Australian trade beats aid in boosting global food security

Should Australia aim to become Asia’s “food bowl”? How can we help farmers earn more for what they produce? And how can Australia best contribute to global food security?

Those are some of the crucial questions now being considered in the federal government’s long-term agriculture policy, which is expected to be released towards the end of this year.

I believe our future lies in playing to our strengths. The Australian agricultural business model should not be to produce cheap food for the world’s poor, but rather expensive food for rich, largely Asian, consumers.

That doesn’t mean neglecting our responsibilities to help poorer nations or to support global food security. However, this is best done through trade – such as providing technical advice and assistance – to help improve food self-sufficiency in developing countries.

The new dining boom

Food-price shocks in 2007–08 greatly increased global consumer interest in agriculture and the challenges of food security. It has also reiginited interest in boosting agricultural development in northern Australia.

As growth in Australia’s mining sector slows, agriculture is increasingly being seen as an economic replacement, reflected in the slogan ‘dining boom not mining boom’. However, even with global food demand increasing, Australia’s response needs careful consideration and focus.

Continuing growth in world population is overshadowed by the impact of growing affluence, resulting in greater per person consumption of food and demand for more expensive foods.

For a relatively high-cost food producer such as Australia – with high labour costs and a high value currency, but a global reputation for producing clean, safe food – those are trends we can harness to our strategic advantage.

Finding our niche

Global markets are large enough to take all of our relatively small agricultural production as high-value product. So at home, our farmers need to concentrate on production of niche, high-value agricultural products.

For example, wheat is the largest crop in Australia, grown mainly in Western Australia, New South Wales, South Australia, Victoria and Queensland. Most of that wheat is sold overseas, including to Indonesia, Japan, South Korea, Malaysia, Vietnam and Sudan.

Yet even with those significant exports, Australia produces only about 3% of world wheat.

Significantly, we have a good track record of extracting a higher value for our wheat through niche marketing.

Examples include the supply of wheat from Western Australia to produce Udon noodles in Japan. Australia has produced almost all of the wheat used for this product by having a wheat variety with special characteristics delivering a high-quality noodle.

 

Brewing better coffee – for us and the world

Agricultural research and development – such as the work done at the Queensland Alliance for Agriculture and Food Innovation – needs to go beyond just trying to increase on-farm productivity, and instead find new ways to add value to agricultural products right along the production chain to the final consumer.

Product differentiation is essential. We need to produce niche products with recognised high value, rather than bulk, undifferentiated commodities that will only attract the prevailing price in world markets.

Coffee is a perfect example. By analysing the genetic and chemical basis of coffee quality, researchers can help develop new high-quality, distinctly Australian coffee products for international markets.

Coffee is an important cash crop for many small landholders in developing countries. Those developing nations are likely to remain the most efficient in producing large quantities of coffee for mass markets. However, with the help of Australian experts, they may still be able to find ways to increase their productivity – in doing so, helping to boost self-sufficiency in developing countries.

In contrast, Australia’s coffee production needs to concentrate not on high volume, but on novel high-value products for high-value markets. If targeted with the right products, those overseas markets could take all of Australia’s coffee production.

* This article is based on an address Professor Henry will deliver to the Australian Agricultural and Resource Economists Society’s annual conference on February 7.

Robert Henry receives funding from the Australian Research Council and Green Cauldron Coffee.

The Conversation

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

 

United Dairy Power sold for $70m

Australia’s biggest privately-owned dairy processor, United Dairy Power, has been sold to Hong Kong-based businessman William Hui for approximately $70 million.

According to theland.com.au, Hui is chairman and a major shareholder in the CD, DVD and video cassette manufacturer Swing Media Technology and was attracted to UDP because of the growing demand in Asia for milk powders, cheeses, infant formula and other dairy products.

The high quality products generated by Australia’s dairy industry, combined with its food safety standards and proximity to Asia make it an appealing investment, and UDP’s acquisition comes less than a week after Canadian firm Saputo snapped up a 77 percent majority in Warrnambool Cheese and Butter.

UDP operates in South Australia and Victoria and generates annual sales of more than $200 million and profits of more than $15 million. Previous to its sale to Hui, it was wholly owned by its chief executive and founder, Tony Esposito, who, it’s reported, will remain involved with the business.

 

SPC Ardmona and the cheap Chinese food challenge

The political lobbying accompanying yesterday’s (2 February) government decision to withhold financial support from SPC Ardmona has overshadowed the big structural issues facing Australia’s preserved food industry.

The two major issues are the shift of market demand towards fresh food and the role of Chinese imports.

The decline of SPC Ardmona’s cannery business is not an isolated event. Heinz closed its cannery business in Goulburn Valley in 2012, Windsor Farm closed in Cowra, and only a few small players remain, mainly in NSW and WA.

Imports, mainly from China, have been singled out and demonised as “cheap, dumped and frequently contaminated”. This is a short-sighted perspective.

China is a big global player in international agribusiness. Chinese importing of fresh food provides opportunities for Australian exporters, but at the same time Chinese exports of canned food compete with Australian products in the local domestic market and in traditional export markets.

The “cheap, dumped and frequently contaminated” label will not stick for long.

China is stepping up consumer protection

While China’s canned food will remain cheap because of economies of scale and because canning technology is not much different in Australia and China, contamination is being addressed more seriously in China with new laws and regulations expected. The flow-on effect will mitigate Chinese consumer dissatisfaction with local food standards, but also improve the quality and safety of Chinese export products.

In January, China’s Supreme People’s Court announced an 18-clause guideline on how to handle civil disputes regarding food, drugs, cosmetics and dietary supplements.

The new guideline, together with an updated version of the consumer protection law, will come into effect on March 15, World Consumer Rights Day, and signal a new wave of regulatory action from the government to tackle China’s food safety problems. It gives consumers backing from the courts to sue manufacturers and retailers of unsafe food. Advertisers and publishers can be sued even before any actual harm is inflicted. Celebrities who endorse substandard products can also be sued if consumers feel they have been misled.

