Chapter 1.2
Committee observations
1.35 Although agriculture's proportionate contribution to
Australia's GNP and labour force has declined over the years it still makes a very
significant contribution to the national economy, particularly in regional areas, and will
continue to do so.
1.36 The Committee accepts that the emphasis on the importance of value-adding
to Australia's agricultural production has possibly been over rated at
times. However, given Australia's level of foreign debt and current account
deficit it is the view of the Committee that Australia must seek out every
opportunity to increase the level and value of its exports. The Committee
agrees with the comment of the South Australian Government that although
Australia is an efficient exporter of bulk agricultural commodities it
must, when the opportunities appear, “shift its agricultural export
profile up the trade spectrum to higher value added products”. [50] Value-adding activities related to agricultural
production must be encouraged at all levels, not just due to resulting
trade and balance of payment benefits but also because of the benefits
to the national economy through increased employment opportunities and
the broadening of our manufacturing base.
1.37 The Committee believes that value-adding to our agricultural production
should be viewed as part of an attempt to broaden our manufacturing base.
The Committee acknowledges a magazine article published in July 1991 which
argued that value-adding translates into a “recognition of the need
to change from the traditional production-driven approach of Australian
agriculture to a market-driven system.” [51]
Australia's value-adding enterprises
1.38 The Australian food and beverages sector comprises more than 3
500 firms ranging from small specialist food processors to large multinational food
corporations. A relatively small number of large firms account for most of the production.
In 1992-93 the number of firms involved in food and beverage production decreased by over
5 per cent from the previous year. Small firms with fewer than 100 employees account for
nearly 30 per cent of total turnover and around 34 per cent of employment in the industry.
In 1991-92 more than 50 per cent of establishments in the industry employed in excess of
200 employees. The Agri-Food Industries Branch of the then Department of Industry, Science
and Technology stated:
Compared to the manufacturing sector as a whole, the food and beverages
industry has a lower proportion of small enterprises and a larger proportion
of medium-sized enterprises. [52]
1.39 How large value-adding enterprises have to be in order to be successful
is a point of contention. It has been argued that size can be an important
determinant of the ability of Australian food processors to adopt technologies
that permits them to become internationally competitive. According to
this view any attempt to limit size, or market penetration, by a processing
company would be an impediment to growth “firstly in Australia then
overseas”. [53] However, this is
not a view that is universally accepted. It has been argued that small
scale and limited output can give rise to “unique, scarce, highly
priced, premium produce.” [54]
1.40 The foreign ownership of food processors has been citied as a possible
cause of the concentration of food processing activities in Australia.
The aggregate turnover of Australia's 38 major food and beverage companies
during 1988-89 was $19.7 billion. This was just over 65 per cent of Australia's
total food and beverage turnover for this period. Of these 38 firms, 12
were 100 per cent foreign owned. The total turnover of these firms was
$6.4 billion, or about 32 per cent of the total for the 38 firms. Australian
and foreign interests jointly owned an additional six companies. These
firms also had an aggregate turnover of $6.4 billion. Firms with wholly
Australian ownership accounted for about 35 per cent of total turnover
of the major food and beverage companies in Australia. [55]In
August 1995 the company Pacific Dunlop sold its food division to Nestle
and the J R Simplot Company of the United States. This sale made Nestle's
the second largest food group in Australia. [56]
1.41 As of 30 June 1993, foreign investment in the food and beverages
industry stood at $14.5 billion, an increase of $803 million on the level
recorded in June 1992. It was estimated in 1995 that the figure of $14.5
billion represented roughly a quarter of the total level of foreign investment
in Australian manufacturing, and just under 5 per cent of the total foreign
investment in all Australian industries. The Committee understands that
of June 1995 Australia's food and beverage industries had anticipated
investments, during 1995-96, in their industries would reach $2.275 billion.
[57]
1.42 Increasing “globalisation” of the value-added food industry
has led to the development of a number of Australian owned companies with
large financial bases. Companies such as Goodman Fielder, Burns Philip,
Bonlac Foods and the Australian Dairy Corporation, along with large brewers
have established overseas operations in areas such as Asia, North America
and Europe. [58]
1.43 The 38 major Australian food and beverage companies did not include
companies involved in the meat processing industry. This is an industry
that has traditionally had a relatively high level of foreign ownership.
As of 1991, 27 of the 77 beef export abattoirs in Australia had some foreign
ownership. Of those with foreign equity, 15 had Japanese interests. However,
in total, Japanese control of companies involved in meat processing was
not large. In 1990, 9.5 per cent of cattle slaughtered in Queensland and
11.4 per cent in New South Wales were killed in abattoirs that where,
in part, Japanese owned. [59]
1.44 A report by the Japanese Ministry of Finance indicated that during
the year ending March 1994 Japan had directed 70 per cent, or $840 million,
of its foreign investment in food processing to Australia. This accounted
for one third of total Japanese direct investment committed to Australia.
