August 2, 2012

Australia may lose Asia agriculture export markets

Due to poor infrastructure, excessively strict regulation and expensive supply chains, Australia's growing role as the breadbasket of Asia's expanding middle class is under threat.

Philippa Purser, Cargill's managing director for Australia, said at a conference that the country's high labour and operational costs, as well as the strong Australian dollar, are threatening its export prospects in price-sensitive growth markets such as Asia and the Middle East.

With food demand over the next several decades expected to grow most quickly in these regions, Purser said Australia must become more competitive if it doesn't want to lose business to rivals in, for example, the US or the Black Sea region.

"At our oilseed processing plants, costs are higher here than anywhere else in the world," she said. "The supply chain is not as efficient as it should be and I think that is a real risk going forward."

Australia is a significant player in the world grain trade, exporting around 60% of its annual production. Increasingly, its wheat is supplying growing meat industries that feed Asia's middle class in China, Korea and Indonesia.

Yet with countries such as Russia and Ukraine taking a growing share of the world grain trade even as a mining boom is expected to keep the Australian dollar at historically high levels, even Australia's proximity to Asia may not be enough to ensure its farmers are competitive.

GrainCorp Ltd chief executive Alison Watkins said Australia would be much more competitive if regulations were relaxed to attract much-needed foreign investment.

Watkins said she supports a bill being debated in Parliament that would remove elements of the regulatory legacy of Australia's "single wheat desk" era, which formally ended with abolishment of monopoly bulk wheat exports in July 2008, to make it easier for exporters to enter the industry and develop long-term supply relationships, as well as expand port infrastructure for the future.

The current setup, in which exporters can find shipments stranded because of infrastructure bottlenecks, "undermines what we're trying to do as a country to project ourselves to be a reliable supplier to those key Asian and Middle Eastern markets," she said. "I would be much more confident to invest in a less-regulated environment than what we have today," she added.