More investment needed to nurture food sector

Australia's food industry needs to receive significant reinvestment if it is to play a meaningful role in meeting some of the soaring demand for high-quality food from China's emerging middle classes, according to industry leaders.

The federal government also has been urged to get serious about setting a national strategy for the agribusiness sector, with the signing of a free trade agreement with China considered a priority.

Taking part in a round table discussion hosted by HSBC yesterday, Freedom Foods' boss Rory Macleod and Graham Greenhalgh, who runs beef export giant Sanger Australia, said there was no doubt about the ample opportunity that the Chinese market represented for Australia. However, capitalising on the increased demand for Western-style diets, including meat and dairy products, would require significant planning and investment, they said.

"If I use dairy as an example, we have gone backwards," said Mr Macleod, whose Australian Securities Exchange-listed company turned over $115.5 million in revenue last year, manufacturing specialised health foods including long-life beverages and dairy milk.

"That's concerning; it means there hasn't been a lot of investment. "We have got to go through a period of reinvestment if we're going to make it work."

The pointed comments come as international interest in Australia's agribusiness assets has become the subject of intense national interest, following last week's controversial decision by Treasurer Joe Hockey to block US giant Archer Daniels Midland in its $3.4 billion bid for GrainCorp.

Meanwhile, Australia's dairy industry is teetering on the verge of consolidation, as local and international food and beverage giants circle the Warrnambool Cheese & Butter company, which is the subject of a $500 million hostile bidding war, and Bega Cheese, which could be the next local processor likely to attract a takeover approach.

And just as Warrnambool's suitors have been largely motivated by a need to shore up supply of fresh milk, Mr Greenhalgh said ensuring consistent supply was one of the biggest challenges for his own business, which exports products ranging from from chilled cuts to meat that requires further processing.

Mr Greenhalgh said working closely with suppliers was crucial, as was improving the supply chain, so that all participants could benefit.

"We've got to do a better job to pass value back to farmers," he said.

The NSW-based company, which recently reported revenue of $463m for the 2012-13 financial year, has been supplying Chinese customers "on and off" for the past 15 years.

More recently, however, inquiries from China had increased, Mr Greenhalgh said.

"A couple of years ago, the trickle became a flow and then a rush," he said, adding that the country now accounted for about 20 per cent of the group's sales.

However, Mr Macleod warned that keeping up with demand coming out of high-growth markets such as China remained a significant challenge for many food producers.

"What the Chinese don't want to hear is you'll have capacity (to supply) in two years' time," he said.

"You have really got to keep up with that market growth."

Although Freedom Foods' core offering for its Australian and US markets focuses on the growing trend for wellness, including the demand for organic and so-called "superfoods", as well as products catering to food allergies and intolerances, the emphasis in China is largely

on the provision of quality and safe food.

Mr Macleod also stressed the importance of relying on the knowledge and expertise of his local business partners, who knew precisely what Chinese consumers were demanding.

He said Australia's niche in the market would be its ability to supply premium-end, value-added products.

Both executives have called for the government to prioritise the signing of a free trade agreement with China.

Mr Macleod argued that Australia's dairy exporters, in particular, were at a significant disadvantage to those across the Tasman.

"We don't have a clear federal government strategy," he said.

"I'm not being critical, but there's no macro strategy . . . on where are the areas we need to incentivise."

Source: The Australian, 5 December 2013