Australian beef – prices ‘off the boil’, but still set to ‘simmer nicely’

While domestic cattle prices have come “off the boil”, they are expected to still “simmer nicely” during 2018, with producers forecast to enjoy a profitable year ahead, according to a new industry report.

In its just-released Australian 2018 Beef Cattle Seasonal Outlook, agribusiness banking specialist Rabobank says a combination of increased cattle supply, reduced producer demand and weaker global prices will see domestic cattle prices ease back from the highs reached in 2017 to stabilise at just above five-year averages.

Cattle slaughter numbers are expected to rise marginally and overall Australian beef production to increase by three per cent for the year.

Report author, Rabobank senior animal proteins analyst Angus Gidley-Baird said while the cattle price declines would more than offset the small rise in production – meaning producers’ incomes would generally be lower in 2018 – the outlook was still for an overall profitable 2018 for Australia’s beef producers.

Four watch factors could however alter the “shape of the year”, and impact upon the fortunes of Australia’s beef sector, both for better and for worse, the report cautioned. These were: the possibility of a big, early Queensland wet season, fierce competition in Asian export markets, rapid growth in Chinese demand for live exports and increased US cow slaughter.

Domestic cattle outlook

Mr Gidley-Baird said Australian beef production was forecast to rise slightly as the herd rebuild continued.

“After falling by 1.7 per cent to 7.16 million head in 2017, we expect cattle slaughter to rise slightly in 2018, with herd rebuilding over the previous two years in southern states now expected to start generating increased turn off,” he said.

The bank expects average slaughter weights – which have increased over the past three years as seasonal conditions have improved and the number of cattle on feed has increased – to remain high.

“We expect the number of cattle on feed to remain high and, with lower cow kill and heavier grass-fed cattle weights due to the better seasons, this should result in an overall increase in production of three per cent,” Gidley-Baird said.

Export markets

While Australia’s key beef export markets are expected to remain strong, competition was also increasing and would “limit price upsides”, the report said.

Gidley-Baird said with the forecast increase in Australian beef production, along with static domestic consumption, exports were set to rise slightly in 2018.

“Japan, the US, South Korea and China will remain key markets. However, we will see increased competition from other exporting nations in all these markets,” he said.

A softening Australian dollar, particularly in the second half of the year – Rabobank’s 12- month forecast is 0.75 US cents – should at least assist Australia’s competitive position, Gidley-Baird said.

Domestic price outlook

High cattle prices seen in 2017 had been driven by strong producer demand in a limited supply market, with producers looking to rebuild herd numbers or purchase cattle to consume available feed, the report said. This had resulted in cattle price movements closely mirroring any changes in seasonal conditions.

However, with stock numbers in southern states now nearing normal levels and the Queensland season on hold until the next wet season commences in October, producer demand is expected to ease in the market, enabling prices to fall back towards the five- year average and be less exposed to dramatic variation around rainfall events, Gidley-Baird said.

The Rabobank report forecasts 2018 domestic cattle prices to come in at 15 per cent below prior-year levels. The Eastern Young Cattle Indicator (EYCI) is expected to average AUc 513/kg cwt for the year – just above the five-year average.

Watch factors

The report said two variables which could have a negative impact on the year ahead were fierce competition in Australia’s Asian markets, as well as the prospect of an increased US cow slaughter.

“Australia’s two key long-standing Asian export markets, Japan and South Korea, are also the key markets for US exports. And with increasing US production, Australia is already facing strong competition in these markets,” Gidley-Baird said. “The US has been undertaking promotional activities to encourage increased sales in both markets, and – while Australia has an advantage with the Japanese FTA – the US is two years ahead in tariff reductions with South Korea. If the US consumer’s appetite for beef wanes, greater volumes will be driven into these key export destinations, most likely at discounted prices.”

US beef production growth for the year had already been revised up from three per cent to five per cent growth (700,000 tonnes), the report said. A larger placement of cattle on feed and ongoing low feedgrain prices in the US has the potential to push carcass weights and production up further.

“Further, and more likely to have a bigger impact on Australia, are the dry conditions and lower cattle prices which could lead to a higher US cow slaughter in Q3 and lower demand for Australian lean trimmings by the US,” Gidley-Baird said.

However, on the positive side, the report said, the possibility of a “big, early Queensland wet season” and the rapid growth in Chinese demand for live exports could have a favourable impact on the year ahead.

