The Hon. Tony Abbott MP, Prime Minister of Australia

8th August 2014

The Hon. Tony Abbott MP, Prime Minister of Australia

The Hon. Warren Truss MP, Deputy Prime Minister, Minister for Infrastructure and Regional Development

Parliament of Australia

The Green Paper on Developing Northern Australia: Ridley Corporation’s response

Dear Prime Minister Abbott and Deputy Prime Minister Truss,

Ridley Corporation applauds the Government for commissioning a White Paper to explore Australia’s opportunity to develop the economic potential provided by the northern regions of the country. We also support a strong bi-partisan approach in partnership with industry to address the outcomes of the white paper. An important natural advantage is the AgriFood industry; hence Ridley also supports outcomes and recommendations which are aligned with those of the Agricultural Competitiveness White Paper. Australia must be united in its approach to government policy and direction to successfully deliver on the potential for sustainable economic growth.

Northern Australia is unique in its proximity to Asia and its much publicised growth in middle class demand for safe, quality and sustainable food. The region provides enormous potential to improve the development, productivity and competitiveness of agricultural land, as well as the value-adding agri-food supply chain. However, there are key challenges to our ability to realise this potential, some which are similar to those faced by the southern regions of Australia, however they are further exacerbated by its climate, its geography and its sparse populations. This often means that despite the longer-term potential in the North, scarce resources and capital are often re-directed towards more established and developed Southern economies.

The role of Government

This brings into question the role of government in the development of North Australia. Arguably government must create favourable platforms for private sector investment, particularly in times of public sector resource scarcity. Furthermore, the approach to prioritising limited public sector funding needs to strategically focus on areas of market failure, such as commercially critical infrastructure in areas of low density population, which are holding back a qualified private sector desire to invest and greater industry growth.

The AgriFood Industry advantage

Agriculture and farming underpins the strength and profitability of other agribusinesses and manufacturers in the supply-chain, Ridley is one such company. Ridley is Australia’s largest independent supplier of animal nutrition solutions We support food producers in the poultry, dairy, aqua, pig, cattle, sheep, horse and pet food sectors. We are ASX listed (RIC) with over 650 employees spread across regional Australia. We have more than 20 sites with an annual turnover in excess of $800m. Specifically in Australia’s north, Ridley has a supplements manufacturing mill in Townsville. Our production and supplementary feeding program helps support the pastoral industry in Northern Australia, which contributes 57 percent of the region’s total agricultural production and 45 percent of the entire national heard[1].

To reinforce Australia’s role as an AgriFood leader, it is important to build strong AgriFood supply chains. Competitive supply chains are highly interdependent, where a successful manufacturing and processing industry is also dependant on a thriving agricultural industry. This is especially true of animal feed where both our customers and suppliers are often farmers. This interdependence between agriculture, processing and manufacturing is also evident in many other agribusiness sectors such as dairy processing and manufacturing, meat processing, gain handlers and marketers...etc. Australia has a natural competitive advantage in its AgriFood and to achieve the enormous potential Australia is capable of, government policy must consider both agriculture and manufacturing.

Resilient AgriFood supply chains will enable industry to benefit from this country’s natural competitive advantages, which lie in our geography and proximity to Asia. This is particularly true of Northern Australia. Australia’s abundant, fertile and diverse land coupled with our relatively small and resilient population, which provides us with the highest rate of arable land per capita in the world. We can however choose to use these qualities to our advantage by creating a competitive environment for our agribusiness to flourish, or choose to take them for granted. Developing Northern Australia will require long term vision and a genuine desire from government to make the regulatory and fiscal changes necessary to enable profitable private investment.

Strong and integrated supply chains extend well beyond the farm-gate and include agri-processing and value-added agricultural products. There exists a strong economic multiplier effect in processing and manufacturing, which Australia can apply to its inherently competitive industries, notably AgriFood. This is an industry in which Australia not only can be competitive, but should be competitive. Policies and taxation should reflect the importance of manufacturing to competitive agriculture.

