Speech
Food and Grocery Council Address
October 28 2009, Canberra
Introduction
I'd like to thank Kate Carnell [Chief Executive] for her generous invitation to address the Council's annual conference this year.
I am pleased to be addressing a group of business people with so much experience in one of Australia’s vital industry sectors. Whether big or small, the 38,000 companies which comprise Australia’s fresh and processed food, beverage and grocery industry represent a manufacturing colossus.
Indeed, by any standard, an industry has to be rated as a colossus if it turns over $100 billion a year, employs 315,000 Australians and annually exports $25 billion worth of goods.
In fact, the food and grocery industry is Australia's biggest manufacturing sector, with almost half its workforce in rural and regional Australia.
It contributes 2.5 per cent to GDP and is comparable in size to the mining sector, and four times the size of the automobile sector.
Without the Council's efforts over the years, however, many Australians would be unaware just how much the industry adds to growth, employment and overall food security.
So I congratulate Kate and her team on their efforts to get the Council's positive message out to the community.
Food and groceries are a vital sector of the Australian economy and the Council, with its 150 members, plays an important role in the public debate over economic policy and trade.
Current Food Industry Issues
That said, the food and grocery industry is grappling with a lot of direct and indirect challenges.
The links between diet and health, and the problem of obesity, are making Australians think more about what they eat or drink and why.
The world food supply, so critically dependent on water and weather, is under pressure from a rapidly increasing population and climate change.
Of increasing concern is food safety and the need for consumers to feel their purchases are free of contamination and safe for their children.
China’s milk contamination scare last year, when poisonous melamine was placed in dairy products to give the appearance of higher protein levels, is a case in point.
Climate change, as well, is compelling some nations to consider ways of changing the price of carbon through cap and trade schemes.
The industry’s concern is that such schemes can raise the price of critical inputs, such as fuel, thereby adding to the cost of food and goods and services in general.
If other nations do not price carbon, the resulting inequality in carbon pricing can give some companies a competitive advantage, especially in trade, and provide an incentive for their competitors to re-locate offshore.
Recently, the global financial crisis emptied the hip pockets and diminished the spending of consumers right around the world.
As economies went into recession, jobs were lost and with them the income necessary to buy food to sustain the industry during hard times.
Despite these challenges, I believe there is room for optimism.
The Australian Government's efforts to promote trade and investment through the World Trade Organization and regional and bilateral Free Trade Agreements offer terrific benefits to food exporters.
We are optimistic that greater market access, and sensible reforms at home, can help the little kiosk we call Australia benefit from our unique geographic position on the edge of Asia.
Economic and Trade Agenda
It has been a big two years for the global economy and the food, grocery and beverage sector in Australia knows this better than most.
Not since the Great Depression have we seen such a rapid downturn in the real economy follow a crash in the financial markets.
The contagion which began in the United States spread to Europe and parts of Asia, and Australia did not remain unscathed.
But as the global recovery slowly takes root, Australia's economy is looking better than most in the advanced world. And when you consider that some of our biggest markets to the north, in China and India, are still growing strongly, the outlook is more positive than it was last year. This was no accident.
The Government took decisive fiscal action to stimulate the economy and guarantee bank deposits which, along with record low interest rates, helped Australia so far to avoid a recession. As a result, Australia’s remains the only economy out of all the advanced economies that will grow this year. And according to the IMF, the Australian economy is expected to rebound in 2010 with a forecast growth of 1.5 per cent.
Two important developments emerged during the GFC that have a bearing on the future of Australian exports.
The first was the critical importance of the G20 group of nations as a global body for economic policymaking.
The G20 meetings this year have been the driving force of the ideas behind the global recovery, and the G20 has now been officially recognised as the central global economic and financial institution.
With the Australian Government’s support, the G20 leaders agreed on the need for effective stimulus packages to lift the global economy and for stronger financial regulation to stabilise credit markets.
The G20 also backed the need to finalise the Doha Round of the WTO and endorsed a new model of stable and balanced growth which may change the spending patterns of export-oriented economies.
To achieve more balanced growth, economies which run large current account surpluses might begin to switch more of their spending to imports, which will benefit exporters like Australia.
The second development was Australia’s steadfast commitment to liberalising trade during this period, capped by the signing in February of the FTA between Australia, New Zealand and the 10 nations of ASEAN.
