Chapter 4.7
Adding-value overseas
4.113 The then Agri-Food Industries Branch of the Department of
Industry, Science and Technology stated in 1995 that overseas investment by Australian
food and beverages manufacturers had varied over the last few years;
However, there is now considerable evidence that local producers are
becoming active in offshore markets through a range of measurers which
might not technically be considered overseas investment. The most important
of these is the use of local partners who often provide marketing and
distribution skills. [140]
4.114 It may be advantageous to base some value-adding activities offshore
to benefit from lower operational costs, duties or taxes. Although Australia
can produce internationally competitive raw agricultural commodities,
very often the offshore manufacturing processes can transform the product
at much lower cost compared to doing so in Australia. [141]
The South Australian Government stated in its submission:
Value-adding need not necessarily be performed in Australia to return
a net increase in national wealth. Strategic alliances with overseas
processors, manufacturers and distributors may in some cases return
more wealth to Australia than establishment of an on-shore processing
facility, through access to markets, technology or appropriate labour.
[142]
4.115 Mr Robert Calder of the Department of Primary Industries and
Energy stated in evidence to the inquiry:
Sometimes it just makes more rational economic sense to do your value
adding closer to the market, other things being equal. In other industries
it is more appropriate to do your value adding closer to the supply
of a product. It does vary from industry to industry. [143]
4.116 Mr Anthony Botsman of the Professional Resource Group expressed
reservations concerning the possibility of adding value in Australia to
Australia's wool production. As a result of this view Mr Botsman believed
that Australia should take up financial interests in “effective and
efficient companies” overseas which value-add to Australia's wool.
The benefits of such direct participation in value-adding activities would
include direct feedback to the Australian wool industry and a return on
monies invested. The feedback from these investments would identify “the
right inputs from Australia, in other words, the level of value adding
that could occur in Australia to feed these enterprises.” [144]
Mr Botsman viewed this strategy as preferable to the widely accepted approach
of “simply adding value in Australia and then trying to handle the
logistic difficulties of matching that to particular opportunities”.
[145]
4.117 Mr Botsman suggested that the money to invest in overseas value-adding
enterprises in countries such as China, Japan and Italy would come from
part of the levy presently paid by wool producers. [146]
4.118 Under questioning Mr Botsman agreed that in the short term, if
this strategy was put in place, employment opportunities in Australia
would be “forgone”. However, once Australia began to take up
equity and began to participate in the operation of these value-adding
overseas companies “we will have precisely the right set of data
to be able to achieve value-adding in Australia and to be able to create
employment opportunities” [147]
in Australia.
4.119 During his evidence to the inquiry Mr Calder of DPIE commented
that:
Given the market access barriers that exist in a lot of those
markets at this present time, if you are going to establish a market presence then you
might have to go offshore and get your products or brands into those markets now in the
hope that when these markets access barriers come down as a result of APEC or GATT, you
have already established a market presence.
4.120 Mr Geoffrey Quinn, a postgraduate student at the University of
New England, in evidence to the inquiry also supported the concept of Australian companies
investing overseas in value-adding activities which use Australian agricultural
production. Mr Quinn stated:
We ought to be taking a strategy that pursues our national interest
by allowing Australian companies incentives to invest in food distribution
processes in Asia rather than just export. I think the real value lies
in both market securing and value protecting. [148]
It is the view of Mr Quinn that if Australia wants to gain from overseas
markets it has to be owners or part owners of the value-adding processes
that take place in these markets using Australian agricultural production.
[149] In order to encourage Australian companies
to invest in these overseas activities Mr Quinn suggested that tax incentives
by the Commonwealth Government be employed. However, the provision of
these incentives would be dependent on a “certain amount of Australian
product used, a certain amount of Australian technology used, and a certain
number of Australians employed.” [150]
Conclusions and recommendations
4.121 As noted earlier in the report, the Committee believes that it
is essential for Australia to be flexible in marketing its value-added products overseas
and that on occasion it may be advantageous for Australian companies to enter into
agreements with overseas companies to value-add to Australian bulk or semi-processed
agricultural production overseas. The Committee recommends that two possible strategies be
followed:
- Australian primary producers and/or processors take up financial
interests in established overseas companies and then use the resulting influence within
these companies to ensure that Australian bulk or partially value-added agricultural
products are imported by these companies for further processing and sale in the country or
region concerned; or
- In countries where it is permitted, Australian primary producers
and/or processors establish joint venture companies to produce value-added food and
beverages for the local or regional markets. These companies would import Australian raw
agricultural produce or partially value-added agricultural products.
The Committee further recommends that the Commonwealth Government
enter into discussions with relevant industry groups to ascertain the possible viability
of such strategies.
Footnotes
[140] 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.
[141] Peter Shearer, A Commercial
Perspective on New Industry Development, 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. 65
[142] Evidence, South Australian
Government, pp. 545, 557-558; see also Evidence, AWB, p. 71 and Evidence,
West Australian Government, p. 707.
[143] Evidence, DPIE, p. 924.
[144] Evidence, Professional
Resource Group, p. 201.
[145] Evidence, Professional
Resource Group, p. 201.
[146] Evidence, Professional
Resource Group, p. 202
[147] Evidence, Professional
Resource Group, p. 204
[148] Evidence, Mr Geoffrey Quinn,
p. 510.
[149] Evidence, Mr Geoffrey Quinn,
p. 508.
[150] Evidence, Mr Geoffrey Quinn,
pp. 506, 515.