Rabobank International

Rabobank Agri Commodity Markets Research

Luke Chandler

General Manager- Food and Agri Research

Feeding Asia, from Downunder

Crawford Fund

27 August 2014

4

5

Australia’s role in feeding Asia2

Importance of supply chains3

Challenges for Australian agriculture which need addressing4

Feeding the world in 20501

6

Australia’s role in feeding Asia2

Importance of supply chains3

Challenges for Australian agriculture which need addressing4

Feeding the world in 20501

7

Food and Farming are in the spotlightsAvoiding the next GFC...

8

Australia’s role in feeding Asia2

Importance of supply chains3

Challenges for Australian agriculture which need addressing4

Feeding the world in 20501

9

1980 – A world dominated by the US and Europe

59% 19%

4%

10

2000 – Asia begins to emerge

39% 36%8%

11

2013 – Income growth throughout Asian region brings drastic change

19% 35%13%

14%

12

13

14

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

2005–06 2006–07 2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

AU

D m

illio

ns

(fo

b)

North Asia South Asia Americas

Europe Middle East Oceania

Source: ABARES, Rabobank 2014

Asia already dominates our export returns

15

-10%

0%

10%

20%

30%

40%

50%

Australia New Zealand Canada USA Brazil Thailand ROW (RHS

axis)

An

nu

al g

row

th

1996-2000

2001-2005

2006-2010

2011-2012

BUT - Australia’s agricultural export growth rates are lagging competitors into the region

Source: Comtrade, Rabobank

16

However, we are only a drop in the ocean

Should we be chasing volume or value?

AU

6%NZ

3%

ROW

91%

17

18

Australia’s role in feeding Asia2

Importance of supply chains3

Challenges for Australian agriculture which need addressing4

Feeding the world in 20501

19

F&A supply chains are under more pressure and becoming more complex

Four drivers are responsible for the pressure – the first three are well known, the fourth, the great cross-over, is new

Source: Rabobank, 2014

F&A supply chains

Commodity pricing

dynamics

Shifting market

power and margins

Feeding 9 billion people

The great cross-over

Supply chain failures

Re-organisation of suppliers

Alignment of supply chains with growth ambitions

Increased strategic priority given to supply chains

Supply chain pressure leads to

change with multiple dimensions

20

When the supply chain breaks....

21

Consumer Reaction is ClearConsumer Reaction is Clear

YUM China Same-store-Sales, YoY percent

-25

-20

-15

-10

-5

0

5

10

15

20

25

Q12008 Q32008 Q12009 Q32009 Q12010 Q32010 Q12011 Q32011 Q12012 Q32012 Q12013 Q32013

22

Australia’s opportunity to supply quality food

Australian agricultural exports are highly prized for their attributes

•Quality

•Functionality

•Traceability

•Disease free status

•Sustainable production

23

Its one thing to have a story, but its how you communicate it

By 2017 two-thirds of all mobile

data traffic will be video

ALMOST 10% OF ALL PHOTOS IN

EXISTENCE WERE TAKEN IN THE

LAST 45 DAYS

24

And farmers are already part of the digital revolution

25

What will our competition look like...?

OR

26

Australia’s role in feeding Asia2

Importance of supply chains3

Challenges for Australian agriculture which need addressing4

Feeding the world in 20501

27

Australian farmers terms of trade

Ratio of index of prices received by farmers and index of prices paid by farmers.

Source: ABARES, Rabobank 2014

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

prices paid prices recieved terms of trade

28

Cost of production is high for Australian growers relative to other major wheat producers

Variable farmgate cost of wheat production

130

132

134

136

138

140

142

144

146

148

Australia USA Canada Ukraine France Argentina

USD

/tonne

29

Logistics infrastructure (in)efficiencies

30

Regulatory Pressures

31

Capital Constraints: Financing the future

Source: RBA, Rabobank 2014

0

10

20

30

40

50

60

70

Rura

l D

ebt

($ b

illion)

Rural debt; Total

32

Wrapping up

• Australian agriculture does have a role to play in

helping to meet Asian food demand – BUT – we

should not overstate this role or try and be all

things to all consumers

• Our focus should be on quality markets

• Supply chain partnerships will be critical

• Farmers need INCENTIVE

• Challenges need addressing

o Cost of inputs

o Red Tape

o Market Access

o Supply chain efficiency

33

Thank you

Luke Chandler

General Manager

Food & Agribusiness Research and Advisory

Australia and New Zealand

t. +61 2 8115 2217

e. luke.chandler@rabobank.com

Meet the FAR Australia & New Zealand research team…

Luke Chandler, General Manager

Hayley Moynihan, Senior Analyst (Dairy)