“With a poor 2017/18 wet season, Queensland cattle producers (particularly those in central and western areas) have still not had enough of a season to confidently begin restocking. However, if a good, early wet season eventuates in 2018/19, producers looking to restock will drive cattle prices up,” Gidley-Baird said.

In the case of Chinese live export, Australia had sent the first load of live cattle by ship from northern Australia to China in January, he said. “If logistics, markets and supply chains are developed to allow such a trade to operate in large numbers on a regular basis, it will add competition for cattle in what is currently a supply-limited Queensland market – and it would drive live export and other cattle prices up.”

 

2017 world wine production falls, while Aus production grows

World wine production, excluding juice and musts, is likely to reach 246.7 millions of hectolitres (mhl) in 2017, according to the International Organisation of Vine and Wine.

This figure, an 8 per cent drop compared with 2016 and one of the lowest levels for several decades, reflects unfavourable climate conditions in the major Western European wine producing nations, Italy, France, and Spain.

Closer to home, In Oceania, 2017 Australian production reached a sustained level of 13.9 mhl, a 6 per cent increase compared with 2016. Production was on the up for the third year in a row. In New Zealand, production slightly declined in 2017 (-9 per cent), yet this was in reference to a record production the year before. It nevertheless remained high (2.9 mhl).

Italy confirmed its place as the leading world producer for the third year running in 2017 (39.3 mhl, -23 per cent/2016), followed by France (36.7 mhl, -19 per cent/2016) and Spain (33.5 mhl, – 15 per cent/2016).

This reduction was recorded in the main EU countries. Germany (8.1 mhl, -10 per cent /2016) and Greece (2.5 mhl, -10 per cent /2016) fall in line with this downward trend. Bulgaria (1.1 mhl, – 2 per cent /2016), saw a production level in keeping with its potential.

Portugal (6.6 mhl), Romania (5.3 mhl), Hungary (2.9 mhl) and Austria (2.4 mhl) were the only countries to record a rise compared with 2016. After two poor harvests, Romania returned to a high level of production.

The United States, with 23.3 mhl vinified (-1 per cent /2016), saw a high level of production for the second year running. One doubt remains: the estimated wine production is based on USDA forecasts for grape production, relating especially to wine grapes, from August 2017 and does not therefore take into account the potential consequences of the recent fires in California (October 2017).

In South America, wine production is likely to show quite an increase compared with 2016, despite the fairly low temperatures at the end of the 2016 year.

Argentina recorded a rise in its production with 11.8 mhl vinified in 2017 (+25 per cent/2016), after the 2016 harvest was one of the lowest in recent years.

 

 

Agriculture now largest contributor to national GDP growth

Australian agriculture has emerged as the fastest growing sector and the largest contributor to national GDP growth in 2016-17, cementing its position as one of the economic powerhouses driving the nation.​

Deputy Prime Minister and Minister for Agriculture and Water Resources, Barnaby Joyce, said the agriculture sector grew the fastest of all 19 industries in 2016-17—up a formidable 23 per cent—particularly driven by the grains and livestock industries, but with other agricultural industries also performing strongly.

“Australian agriculture contributed 0.5 percentage points of the nation’s total 1.9 per cent growth over the course of the year, an outstanding contribution given the size of the sector compared to total national GDP,” Minister Joyce said.

“The Coalition Government has a real vision for Australia’s agriculture sector and from day one we have delivered practical policies and genuine investment to turn the show around and transform agriculture in this nation.

“I hate to think what the state of agriculture and the support for our farmers would be under Labor, I don’t even think they have an agriculture policy—have nothing to say on the subject.”

Agriculture contributed over $50 billion in exports in 2016-17, just under 14 per cent of our total goods and services exports. This is up from $41 billion five years ago.

“While grains and livestock products each contributed around $10 billion each to this export performance, other agricultural industries are also billion dollar performers. For example, in 2016-17 our pulses exports to the world were worth over $3 billion, wine exports $2.4 billion, nuts exports $822 million and citrus over $330 million,” Minister Joyce said.

“Australia has seen great growth in produce to markets such as India. India is going nuts for Australia’s nuts with value of almond exports up over 50 per cent for the first half of 2017. Chickpea exports to India increased by almost 90 per cent in 2016-17 to a record value of $1.1 billion.”