Known as AANZFTA, it was signed despite the downturn in some of the world’s biggest export markets and the subsequent re-emergence of protectionist sentiment.
AANZFTA was signed because when it comes into force it will create a single free trade zone of 600 million people, with a collective GDP of US$3.2 trillion.
When it is finally ratified and comes into force, AANZFTA will benefit Australia’s food exporters, just as Australia’s five other FTAs have done.
Australia is negotiating or considering nine other bilateral FTAs, including with China, Japan, Korea and India.
In 2007-08, Australia exported food worth A$4.3 billion to the ASEAN region and as the global economy recovers and AANZFTA begins, we expect this to increase demand for our exports.
The Food and Grocery Council has supported Australia’s trade agenda right from the beginning, and was part of the official Australian delegation at the start of the Doha Round in November, 2001.
Australia as Asia’s Supermarket
Improved market access is just one way for the Australian food sector to increase its exports into Asia, but overseas consumers also have to want to buy our products.
In Australia's case there can be little doubt that they do. The real question is how to keep our exports and investments growing.
The value of Australia's food, beverage and grocery exports in 2008-09 was A$25 billion, or 11 per cent of total exports and 25 per cent of total manufactured exports.
Meat, dairy and wine remain our three largest export markets and out of 185 different overseas destinations, Australia’s exports are largely concentrated in our top ten markets.
We believe there is a constellation of commercial forces which make Australian products very attractive to Asian consumers and others around the world.
Two in particular stand out as major long term factors.
They are the growth of Asia's middle class and the solid reputation of Australia's brand, its image as a safe, friendly and attractive nation which produces reliable, healthy products, such as food.
Already, Asia produces about one third of global output, and within the next decade, driven by China and India, the region will become the centre of global growth.
Goldman Sachs forecast in July that by 2030 two billion new people may have joined the global middle class, as defined by an annual income of between US$6,000 and US$30,000.
The report found that people who number in China's middle class went from 1 per cent in the 1990s to 35 per cent today.
By 2020, about 70 per cent of China is expected to be middle class.
While in India, the size of its middle class has grown from one per cent in 2000 to five per cent today, with the vast majority being middle class by 2040.
These demographic shifts will have an enormous impact on consumer spending patterns and the Australian food industry is aware of the importance of these trends.
In 2008-09, Australia's top export destinations for food were Japan, the US and New Zealand, and four of the top ten were in Asia, with six in the Asia Pacific region.
Asia’s growing middle class wants more of the types of food and grocery products which Australia’s industry can provide.
This is because the middle class tastes of Australians, who have one of the world's highest standards of living, are already catered for by an advanced food and grocery industry.
As well, the expertise and efficiency of the Australian food and grocery sector is likely to attract more foreign investment, and the purchase last month of Lion Nathan by one of Japan's biggest breweries, Kirin, is a good example.
Consumers joining the middle class will typically buy more cars, newer and bigger houses. They will also adopt new lifestyles and habits, such as drinking wine and eating healthier food, which reflect their higher standard of living.
Value-added exports such as specialised food products or drinks typically earn greater export income than unprocessed food.
Australian food producers are in the enviable position of being able to export some of the freshest and highest quality processed food.
The Australian brand helps here. It brings with it a certain cachet of excellence in the very areas that increasingly concern people, whether that be health, food quality or its freshness.
When consumers see an Australian product, they believe it carries a valuable imprimatur, one that tells the customer that the product is safe, healthy and fresh and worth buying.
Conclusion
These have been challenging times for the global economy, and the same can be said for the food, grocery and beverage sector in Australia.
The GFC has weakened global demand for exports and, recently, the stronger Australian dollar has put pressure on exporting margins.
Import competition, on one estimate, has increased by 40 per cent over the past five years, mainly in the processed fruit and vegetable sector.
But we have faith that this great sector of the Australian economy will face the challenges in the years ahead and take full advantage of the tremendous opportunities to our North, in the growth economies of Asia.
By looking to the long-term forces in the global economy, such as the rise of a global middle class, and by utilising our positive brand as a maker of healthy and safe products, the industry will weather these complicated times.
Austrade, the Australian Government’s export and investment promotion arm, is ready to assist exporters and investors through its global network of offices and advisers.
I'd like to thank the Council again for inviting me here today to explore some of the issues facing your industry, many of which are of great importance for all Australians. Thank you.
ENDS