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The Future of Agribusiness

The Future of Agribusiness. GULF FUTURE VISIONS WORKSHOP WEDNESDAY 14 TH OCTOBER NORMANTON Keith De Lacy AM. The North Queensland Connection Historical Personal Rural. The Agenda The next boom – soft commodities Policy Issues The Gulf Challenge. THE SOFT COMMODITIES BOOM

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The Future of Agribusiness

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  1. The Future of Agribusiness GULF FUTURE VISIONS WORKSHOP WEDNESDAY 14TH OCTOBERNORMANTON Keith De Lacy AM

  2. The North Queensland Connection • Historical • Personal • Rural

  3. The Agenda • The next boom – soft commodities • Policy Issues • The Gulf Challenge

  4. THE SOFT COMMODITIES BOOM You can bet on it - Why? • The Population explosion • Urbanisation • Bio fuels • Global warming • Dwindling water supplies Paradoxically most asset prices are substantially down on 18 months ago – due mostly to the GFC, and the fact that hedge funds have been liquidating their positions (forward prices do not reflect fundamentals). But long term fundamentals cannot be denied.

  5. Reason 1:POPULATION GROWTH • The Global population is increasing by 87 million pa • Four times the population of Australia • Feeding those is challenge enough • And there are already 1 billion severely undernourished THE SUPPLY/DEMAND BALANCE IS ABOUT TO CHANGE EXPONENTIALLY

  6. Reason 2:URBANISATION The developing world is, well, developing... The biggest and fastest migration from rural poverty to urban middle class in history China alone: • 20 million pa – the population of Australia • 400 million knocking on the door of middle classdom India, Russia, Brazil, SE Asia ... LEADING TO A DRAMATIC CHANGE IN DIET AND INCREASE IN THE CONSUMPTION OF NEW FOOD AND FIBRE PRODUCTS

  7. URBANISATION (cont) “Growing consumer wealth in developing Asian nations is resulting in substantial growth in demand for animal protein.” (Australian Farm Institute (AFI) Report) Asian demand for protein over next 12 years (AFI forecasts): Beef +50% Pork and Chicken +40% (all feeding off global grain production) Dairy products +60% “Current global feed grain production growth rates, if maintained, will only meet about one third of projected increased demand by 2020.” (AFI)

  8. Reason 3:BIO FUELS • President George Bush challenged America to produce 35 billion gallons of non-fossil transport fuels by 2017 – to reduce dependency on imported oil. • The corn belt of America – from bread basket to fuel tank • Brazil already produces 30 billion litres of ethanol from sugar cane BUT WHAT IS IT DOING FOR FOOD SUPPLIES?

  9. BIO FUELS (cont) “The competition for grain between the world’s 800 million motorists who want to maintain their mobility, and its 2 billion poorest people, who are simply trying to survive, is emerging as an epic issue.” (Lester Brown, President, Worldwatch Institute) • UN World food program feeds 90 million people annually – mainly US corn. Now trend prices are set to increase exponentially. • The era of cheap food is over. The post-food-surplus era has arrived. • But it is the poor who are hardest hit. THE FLIP SIDE, A MASSIVE BOOST FOR FOOD PRODUCERS WORLDWIDE

  10. Reason 4: GLOBAL WARMING Climate change is leading to more intense rains, unpredictable storms, longer-lasting droughts, interrupted seasons, diminished water supplies ... (IPCC) IPCC predicted that rain dependent agriculture could be cut in half by 2020 as a result of climate change. The World Bank says climate change alone could reduce India’s crop yields by 30% by mid 21st century (India adds 20 million new mouths to feed each year) IS THIS ARMAGEDDON? BUT WHAT WILL IT DO FOR FOOD PRICES?

  11. Reason 5:DWINDLING WATER SUPPLIES “Water wars loom in a nation of parched fields.” (Matt Wade, India, 26/9/09) • 70% of world’s available water is used for irrigation • This water is under siege from wastage, population growth, urban encroachment, desertification, environmental demands ... “At current rates, world food demand will double by 2050. But the amount of water for irrigation purposes is going to halve.”Julian Cribb, Adjunct Professor of Science at UTS FOOD SECURITY REPRESENTS A MUCH GREATER CHALLENGE FOR MANKIND THAN CARBON POLLUTION

  12. AGRI POLICY ISSUES • Productivity • Water • Protectionism • Global Warming

  13. Issue 1: PRODUCTIVITY • The challenge: Increasing population, urbanization, reducing land and water, bio fuels, climate change ... • The answer: Productivity – science and technology, efficiency, economies of scale ... “If the present growth trends in world population, industrialisation, pollution, food production and resource depletion continue unchanged, the limits to growth on this planet will be reached within the next 100 years.” The Club of Rome 1972 (The Limits to Growth)

  14. PRODUCTIVITY (Cont) Arguably all these trends have accelerated, but... Contradictory result: Increased prosperity and security, esp for the poor – those living in poverty (less than US$3 per day) reduced from 50% of world population in 1970 to 17% in 2000 HUMANKIND HAS AN INESTIMABLE CAPACITY TO SOLVE PROBLEMS THROUGH INNOVATION, SCIENCE AND TECHNOLOGY.