Minister Joyce said strong growth has seen China overtake the US as our most valuable market for wine for the first time ever. Wine exports to China totalled $596 million in 2016–17, a 43 per cent increase on the previous year.

“The Coalition Government has delivered strong agriculture policies, including opening up market access for Australian producers to some of the nation’s most important export markets, including free trade deals with China, Japan and Korea,” Minister Joyce said.

“Through the Coalition’s $4 billion Agricultural Competitiveness White Paper we have been working to create a better business environment for farmers, and to build the infrastructure needed to support continued growth—through a whole raft of policies, which our agriculture sector is responding to with enthusiasm.

“These policies and investments have provided a solid foundation for growth, and it is great to see how effectively Aussie farmers are capitalising on the opportunities on offer to increase production and exports.”

Deal making ramps up in the food and beverage sector

Following a drop in corporate activity in April and May, deal making ramped up in June and July with nine transactions announced.

Acquisitions announced

Hong Kong dairy company Ausnutria announced in May the acquisition of Victorian dairy manufacturer Australian Dairy Park (ADP). Upon completion of the transaction, Ausnutria will own the manufacturing, packaging and sale of dairy and milk powder products and related research and development activities.

Synlait Milk acquired New Zealand Dairy Company (NZDC) for NZ$33.2 million. NZDC is based in Auckland and is constructing a blending and canning operation capable of making infant formula and milk powders. Synlait expects to invest an additional $23 million to develop the facility.

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Raphael Geminder acquired The Cake Syndicate which includes Susan Day Cakes and Big Sister Foods. It is expected that The Cake Syndicate will be integrated with Green’s Foods. Geminder acquired CVC’s 43.5 per cent shareholding in Green’s Foods in December 2016, making him the largest shareholder of Green’s Foods. Expectations are that Geminder will use Green’s Foods as a vehicle for further acquisitions in the food and beverage industry in Australia, replicating the approach that proved to be successful in for the Pact Group.

Listings on the ASX

Oliver’s Real Foods, a fast food chain that serves certified organic product to customers, listed on the ASX in June 2017.

Allwellness Holdings, an Australian based pharmaceutical manufacturing group that exports product to China, listed on the National Stock Exchange.

Deal activity notably increased following the June 2017 financial year end and we expect this high level of activity to continue for the remainder of 2017.

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[Ben van der Westhuizen and David Baveystock are directors of Comet Line Consulting, an advisory business that specialises in acquisitions and divestments within the Australian food & beverage industry. For more information visit www.cometlineconsulting.com.au.]

Food sector keeps growing as PMI rises again

The Australian Industry (Ai) Group’s Australian Performance of Manufacturing Index (Australian PMI) increased by 1.0 point in July to 56.0 points.

While the index for the largest manufacturing sub-sector, food, beverages and tobacco, dropped by 0.4 points to 55.9 points in July, it was still comfortably within the expansion range. According to Ai Group, within this sub-sector, strong expansions in production, sales and exports were evident in July. Also, food and beverages processors in the Australian PMI noted the higher Australian dollar has been curbing their rate of growth recently.

More broadly, manufacturers across many sectors are seeing significant challenges from soaring energy costs, higher raw material costs (the flipside of higher commodity pricing), the stronger Australian dollar, the departure of automotive assembly, strong international competition, and ongoing weakness in the retail sector.

“The broadly-based expansion of manufacturing continued in July with the sector contributing positively to the rebalancing of the broader economy,” said Ai Group CEO Innes Willox.

“Production, sales, exports and employment all grew during the month, in part thanks to the strength of other key sectors including construction and agriculture, and the recovery of spending in the mining sector.

“These growth opportunities more than offset the further decline of automotive assembly. They are also, at least for the time being, helping to mitigate the growing threats from unrelenting energy price rises and a higher dollar.”

 

 

Manufacturing, food & beverage making continue to grow

The Australian Industry Group’s Performance of Manufacturing Index (PMI) inched 0.2 points higher to 55.0 in June, with expansion in the food & beverages sub-sector easing to 56.9 for the month.

The PMI result means Australian manufacturing has now seen nine consecutive months of expansion.

“Sales, exports and production all lifted and growth was widespread across the sector,” said Ai Group chief executive, Innes Willox.

There was higher activity in the metal products; machinery and equipment; petroleum, coal, chemical and rubber products; and non-metallic mineral products sub-sectors augmented the further growth of the large food and beverages sub-sector.

