Article – 'Food bowl' investment ignored

5 May 2014
Jared Lynch & Tim Binsted
North Queensland Register

PHOTO: John Foss, founder and CEO of The Chia Company.

John Foss knew he was on to something big when sales of his chia-based foods began taking off in the US. Problem was, his Australian bank didn’t.
So a lack of local finance pushed his fledgling company, founded among the rugged sandstone escarpments of Western Australia’s Kimberley almost 17,000 kilometres away, into the arms of overseas cash. Since then The Chia Company has flourished.
Welcome to the financial realities of Australia’s agriculture sector.
Despite a fierce global bidding war for Warrnambool Cheese and Butter, a string of Asian giants swooping on Queensland sugar mills, and this week’s takeover bid by Singapore’s Wilmar International for iconic food group Goodman Fielder, ­Australia’s banks are reluctant to lend to agribusinesses and stockmarket investors are lukewarm.
It’s a conundrum that frustrates political leaders, who say Australia’s high food safety standards and reliable reputation makes the country well-placed to cash in on the Asian dining boom. Victorian Premier Denis Napthine is blunt when he looks at the lack of investment in Australia’s food bowl. “I would give a kick in the pants to our large superannuation funds and many of our large potential ­investors,” Dr Napthine told Fairfax Media recently.
”Some of our own investors have not been as savvy as some of the foreign investors in terms of seeing the opportunities in their own backyard.
“We have got to re-excite people so that people who perhaps in the last decade have thought of agriculture as being a sunset industry, recognise that there is a new sunrise for agriculture and food production.”
The ”dining boom” has been a catchphrase, mainly from political leaders, considering China’s rapidly growing middle class and its demand for a better quality, more western-style diet. According to a KPMG University of Sydney study, Australia’s food industry has ”tremendous growth opportunities”.
The population of China’s middle class is about 300 million and expected to rise to 630 million by 2022, the report found. “This group will represent 45 per cent of China’s population and is expected to consume goods and services of $US3.4 trillion ($3.6 trillion).”
But Australia’s close proximity to the Asian market doesn’t translate to instant riches. The authors of the KMPG University of Sydney report, Doug Ferguson and Hans Hendrischke, said Australian agri­businesses need more capital, most likely from foreign investors, to flourish and realise economies of scale.
Capital needed for infrastructure
”Australia requires capital for new regional infrastructure and China has the capital and proven, deep experience to co-fund and co-deliver new road, rail and airport/shipping port assets which could transform our food production industry in existing and new regions throughout Australia,” Ferguson and Hendrischke said.
Bank of America Merrill Lynch chief economist Saul Eslake said the age of the infrastructure of Australia’s food processors was also a stumbling block.
”Australian companies find it difficult to find the requisite capital and some would say lack the vision to use the capital,” Mr Eslake said this week.
The constant pressure on margins created by the supermarket duopoly means agribusinesses groups can struggle to find the capital required to invest in product development, new plant and equipment and other infrastructure. Business advisory firm Grant Thornton’s national head of food, beverage and agribusiness Tony Pititto says domestic banks and sharemarket investors were reticent when it came to Australia’s food processing sector because of its volatility.
Farming is dependent on the weather and Australia is a country of extremes, being particularly ­susceptible to droughts.
Mr Pititto says the agribusiness sector was ”starved of capital in the traditional form. If we want to go to the next level then we really need ­foreign investment. It also gives us a market to sell into”.
State governments have been eager to take companies across Australia’s food supply chain on trade missions. In the past three years, Victoria’s government alone has taken more than 2000 businesses on 65 trade missions to Asia, which has delivered about $4 billion of new exports.
NAB agribusiness economist Vyanne Lai says trade missions served a ”rudimentary purpose to open doors” but “they don’t nail home the deal”. They don’t complete the transaction.
She said Australian companies could do more to help themselves. “A lot of attention has been directed on the inflow of capital, whereas I am not that aware that our domestic businesses are actually extending the olive branches overseas as much as they could.
”I think exporters in Australia are not as sophisticated when it comes to understanding the demand of Asian customers in general. There have been some examples of innovative business approaches but generally, we are still quite green in dealing with an expanded customer base in Asia.”
Gary Helou, the managing director of Australia’s biggest dairy company Murray Goulburn, clearly agrees. On Friday he unveiled plans to invest $127 million in three new dairy facilities that will help lift its exports to Asia.
“The core of the problem with Australian food processing is we’ve never built infrastructure to send food to the Asian consumer,” he said. “This is the first time plants of this scale have been built to cater for the Asian consumer as the first target. The Vietnamese, Chinese, Singaporeans and Thais all want different things. These plants are state-of-the-art, flexible and highly targeted.”
Understanding your target market is a tactic that has paid dividends for Mr Foss, so much so he has relocated The Chia Co’s headquarters to New York. But the company still grows its namesake product in the Kimberley and Mr Foss is upbeat about the future of Australia’s food and beverage industry, provided companies invest in innovation.
”People don’t wear what they wore 10 years ago and they don’t want to eat what they were eating 10 years ago either.
“Tastes and food trends evolve and food manufacturers are missing out if they don’t respond.”
Courtesy of the North Queensland Register