Since the milk powder scandal of 2008, much as been done to alleviate public anxiety and improve practices in the food industry. The Food Safety Law, replacing the outdated Food Hygiene Act, came into effect in 2009 and includes provisions on risk assessment methods, unification of food safety standards, improving supervision, and imposing tougher penalties on violators.

In March 2013, China’s State Food and Drug Administration (SFDA) was renamed to China Food and Drug Administration (CFDA) and elevated to a ministerial-level agency directly under the State Council, in an attempt to consolidate power and streamline regulation of food and drug safety.

The new guidelines change the balance of power between consumers and producers and rely less on local government enforcement. One challenge facing China in food safety regulation is that law enforcement and implementation at the local level do not match the original intent of the law and central policies. With clearer procedures on how to protect their rights, consumers are given more say on food safety. This will increase food producers’ opportunity cost as consumers are now more willing and able to participate in the monitoring process.

Previously, producers and manufacturers had an incentive to sacrifice quality in order to maximise profits, because the chance of being caught and penalised was low. But consumers and social media now play a much more active role in monitoring food safety and have successfully put pressure on the government to enforce food safety standards

Australia has a head start

While enforcement will work for the corporatised food export sector, China’s highly fragmented food industry will continue to face problems because of the scale of monitoring required. Almost 80% of the half a million food companies in China are classified as “cottage industry” with ten or less employees.

Like in Australia, there are social reasons to keep small producers afloat. Along this complex supply chain there is a need to balance the interests of producers, markets and consumers. China’s first policy document of 2014, the No.1 Central Document, underscored the importance of rural reform and the development of modern agriculture.

For Australian agribusiness, this entails opportunities and challenges. Chinese producers will for the foreseeable future not be able to satisfy the demand of urban middle class consumers for top quality food. Australia, in competition with New Zealand, has a head start in this market with an enviable and hard to replicate reputation for clean and fresh food.

On the other hand, Chinese exports will become more competitive in the preserved food market, in particular in such traditional segments as canned food, putting more pressure on Australian producers in those market segments. For SPC Ardmona and its supply chain, the farming communities in the Goulburn Valley, this will require a radical rethink of traditional products and a switch to new product lines.

The authors 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.

The Conversation

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

 

Beam acquired by Japan’s Suntory for $15bn

Beam, the manufacturer of Jim Beam and Marker’s Mark has been acquired by Japan’s Suntory Holdings for US$13.6 billion (A$15bn), with annual spirit sales for the combined company expected to top US$4.3bn.

According to The Australian, Suntory has a portfolio of spirits, including Yamazaki and Hakushu whiskies, as well as Midori and others.

Suntory already distributes Beam beverages in Japan and Beam does the same for Suntory products in Asian markets. The boards of both companies approved the acquisition, which requires approval from Bean Inc stockholders, and is expected to close in the second quarter.

Suntory will pay $US83.50 per share, a 25 percent premium to Beam's Friday closing price of $US66.97, with the companies putting the deal's total value at about $US16 billion, including debt.

 

Chinese gang accused of injected lambs with dirty pond water WARNING: Graphic Images

In China’s most recent food safety scare, seven members of a gang have been arrested for allegedly injecting up to six kilograms of dirty pond water into lambs as a means of boosting profits.

According to The Daily Mail, China Central Television (CCTV) has reported that up to 100 sheep per day were slaughtered at an illegal warehouse and allegedly pumped with bacteria-ridden water to increase their weight.

The meat was then sold at markets, stalls and restaurants in major cities including Guangzhou and Foshan.

Authorities raided the lamb meat abattoir in Guangdong at the end of December, and found approximately 30 carcasses injected with dirty water, 335 live sheep and forged inspection stamps.

China has had its fair share of food safety scandals in recent times, from chemical-laced dairy products to recycled 'gutter oil' being used for cooking. Last week, Wal-Mart Stores Inc apologised after a Chinese supplier of donkey meat snacks was found to have mixed fox meat into the product.

In September, more than 20,000kg of fake beef has been seized by police in Xi'an, Shaanxi province, with six meat workshops shut down. The meat was actually pork and had been treated with chemicals including paraffin wax and industrial salts so it looked like beef.

In March, more than 6,000 dead pigs were recovered from the Huangpu river, with swine farmers accused of dumping the diseased animals following a police crackdown which involvement the imprisonment of 46 people for producing pork products from diseased animals.

Images of the arrests and operation below – WARNING: Graphic Images.

Images: Daily Mail

Pesticide food contamination strikes 300 in Tokyo

More than 300 people have fallen ill in Tokyo, Japan, with Maruha Nichiro Holdings, the country’s largest seafood company, at the centre of a food poisoning scandal.

Police have launched an investigation into the company after it was revealed last month that some frozen food products had been contaminated with an agricultural chemical called malathion.

Local media have said police believe the pesticide was mixed into products at the Gunma plant north of Tokyo, which manufactures frozen foods like pizzas and lasagnes.

According to SMH, consumers have reported symptoms including vomiting, diarrhoea and other symptoms of food poisoning, and the Maruha Nichiro has received about 460,000 phone calls from consumers about the poisoning and has so far recovered about 1.2 million out of the 6.4 million packages it aims to recall.

The company said that none of the affected products have been shipped overseas.

 

Dairy could be Australia’s next iron ore: Dairy Connect

Australia's dairy industry is set to enjoy a massive wave of demand from Asia, which could see dairy product volumes increase by 50 to 60 percent over the next decade.

At a briefing held in Sydney today, Dairy Connect NSW Limited's chief executive, Mike Logan, said Australia's dairy industry needs to look to Asia for future growth opportunities.

"The outlook for dairy today is very positive. Some analysts believe demand in Asia will be such that dairy products could be described as Australia’s new iron ore," he said.

"The Whole Milk Powder price on the Global Dairy Trade has taken a step up by about US$1,500 a tonne.

"The industry wants to grow; opportunities for growth are looming; and investment funds are available to finance that growth.

"Right now, the industry needs to move beyond the ‘$1 a litre’ supermarket milk war and, while maintaining the domestic dairy product market, must look to Asia for its future," Logan said.