“While a lift in new orders indicates that momentum may continue in the near-term, concerns about the impacts of further rises in energy prices are accumulating like storm clouds over the sector and particularly for more energy-intensive industries,” said Willox.

“With policy uncertainties inhibiting investment in energy and energy-using sectors, it is imperative that sensible and bipartisan resolution be reached as soon as possible.”

Food & beverage deal activity takes a breather

Following a frantic start to 2017, corporate activity in the food and beverage industry slowed down in April and May 2017 with only four transactions announced during this period.

The standout transaction in the quarter was the acquisition of Mainland Poultry by private equity firm, Navis Capital for approximately NZ$300 million. The Mainland Poultry sale process attracted attention from several private equity investors. Looming capital expenditure over the next five years, however was reported to impact the attractiveness of the Mainland Poultry business to a number of interested parties.

Internationally, levels of corporate activity in the food and beverage industry remain high. Kraft Heinz made a surprise U$143 billion proposal to Unilever to merge the two businesses. The aim of the proposal was to build a global consumer goods behemoth. The proposal was however, rejected by Unilever in February. Through the merger proposal received from Kraft Heinz, Unilever conducted a review of the business and initiated a sale process for its spreads business. The Unilever spreads business includes iconic brands such as Flora and Stork.

In Australia, Suntory has announced that it would sell the Cerebos food and instant coffee businesses in Australia and New Zealand. Popular brands that will be offered for sale through the sale process include Gravox, Fountain and Saxa.

Coca Cola Amatil’s investment in SPC Ardmona is also believed to be under review after Coca Cola Amatil reported a $172 million impairment against its investment in the business.

Although deal announcements slowed down in the months of April and May, the market is still active with investors and participants actively pursuing opportunities to grow their businesses through acquisitions and streamlining operations through disposals.

[Ben van der Westhuizen and David Baveystock are directors of Comet Line Consulting, an advisory business that specialises in acquisitions and divestments within the Australian food & beverage industry]

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Australia’s food marketers reduce ad spend in 2017

Australia’s food marketers are continuing to reduce their advertising spend in 2017 after strong growth in 2016 saw the sector emerge as the country’s fourth largest advertising category.

In CY 2016, the Food/Produce/Dairy category was one of the market’s growth stories, with ad spend lifting 1.5 per cent to $392.3 million, propelling the food category into fourth position among Standard Media Index (SMI’s) 40 product categories.

But the momentum has stalled in 2017, with SMI’s Agency payment data for the first quarter showing total Food/Produce/Dairy ad spend falling 6.3 per cent from the same quarter a year ago to $83.2 million.

However, most of the decline is due to reduced bookings onto TV and Outdoor, and in contrast food marketers’ spend onto Digital media grew 5.4 per cent for the quarter.

And for the first time this month SMI has launched ad spend for five new sub categories that provide the first real detail on the parts of this market responsible for the growth.

As the table below shows, most of this growth was due to higher spend from the Milk/Dairy/Produce/Baked Goods sub category which grew ad spend by more than 75 per cent in the quarter, taking its share of total category spend to 26.8 per cent from 16.0 per cent in the same quarter last year.

In contrast, the largest sector of this market – Confectionery/Snacks/Dessert Items – reduced its total expenditure by 7.9 per cent.

SMI is also the only company able to report this true ad spend by Digital sector, and shows that in this quarter the Confectionery/Snacks/Dessert Items sector delivered strong growth to Social Sites (+31.8 per cent) but reduced its spend onto Programmatic buying (-14.3 per cent) and Content Sites (-51.9 per cent).

And the growth in the Milk/Dairy/Produce/Baked Goods category was predominantly in Content Sites (+79 per cent QOQ) and Social Sites (+168 per cent).

SMI AU/NZ Managing Director Jane Schulze said SMI’s initial April data shows that after a strong Q1, food marketers are now also reducing spend onto Digital media in April with bookings so far back 29.2 per cent.

“This month there continues to be huge variation in the levels of Digital spending within the key Food/Produce/Dairy sectors,’’ she said.

“For example, the Confectionery/Snacks/Dessert Items market has so far reduced Digital spending 54 per cent this month while the second largest sub category of Milk/Dairy/Produce/Baked Goods grew Digital spend by 31 per cent, and in the process grew its share of the category’s total Digital spend this month from 14 per cent last April to 25.8 per cent.’’

