Australia’s role in securing the food, water and supply chains of Asia

Dr Ken Henry, (former Treasury Secretary) has provided an insightful and realistic assessment of the role for Australian agriculture in Asia in the latest version of NAB's Corporate Finance Insights.

Outlook

Over the last 50 years, the world’s population has grown about 120 per cent. At the same time the world’s production of food grew by about 180 per cent. So food production has outstripped population growth by some margin. Today Asia consumes more than 50 per cent of the world’s total food production.

As consumer numbers rise, they are are also becoming wealthier – in terms of incomes and real wealth. Today there are about 500 million people throughout Asia, including South Asia, who are regarded as middle class. By 2030, that number is expected to be 3.2 billion people.

There are some products – meat, milk and eggs, vegetable oil and sugar – that are subject to increasing demand at a more than proportionate rate with income. In Australia today average meat consumption is between 100 and 110kg/person. In South Asia it’s 5.5kg/person. But by 2050 it will probably be 18kg/person. In East Asia more meat is consumed already – 40kg/person increasing to 75kg/person/year.

The spectacular growth in global food production in the last 50 years was made possible by more intensive irrigation. Today 80 per cent of Asia’s fresh water is devoted to irrigation agriculture. And there are significant water quality problems already being encountered, particularly in China and India.

Although a major increase in food production has occurred with the introduction of new crop varieties, fertilisers and irrigation, crop yield growth has stagnated recently. In addition, agricultural input costs have been increasing strongly and trade policies throughout the region remain poor.

Opportunities for the future 

There are opportunities – in particular for Australia. We probably grow enough today to feed 40 to 60 million people. And it’s possible that Australia could double or even triple its current level of food production.

But even if we were to triple our food production, we would be feeding only a very small proportion of the world’s population – and only a very small proportion of the Asian population. We couldn’t even aspire to feed more than one-twentieth of Asia’s middle class, no matter what we were to do with our agricultural production.

But with Asian food demand doubling over the next 40 years as predicted, and with a premium being placed on high quality, safety and reliability, there is an extraordinary opportunity for premium Australian produce.

There is a role for Australian businesses in securing niches in global supply chains and indeed in regional supply chains closer to home, through partnerships that are built on trust, mutual respect, and focussed on quality, reliability and safe product.

The Asian agricultural and food production sectors produce mass product at low cost. That is not our future. Our future is in high quality product. But we’re only going to secure that future if we have a good understanding of Asian culture, of the way business is done in the region, and if we have businesses that are capable of securing partnerships in regional and global value chains.

We also need to do whatever we can to further develop an Australian national brand. And that brand is going to be a clean, safe, secure brand. That’s the area in which we’re going to be able to secure a future.

The February 2014 version of Corporate Finance Insights is available on the NAB website.