Chapter 1.4
Import of value-added products
1.89 The trade balance for processed agricultural products is firmly
in Australia's favour with exports far greater than imports. The Committee
understands that export income generated by the food and beverages sector
outstripped imports by a margin of four to one and produced a trade surplus
of just under $13 billion. [119] However, for highly processed food products
the situation has not always been so clear. [120]
Mr Julian Morison, a lecturer at the University of New England, claimed
in an article published in May 1993 that in 1990-91 Australia had a negative
balance of trade in relation to highly processed food products. [121]
Mr Morison produced a table to support this view but the Committee has
not received any other evidence to verify this claim. The then Agri-Food
Council produced publications in 1993 and 1994 setting out a series of
detailed charts that show a comparison between Australia's import and
export of processed food4:39:12 +1000 1993-94. These charts reveal no
year in which Australia imported highly processed foods to a value greater
than was exported during the same period. [122]
1.90 In 1994-95 imports of highly processed food and beverages
totalled $2.4 billion, an increase of 7.5 per cent over the previous year. However,
despite the increase the Agri-Food Industries Branch of the then Department of Industry,
Science and Technology commented that since 1992-93 there has been a steady decease in the
level of imports of highly processed food and beverages into Australia. The Branch stated:
At the same time as growth in imports of high value-added products
has slowed the rate of growth in exports of such food and beverages
has increased. The net effect of this has been an expanding trade surplus
in highly processed food and beverages. This in itself is a measure
of the importance and dynamism of the industry. [123]
1.91 The Food Industries Branch claimed that in recent years there has
been a “rapidly widening trade surplus”. According to the Branch
“whereas in 1989-90 a trade surplus of around $300 million was attained
by 1994-95 this had grown four-fold to reach $1.3 billion.” [124]The
Branch went on to note that:
All indicators are that this trend is set to continue as the Australian
economy becomes less focussed on export of commodities and more oriented
toward export of value-added products. [125]
1.92 Between 1989-90 and 1994-95 the highly processed food and beverage
sectors that have experienced the largest increase in imports have been
meals, animal feeds, oils and fats, soft drinks, dairy and cereal products.
Increases in some of these imports were related to the drought conditions
experienced by Australia in recent years. [126]
1.93 In comparing the value of highly processed food and beverage imports
and exports the effect of movements in the exchange rate have to be borne
in mind. The Agri-Food Council warned that “recent improvements in
the industry's export performance may in part be attributable to the improved
price competitiveness of exports brought about by a fall in the Australian
dollar.” [127]
1.94 Geography is a major reason why Australia imports some
processed foods that are produced competitively in Australia. According to one observer:
Due to the dispersed geographical spread of major population centres,
land transport costs are comparatively high in Australia and retailers
often find it cheaper to source food from foreign suppliers than local
manufacturers with plants in other States. [128]
1.95 The Country Women's Association of Tasmania argued that due to
the Commonwealth Government's support of free trade overseas companies have gained an
increasing portion of our domestic processed food market. The Association believed the
main cause of this situation has been the Anti-Dumping Authority inadequate powers to deal
with the dumping of food on the Australian market. As a result of this situation many
value-adding food processing businesses in Australia have disappeared. The Association
stated:
If the Federal Government is really interested in encouraging Australian
agricultural business to enter the value-adding trade it needs to protect
the domestic market from dumped imports because it is only from the
firm base of a domestic market that businesses can launch their export
products. [129]
1.96 The National Farmers' Federation agreed that there were some flaws
in Australia's anti-dumping legislation but also pointed out to the inquiry
that there “had been a number of instances where anti-dumping action,
particularly in relation to processed products, has been successful.”
[130]However, the Commonwealth Government has
not been inactive in dealing with the import of processed foods. Professor
Samuel listed a series of Commonwealth Government initiatives to improve
Australia's competitiveness in relation to imported processed foods, including:
- the strengthening of the anti-dumping and countervailing system for
greater rapidity and efficiency;
- action by the National Food Authority designed to strengthen
regulatory standards for imported food products to bring them closer to standards
applicable to domestic food production; and
- stricter inspection of imported food to ensure closer compliance of
imports with Australian Food Standards Codes applying to labelling,
the inclusion of additives and the level of permitted chemical residues.
