 9th versus 25th, and for health and primary education, Korea ranks 18th, Australia 22nd.

Nevertheless, some Australian industry sectors are strong and globally competitive. For example, agriculture will benefit from the FTA with growing beef, dairy, sugar, wheat and wine exports to Korea once tariffs fall. But at the same time, Korea’s own food industry has fast reached global centre stage with innovative noodle, confectionery and healthy herbal products, whereas Australian processed food may find only little demand in Korea. Australia can position itself to deliver raw materials for the Korean food industry, but Korea is also looking to China for produce more in line with local tastes such as rice and herbs.

Manufacturing in a spiky world

Korea is a world leader in the manufacturing of high-tech products such as mobile and smart phones, tablets and smart TVs (Samsung, LG), whereas Australia is not involved in making such things. At the same time, Korea hosts two of the most dynamic and profitable, fastest growing car manufacturers: Hyundai and Kia.

Korean manufacturers are smart in utilising comparative advantages on a regional, if not global scale. Design (R&D) and marketing of such products is largely done in Korea, but the labour-intensive manufacturing has partially been outsourced to low-cost countries such as Indonesia and Malaysia (electronics), Vietnam (tyres) and India (cars).

The Australian car industry has, in contrast, not only lost foreign brands such as Ford, Mitsubishi and Toyota, but even its own home-grown brand Holden has defected from Australia for more cost effective manufacturing in – you guessed it – Korea.

Toyota’s management made a point of mentioning tariff issues when they made the decision to pull out of Australia, but in fact such large scale decisions are more of a competition issue rather than a tariff one, which is really about market access. Ultimately, Australia may simply not have a comparative advantage when it comes to (car) manufacturing, and in the global car industry, manufacturing moves to locations with the greatest competitiveness.

Australia may gain a synchronous advantage, however, once tariffs on steel are reduced and more Australian gear boxes are shipped to Korea. The Korean car industry benefits from that revised trade too, and subsequently is able to sell more cars, which in turn means Australia can make more gear boxes for more Korean cars. This will result in a symbiotic advantage because both countries win in international trade.

Korea wins on services and education too

Australia has much to learn from South Korea. DFAT/AAP

In addition to manufacturing, Korea has emerged as a strong service provider with competitive airlines and a growing tourism sector.

The FTA will guarantee market access for education providers, but here too, Korea is fiercely competitive. Korea’s education system with a focus on academic performance, discipline and passing on Confucian values has resulted in strong PISA results.

Korean students outperform Australian 15 year olds by 10% in maths and 6% each for reading and science. The Australian government aims to lift education to East Asian standards as part of the Asian Century theme, but the Confucian approach to education took centuries to form, and is not a matter of simply “copy/paste”.

Korean parents are still sending their offspring to study down under, but Korea is increasingly attracting international students itself.

The big challenge for Western countries such as Australia is that education ultimately leads to competitiveness, and if the gap between East Asian and Western education standards and performance widens more, then by the very logic, global competitiveness of East Asian nations like Korea will further increase, and Western countries will have a less globally competitive workforce.

Where Australia can benefit

Korea will continue to be hyper competitive with fast to market products and services, it will continue to pass on Confucian dynamism in its education system, and it will focus on FTAs more important than the one with Australia.

Korea, together with China and Japan, make up 20% of the global GDP, and if territorial disputes can be overcome, then these three countries will likely enter FTAs and compete on equal footing with the USA and European Union; Australia may be a niche player in contrast.

It would be naïve to assume that Australia can in fact compete with Korean brands such as Hyundai, Kia, or Samsung and LG. The benefit of the new FTA for Australia is not merely the opening of an already key export market, but a chance to learn from Korea about an education system that contributes to a competitive workforce, an opportunity to better understand the utilisation of comparative advantages, and in the longer term, a chance to regain global competitiveness.

Chris Baumann does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

This article was originally published on The Conversation. Read the original article.

 

SPC Ardmona’s bailout is crucial given China’s food safety record

Christopher G. Baker, University of Sydney

Yet the firm’s recent tribulations are a reminder of why I regularly choose to buy products at the supermarket that are more expensive than the alternative.

One reason is that Australian food standards are generally world-class when it comes to the amount of contamination allowed from metals such as lead and cadmium. Although it is not always possible to police this perfectly, these standards allow a high degree of confidence that Australian food is free from contamination.

Contamination issues

The story is different elsewhere. In China, for example, the past decade has seen a host of food-contamination issues. Besides the notorious melamine baby formula scandal, there were also rice products with toxic levels of cadmium, and vegetables tainted with other industrial heavy metals such as lead, chromium, zinc and nickel.