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Standard Media Index collects actual advertising payments from Australia’s major media agencies and as such has the only real ad spend data for 40 major Product Categories and 126 Digital Sub Categories.

PMI up again, food sub-sector going strong

The Australian manufacturing sector expanded for the seventh consecutive month in April, with the food and beverage sub-sector delivering its best result in a year, according to a key index.

The Australian Industry Group Australian Performance of Manufacturing Index (PMI) climbed 1.7 points to 59.2 for the month of April. (readings above 50 indicate expansion in activity, while those under 50 correlate with contraction).

The index for the largest manufacturing sub-sector, food, beverages and tobacco, increased by 0.5 points to a very strong 60.1 points in April. Food and beverages processors in the Australian PMI noted stronger Easter sales, but surpluses for some products are holding prices down.

Some also noted a build-up in inventories due to anticipated industrial action. Sales and exports were particularly strong for food processors during the month.

“The April performance featured strong growth in exports and local sales of food and beverages manufacturing, building materials, specialist machinery and equipment and specialist chemicals,” said Ai Group Chief Executive, Innes Willox.

“Resurgent output and prices in our agricultural and mining sectors are having a positive effect on demand for a range of locally produced manufactured equipment. This surge is occurring despite the closure of the automotive assembly sector and recent disruptions in some locations due to Cyclone Debbie.”

 

Food & beverage deal activity starts the year strongly

Corporate activity in the food and beverage industry was unexpectedly high in February and March 2017 with a number of transactions announced during this period.

The standout transaction in the quarter was the acquisition of Allied Mills by Pacific Equity Partners from Graincorp and Cargill Australia. The proposed strategy is to integrate Allied Mills with the Pinnacle bakery business that PEP acquired in March 2015. PEP has been an active acquirer in the bakery industry over the past 12 months with several bolt-on acquisitions concluded for the Pinnacle business.

The organic and health food sectors were active with the acquisition of wholesale distributors Australian Organics (Pacific Organics) and Kadac by Murray River Organics and New Development Corporation respectively. Health food chain Healthy Life was also acquired by Allegro Funds.

The two deals in the pet food sector were both concluded by Real Pet Food Company. Real Pet Food Company acquired NZ-based Bombay Petfoods and pet food manufacturer Consolidated Manufacturing Enterprises. These two acquisition are in addition to the two domestic and one international acquisition concluded by Real Pet Food Company in 2016.

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Four food and beverage companies listed on the ASX over the two-month period. Three of the four companies that listed on the ASX have a strong customer focus on the Chinese market.

Deal activity in the first three months of 2017 has started strongly. The food and beverage sector remains highly attractive for investors looking to tap into consumer spend in Australia and Asia.

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[Ben van der Westhuizen and David Baveystock are directors of Comet Line Consulting, an advisory business that specialises in acquisitions and divestments within the Australian food & beverage industry. For more information visit www.cometlineconsulting.com.au]

Aus manufacturing, food sub-sector expand in March

Ai Group’s Performance of Manufacturing Index (PMI) for the month came in at 57.5. While this represented at 1.8 point drop from the previous month, it easily topped 50, the level that distinguishes expansion from contraction.

Meanwhile the food, beverages and tobacco sub-sector increased 1.6 points to a strong 63.4. According to the report, food and beverages processors noted some new business and a build-up in inventories (some of it due to anticipated industrial action). In addition, new orders and exports were particularly strong during the month.

All seven activity sub-indexes in the PMI expanded in March. Expansions in new orders (62.6 points) and sales (57.7 points) strengthened. Production also expanded while slowing from more robust growth last month (57.6 points) as did employment (54.1 points). Deliveries (52.9 points) and exports (51.1 points) eased to more modest growth, while inventories turned up in March (55.5 points).

However, energy prices (particularly electricity) continue to affect manufacturers. Concerns about energy pricing and security of supply are eroding profitability and confidence. Other input prices are increasing (including steel prices), which is putting manufacturers’ margins under further pressure. Export growth also appears to be easing off for some manufacturers, compared to the strong surge of exports seen in 2016.

PMI leaps ahead in February

Australian manufacturing recorded a fifth consecutive month of growth in February, with the food sub-sector also expanding.