[131]
1.98 The import into Australia of agricultural production is not restricted
to food. Despite the large quantity of wool exported from Australia a
significant quantity of wool is imported into the country. In 1991-92
wool imports totalled 11 500 tonnes valued at $40.4 million. Imports largely
comprise strong and carpet type wools from New Zealand and the United
Kingdom. Such imports account for more than 80 per cent of the wool used
in carpets manufactured in Australia. [132]
Committee observations and recommendations
1.99 Many people are surprised at the level at which Australia
imports highly processed value-added foods and beverages. Despite efforts to replace these
imports with value-added Australian products the Committee expects that the import of
highly processed value-added food products will continue in the future at significant
levels. However, the Committee recommends that the Commonwealth Government implement
improved programs, if possible, to counter the dumping onto the Australian market of
value-added food and beverages.
1.100 Despite a general view in the community that food products
should not be dumped in Australia by overseas companies to the detriment of Australian
producers, the Committee recommends that anti-dumping regulations should not be used as a
sham to block imports. Nevertheless, the Committee accepts that there are occasions when
action must be taken against deliberately dumped overseas food products so as to protect
our own producers. Action taken must not be in effect a “defacto import
restriction”.
1.101 Australia has been critical of countries using, for instance,
health or quarantine regulations as a means to block the import of our food products and
it would be improper to use the same types of strategies to restrict foreign food imports
into Australia in order to protect our domestic market from competition.
1.102 The issue of the labelling of food products indicating their
place of origin is outside the scope of this inquiry. However, the Committee wishes to
express its view that Australian consumers should have the right to clearly know where
value-added food products they purchase have been manufactured and in which country the
bulk produce used in their manufacture originated. The Committee does therefore support
strict truth in labelling.
The myth of value-adding
1.103 According to some observers value-adding has become the “holy
grail” of Australian agriculture. [133]
The argument has been put that farmers and the Australian community would
be better off if all agricultural commodities were processed to the greatest
extent possible before their export. This argument is based on the view
that prices received by farmers for agricultural produce are a small proportion
of the final price paid by consumers for value-added agricultural products.
It is also argued that further processing provides a means of avoiding
difficulties involved in market access for agricultural produce. [134]
1.104 Despite the promotion of the benefits of value-adding to the national
economy some observers have expressed a note of caution. Dr Alistair Watson
has stated that “the actual or potential contribution of agricultural
processing industries in the Australian the actual or economy is not large
enough to make a substantial difference to the overall economy or the
balance of trade.” [135]
1.105 Despite positive views on the importance of value-adding to
Australia's agricultural production one observer claimed that the size of the industries
involved in further processing of agricultural production in Australia are too small to
make a substantial contribution, on a reasonable time scale, to assisting in overcoming
this country's economic problems. The Centre for International Economics stated in 1990,
concerning the prospects for the further processing of agricultural products in Victoria,
that:
Agricultural processing is a relatively small part of the Victorian economy
and its share of value-adding is getting smaller each year. It is now
estimated to be around 4 per cent. Employment in agricultural processing
is also falling, both absolutely and relative to other sectors. [136]
Costs vs benefits in relation to value-adding
1.106 In some situations value-adding may not be an economically desirable
activity. It is possible that in some instances greater returns can be
achieved from investing in other operations, such as increased production
of raw commodities rather than in “downstream value-adding”
activities. As DPIE noted, ultimately commercial viability will determine
whether value-adding activities are undertaken by the private sector.