To appropriately support a competitive AgriFood industry in Australia, a common and strong brand is necessary to promote the strengths and advantages Australia holds compared to our numerous global AgriFood competitors. They include Brazil, the United States of America, and the European Union, among many others with varying strengths in different commodities, processing and manufacturing. Australia is not alone in trying to capture the growing lucrative premium market in Asia and elsewhere. The competition is laudable and credible branding can provide the necessary cut through for the gaggle of international brands.

We would like to recognise the commendable efforts of Austrade in the research, analysis and development of messaging and groundwork for a national food brand. However government budget cuts have prevented the next stage, which consists of the development of a brand identity and imagery. This hiatus will potentially damage the momentum created in addressing Australia’s fragmented market. Ridley strongly supports the development, completion and effective implementation of a compelling national food brand. We will continue to advocate, explore and lead solutions to maintain the current momentum with relevant industry associations, such as the Australian Food and Grocery Council Agribusiness Council. However even if a national food brand is industry lead, government involvement and support is still necessary to address alignment and the fragmented State Government branding in this space. A successful and united ‘Brand Australia’ can only exist through joint government and industry investment and collaboration.

Infrastructure

Despite the Abbott government’s commendable emphasis on infrastructure investment, further focus is required specifically on rural and regional infrastructure. This is especially relevant to Northern Australia, and includes an effective and timely NBN roll out, rail infrastructure, road & port infrastructure, and services.

North Australia already has a number of large scale infrastructure projects in the pipeline. However, many important projects fail to make the cut as National funding is prioritised on a ‘risk and return on investment’ basis which often focuses on short-term returns. Using this narrow criterion, projects in southern and more densely populated regions of Australia are favoured. To address the potential medium to long term opportunities in Northern Australia and to enable viable and substantial private investment; the government will also need to address the infrastructure investment market failure in North Australia, and not only the market opportunities with greatest short-term return. Where there is a reasonable opportunity for the private sector to profitably fund infrastructure projects in more populated southern regions, government should focus on creating favourable regulatory and fiscal platforms rather than co-funding. This will enable greater funding to be directed towards areas of market failure and of substantiated potential growth.

Australian agribusiness need aholistic and connected view of infrastructure investment strategies and harmonisation. This view requires an identification of competitive infrastructure pipelines from farm gate to domestic and/or foreign customers. For example, rather than investing in roads in isolation, which may divert the transport of product from potentially more effective transport channels and increase heavy vehicle traffic, governments and industry can collaborate to identify the most efficient combinations of infrastructure for different AgriFood sectors and in different geographic locations. This might look like b-double standard roads at the farm-gate, then nationally consistent rail infrastructure across multiple States to competitive ports. These infrastructure pipeline solutions need to be viewed in the national context to address situations where transport infrastructure is incompatible due to different rail gauges in different States.

Taxation and fiscal policy

Processing and manufacturing are capital intensive by nature. In a highly competitive world, best in class machinery and technology require a taxation regime which includes accelerated capital depreciation to enable Australian companies to innovate and to stay ahead of the curve. Australia’s high cost of labour, relative to other arguably more competitive manufacturing nations in our region, is another important reason to encourage automation through capital investment in machinery and technology. As the cost of labour is unlikely to dramatically decrease in Australia relative to competitive next best alternative, it is important for agribusiness to operate using the most cost effective and productive technology, processes and number of employees.

Talent, education and training

Sustainable sources of talent need to be created in tandem with creating economic growth opportunities. The decreasing pool of graduates in agricultural sciences and experienced AgriFood candidates is an Australia-wide challenge. However the isolated nature of much of North Australia can compound the difficulty in attracting short or long term human resources.

Education among farmers is critical to their ability to maximise farm profitability. Tertiary education, including Agricultural Colleges, is a good foundation for improved farming practices. However, much can be achieved in the short to medium term through on-the-job training, best practice awareness and capability building. Formal Government support for industry led farmer training and education programs would go a long way to accelerate a transition to improved farm practices and profitability – particularly for the most promising farms which are struggling to step up without the support to do so.