Perhaps the greatest fresh milk opportunity for NSW dairy is the potential to export to Asia frozen milk in point of sale retail packaging. According to Logan, the product defrosts without separating and its use-by-date begins on defrosting, allowing a 14 day shelf life.

"New technology for rapidly freezing milk is becoming available and the product can be shipped at minus 18 degrees centigrade," he said.

"NSW has the cheapest shipping rates to China based on low cost back-loading."

This market is nearly unlimited, Logan said, adding that it could be bigger than the current NSW production capacity.

While the industry has not officially quantified possible growth volumes for the coming decade, Logan says his gut feeling was that the fresh milk market could grow by 10 percent.

"If we're talking frozen milk shipped out in refrigerated containers in retail packaging growth could be 30 to 40 percent and manufactured dairy products could grow by as much as 50 to 60 percent."

Negotiating export supply contracts with the processors is expected to be a bottleneck for this growth, Logan said, as well as supply the fact that demand may outweigh supply.

"The whole global dairy industry is flourishing. The market will be supply constrained. International analysts say supply growth is 2.2 percent per annum. Demand growth is 2.4 per cent per annum."

Dairy Connect sees itself playing a critical role in the dairy industry's relationship with Asia, acting as a quality assurance gateway.

"We want to provide the buyer with paddock to plate assurance of the quality and care of our product," Logan said. "Transparency from the farm, through the factory, the testing data, shipping details and in-country handling [is] paramount.

"This is our biggest risk as evidenced by the Fonterra experience in New Zealand this year. It is also, as an organised western economy, our biggest advantage."

 

Manufacturing powerhouse China lagging on brand awareness

China manufactures an enormous amount of consumer goods. Its value to the global economy is estimated to be around US$7 trillion. But stigmatised as low cost, low quality products, Chinese brands have yet to make inroads into international markets.

And because they have not been very successful at developing reputable international consumer brands they are unable to reap the rewards – customer loyalty, premium pricing, inoculation from competition, preferential distribution – that come with branding.

Chinese firms have, for some time, preferred to leave branding – and thus “ownership” – of their products to others along the value chain, focusing instead on a business-to-business model.

But as the Chinese economy matures and integrates further into the global marketplace, it is inevitable that Chinese firms will spend more time, and money, working on this highly lucrative value-adding activity.

As Australia’s trading relationship within China grows, most likely with a free trade agreement in place, it’s likely more Chinese brands will come to Australia. There is already some movement, and evidence suggests Australian consumers have an appetite for some Chinese brands.

Great Wall Motors and Tsingtao – catering to two of our most favourite of pursuits, driving and drinking respectively – have gained a respectable foothold in the Australian market. Other notable brands include Haier (appliances), Geely (cars), Lenovo (laptops and tablets), Huawei (telecommunications) and Li Ning (sports equipment).

Successful branding requires resources and a devotion to brand building that is often regarded as too risky for many Chinese firms that originate from a conservative corporate culture that abhors grandstanding.

To a large extent branding requires such show-ponying so it is little surprise many Chinese firms have refrained from branding and have adopted a wait-and-see or “copycat” approach – a strategy that potentially stifles brand building.

If brand recognition is an indication of how successful Chinese firms have been performing, then they are not doing well. A recent US study found 94% of Americans are not even able to name at least one Chinese brand, but the battle isn’t lost.

Most valuable brands in China, 2013 BrandZ

It’s not so much that Chinese brands are disliked, but rather consumers are not aware of them and thus have little inclination to try them. Chinese firms are yet to be proactive in getting their brand to market. Awareness and attitude towards the brand can be mouldable through precisely targeted marketing tactics as evident by the many Korean and Japanese brands that were once shunned by Australian consumers.

Chinese brands being sold through Australian retailers require this kind of commitment because the adage of “build it and they will come” does not work particular well for unknown brands.

And whilst brand awareness is important it is only the starting point. Persistence is another key component. Many Japanese and Korean products were initially disliked by Australian consumers, but are now regularly on our shopping list.

There are no better examples at making poorly perceived brands successful than Toyota Corolla and LG (formerly Lucky GoldStar). Success of these brands stem directly from their firm’s devotion and persistence so there is no reason why Chinese brands cannot replicate this and become similarly successful.

There is some evidence of this occurring within Australia. Geely, for example, is heavily promoted through the reputable dealer John Hughes in Western Australia. On another front, Huawei’s sponsorship of the Canberra Raiders indicates Chinese companies are willing to take their brands to the grass roots.

Chinese firms are yet to become fully proactive in getting their brand to market but if these examples are any guide then Australia’s branding landscape is clearly changing.

Russel PJ Kingshott 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 at The Conversation. Read the original article.

 

Free Trade Agreements are a concern for local industry: Poll

The third Cirrus Media Industrials poll reveals that industry is concerned about the impact of Free Trade Agreements (FTAs) which the Government is attempting to forge with China, South Korea and Japan.

The total annual trade with these countries is worth more than $250 billion and the stakes are high as the Australian government manoeuvres around the negotiating tables in Beijing, Seoul and Tokyo.

Over 42 percent of the respondents to our poll believe the FTAs will flood Australia with cheap goods against which, local companies can’t possibly compete.

Although only 14.2 percent of the respondents believe the FTAs will provide opportunities for local manufacturers and growers, they could well be on to something as the deals may offer local companies access to key export markets.

And some experts concur.

Chief executive of Australian Made, Ian Harrison, notes: "It is important that Australia enjoys the same access to markets, such as China, Japan and South Korea, as is enjoyed by other countries which already have FTAs in place with those three economies – so it is important that FTAs are concluded with them as quickly as possible."

It all comes down to the implementation and what's in the fine print. For instance, China is unlikely to lift the many restrictions it has placed on wool, sugar and wheat. Nor will it open up the financial services and resources investments sectors.

Over 13.7 percent of the respondents believe that more open FTAs will better link us to the rapidly growing Asian middle class. And they may have a point, especially in the food sector.

