A culture of innovation and entrepreneurship has simply never developed in Australian agribusiness. North Asian and Middle Eastern countries can’t buy enough of whatever we grow, and sending over the materials in raw form is an easy sale. Moreover, the high level of investment required to build value-added products and brands has been further exacerbated by the failure of Australian supply chains to globalise. Neither the dominant supermarkets nor the intervening logistics providers have ever had any global or regional presence, so unlike the mining sector where the big players have dragged their suppliers and service providers offshore with them, in agribusiness it’s been a comfortable but fragmented domestic status quo.
Only now are the chickens coming home to roost. Australian agribusinesses are being picked off regularly by overseas players. At the end of 2007, Australia was the most targeted country in the Asia Pacific, excluding Japan, with takeover bids in the agricultural industry totalling $4.2 billion. Just as China has been attempting to secure the supply of resources by buying stakes in the big mining companies, the world’s biggest agricultural companies are looking to control the supply of food. National Foods, Australia’s largest dairy farm business, was sold to Japanese company Kirin Holdings in December and in July last year Queensland Cotton was sold to Singapore-based Olam International. The largest bid to date was the failed $3.3 billion bid for Nufarm by a consortium led by China National Chemical Corporation.
Despite its best efforts to corporatise, Dairy Farmers all but threw open its doors to foreigners on the acquisition trail late last year when it put itself on the selling block. It had reviewed the pros and cons of listing for one last time. Speculation is rife that an overseas bidder will now buy up all or parts of the Dairy Farmers business, simply because the most likely candidates – Murray Goulburn and Bega – will find it too hard to compete with the bidders.
The most likely suitors include Goodman Fielder, New Zealand dairy co-operative Fonterra, Japan’s Kirin Holdings, Italian-owned Parmalat/Pauls, Singapore’s Fraser & Neave and Olam International, Europe’s Danone and Nestlé, and Saputo of Canada. Dairy Farmers was in the process of compiling a shortlist of bidders when The Diplomat went to print.
The next target of a foreign company is likely to be Australia’s biggest cattle grazing company, Australian Agricultural Company. Futuris announced its intention to sell its 43 per cent stake in the grazier late last year, and all of the potential buyers still circling are foreign.
It’s easy to see what all the fuss is about. Food is tight all over the world, simply because stocks are not keeping up with demand. And unlike in previous years, the mismatch is not purely the product of supply shocks.
Land and water scarcity are restricting supply, and under-investment in future production is helping to drive inventory levels to record lows. But exacerbating this deterioration in global supply is a decline in global food production subsidies and a significant diversion of land and crops to the rapidly growing biofuels industry in Europe, South America and the United States.
“Ethanol subsidies in the US are really skewing the market. Land that was used to grow wheat just a few years ago is now being used to grow corn, simply because operators have looked at returns per acre and gone with the crop that’s going to give the highest return,” says David Ginns, CEO of the Grains Policy Institute, a joint initiative of Graincorp and CBH Group.
Throw in the industrialisation of the developing economies and the ascendance of millions more consumers into the middle class, and the picture becomes a lot more complicated. The demand/supply fundamentals for soft commodities have changed. Craig James explains that demand stemming from population growth has a multiplier effect: as incomes rise in Asian countries, the demand for grain soars on the back of Westernising diets and the popularity of beef cattle, which are fed grain.
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