[137]
1.107 The Rural Industries Research and Development Corporation
(RIRDC) advised the inquiry:
Many value added products face import restrictions or tariffs in market
countries while semi-processed ingredients may have unrestricted access
or access with lower import duties. We also have to ensure that the
cost of our research and value adding does not exceed the potential
return. [138]
1.108 It is apparent that value-adding activities in agricultural production
have to be assessed on an industry by industry basis having consideration
for the returns that can be achieved from alternative investments. As
a result of this view the Australian Meat and Livestock Corporation argued
that industry agencies and government strategies should be targeted at
creating an “optimal environment for the development of value-adding
activities, where these are deemed to be economically worthwhile, rather
than directly intervening in the market to ensure a greater level of `value-adding'
occurs.” [139]
Committee observations
1.109 As noted earlier in the chapter the importance of value-adding
may have been over stated on occasions. However, such activities do make a valuable
contribution, not only to Australia's balance of payments, but also to the national
economy as a whole. Although the Committee accepts that ideally every effort should be
made to support and encourage value-adding activities related to agricultural production
it recognises that resources to support such goals are limited. The Committee is therefore
of the view that careful assessment of industries seeking financial support for their
value-adding activities is necessary based largely upon the results of a cost/benefit
analysis.
Strategies for value-adding
1.110 A large number of strategies and recommendations designed to
promote and increase value-adding activities in Australia were examined during the
inquiry. These strategies were devised by agricultural industry groups, government bodies,
private companies, academics and individuals.
1.111 Suggested strategies and approaches to value-adding have been
inserted at appropriate locations in the report in order to enable the reader to gain an
improved understanding of the major issues facing value-adding, particularly in specific
industries. The Committee has chosen, in most instances, not to express a view on these
strategies and suggestions unless they impinge directly on the area of Commonwealth
Government responsibility. However, the Committee hopes that industry groups and
individuals involved in value-adding in agricultural production will take note of relevant
recommendations and strategies presented to the inquiry to improve their own value-adding
activities.
1.112 Many of the suggested strategies set out in the report have
been placed under the following headings:
- Suggested strategies and initiatives to be undertaken by the
Commonwealth Government to support value-adding activities;
- Suggested government incentives to support value-adding activities;
- Shared strategies between government and industry to support
value-adding activities;
- Government involvement in particular value-adding industries;
- Strategies to support regional development and value-adding; and
- Suggested strategies applicable to particular industries to support
value-adding activities.
Recommendations in the report
1.113 Throughout the report the Committee has set out a number of
recommendations designed to promote value-adding in agricultural production. Many of these
recommendations are based upon views presented to the inquiry in evidence or from
secondary sources examined by the Committee. Although the Committee can make suggestions
to the private sector where it could improve its value-adding activities the Committee has
largely restricted its formal recommendations to areas of Commonwealth Government
responsibility.
Footnotes
[119] 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. 2.
[120] See Julian B. Morison, Farm
Product Processing in Australia: the State of Play, Australasian Agribusiness Review,
Vol. 1, No. 1 May 1993, pp. 41-42.
[121] Julian B. Morison, Farm Product
Processing in Australia: the State of Play, Australasian Agribusiness Review, Vol. 1,
No. 1 May 1993, pp. 42-43.
[122] 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. 28-29 and 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, pp. 32-33.
[123] 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. 6.
[124] 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. 6.
[125] 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. 7.
[126] 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. 7; 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 14-15 and Evidence, Professor
Nicholas Samuel, pp. 603-604.
[127] 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. 13.
[128] 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. 14.
[129] Evidence, The Country
Women's Association of Australia, pp. 836-837.
[130] Evidence, NFF, p. 1021.
[131] Evidence, Professor Nicholas
Samuel, pp. 600-601.
[132] Maximising the Return: Adding
Value to Australian Wool: Report of the Wool Processing Task Force, Department of
Primary Industries and Energy, Canberra, 1993, p. 6.
[133] 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, p. 20.
[134] 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.1 .
[135] 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. 6.
[136] 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.7 .
[137] Evidence, AMLC, p. 309;
Evidence, DPIE, p. 882.
[138] Evidence, RIRDC, p. 998.
[139] Evidence, AMLC, p. 309.