An interesting survey conducted recently in China indicated that 41 percent of Chinese consumers think the safety of their food is a big problem. And this number has risen more than three times in the past four years.

Australia has a unique opportunity to meet this demand. As reported in the Australian Financial Review, KPMG Asia business group leader Doug Ferguson said: “Consumers [in China] have choice and are concerned about the safety of their food. They prefer foreign-produced and imported processed food, due to low levels of trust in locally grown and made products.”

The Australian-made "brand" does carry weight.

Harrison explains: "A crucial element of all of Australia’s trading relationships must be the recognition and protection of intellectual property, so that country-of-origin branding is regulated and able to provide a framework within which Australian exporters can benefit from this country’s very strong nation brand."

However industry isn't exactly brimming with optimism and confidence. Only 16.2 percent of the respondents believe, "FTAs will help encourage Australia to export things other than iron ore and coal."

The votes were registered at the Ferret Group of Sites which include Manufacturers’ Monthly, PACE, Ferret, Food Magazine, Logistics & Materials Handling and Factory Equipment News websites.

After wine, Chinese consumers want a slice of cheese

When I heard that Asia, and particularly China, started to show interest in cheese, I automatically assumed that the French would be leading the race of cheese exports to the region. How wrong I was. Australian and New Zealand producers will have the most to gain from a booming Chinese demand for cheese.

The introduction of Western-style cheese to the Chinese urban middle class has been gradual. It may have started with large supermarket chains stocking cheese on their shelves to cater for expatriate communities. Even so, it was certainly the international fast food chains and their offerings of pizzas and cheese burgers that shaped the taste of cheese of China’s biggest cities.

The impact of fast food on urban communities was such that, by the late 1990s, Chinese consumers had accepted processed cheese or ‘nai lao’ (milk jelly) into their diet.

But the taste for cheese has come about mainly in large urban areas.

No Roquefort for me

Anecdotal evidence suggests a dislike of “Old World” cheese in China. Most people asked to sample a range of French, Italian and Spanish cheeses said they disliked the smell of the most potent cheeses.

The idea of ingesting old rotten milk is found off-putting in a country that traditionally had no dairy in its diet and where lactose intolerance is common.

Despite the fact that cheese is alien to traditional Chinese gastronomy, imports of processed cheese or “New World” cheese — as it is often called — have been growing at an impressive rate.

Overall, the yearly consumption of cheese per capita is still very low at 200 grams compared to the French consumption of 26kgs per person per year or the yearly Australian consumption of about 12kgs per person.

With an average annual growth rate of 20%, China imported some 30,000 tons of cheese in 2011. This is good news for the three major suppliers of processed cheese to the Chinese market. New Zealand supplies 40% of the import market. Australia and the US make up another 40%.

Unsurprisingly, the local Chinese cheese industry is still in its infancy with production levels of about 20,000 tons (2011) representing a drop in the bucket for the vast world of cheese making. In comparison, in 2011 Australia produced 340,000 tons of cheese of which some 215,000 tons were consumed domestically.

Chinese processed cheese manufacturers not only face aggressive competition from international players, but are still struggling to re-establish trust among their customers since the 2008 milk scandal.

Australian dairy manufacturers — who enjoy a reputation for quality, safety, and competitiveness — now have an opportunity for growth. This was confirmed with recent growth figures in dairy product exports released by the Bega Cheese Company.

Australia’s competitiveness and low-cost production are attractive features to international corporations that are seeking an entry point into the growing Asian markets. Already Canadian dairy processor Saputo is in the process of acquiring the Warrnambool Butter and Cheese Company.

And the signing of a free-trade agreement between Australia and China will only bode well for Australian cheese exports. Negotiations have been difficult and lengthy but it is hoped that tariffs will be reduced to allow Australian dairy companies to compete with New Zealand’s Fonterra on an equal footing.

Got milk?

But the story of cheese in China is part of much bigger initiative: the introduction of milk into the daily life of ordinary Chinese people.

In 2000, the State Council of China set up a national school milk program to address public health concerns, but also to kick start a national dairy industry. Despite the 2008 milk scandal, the program has been going from strength to strength, boosting the average national daily consumption of dairy products two-fold in the last decade.

The burgeoning middle class and its demand for exotic tastes and products prove to be significant trend setters in changing diet as well. The ‘Old World’ or European-style cheeses have started to capture the imagination of this middle class who are still showing strong interest for European wine. As wine merchants have had to do, cheese manufacturers will have to educate their customers about cheese and its meaning within European gastronomy.

Traditionally a diet lacking dairy, Chinese authorities have been trying to increase the amount of milk consumed on a daily basis. 

And no doubt European cheese makers are dreaming of achieving what wine makers have accomplished in China. Today, the affluent and urban Chinese youth is learning more about wine than ever and as a result, the consumption of wine has not stopped increasing.

One sign that traditional cheese is making in-roads into the life of middle class urban China is the opening of traditional cheese-making retail outlets in Shanghai and Beijing.

The Beijing Cheese Maker, or ‘Le Fromager de Pekin’ as it is called, believes that the Chinese won’t be put off by the tangy taste of traditional cheese for long.

So, either way, traditional or processed, things are looking good for cheese!

Brigit Busicchia 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 at The Conversation. Read the original article.

 

Norco to export fresh milk to China

Dairy co-operative, Norco, is preparing to send a trial batch of its fresh milk to China.

Owned by farmers in NSw and Queensland, the co-op already exports ice cream products to Japan and North America and has been developing a market for its milk in Asia for the past 12 months, ABC reports.

Norco is hoping to send the batch within the next couple of weeks, and is now sorting through the quality assurance requirements.

"We're probably about 80 per cent there; in terms of everything that needs to be done on this side from farm, through processing, through to the port is all under control," Norco's chief executive officer, Brett Kelly said.

"What we're working on now, the last part, is getting through all the quality assurance through customs and the bureaucracy that you need to have the milk accepted overseas."

Why embracing free trade may be more complicated than it looks

If headlines are to be believed, the new Coalition government is set to “embrace free trade” in its first term in office.

