Top tips for global competitiveness

Increasingly, Australian agribusinesses are competing with supply from South America and Africa to feed Asia and the northern hemisphere. NAB’s 2010 Agribusiness Leader of the Year, Alan Winney, explains how to profit from this trend.

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More than ever, to position your agribusiness for success, an awareness of how to partner internationally is essential. Ignore the rise of globalisation and your business could suffer, warns Alan Winney, NAB’s 2010 Agribusiness Leader of the Year and Chairman of Queensland Sugar Limited and Emerald Group.

Alan Winney’s five tips for agribusiness global competitiveness are:

Embrace new offshore marketing opportunities:

  • While European and North American investment in Australian agribusiness is now mainstream, a shift is occurring. Economic growth inAsia is changing the face of the industry and also the identity of new investors in Australian agribusiness. To survive, domestic producers need to find a niche, differentiate their offering or partner with a larger organisation overseas.

Due to a surging population, increasing economic growth and a growing need for food security, Asia is looking toAustralia, Africa andSouth Americafor agricultural partnerships. Significant investment is flowing from sovereign wealth funds and government-related companies into the food and agribusiness sector in these three continents.

In many cases, this isn’t about a short-term need to satisfy a weather concern or crop failure in their own countries; it’s about planning for food security 30 to 50 years from now.Australiais in a strong position because of its stable political structure, proximity toAsiaand availability of well run local businesses.

Global companies are looking to integrate supply chains from paddocks inAustraliato supermarkets in emerging Asian economies. Heading this push are Asian companies such as Olam, Wilmar, Bright Food Group, COFCO, Noble and Sumitomo. Also, a large proportion of first and second stage processing ofAustralia’s food base is now moving into foreign ownership. Trading companies that were originally the middlemen have built solid businesses throughout the world via horizontal and vertical integration and are now moving intoAustralia.

Monitor and proactively react to trends:

  • Recognise broader trends in global agribusiness, such as impacts from the energy and pharmaceutical sectors and adjust the nature of your business accordingly.

For instance, when oil prices rise, corn and sugar prices are affected because these feed stocks are used to produce alternate fuels such as ethanol.

High crude oil prices lead to higher corn prices in the US, which means corn is replaced by wheat to feed animals. This has two impacts; it makes meat more expensive and reduces the supply of quality wheat worldwide, affecting export markets.

Higher crude oil prices also increase the amount of sugarcane being devoted to ethanol production, thereby affecting prices of soft drinks, processed foods, confectionary and other foodstuffs. In this low-supply market, alternate products such as fruits, nuts, pulses and sugar substitutes (for example, Stevia and high fructose corn syrup) become more attractive.

The spectrum of agricultural production is intertwined and genetic modification technologies will increase this linkage. It’ll allow health-related qualities to be linked into crops, pesticide reduction and an improvement in tolerance to weather, salt or other factors.

Look at these emerging trends and build some of the newer agricultural products into your business through your production base or processing operation. An example of an industry adopting this is the sugar industry; mills now produce products such as sugar, ethanol and fertiliser as well as generating electricity back into the national grid via co-generation.

Be weather ready:

  • Along with monitoring growth opportunities for global partnerships, don’t lose focus on your own cash flow. To absorb leaner years (for example, when profit is impacted by extreme weather), build and retain a buffer.

Droughts were once considered to be one-in-seven-year events but now seem to come around far more often. Farmers and agribusinesses need to put money away for these bad weather years. In your business plan, assume that by living in Australia there’s always going to be a weather problem somewhere in the country, so build weather tolerance into profit margins to keep expectations realistic.

Manage your resource for the long term:

  • Think long term and only forward hedge a manageable percentage of your price risk, so you don’t get caught out if the market unexpectedly shifts. If you hedge the majority of your commodity or currency risk and don’t achieve the production you were expecting, you may face significant cash flow constraints.

Don’t overwork your farm or agribusiness, either. Every five years, ease back production or growth and have a year of consolidation. Allow yourself time for systems, training, repairs and maintenance. Use this fifth-year break to strategise the next five years. This may include international travel to see best practice firsthand.

If you do establish a partnership with an overseas business, be reliable. Overseas businesses often don’t give second chances. Stay organised in order for your partnership to thrive well into the future.

Look for a good cultural fit:

  • What works in Canada or Japan may not necessarily work inAustralia, so perform due diligence to ensure your potential international partner’s operational model and work ethic is in sync with your own.

Global companies often don’t know how to contact Australian farmers and pitch partnership ideas to them. That’s why Australian agribusiness organisations that can establish meetings between local and international prospects will play a critical ongoing role inAustralia’s agribusiness future.

A final piece of advice. Remember that you won’t be successful at agribusiness by just sitting behind a desk in Sydney or Melbourne. Get out regularly to spend time on the land with producers and listen to what they’re telling you.