The Australian Industry Group Australian Performance of Manufacturing Index (PMI), a key industry index, increased by 8.1 points to 59.3 in February. (Readings above 50 indicate expansion in the sector, while readings below 50 indicate contraction).

In all, six of the seven sub-indexes in the Australian PMI expanded.

The food, beverages and tobacco sub-sector increased by 1.8 points to 58.8 points in February. This was the largest expansion since May last year. It means that the sub-sector has now expanded continuously for over four years.

“With manufacturing production, employment, sales and exports all growing at a healthy pace, the Australian PMI rose to its highest level in nearly fifteen years in February. The period since 2002 has been particularly difficult for Australia’s manufacturers in the face of the phenomenal expansion of China’s manufacturing sector, extended periods of domestic currency strength and volatility in global confidence, activity and trade. So it’s great that Australia is making again,” said Ai Group Chief Executive, Innes Willox.

“The surge in February builds on a recovery from the sluggish performance in the third quarter of last year and marks a fifth month of expansion. However, substantial challenges remain with further growth constrained by the lack of business investment in recent years and renewed fears about energy security and energy prices now top-of-mind particularly for our more energy-intensive manufacturers.”

Manufacturing grows for fourth consecutive month

The Australian manufacturing sector grew again in January though at a slower rate than the previous month, according to a key index.

The Australian Industry Group (AiGroup) Australian Performance of Manufacturing Index for the month was 51.2, down by 4.2 points on December. (Readings above 50 indicate expansion in activity, while those under 50 indicate contraction).

Four of the eight manufacturing sub-sectors expanded in January, with food and beverages down 0.9 points to 53.9.

“Conditions for Australia’s manufacturers remained positive in January despite easing from December’s end-of-year surge. While domestic sales slipped and there was a build-up of inventories, exports grew further in January and production was held at December’s levels,” commented Ai Group Chief Executive, Innes Willox.

“The near-term outlook for the sector as a whole was boosted by another lift in new orders. The major emerging concern – particularly among the more energy-intensive manufacturers – is the deteriorating energy price outlook which threatens to stifle the tentative recovery underway in the sector. Conditions are ripe for the boost to investment that would be provided by an easing of the company tax rate.”

Food and beverage industry expecting strong deal activity in 2017

Corporate activity in the food and beverage industry was unexpectedly high in December 2016 and January 2017 with several substantial transactions announced during this period.

Acquisitions announced

The standout transaction in the quarter was the acquisition of the Mondelêz Australia Grocery Business by Bega Cheese for $460 million. The Mondelêz grocery business includes iconic Australian brands such as Vegemite, ZoOSh salad dressing and sauces and Bonox spreads. The Mondelêz grocery business has an estimated 31 per cent share of the $550 million spreads category in Australia.

The baked goods and prepared meals sector saw two transactions with Temptation Bakeries and New Zealand-based Leader Group both sold.

Raphael Geminder, the chairman of Pact Group, acquired 43.5 per cent of Green’s Foods from CVC for approximately $24 million. Geminder is now the largest shareholder in Green’s Foods.

Costa Group has acquired the Avocado Ridge orchards and packing operations in central Queensland in a joint venture with Macquarie Agricultural Funds Management.

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Listings on the ASX

Murray River Organics was the most substantial IPO, listing on the ASX on 16 December 2016 after raising $35 million as part of the IPO process.

2017 is shaping up to be a dynamic year across the food and beverage industry with strong interest in the industry from both trade investors and financial investors.

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[Ben van der Westhuizen and David Baveystock are directors of Comet Line Consulting, an advisory business that specialises in acquisitions and divestments within the Australian food & beverage industry]

Australia’s finest wines achieve record value in 2016

Australian wine export value grew by 7 per cent to $2.22 billion in 2016 and average value grew by 6 per cent to $2.96 per litre free-on-board (FOB), the highest average value since 2009, according to the Wine Australia Export Report December 2016 released today.

This value growth was driven by bottled exports, particularly those at higher price points. Bottled exports grew by 10 per cent to $1.8 billion. The average value of bottled exports hit a calendar year record, up by 5 per cent to $5.48 per litre FOB.

Wine Australia CEO Andreas Clark said, “Last year, Australia’s most premium wines took centre stage. Our highest priced wines ($10 or more per litre FOB) achieved record value in 2016, up an impressive 19 per cent to $574 million. This increase was driven by demand across all of our major export markets but particularly in the Northeast Asia region.