In announcing his new Ministry last week, Tony Abbott has made significant changes to the Trade portfolio. Trade responsibilities have now been combined with foreign investment, for the first time uniting the two major branches of foreign economic policy. In an equally dramatic move, the Liberals’ Andrew Robb has been appointed the new Minister for Trade and Investment. This is the first time since 1956 that a Coalition government has not placed a Nationals member in the trade post.

The ostensible rationale is to put free trade and foreign investment at the centre of the Coalition’s economic agenda. The Coalition has promised a rapid trade push to spur exports, foreign investment and employment, and Andrew Robb has been designated Australia’s “ambassador for jobs”.

High on the new Minister’s agenda will be the advancement of Australia’s free trade agreements (FTAs) with partners in Asia. Tony Abbott has indicated Robb’s first task will be to conclude a series of deals that were marked by a “disappointing lack of progress under the former government”. The Chinese, Japanese and South Korean FTA negotiations will be immediately prioritised.

But what are the prospects the new Minister can deliver on this promise? The difficulties facing Australia’s current FTAs suggest the task will be a considerable challenge.

Australia’s bilateral free trade agreements in the Asia-Pacific

The Australian government has proved highly capable at launching FTA negotiations. Consistent with a global trend towards ‘trade bilateralism’, Australia has opened bilateral trade talks with twelve countries since the year 2000. All but one of these initiatives have been in the Asia-Pacific region, and include important partners such as the US, China and Japan.

 

 

However, its record in completing these deals is decidedly lacking. Only five have so far been finalised, the majority of which are with small (and relatively less important) partners such as Singapore, Thailand and Chile. Conversely, FTA talks with major trade partners – in particular China, Japan, Korea – have been running for many years with no concrete outputs. As these three Northeast Asian countries accounted for 57% of merchandise exports in 2012, finalising these deals would be of major significance to Australian exporters.

However, the prospects for concluding any of these deals in a speedy and impactful way are low. The previous ALP government indicated it would only sign FTAs which were “comprehensive”, and genuinely reduce barriers to trade in areas of interest to Australia, such as the agriculture and services sectors. Unfortunately, comprehensive deals are proving difficult to strike in Asia.

FTA negotiations with Japan are a case in point. Japan maintains some of the highest rates of agricultural protection in the world, with a complex quota system and an 800 per cent tariff on rice imports. One of Australia’s main FTAs goals has been to negotiate reductions in these forms of protection, particularly for the beef industry. However, the Japanese government remains wedded to protectionism due to domestic political pressure from rural constituencies, and has consistently resisted Australian requests to liberalise agricultural trade.

Negotiations with South Korea have also proven difficult. Despite claims from (then Foreign Minister) Kevin Rudd in 2009 that the talks were “near to conclusion”, the FTA remains incomplete in 2013. Australia is unwilling to agree to Korea’s demand for investor-state dispute settlement provisions, following its legal dispute over plain packaging with tobacco giant Philip Morris. In the meantime, Australian beef exporters stand to lose out, as the recently signed US-Korea FTA will give American competitors a tariff advantage that the industry has claimed will cost $1.4 billion over the next fifteen years.

Australia’s FTA negotiations with China have been even more fraught. Launched in 2005, the talks have now been through 19 rounds but are yet to even precisely define the scope of market access provisions. The sticking points are numerous, and include Chinese sensitivities about agriculture and service imports, and Australia’s reluctance to raise thresholds for Chinese investments assessed by the Foreign Investment Review Board. Negotiations with China have become so tortuous that Craig Emerson, the now-former Trade Minister, took the unprecedented step of saying that a comprehensive FTA was “just beyond both countries” in April this year.

The ‘trade-off’ dilemma in Australian FTA policy

How might the new government go about sorting out this complex mess of stalled talks? The Coalition arguably faces a dilemma in choosing between two FTA strategies, neither of which are particularly attractive.

The ‘pragmatic’ option would be to abandon the goal of signing “comprehensive” FTAs entirely. This could involve prioritising the interests of a few key sectors, rather than insisting on across-the-board liberalisation from partners. Indeed, former Ambassador to China Geoff Raby has recently argued Australia should drop its demands in the sugar, wool and banking sectors, in order to focus only on access for beef, lamb, dairy, and horticultural products into China.

Lowering expectations would reduce the costs of an FTA for trade partners, smoothing the way to quickly concluding the deals. However, it is also a diabolical trade-off, which involves sacrificing the interests of certain sectors for those of others. Whether government should even be “picking and choosing” between export industries in the first place is also an open question.

The “purist” option would be to maintain its current stance on comprehensive liberalisation and abandon bilateral FTAs entirely. Trade policy efforts could instead emphasise multilateral initiatives in the region. Australia is already involved in negotiations for two regional trade deals – the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). Given these are complex multilateral deals, it is less likely that the sectoral interests of certain countries will block negotiation entirely.

Nonetheless, Australia is a relatively small player in both the TPP and RCEP, and may not be able to press effectively for its key interests in agriculture and services. The prospects for these agreements are also hard to gauge. RCEP is a relatively new proposal whose details remain unclear, while China is yet to officially join the TPP. Betting the trade farm of these nascent regional deals would be a high risk strategy.

Thus, the Coalition government now faces the policy dilemma of either lowering its expectations from FTAs, or risking not signing any FTAs at all. How the new Trade Minister will respond to this trade-off between FTA purity and pragmatism remains to be seen, but “embracing free trade” will prove more challenging than initially thought.

Jeffrey Wilson 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 at The Conversation. Read the original article.

 

20,000kg fake beef seized in China

More than 20,000kg of fake beef has been seized by police in Xi'an, Shaanxi province, with six meat workshops shut down.

The meat was actually pork and had been treated with chemicals including paraffin wax and industrial salts so it looks like beef.

According to Shanghailist, more than 1,500kg of the meat had been sold to local markets.

Six workshops producting the fake beef have been shut down and the meat seized as evidence.

This follows the horsemeat scandal which errupted in Europe earlier this year, where brands including beef producer JBS; supermarket chain Tesco; and frozen food company, Findus, were all forced to pull their products from shelves.

