CHAPTER 1
BACKGROUND: SETTING THE SCENE
Introduction to Part 1
1.1 The report consists of seven chapters divided into three parts.
Part 1 consists of Chapters 1 and 2, Part 2 contains Chapters 3, 4 and 5 with Part 3
composed of Chapters 6 and 7. Chapter 1 of Part 1 is largely an introduction to the issue
of value-adding in agricultural production with Chapter 2 providing an examination of
several significant industries involved in value-adding activities in Australia.
1.2 This chapter defines the concept of value-adding in relation to
agricultural production and sets out the importance of value-adding to the national
economy. By providing information on the structure of Australia's agricultural industry
and its performance in comparison with the manufacturing sector it is intended to provide
the reader with an appreciation of the context in which value-adding takes place.
1.3 A number of issues are introduced in this chapter that are dealt
with in greater detail in later chapters in relation to specific sectors of Australia's
agricultural industry. These issues include: research and development, Australia's
competitiveness in adding value to its agricultural production and Australia's exports of
value-added products.
1.4 The content of the chapter has been set out under the following
major headings:
- Definitions of value-adding;
- Importance of agricultural production in Australia;
- Structure of agricultural production;
- The importance to Australia of value-adding activities;
- Australia's value-adding enterprises;
- Australia's advantages in value-adding;
- Australia's competitiveness in value-adding;
- The performance of food processing and other manufacturing sectors
compared;
- Australia's agricultural based exports;
- Import of value-added products;
- The myth of value-adding;
- Costs vs benefits in relation to value-adding; and
- Strategies for value-adding; and
- Recommendations in the report.
Definitions of value-adding
1.5 There are a wide variety of definitions of value-adding. These definitions
can be simple or quite complex. In very simplistic terms value-adding
can be defined as an activity that gives a product or commodity a higher
value in the market place than would be the situation if no value-adding
activity had taken place. [1] The Victorian Government, in its submission
to the inquiry, stated that value-adding means any process or stage of
production that increases the value of a raw material. [2]
The then Minister for Primary Industries and Energy, the Hon Simon Crean,
in March 1992 provided a broad definition of value-adding when he stated
that value-adding can be defined as all the processes involved in making
a product more attractive to customers. [3]
1.6 According to Mr Peter McKerrow methods, other than production and
processing, for example better transport, storage, presentation, marketing
and promotion can add value to agricultural commodities. [4]
Mr McKerrow stated that:
Value-adding to agriculture basically means processing (or processing
and manufacturing) the raw (or unprocessed) agricultural commodity -
the form in which it leaves the farm gate. [5]
1.7 Mr McKerrow went on to advise that on occasion this definition is
extended to include any activity that increases the value of the product,
for example changing the form of an export, such as exporting live lobsters
instead of canned or frozen lobsters. [6]Often
for statistical purposes processed or manufactured products, involving
some level of value-adding, have been divided, depending on the degree
of processing or manufacturing involved, into:
- processed products;
- simply transformed manufactures; and
- elaborately transformed manufactures. [7]
1.9 There are considerably more complex definitions of value-adding than
those outlined above. For example, value-adding's established meaning
in economics, according to Dr Alistair Watson, an agricultural economist,
quoting G. Stoneham and J. Hider, is "the measure of the surplus
to capital, labour and land after other costs have been deducted."
[8]
1.10 In this report the Committee adopted a broad definition of the
term value-adding. The term has been applied to all processes involved in giving a product
or commodity increased value to a consumer compared to a situation where no value-adding
activity had taken place. The Committee accepts the view of the Department of Primary
Industries and Energy (DPIE) that the concept of value-adding:
Goes beyond simply moving from raw materials to a processed product;
it encompasses any activity that adds value to agricultural commodities.
Value-adding is added to agricultural production by creating new products,
modifying existing products to meet newly identified markets, developing
brands or specifications ... improving quality design in packaging and
storage, improving distribution processes, providing better customer
service and increasing promotional efforts. [9]
1.11 In formulating its definition the Committee has noted comments made
by the Australian Meat and Livestock Corporation (AMLC) calling for a
distinction to be made between “further processing” and value-adding.
The Corporation told the Committee, “the two terms are quite distinct
and should not, we believe, be used interchangeably.” [10]
1.12 In addition to farm based production the term rural production
includes activities such as fishing, aquaculture, forestry and hunting. However, the
Committee has chosen to interpret the term “value-adding in agricultural
production” in its terms of reference as referring to farm based value-adding
production. Therefore value adding activities in the fishing, forestry, aquaculture and
hunting industries have not been examined in this report.
Footnotes
[1] Evidence, International Wool
Secretariat, p. 141; see also South Australian Development Council, Value-Added Food
Processing in South Australia, Draft 24 May 1995, p. 3.
[2] Evidence, Victorian Government,
p. 26; see also Evidence, South Australian Government, p. 544, and Evidence,
Tasmanian Government, p. 782.
[3] Simon Cream, Value-adding in
Agriculture: A Government Perspective, Agricultural Science, Vol. 5, No. 2, March
1992, p. 25.
[4] James Walcott and David Adams,
Bred-in Added -value, Agricultural Science, Vol. 5, No. 2, March 1992, p. 34: see also
Submission, Queensland Fruit and Vegetable Growers, p. 1.
[5] Peter McKerrow, Value-Adding to
Agriculture, Agricultural Science, Vol. 5, No. 2, March 1992, p. 27.
[6] Peter McKerrow, Value-Adding to
Agriculture, Agricultural Science, Vol. 5, No. 2, March 1992, p. 27.
[7] Peter McKerrow, Value-Adding to
Agriculture, Agricultural Science, Vol. 5, No. 2, March 1992, p. 27.
[8] Dr Alistair Watson, Further
Processing of Agricultural Productions in Australia: Some Economic Issues, Research
Paper Number 5, 14 December, 1993, Parliamentary Research Service , Department of the
Parliamentary Library, p. 2. For more technical and complex definitions of value-adding
see ibid, pp. 2-4; James Walcott and David Adams, Bred-in Added -value,
Agricultural Science, Vol. 5, No. 2, March 1992, p. 34 and Peter McKerrow, Value-Adding
to Agriculture, Agricultural Science, Vol. 5, No. 2, March 1992, p. 27.
[9] Evidence, DPIE, p. 881. For a
very broad definition of value-adding which includes the building of relationships see Evidence,
AWB, p. 85.
[10] Evidence, AMLC, p. 324.