A large amount of this increased investment was allocated to the dairy
and beef sector. [60]
Committee observations
1.45 Despite concerns expressed during the inquiry regarding the
domination of Australia's food and beverage companies by overseas companies the Committee
would be concerned if this development results in a serious lack of competition in the
domestic food market leading to a detrimental affect on consumers or primary producers, or
a loss of access to export markets. During the inquiry the Committee received no concrete
evidence that such consequences have resulted due to the purchase or investment in
Australian food-processing companies by overseas interests.
1.46 The Committee accepts that the globalisation of value-added
food industries is likely to continue and that the benefits of such a development have not
been given adequate attention. Foreign ownership of food processing firms in Australia can
lead to :
- the provision of significant financial resources for Australian
operations;
- the opening up new markets for exports; and
- the provision of new technology and skills for the Australian
workforce, resulting in Australian operations becoming more internationally competitive.
1.47 The Committee is of the view that the Commonwealth Government
should indicate how it intends to monitor the impact on Australia's food and beverage
industries resulting from foreign ownership
.
Australia's advantages in value-adding
1.48 Australia has key advantages in adding value to agricultural
production, such as:
- an ability to produce quality agricultural commodities at low cost;
- a highly skilled work force that is ideal for capital-intensive
manufacturing activities;
- access to abundant, cheap, diverse raw material inputs;
- raw materials produced from a relatively unpolluted ecological
environment;
- an ability by the Australian farm sector to adjust to changes in demand
for various products; [61]
- a relatively efficient distribution network;
- a research capacity for innovative production; and
- close proximity to the growing Asian market. [62]
1.49 According to the South Australian Government the fact that Australian
processed foods supply more than 90 per cent of the local market proves
that Australia is very competitive in terms of both prices and quality
compared to international suppliers. [63]
The Committee was told by the Australian Supermarket Institute that nine
out of 10 products available on supermarket shelves are:
Locally manufactured or processes in this country, and certainly in
terms of the value of the products sold out of our supermarkets we would
think that perhaps 95-96 per cent of products sold in Australia are
Australian grown or Australian processed. [64]
Clean food
1.50 Australia's ability to source raw materials for value-adding
from a relatively clean environment is a major advantage for Australia's value-adding
enterprises, particularly in exporting products.
1.51 The Tasmanian Government told the inquiry that “the cool temperate
climate of Tasmania, combined with a clean and unpolluted environment
and freedom from major pests and diseases, provides an ideal opportunity
for adding value to many agricultural products.” [65]
1.52 As stated in the submission from the Queensland Consumers'
Association:
Clean food refers traditionally to food that is microbiologically and
toxicologically safe, that is, it is not contaminated with bacteria,
viruses, parasites, toxins or poisonous residues that could be harmful.
[66]
1.53 There is an international recognition that Australia has high
standards of food cleanliness and quality and that these attributes can be used to
increase food exports. The then Agri-Food Council developed a Clean Food Strategy to
promote these attributes in overseas markets.
1.54 The Tasmanian Government told the inquiry that one of that State's
marketing strengths was its “relatively low disease status”
and that it was “pushing very hard on Tasmania's quality clean image
as a marketing strategy.” [67]United
Milk Tasmania (UMT) told the inquiry in evidence that one of the ways
it added-value to the milk products it produced was by putting “a
strong emphasis on the actual quality of the milk we receive from the
farmer.” [68]UMT went on to comment:
We emphasis obviously, the environmental aspects of the Tasmanian island
and the quality of our raw milk. That is something that has a great
deal of appeal, especially in our export market. [69]
1.55 In its submission to the inquiry the then Department of the Environment,
Sport and Territories (DEST) outlined advantages to Australia's agricultural
industries if they embraced cleaner production techniques. According to
DEST cleaner production could have a “a dramatic improvement on value-added
elements particularly if the philosophy is introduced in the design stage
and into the marketability of the operation ” [70]
1.56 Professor Samuel expressed the belief that Australia's relatively
cleaner ecological environment is an increasingly relevant resource which
gives a strategic competitive advantage to Australian food processing
firms. The “pure and safe” attributes of Australian food have
the potential to be used to differentiate Australian products from other
foreign produced products. [71]
1.57 The Australian Horticultural Corporation, in evidence to the inquiry,
agreed that Australia's image as a clean food producer “is really
important”. [72]However, the Corporation
was critical of the fact that Australia does not appear to be doing as
much as New Zealand to promote the clean food image. According to the
Corporation New Zealand is not only promoting their clean image but saying
“this is what we are doing to back it up and justify the claim”.
[73]
1.58 Mr John Baker, Managing Director of the Australian
Horticultural Corporation paid tribute to the Australian Tourism Commission in promoting
Australia's clean image overseas. Mr Baker commented that the Commission:
Has done some great things in terms of creating an image of Australia
- that is, this fresh and open and wholesome image, and that is rubbing
off on how people perceive the food products that are produced in Australia.