A French meat processing company, Spanghero, was at the centre of the controversy, accused of passing off 750 tonnes of horsemeat as beef.

 

Food manufacturers welcome new government’s reforms: AFGC

Finalising free trade discussions, cutting red tape and reducing energy costs are at the top of the list of priorities food manufacturers hope the new Abbott Ministry will commit to.

With the new Ministry to be sworn in today, the Australian Food and Grocery Council (AFGC) has welcomed the new government's focus on growth, trade and regulatory reform.

AFGC CEO Gary Dawson congratulated all new minister, especially those working more closely with food and beverage manufacturers, including Industry minister Ian McFarlane, Trade and Investment minister Andrew Robb, Small Business minister Bruce Billson, Agriculture minister Barnaby Joyce and Assistant Treasurer Arthur Sinodinos.

Dawson said manufacturers are hoping the government will offer certainty and stability and will focus on boosting confidence, investment and jobs by "getting the policy settings right."

"To that end we strongly support priorities including the finalisation of stalled Free Trade Agreement talks, a rollback of costly unnecessary regulation, action to reduce energy costs, a tax reform white paper and a review of competition laws to help level the playing field where there is an imbalance in market power," he said.

"Food and grocery manufacturing is Australia’s largest manufacturing sector, directly employing around 300,000 people and with annual turnover of $110 billion.  It is the lifeblood of many regional economies, with numerous major food processing plants located outside the metropolitan areas, and makes up half the total industry employment in regional Australia."

Dawson said the manufacturing and agricultural sectors has struggled of late, with the high Australian dollar, retail price deflation and high costs all being significant burdens.

"It is also an industry with massive growth potential for the future provided we can boost competitiveness and productivity, and open up market access in the growing economies of Asia," he added.

"AFGC looks forward to working with these experienced ministers in establishing a coordinated and disciplined approach to policy making, to ensure a competitive Australian food and grocery manufacturing sector."

 

FactCheck: do many other countries restrict foreign investment in agricultural land?

“We often get criticised for trying to be protective. I actually look around the world and I see many, many countries being equally protective of their own core assets.” – Prime Minister Kevin Rudd, third leaders' debate, 21 August.

In their final election debate at the Rooty Hill RSL Club, both leaders were asked about foreign investment of agricultural land in Australia.

Opposition Leader Tony Abbott confirmed the Coalition’s plan to lower the threshold for Foreign Investment Review Board examination of foreign purchases of agricultural land from A$248 million down to A$15 million.

Prime Minister Kevin Rudd said he was “not quite as free market" as Abbott and that he preferred joint ventures between foreign-owned companies and Australian companies when it came to owning agricultural land. Rudd also made the above statement, which suggested that other nations were also concerned about foreign ownership of agricultural land.

So is the Prime Minister right?

Australia’s regulation of foreign investment is not strict by international standards. On a continuum from prohibition through to promotion (through subsidies or favourable tax arrangements, for instance), Australia tends toward minimal restriction in practice of foreign investment.

All proposed foreign government investment and private investment proposals worth more than A$248 million must be notified to the Foreign Investment Review Board within Treasury. Investment from the United States and New Zealand is much more leniently treated, with a higher $1078 million threshold.

Investment proposals are reviewed on a case-by-case basis, applying a national interest test that is open as to what can be considered. Stated criteria specific to agricultural land include access to land and water, productivity and security of agricultural production, biodiversity and employment. This test is apparently weak, as almost all applications are approved, including about A$55 billion in agriculture and mining in 2011-2012.

Foreign investments below the thresholds are not scrutinised, and companies may strategically keep proposals below the threshold.

So the formal review process appears unlikely to restrict foreign investment. But this needs to be seen in context. About 99 percent of the companies that own agricultural land are entirely Australian-owned (and these own 89 percent of agricultural land in Australia). Nevertheless, foreign ownership is rising.

Comparing rules between countries is difficult because nations vary in the way they regulate. Many countries, including the US and Canada, also have restrictions at the regional or provincial level that are greater than at the national level.

*EU members which are meant to treat other EU investment no less favourably than domestic **restrictions recently increased Author

Rules may look strict on paper in some countries, but there is little monitoring or enforcement of them. Many countries discriminate between countries when it comes to foreign investment. For instance, European Union countries are meant to allow investment by other EU countries on the same basis as domestic investment, while foreign investment from non-EU countries may be more restricted.

To complicate matters further, the level of policy and regulatory attention can depend on the existing level of foreign ownership, the proportion of agricultural land and the economic dependence on agricultural and mining production and export. Developing countries often have weak or absent institutions for regulation, which affects their ability to address the market failures in this area.

Given those caveats, we can say that foreign investment is more restricted than domestic investment for all 34 members of the developed nations in the OECD (and 10 non-OECD members) which are signatories to the OECD’s principle of “national treatment”. This means that foreign enterprises should be treated no less favourably than domestic.

At least 15 of these 44 countries have additional regulation specific to foreign investment in rural land. This is summarised in the table above

The table includes countries referred to in a recent Senate inquiry report on Foreign Investment and the National Interest, which compared the regulatory contexts of “countries with agricultural land that has experienced increasing levels of foreign investment [and] have made regulatory changes to meet this challenge”, denoted by **.

This is indicative of some movement away from the “national treatment” initiative, which had been intended to free up international capital movements since the Global Financial Crisis.

Verdict

Overall, many countries are at least equally or more protective of their “core assets” as Australia, so Kevin Rudd is broadly right. This is particularly the case for countries at comparable economic levels and with a significant land resource and rural sector. Some other countries are moving more towards such protections.


Review

This is a good piece, well supported by detailed analysis that demonstrates Kevin Rudd is broadly right. As the author notes, there has been recent tightening in a number of nations, including in previously unrestricted Argentina. Also in South America, Colombia is experiencing widespread civil unrest due to the effects of its US Free Trade Agreement, so tightening or some other significant public response can be soon expected there.