“In another promising sign that we’re starting to see commercial benefits from an improved perception and increasing demand for our finest wines, the majority of Australian wine exporters (70 per cent) saw value growth in 2016.

“We are maintaining the momentum early in the year with some of our biggest annual events where we partner with many Australian wineries and exporters, including the Australia Day Tasting series in the United Kingdom (UK) and Ireland, trade tastings in the United States (US) and Canada, master classes across China, a significant Australian wine presence at ProWein in March and our major partnership with Tourism Australia for the World’s 50 Best Restaurants, taking place in Melbourne in April.”

In 2016, bulk wine exports declined by 2 per cent to $400 million, soft-pack exports fell by 5 per cent to $14 million and exports in alternative packaging such as PETs decreased by 11 per cent to $4 million.

Exports priced $10 and more per litre FOB were up in all of Australia’s top five markets except Hong Kong ­– mainland China by 47 per cent, the US by 23 per cent, the UK by 25 per cent and Canada by 9 per cent. Hong Kong was down by 12 per cent.

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Global wine supply balancing out: report

Global wine inventories have been trending downwards in recent years and, while some see this as a shift towards a supply shortage, Rabobank’s latest Global Wine Quarterly says it marks a continued move towards balance – albeit with variations in geography, varietal and price segments.

The report warns this move towards a more balanced supply could create challenges for certain wine-sourcing models, such asset-light business models in some regions.

“There is no doubt that asset-light sourcing models – where wine companies do not own/operate the key vineyard/winery assets required to supply their brands – can offer significant advantages for companies,” said Rabobank senior analyst Marc Soccio, “as they limit the amount of capital tied up, particularly in vineyard assets. However in light of declining global inventories, it is becoming increasingly important for wineries to have a realistic view of supply trends in order to secure their brands for the foreseeable future.”

The report says while the decline in inventories is a “phenomenon worth watching”, it can be partially attributed to short-term weather factor, as well as a conscious effort by the industry to bring supply more in line with consumption.

“Over the course of 2016 we saw the supply situation in the northern hemisphere start to tighten due to an unremarkable harvest in California and adverse weather across much of Europe,” Mr Soccio said, “with the 12 per cent drop in the French harvest behind much of the decline in global production.

“Meanwhile it was a mixed bag in the south, with production up in New Zealand and to a lesser extent Australia, while significant declines were reported in Chile and Argentina.”

For Australia: The value of Australian exports were up strongly in the first 10 months of 2016 (+7.3 per cent) largely to the ‘premiumisation’ trend in the US market, while export volumes were down slightly (-0.6 per cent) with strong growth in the Chinese market not enough to offset significant declines to the US, UK, Germany and Japan.

Energy prices, taxes threatening food sector jobs

High energy costs are putting pressure on food manufacturers and threatening jobs in the sector, according to the Australian Food and Grocery Council’s State of the Industry annual report.

The 2016 version of the report, to be released today, notes that employment in the sector has “hit a wall”, standing at 317,000 jobs. This total was 322,000 in the previous year.

Exports were up 14 per cent on the previous year, but operating costs were an issue, particularly with a shortage of gas supply contracts available, supermarket price wars, and in terms of taxation.

“Company tax cuts for all business are more important than ever as a means of sparking investment, and targeted investment allow­ances must also be considered,’’ Gary Dawson, the AFGC’s chief executive told The Australian, urging the opposition to pass a proposed tax cut for companies with revenues over $10 million.

Dawson said that gas price rises of up to 95 per cent were being seen in Victoria and NSW. The states had abundant gas reserves, yet bans on unconventional gas extraction.

“We have the crazy situation where cheap ­energy should be a source of comparative advantage for Australia but instead gas and electricity price increases are putting us at a disadvantage,” said Dawson.

The 2015-2016 report is in contrast with last year’s release, which found over 3,000 jobs created in the period, a “spectacular” surge in trade with exports up 28 per cent, and “double-digit growth across a whole range of categories.”

 

Aus manufacturing bounces back, food making loses some steam

Australia’s manufacturing sector returned to growth in October though food, the largest sub-sector, dropped slightly according to a key index.

In the index’s second straight monthly improvement, the Australian Industry Group’s Performance of Manufacturing Index for October came in at 50.9, up from 49.8 in September. (results above indicate expansion, while figures under 50 indicate contraction).