[74]
1.59 Despite the positive impression the Committee received during
the inquiry concerning the quality of Australian food exports the Committee notes the
views of Mr John Radcliffe of the CSIRO's Institute of Plant Production and Processing
when he stated:
Asian buyers consider that the quality of Australian meat, horticulture
and processed foods falls well behind that of our competitors in taste,
taste consistency and product consistency. [75]
Footnotes
[50] Evidence, South Australian
Government, p. 557.
[51] Nigel Austin, The Growing
Revolution, Bulletin Magazine Vol. 113, 16 July 1991, p. 90.
[52] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 11.
Preliminary information produced by ABS in July 1996 noted that during 1993-94 3 500 firms
composed the food and beverage sector.
[53] Department of Primary Industries and
Energy, International Agribusiness Trends and Their Implications for Australia, a
discussion paper prepared for the Primary and Allied Industries Council, Canberra, 1989,
pp. 12, ii. For a listing of market share of various products held in Australia by various
companies see Julian B. Morison, Farm Product Processing in Australia: the State of
Play, Australasian Agribusiness Review, Vol. 1, No. 1 May 1993, Table 5, p. 46.
[54] Ralph Stuart, A Tasmanian
Approach-from Atlantic Salmon to Green Tea, Outlook 94, Vol. 3, Agriculture:
collection of papers delivered at the Outlook 94 Conference held in Canberra 1-3 February
1994, organised by ABARE, p. 69
[55] Julian B. Morison, Farm Product
Processing in Australia: the State of Play, Australasian Agribusiness Review, Vol. 1,
No. 1 May 1993, p. 45, see also Department of Industry, Technology and Regional
Development, Food Australia: Processed Food and Beverages Industry - 3rd edition,
prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993, pp. 9-10. For
information on firms involved value-adding in Australia see International Agribusiness
Trends and Their Implications for Australia, a discussion paper prepared for the
Primary and Allied Industries Council, Canberra, 1989, pp. iv-v, 34-38.
[56] See The Australian Financial
Review, 4 August 1995, pp. 1, 27.
[57] Department of Industry, Science and
Technology, Food Australia: Processed Food and Beverages Industry -5th edition,
prepared by the Agri-Food Industries Branch , Canberra, ACT, December 1995, p. 15. For
additional information on the form of investment in the food and beverage industry see
Department of Industry, Science and Technology, Food Australia: Processed Food and
Beverages Industry -5th edition, prepared by the Agri-Food Industries Branch ,
Canberra, ACT, December 1995, p. 15. It has been estimated that as much as 70 per cent of
Australia's food manufacturing assets are now in foreign hands, Denis Gastin, Agribusiness
- What Do We Need To Do To Compete In Asia?, Outlook 96, Vol. 2, Agriculture:
collection of papers delivered at the Outlook 96 Conference held in Canberra 6-8 February
1996, organised by ABARE, p.151.
[58] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 3rd
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1993,
p. 10.
[59] Julian B. Morison, Farm Product
Processing in Australia: the State of Play, Australasian Agribusiness Review, Vol. 1,
No. 1 May 1993, p. 45.
[60] Department of Industry, Technology
and Regional Development, Food Australia: Processed Food and Beverages Industry - 4th
edition, prepared by the Agri-food Council Secretariat, Canberra, ACT, December 1994,
p. 8.
[61] For examples of flexibility shown by
Australian rural producers in growing new crops see John W. Longworth and Paul C
Riethmuller, Exploding Some Myths About the Rural Sector in Australia, Current
Affairs Bulletin, Vol. 70, No. 1, June 1993, pp. 17-18.
[62] See Evidence, Professor
Nicholas Samuel, pp. 591,598; Evidence, South Australian Government, p. 547; Simon
Crean, Value-adding in Agriculture: A Government Perspective, Agricultural Science,
Vol. 5 (2), March 1992, p. 26;
[63] Evidence, South Australian
Government, p. 553.
[64] Evidence, Australian
Supermarket Institute, p. 349.
[65] Evidence, Tasmanian
Government, p. 788
[66] Submission, Queensland
Consumers' Association Inc, p. 2.
[67] Evidence, Tasmanian
Government, p. 822.
[68] Evidence, UMT, p. 850.
[69] Evidence, UMT, p. 850.
[70] Evidence, DEST, p. 1028.
[71] Evidence, Professor Nicholas
Samuel, p. 598.
[72] Evidence, Australian
Horticultural Corporation, p. 379.
[73] Evidence, Australian
Horticultural Corporation, p. 379.
[74] Evidence, Australian
Horticultural Corporation, pp 379-380.
[75] John Radcliffe, New Technologies
for Australia's Primary Industries, Outlook 96, Vol. 2, Agriculture: collection of
papers delivered at the Outlook 96 Conference held in Canberra 6-8 February 1996,
organised by ABARE, p. 98.