The author notes the favoured treatment that Australia affords US and NZ investors. This is due to the agreed bilateral trade agreements – and it seems that China wants similar treatment if it is to sign a free trade agreement with Australia. It is worth noting that these bilateral “free trade” agreements are actually bilateral “preferential trade and foreign investment” agreements (but cannot be termed “preferential” as such things are illegal under the WTO). – Mark McGovern

The Conversation is fact checking political statements in the lead-up to this year’s federal election. Statements are checked by an academic with expertise in the area. A second academic expert reviews an anonymous copy of the article.

Request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

 

The authors 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.

The Conversation

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

 

Okonomiyaki & Tonkatsu Sauce

Product name: Okonomiyaki & Tonkatsu Sauce

Product manufacturer: SAORI Premium Japanese Sauce

Ingredients: seaweed stock, tomatoes, Japanese worcestershire sauce (onion, caramel colour 1) ,Japanese fermented soy sauce, vinegar, brown sugar, corn starch, seasalt, sesame seeds

Shelf life: 12 months

Packaging: Glass bottle

Product manager: Saori Kojima

Brand website: https://saorisauce.ocnk.net/

What the company says
Saori Kojima created her range of healthy and delicious sauces so that anybody can enjoy a large variety of quick and easy Japanese dishes.

You don’t need to go to a restaurant to enjoy fine Japanese meals anymore. You can make them in the comfort your own home – anytime you like.

Using a perfect combination of sweet and sour flavours with fermented Japanese soy sauce, Okonomiyaki & Tonkatsu Sauce is the must-have compliment to a variety of delicious Japanese dishes such as okonomiyaki (Japanese pancakes), tempura and tonkatsu (cutlets).

It also makes a great alternative to tomato sauce.

SAORI Premium Japanese Sauce, based in Melbourne, is 100 percent homemade and uses quality Japanese & Australian ingredients and traditional Japanese recipes to give them their authentic flavours.

 

Foreign investment in agriculture? How about a plan for profitability

Large parts of Australian agriculture are economically and financially unsustainable. Returns are inadequate and unbalanced; assets are depleted; risks are needlessly high. To date, governments have largely relied on the market to address problems, but problems have worsened.

Mainstream political thinking has essentially ignored issues of foreign investment in farming and food processing (where no significant wholly Australian processor remains). Popular opinion has been turning against such investments, but it was only on Wednesday evening, at the Rooty Hill leaders debate, that prime minister Kevin Rudd finally stated his anxiety about our “open slather approach” and expressed the need for change.

Responding, opposition leader Tony Abbot was reassuring. He would lower the threshold for review of foreign investment from A$220 million to A$15 million – a meaningless gesture when approvals are automatic and asset overpricing pressures remain unchecked. Understandably he did not wish to open up an issue that still divides those in the Coalition and, now openly, Labor.

Headline reactions were splendid: Rudd “retreats on foreign investment” (AFR), “risks foreign investment” (The Australian), “takes hard line on foreign investment” (The Land, The Conversation), “cautious on foreign investment” and makes “reckless flub on foreign investment” (both Business Spectator). Tidying up after this explosive “thought bubble” preoccupied most. All in all, it was a marvellous media moment for reporting, little analysis and much opinioneering.

How important is foreign investment to our farming future, and indeed our nation? Briefly, the historical record is mixed. There are no clear connections between GDP growth and foreign investment, and indeed some contrary examples (relatively slow GDP growth with high foreign investment).

The really important issue is how investors use production assets (such as farmland) and who profits where and when. Serious problems arise in markets when:

  • income streams and profit are inadequate for needs
  • distorting opportunistic strategies are not curbed or countered
  • assets from stressed enterprises are dumped on markets
  • investments are made with mixed motivations
  • funding availability and power are asymmetric
  • financing is unevenly based and biased and
  • perceptions are distorted by misinformation.

Any one of these conditions can corrupt asset markets. As all seven are evident in the Australian farmland and product markets, outcomes are likely to be perverse. Relying on a market solution in such circumstances would be foolish, something that the current prime minister seems to be realising, finally.

Not business as usual

While our politicians and, particularly, their advisers might prefer “Plan A: business as usual”, prudence dictates planning for realities. Here the Australian people are ahead, with now clearly expressed preferences for controls on farm land purchases, supply chain reform, robust national interest evaluations and the like.

This year has witnessed many collapses in rural businesses across all manner of size and form, with many more likely. Governments need to agree on an adequate “Plan B: Stabilisation” as a debt-deflation spiral builds in rural land assets.

In our open economy, the build-up in foreign investment necessitates “Plan C: asset return enhancement”. Foreign investment, be it direct or portfolio, can add significantly to the progress of regions and a nation when it adds something “new” or “better” that realises decent returns for both its domestic hosts and external investors.

Foreign capture of assets, however, is different. There, not only do the bulk of returns accrue preferentially to external parties. Control of assets also enables wider strategies, be these corporate or national.

For example, a grain handler (headquartered in the USA, China, Middle East or elsewhere) may acquire assets in Australia not so much for the earnings from a well-run business based on them but as a means of global supply chain consolidation and targeted preferencing of some suppliers (and discrimination against others).

Plan C should then minimally include a robust national benefit demonstration and measures to preclude opportunistic actions. Under some circumstances (such as current high domestic finance costs and limited rural liquidity) the only real national solution appears to be to ban foreign investment until local investors can obtain comparable finance. Currently cheap foreign money is maintaining unserviceably high asset values and privileged asset access, pushing prices above those local investors can sensibly afford.

The critical strategic question is how to manage foreign investments so that excessive domestic production earnings do not leave the country (as already happens in some Australian sectors and many parts of the world). This is central to plan “D: Restoring national incomes”.

Ownership transfer, income losses

Further ownership transfers of farm, processing, product handling and marketing assets to external parties would see increasingly serious national income losses and Balance of Payment deterioration. Australia is an increasingly indebted nation. It needs to earn its way in the world, not sell off the assets which could support such earnings. External crises can be expected soon enough if our annual net outflows of around A$50 billion continue to go unaddressed.