In March last year, up to 16,000 diseased pig carcasses were found rotting in Shanghai’s Huangpu River, after a crackdown on black-market sales of substandard meat prompted the animals' owners to dump them.

There have also been fears over soy sauce made using human hair, and slaughtered sheep injected with filthy pondwater to boost the weight of the meat.

Rapid growth, but at what cost?

Last year, my colleagues and I released a report on the state of food security in Asia. It highlighted serious environmental issues related to China’s food supply, stemming in part from the chronic pollution of China’s water and farmland.

Among other things, it showed that China’s rampant economic growth has come at a severe cost to its environment, effectively turning its rivers and lakes into industrial dumping grounds. As a result, 90% of groundwater in China is polluted, 65% severely so, with contaminants such as pesticides, fertilisers, and petrochemicals.

According to China’s Vice-Minister for Land and Resources, 3.3 million hectares of agricultural land are moderately or severely polluted, an area roughly the size of The Netherlands. This results in the contamination with heavy metals of 12 million tonnes of grain per year; an amount greater than the entire cereal production of Japan.

Along China’s vast coastline, 68,000 square kilometres of coastal waters are now classified as severely polluted. Figures from China’s National Marine Environmental Monitoring Centre show that in 2012, some 17 million tonnes of pollutants flowed through 72 of China’s rivers, including 93,000 tonnes of oil and a staggering 46,000 tonnes of heavy metals such as lead and cadmium.

                                       

A woman collecting water from the Yangtze River, China. Lu Guang/Greenpeace

The deadly combination of food, water and air pollution in China has led to a dramatic increase in the number of “cancer villages”, where high rates of cancer have risen in line with water and soil contamination.

Poor track record

This is not to say that all Chinese canned food is necessarily contaminated. Nor does it suggest that it is only China facing these issues. India, Bangladesh and Vietnam, to name a few, are also facing serious challenges to clean up pollution and contamination.

But for importers of Chinese food, China’s track record on food safety, and its systemic problem with severe and chronic pollution, should raise serious concerns.

Several reports have shown how deadly chemicals have infiltrated the Chinese food system, such as through the use of waste water to irrigate crops, and the presence of pesticides in market food. A 2012 review of the extent of lead contamination in China concluded that “the problem of lead pollution in China is a global problem".

Of greatest concern to Australian consumers of canned fruit should be a recent study in Zhejiang province, showing that oranges, grapes, pears and plums were contaminated with levels of chromium, copper, cadmium, mercury and lead well in excess of Chinese safety standards. It is worth noting that Chinese safety standards allow twice the level of lead permitted in Australian fruit.

Although a recent article in The Conversation suggested that the label of “cheap, dumped and frequently contaminated” attached to Chinese food is a shortsighted view, I would argue exactly the opposite.

China is attempting to make changes to the amount of pollution in its food chain, and clean up its environment. Yet the reality is that as the pressure for food and water continues to ramp up, food contamination is also likely to increase.

China’s environmental problems border on insurmountable, and when combined with systemic corruption in environmental monitoring and the greater profits to be gained from industrial output over agriculture, it makes for a bleak long-term outlook.

What does this mean for Australia?

China is already Australia’s largest supplier of prepared fruit. According to data from the UN Food and Agriculture Organisation, Australia imported just 3,000 tonnes of packaged Chinese fruit in 2001, rising to 27,000 tonnes a decade later. As a comparison, statistics prepared for the Australian Productivity Commission show that SPC Ardmona sold just over 36,000 tonnes of packaged fruit in 2012.

                                           

Employees at SPC Ardmona’s factory in Shepparton, Victoria. AAP Image/Daryl Pinder

Australia’s last fresh fruit cannery is safe for now. But its demise would have caused a shortfall in packaged fruit that would need to be sourced from overseas. Given that China is Australia and the world’s largest supplier of prepared fruit, it’s likely that much of the shortfall would be sourced from China.

The challenges facing SPC Ardmona highlight the risks confronting both Australian food producers and consumers. The steady increase in cheap food imports means that Australian producers of food face an increasingly uneven playing field: one in which it is harder every day to stay profitable.

For Australian consumers, the increase of food imports from countries facing severe contamination issues – such as China – creates a difficult choice between the superior and more expensive Australian product and the often much cheaper import. Unfortunately, there are far too many consumers who are unaware of the potentially serious risks to their health of buying the import.

In denying federal assistance to SPC Ardmona, Prime Minister Tony Abbott has said he wants to signal the end of the corporate “free ride”. But he should bear in mind that the consequences of leaving Australian food manufacturing by the roadside are far greater than any short-term economic agenda.

Christopher G. Baker does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

This article was originally published on The Conversation. Read the original article.