Farming and the future
Primary producers in Australia have been having a tough time of it for decades. There are good and bad seasons but the trend has been down, with economically-forced amalgamations and departures.
If we’re talking business planning, is this even a good business to be in?
To answer this, we must look first at fundamentals. Many of them are compellingly optimistic.
- Globally, over 7 billion people have to be fed. World population growth remains above 1% annually.
- The amount of arable land available to feed these people is reducing due to development for housing and industry, climate change and degradation.
- Average wealth is increasing, especially in emerging economies. Most importantly, the world’s middle class is expanding very rapidly, from 1.8 billion people in 2009, to an expected 3.2 billion by 2020 and 4.9 billion by 2030.2 These are people who can afford to buy better quality, more varied and discretionary food items.
- The greatest increase in middle classes is in China and the rest of Asia. China especially has limited arable land, other Asian nations are also restricted. These nations do not have the arable land capacity to meet their middle class food demands.
- Australia is geographically well positioned to supply the growth Asian market, with established trade and some infrastructure.
- Australia is a respected brand name in Asian markets, regarded as indicating quality, safe products.
- Australia is a highly efficient producer by global standards.
On the negative side however:
- World prices for primary products are wildly distorted by governments which subsidise local producers, restrict market access and tax imports.
- Market demand and prices fluctuate in ways not related to the simple mechanics of mouths that need feeding.
- An efficient primary producer, Australia is not so competitive when it comes to transporting goods to market, international marketing and international financial
infrastructure. Many of our industries have outmoded, inefficient structures.
- While we are making progress on open access to markets, it’s slow and sometimes goes backwards. The national cost of some agreements has been questioned.
- Climate uncertainty and seasonal fluctuations reduce Australia’s reliability as a supplier. In many areas, water supply is a critical issue.
All business sectors have good and bad aspects. Worth noting here is that most of the positives are long term factors, including global mega-trends, that can be relied on. Most of the negatives are actually under human control and can be influenced directly by Australia, if we have the will.
In balance, we judge primary production to be a strong longer-term investment that is currently producing returns well below its real contribution to the economy and well-being of Australia.
If you’re looking for short term returns it may not be the best sector for you. If you are looking for medium to longer term growth and capital appreciation with added lifestyle and satisfaction value, farming, forestry and fishing have very strong underlying demand and supply fundamentals.
1. See, for example, https://www.google.com.au/webhp?sourceid=chromeinstant&ion=1&espv=2&ie=UTF-8#q=world+population
2. See http://www.oecdobserver.org/news/fullstory.php/aid/3681/
An_emerging_middle_class.html. See more at: http://www.oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html#sthash.Zo36FlsW.dpuf