The usefulness of current financing arrangements could be the focus of “Plan E: sustainable finance”. Currently banks are providing what are essentially home loans to businesses with the high income volatility of agriculture. Others have structured finance in unsustainable ways.

All have been asking for trouble, and it has now arrived. High interest rates (especially the growing margin claimed by financiers for rural funds and the use of unilaterally-imposed penalty rates) need attention, as do the situations of larger debt holders. A well-constituted Rural Reconstruction and Development Bank is part of a viable solution.

Next come “F: supply chain operation”. This does not just mean the problems laid at the door of Woolworths and Coles. The real issue is one of supply chain closures, globally and nationally, as countries and corporations set up their own exclusive supply chains. Markets are increasingly bypassed as corporations tie up chains for a variety of reasons.

Such chains are tailored to preferentially serve certain parties at select parts of the chain. As this runs from farmers through transport and processing to end users anywhere in the world, there are many options for predatory, security or other actions. Recall that high prices only five years ago saw more than 30 nations enact food export controls to ensure their domestic populations were fed.

Insightful action needed

Ultimately, solutions combine in “Plan P: restoring enterprise profitability”. Suitably profitable enterprises have futures. Opportunities to develop can then be sensibly taken up. Much distress and needless destruction of wealth can be avoided if we act insightfully, now.

In all, new policy directions that canvas a range of possibilities for these uncertain times are needed. Solving serious problems in rural Australia requires focused, informed and creative responses by involved stakeholders. Unfortunately, current policy proposals are out by an order of magnitude – and many are not even on the right track.

Prompt, effective interventions can halt the deteriorating situation of Australian farm assets, and the national slide. Complementary actions can restore profitability. Such is the challenge to those who would lead us.

Mark McGovern 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 at The Conversation. Read the original article.

 

New facility puts food on the menu for Multipack

Contract packager, Multipack, is celebrating the opening of its new accredited food facility, allowing the company to expand its offering to include primary and secondary packaging for FMCG food brands.

Extending its footprint at Sydney's Moorebank, Multipack now has a fully commissioned, fully functioning food facility to complement its non-food packaging lines.

The facility comprises a washroom and three clean rooms, each independently air-conditioned with positive air pressure to ensure contaminants are kept out. The three separate areas mean Multipack can also run different food products with different packaging requirements at the same time.

Brad Devine, sales and marketing manager at Multipack, told Food magazine, "This new facility represents the future for our business. It’s the culmination of several years of investigation and testing of our strategy in the FMCG food area."

It means Multipack is now accredited for secondary and primary food packaging, and further down the track the brand also plans to expand into liquid filling and wet fill products.

Multipack's key clients in the food space include multinational brands such as Unilever, Nestle, Wrigleys (the Mars Group) and Lion Dairy and Drinks.

The new facility is expected to inject new life into Sydney's contract packaging industry, which historically has been overshadowed by Melbourne.

"It's been a long time since we've seen any significant investment in food contract packaging in the Sydney market," Devine said.

"We'd like to think that this now gives those guys – the FMCG brand owners – an opportunity to package their product in Sydney without having to do it in Melbourne, which is what they seem to have done for a long time."

It's also a good news story for Australia's manufacturing industry in general, which hasn't been short of struggles in recent times. Devine hopes Multipack will now be able to capitalise on Australia's food-producing potential.

"We've been in business for more than two decades and we've seen in that time vast amounts of business go offshore, particularly to China. We recognise that Australia is still a large food producer, and we figured that food that's grown and processed in Australia is very, very likely to be packaged in Australia, and very unlikely to be lost offshore to China.

"That's not to say that Australia isn't under pressure from imports, it certainly is, but Australia produces some of the best food in the world and it gets processed and packaged right here in Australia, so we figured that one of the least at-risk categories for us to invest in would be Australian grown and processed foods," he said.

Promoting Australia's top quality food products and partnering with leading food manufacturers is a top priority for the brand moving forward, Devine added.

"We're in it for the long haul. We wouldn't have gone and invested like we have if we thought it [food manufacturing] was a fleeting opportunity or a fad. We've seen a long term trend and we want to provide a long term, viable, low cost solution to FMCG food companies."

Food magazine visited Multipack's new facility in Moorebank. Click here to see the pics on our Facebook page.

 

Australian garlic uprising

Australia's garlic industry is set to make a comeback following a very challenging few years, which has seen the value of the industry cut in half.

An influx of cheap garlic from China since 2005 has resulted in the value of Australia's garlic industry being chopped from $7 million to $3.5 million.

However, growing demand for Australian produce at supermarkets and farmers markets is driving an industry resurgence, the ABC reports.

The Garlic Industry Association is hoping to establish year-round supply of the bulb.

"We're trying to get our garlic growers together to form a co-operative like the onion board, and sown around Australia," said Leon Trembath, chairman of the Garlic Industry Association.

"If one grows out a season… then someone else picks it up, then there's a better guarantee you'll get more fresh garlic throughout Australia for the seasons.

"Anyone with a bit of dirt and a bit of interest can grow garlic."

While China produces 85 percent of the world's garlic, the Australian industry is skeptical of its quality and freshness.

 

NZ Prime Minister to visit China after Fonterra contamination probe

NZ's Prime Minister, John Keys, will travel to China to ensure confidence in the country's food industry is restored, following a ministerial inquiry into Fonterra's recent contamination scares.

The inquiry is one of four investigations into why, where and how whey protein used in its baby formula and sports drinks products became contaminated with a bacterium that can cause botulism, a potentially fatal paralytic illness.

Two batches of Fonterra's milk powder have also been recalled in Sri Lanka due to fears they may be contaminated with a farm chemical, Dicyandiamide, which is used to increase agricultural yields.

According to the weeklytimesnow, the New Zealand government is considering putting a Chinese scientist on the inquiry team, with Prime Minister John Keys saying confidence in Fonterra's products needs to be restored.

China is a valuable market for the dairy giant, consuming 90 percent of its baby milk powder products.

Keys said he will travel to China once the inquiry's results are available.

"I need the answers from those inquiries so I can look down the barrel of their cameras and say `have confidence in our products, we've fixed the issues'," he said.