  15. PRODUCTIVITY (Cont) So long as we continue to embrace the technology. “There is a ‘superstitious opposition’ to genetically modified (GMO) crops.” Can a hungry world afford this indulgence? Eg., CSR/UQ’s Sugar Booster Project (GM technology) can increase sugar content by 25% - but we can’t exploit it. Yet sugar is sugar, pure carbohydrate. “Food safety should remain of paramount importance, we should look at this emerging science on a case-by-case basis and open our minds to the possibility that GMOs can be a piece of the jigsaw puzzle as we face climate change and food security.” Tony Burke, Fed Minister for Agriculture

  16. Issue 2: WATER About half of the 70% of world’s available water which is presently used for irrigation is lost. There is a pressing need to introduce efficiencies, modernize infrastructure, and save water in storage and infrastructure systems. Proper pricing encourages investment in efficiency. “Irrigated food production is a pariah in the well-fed suburbs – a bit like uranium mining, or GM technology, or shale oil ...”Can a hungry world afford this indulgence? The Australian experience - Cubbie? The Food Bowl modernisation Project on the Goulburn-Murray Irrigation system?

  17. Issue 3: PROTECTIONISM Agriculture protection the world over has kept farmers poor! “The multilateral system (a world trading regime governed by predictable, enforceable and transparent rules under auspices of WTO) has underpinned the most successful fifty years of human existence.” Mike Moore former DG of WTO The free trade dividend – In the last third of the 20th century poor countries that opened up to international trade and investment grew 6 times faster than those that did not. North Korea? China? Australia? The more you protect the uncompetitive the more you entrench the uncompetitive A subsidy on one man’s job is a tax on another’s Protectionist sentiment is growing again under the umbrella of GFC and ETS (green) politics

  18. Issue 4: GLOBAL WARMING Heads you lose, tails you lose!! If carbon emissions really do lead to global warming, then according to the IPCC you get ‘more intense rains, unpredictable storms, longer-lasting droughts, interrupted seasons, diminished water supplies ...’ But if the sceptics are correct, you get the CPRS anyway.

  19. GLOBAL WARMING (Cont) CPRS – Agriculture to pay for animal emissions by 2016 – leading to losses to farming sector $10.9 billion by 2030 (Centre for International Economics) 126,000 jobs to be lost in regional Australia by 2020 (Access Economics modelling) CPRS will result in 20% decline in regional economies. (NSW Gov research) And even in the short term the ag sector will pay for the rest of its carbon footprint - substantially increased costs for energy, fuel, fertilizer, chemicals, transport ...

  20. GLOBAL WARMING (Cont) Australian farmers among most efficient and least subsidised GOVERNMENT SUPPORT AS PERCENTAGE OF FARMING INCOME: Australia 4% US 17% EU 31% Japan 60%

  21. GLOBAL WARMING (Cont) Ag is at the end of the line – absorb all costs but pass nothing on, especially in export markets unshackled by carbon imposts. And will it really make a difference? “We need to save the world from global warming so that they can all die of hunger!” anon “The biggest threat to agriculture over the next half century is not climate change, but climate change policy.” Mick Keogh, AFI

  22. THE GULF CHALLENGE • The Strengths • The Weaknesses • The Threats

  23. Challenge 1: STRENGTHS • Lifestyle – the country, sense of community – cherish it, make a virtue of it • Environment – fresh air, climate, unspoiled country, the fishing ... • Resources minerals - highly mineralised NW Mineral Provence grazing - live cattle exports fish resources – Northern Prawns, estuarine, recreational environmental resources - lifestyle, environment, fish etc

  24. STRENGTHS (CONT) Water - highly over estimated in metropolitan Aust – but a massive asset in a hungry world. Proposed Gilbert River Irrigation scheme – great potential, but many challenges. Make sure it is modern, with economies of scale to do its own research, marketing etc PLAY TO YOUR STRENGTHS – there is great capacity to develop mineral deposits, irrigation, eco tourism, attract the grey nomads ...

  25. Challenge 2: WEAKNESSES • Significant socio-economic disadvantage • Low population – both numbers and density (makes economic provision of services etc very difficult) • Isolation – from markets (rules out so many economic opportunities), services, influence etc • Rudimentary services – Infrastructure,communication, transport ...

  26. Challenge 3: THREATS • Global warming – a hiding to nothing • Environmentalism “A quasi religious blend of new-age nature worship, junk science, left-wing political activism and anti-profit economics.” Walter Starck • Attitude – a negative or siege mentality is economy destroying. Be positive, be tolerant, be creative, be progressive, and be sustainable Play to your strengths, accentuate the positives, stress the virtues • Resources driven $A - the $A is a commodity currency – this creates problems for exporters, and for tourism (more expensive for overseas visitors and cheaper for Australians to travel overseas. • Capricious Government decisions (out of sight, out of mind)

  27. THE END Keith De Lacy AM

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