A consistent and positive approach should also help attract young and new entrants into the agricultural talent pipeline. Like many agribusinesses, Ridley is concerned by the lack of interest from young talent and is investing in programs to promote agribusiness. These programs include alliances with universities, sponsoring PHD candidates, supporting women in manufacturing forums and an emerging leaders program among others. However, much more can be done through greater industry and government cooperation.

Consistent messaging regarding best practice in farming across various industry players, government and educational institutions will assist farmers to cut through the ‘noise’ to improve their productive practices. As the pastoral industry is so prominent in North Australia, this should specifically include a focus on increased pasture improvement practices to drive better feed conversion efficiencies. Animal feed can be one of the highest input costs for farmers; however an advanced understanding of feed ratios can also be an important contributor to on farm productivity, profitability and growth.

Government funding

The criteria attached to many forms of government funding are dependent on the number of employees directly generated by the investment in question. More employees per project does not necessarily equate to more competitive and sustainable agribusinesses or industries which will contribute to the Australian economy well into the future. This is a short term view of investment returns. The most competitive and sustainable processing and manufacturing businesses have lean employee numbers but more importantly, they are capable of generating a considerable multiplication in economic benefits and increase employment in the supply chain.

A more sophisticated criteria for government funding aimed at processors and manufacturers in AgriFood supply, should consider job creation in the total supply chain as well as direct employment and other strategic factors contributing to the Australian economy. This will result more effective use of limited government funding, and an improved capacity to address market failure where it exists.

Policies which encourage and support collaboration in the supply chain and across agricultural sectors can help reduce fragmentation, and strengthen economic synergies. For example, Ridley can helpimprove farmer profitability and sustainability through consistent and quality animal feed, which improves yields and heard health, the quality of milk, meat and eggs...etc. These improvements translate into better returns at the farm gate, and also provide a superior product and branding proposition to engage new and existing food markets. There are many other examples where improved collaboration through the AgriFood supply chain can improve farm gate and agribusiness profitability. Farms cannot operate in isolation to a competitive supply chain.

Innovative financing

This collaboration can also extend to financing solutions. Financial innovation can help alleviate challenges at the farm-gate and smooth out the Agricultural cycles. Partnership opportunities exist between farmers, agribusinesses and the banks to explore adapted financing solutions and risk sharing models, especially where there is market failure.

For example in the Dairy industry, during the lactation period farmers generally have good cash flow, which they can spend on the farm and on appropriate supplementary feeding. Consistent supply of high quality supplementary feeding throughout the year is a proven practice across Australia’s best dairy farmers in a bid to improve milk quality and volume. However out-side of the lactation cycle, cash flow is often much tighter and some farmers will cut their spending, including spend on feed. This will directly impact their yields and quality of product when the lactation cycle comes back around, providing the farmer with less revenue and less profit – a vicious cycle.

The ability to provide farmers with consistent financing throughout the peaks and throughs of their industry cash flow cycles, combined with improved education in effective farm and financial management techniques will depend on the ability of farmers, agribusiness and banks to collaborate on innovative solutions to match.

Innovative financing solutions can also extend to Public Private Partnerships (PPP), where risk sharing models can be adapted to the cyclical nature of agriculture, which also impacts the AgriFood supply chain. Agribusiness is a long-term proposition. Some projects may require government to assume a greater proportion of risk in the short-term, and given specific milestones, hand-over more risk to private investors in the medium to long term.

Improved international market access

International market access for Australian AgriFood products is critical to our competitiveness in Australia as in the northern regions, as our small domestic market alone will not enable economies of scale. This is widely acknowledged, accepted and is evident from the fact that Australia exports 60% of its produce. However, value-added (processed and semi-processed) products often receive less attention in trade negotiations than commoditised agricultural produce – both are important to achieving maximum benefits from supply chain integration and creating an economic multiplier effect. Economies of scale through improved trade access create a critical mass for manufacturing in Australia. A lack of critical mass leads to a negative cycle of plant shutdowns, then manufacturing ‘clusters’ start to break up threatening the viability of the entire industry.