Food, beverages and tobacco dropped 2.4 points to a stable 50.4 points.

Ai Group chief executive Innes Willox welcomed the result, saying that it was a positive, even though growth was only achieved through the “narrowest of margins” in October.

“… [G]rowth remains relatively narrowly based, with contractions in the important metal products and non-metallic minerals sub-sectors broadly offsetting expansions in the machinery & equipment and petroleum & chemicals sub-sectors while the largest manufacturing sub-sector – food & beverages – trod water in October,” said Willox in a statement.

“The manufacturing sector would welcome the boost to investment that a reduction in the company tax rate would provide – even if it was limited to businesses with annual turnovers of less than $50 million.”

Food sector helps bolster Australian manufacturing in September

Australian manufacturing recovered slightly in September, with a boost to the food sub-sector, according to the Australian Industry Group’s Performance of Manufacturing Index.

The PMI result for the month, released yesterday, was 49.8, up 2.9 points and just under 50, the point which separates expansion and contraction.

After contracting in the previous month, the food and beverage sub-sector was up 4.1 points to 52.8, while the machinery and equipment sub-sector (up 4.6 points) also recorded 52.8.

The overall patchiness of the PMI illustrated the fragility of the Australian manufacturing sector and the overall economy, said Australian Industry Group CEO Innes Willox. He also suggested that company tax rate cuts would help increase the current weak rates of business investment.

The result of 49.8 represents the second straight month of contraction, following 13 consecutive 50-plus PMI results.

WA agriculture to reap benefits from rising food demand in Asia

Western Australia’s beef export industry into Asia could grow to $1 billion by 2030 and beyond, according a new report by the Bankwest Curtin Economics Centre (BCEC).

From Paddock to Plate: WA’s potential in agriculture and agribusiness is the first report in the Bankwest Curtin Economic Centre’s new Focus on Industry series and asks if WA is positioned to take advantage of the unique opportunity presented by the increasing global demand for high quality, secure food produce.

Using the latest data available, the report analyses the contribution of agriculture to the WA economy, and assesses the State’s natural endowments, competitive advantages, and innovative and productivity capabilities to meet increased global demand.

BCEC Director, Professor Alan Duncan, said the importance of Asia to the State’s agricultural exports will grow in the future as Asian economies develop and as global demand for food changes.

“We can expect a greater demand for meat, seafood, fruits and vegetables, sugar products and baked or processed goods as economic development continues in many countries throughout Asia,” Professor Duncan said.

New estimates in this report project Australian beef exports to China alone could potentially increase from $1bn to $4.5bn by 2030, driven by a combination of increased demand for meat by the growing Asian middle class, and an expansion in efficient beef production and export volumes.

WA’s proximity to Asia creates the potential for the State’s beef producers to secure a $1bn share of exports to Asia.

Yet the positive narrative around growth in the economic value of agriculture to WA is not matched by a similar optimism for employment growth within the sector.

Jobs in agriculture, forestry and fishing accounted for around 5 per cent of WA total employment in May 2005. This share has dropped to only 2.3 per cent in May 2016.

“There is work to do to reverse the fall in jobs in the State’s agriculture sector,” Professor Duncan said.

“WA held a 14.8 per cent share of national employment in agriculture, forestry and fishing in May 2005. Latest data shows this share has fallen to 9.4 per cent.

“Innovation in agricultural production, increased capital intensity and efficient use of resources all point to agriculture as one of the State’s growth sectors, but questions remain about whether this will lead to an expansion in jobs.”

However, there have been bright spots in job creation throughout the State, with the share of employees in the South-West who work in agriculture rising from 2.9 per cent in 2012 to 11.5 per cent by May 2016.

“Around 10,700 people are now employed in agriculture in Bunbury and surrounding areas of the South-West – up from 2,800 at the end of 2012,” Professor Duncan said.

“The South-West has natural endowments that lend themselves to diversified agricultural production, a commitment to high-quality, high-value produce and a strong regional brand.

“The revival of agriculture in the South-West region, not just in the value of production but in jobs, is a success story for other regions in WA to follow,” Professor Duncan said.

The economic stimulus from investment in pastoral farming in northern Australia offers a significant potential for new employment opportunities in the Kimberley and Pilbara.

 

 

Image: www.agric.wa.gov.au