Michael Harvey, Senior Analyst (Dairy/Farm Inputs)

Marc Soccio, Senior Analyst (Wine, Horticulture & Rural Economics

Graydon Chong, Senior Analyst (Grains & Oilseeds)

Matt Costello, Analyst (Animal Proteins)

Lloyd Setter, Analyst (Animal Proteins)A global team of 80 analysts dedicated to delivering insights into the world’s major F&A regions

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Queensland

Northern Territory

Western Australia

South Australia

Victoria

New South Wales

Tasmania

Asian investment into Australian Agriculture65% of Australian sugar milling assets are now owned by Asian investors

Investor Company Sector

ShanghaiZhongfu Group

Ord River farmland

Sugar, Sorghum

and processing

BeidahuangWA croppingland and port

facilities

Bright FoodsManassen

FoodsDairy and

olives

CK Life SciencesChellengerWine Trust

Wine

Investor Company Sector

Chineseinvestors

Mt Falcon station

Beef Cattle

CK Life Sciences

CheethamSalt

Salt

Chevalier Group

Moraitis

Investor Company Sector

COFCO Tully Sugar Sugar

Mitr Phol MSF Sugar Sugar

WilmarSucrogen

(CSR)Sugar

Wilmar

Proserpine Co-

operative Sugar Milling

Association

Sugar

Shandong RuYiCubby Station

Cotton

35

Global exporters relying on Chinese demand

2003/042013/14

(f)2018/19

(f)

Wheat 6th =1st *

Corn 83rd 5th

Soybeans 1st 1st

Palm oil 1st 2nd

Pork 7th 4th

Beef 23rd 13th (6th)

Sugar 18th 3rd

* Equal first with Egypt

2003/042013/14

(f)2018/19

(f)

Wheat 4% 6% 4%

Corn 0% 7% 11%

Soybeans 31% 66% 73%

Palm oil 16% 16% 15%

Pork 3% 10% 13%

Beef 0% 3% 5%

Sugar 3% 4% 6%

36

On-farm competitiveness is under pressure

Source: Global Insight International Agricultural Insights, USDA, AGRIC, DPI & Rabobank, 2013

130

132

134

136

138

140

142

144

146

148

USD

/tonne

Source: OnFarm Consulting, DairyNZ, LEI, Teagasc, FADN, Genske Mulder &

Rabobank, 2013

Variable farm gate cost of wheat production, 2012Farm gate milk production costs in selected

countries

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

2006 2007 2008 2009 2010 2011 2012

US c

ents

/litre

Netherlands Upper Midwest

California New Zealand

Ireland Australia (Vic.)

37

Australia’s freight advantage into Indonesia $8-$24

$27

$19$15

$43

$35

Australia still holds freight advantage over major suppliers, however the advantage is shrinking

Difference vs.EC

2010 2013

Ukraine + $24 + $16

US + $54 + $24

Canada + $15 + $8

East Coast + $4 - $4

$86

$56

$32 $36

$47

Difference vs.EC

2010

Ukraine + $20

US + $50

Canada + $11

West Coast - $4

38

Fundamental changes in supply chain relationships are needed

Source: Rabobank, 2014

Chain partner engagement:

From negotiation To collaboration

Significance of relationships:

From transactional To transformational

39

Australian agricultural exports by sector

Source: ABARES, Rabobank 2014

0

5

10

15

20

25

30

35

AU

D B

illion

Grains and Oilseeds Horticulture Animal Proteins

Wool Dairy Raw cotton

Sugar

40

Australia is the main supplier of wheat to the region due to proximity

Source: UN Comtrade

Indonesia Malaysia

Source: UN Comtrade

41

Australia’s agricultural trade with Asia-5

Source: DFAT, Rabobank

0

5

10

15

20

25

30

35

40

45

Valu

e (

AU

D b

illion,

FO

B)

Other China Japan Rep. Of Korea Indonesia India

42

Market Access a Rapidly Changing Dynamic

44

Disease and safety now priority #1 in China