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Transcript of David Dyer, McKinsey & Company - Opening Keynote Address: Analysing the Competitiveness of the...
Analysing the Competitiveness
of the Australian Agriculture
& Food Industry
Food and Fibre Forum
30 October 2014
Keynote address
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 1
Australia’s competitiveness challenge 1
Growing demand for food 2
Unlocking our potential 3
Finding our niche 4
McKinsey & Company | 2
What has underpinned two decades of growth?
SOURCE: Australian Bureau of Statistics; McKinsey analysis
Gross domestic income (GDI), market sectors; $ Billions, real
1993
income
Terms
of trade
Additional
Capital
Additional
Labour
Capital
productivity
Labour
productivity
2005
income
549
927
95 38
102
93 50
40%
35%
x% Share of income growth
McKinsey & Company | 3
What has underpinned two decades of growth?
SOURCE: Australian Bureau of Statistics; McKinsey analysis
549
927
95 38
102
93 50
Capital
investment
186
Terms
of trade
100
2005
income
927
2013
income
1,249
Labour
productivity
58
Capital
productivity
76
Additional
labour
55
40%
90%
x% Share of income growth
35%
-6%
Gross domestic income (GDI), market sectors; $ Billions, real
1993
income
2005
income
McKinsey & Company | 4
Text
McKinsey & Company | 5
Less than one-third of Australia’s industry sectors are competitive
SOURCE: EU KLEMS, 2005, from revs published 2008 and 2011; Bureau of Economic Analysis; ABS
1 Traditional productivity comparisons in the finance sector are difficult due to complexities measuring sector GVA
-0.5
-0.4
-0.4
-0.4
-0.3
-0.3
-0.2
-0.1
-0.1
0.1
0.2
0.8Agriculture
Mining and extraction
Finance1
Accommodation and food services
Manufacturing
Wholesale and retail trade
Logistics and communications
Domestic services
Real estate services
Construction
Professional services
Utilities
Changes from 2005
–
–
–
–
–
–
Australian Competitiveness Score compared to US
McKinsey & Company | 6
What do we mean by competitiveness?
McKinsey & Company | 7
What do we mean by competitiveness?
McKinsey & Company | 8
What do we mean by competitiveness?
McKinsey & Company | 9
Less than one-third of Australia’s industry sectors are competitive
SOURCE: EU KLEMS, 2005, from revs published 2008 and 2011; Bureau of Economic Analysis; ABS
1 Traditional productivity comparisons in the finance sector are difficult due to complexities measuring sector GVA
-0.5
-0.4
-0.4
-0.4
-0.3
-0.3
-0.2
-0.1
-0.1
0.1
0.2
0.8Agriculture
Mining and extraction
Finance1
Accommodation and food services
Manufacturing
Wholesale and retail trade
Logistics and communications
Domestic services
Real estate services
Construction
Professional services
Utilities
Changes from 2005
–
–
–
–
–
–
Australian Competitiveness Score compared to US
McKinsey & Company | 10
Australia’s competitiveness challenge 1
Growing demand for food 2
Unlocking our potential 3
Finding our niche 4
McKinsey & Company | 11
Food prices have more than doubled over the past decade
50
100
150
200
250
300
350
2011 2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900
1 Food sub-index is calculated based on coffee, cocoa, tea, rice, wheat, maize, sugar, beef, lamb, bananas and palm oil prices weighted by total world export values
1999-2001 at indexed prices over the same time period in real terms.
SOURCE: Grilli and Yang 1988; Pfaffenzeller 2007; World Bank; International Monetary Fund; Organisation for Economic
Cooperation and Development; Food and Agriculture Organization; UN Comtrade; McKinsey Global Institute analysis
-0.7% p.a.
MGI Food sub-index1
McKinsey & Company | 12 SOURCE: World Bank; Food and Agriculture Organization (FAO), WRI
Food demand expected to increase by 70% by 2050
Global population
Billions
Anticipated food demand
Global daily kcal consumption, trillion
1 Assuming world population to reach 3,000 kcal/day
9.3
6.0
2000 2050
+55%
27
17
+70%
2000 20501
McKinsey & Company | 13
World population vs. yield growth1
Growth rates in agricultural yields have been declining
SOURCE: Food and Agriculture Organization; UN
1 Includes all cereals; excludes impact on yield increase from change of crop mix
2 Yield growth from 2005-2009 due to limitation of data
World population
-1.0
-0.5
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
20102 2005 2000 1995 1990 1985 1980 1975
Yield growth
197
0
5 year growth rate
Percent
McKinsey & Company | 14
Australia’s competitiveness challenge 1
Growing demand for food 2
Unlocking our potential 3
Finding our niche 4
McKinsey & Company | 15
Agriculture, food and beverages are 10% of Australia’s exports –
but while exports are growing, we are losing market share
SOURCE: OECD, World Bank, ABS, McKinsey analysis
0
-0.4
-0.7
0.3
0.1
5.4
4.6
5.5
6.0
16.4
Mining and extraction 46.1
15.0
Commodities processing
Food and beverage
manufacturing
Professional services,
tourism and education1
Agriculture
Advanced manufacturing
Exports
2010; Percent of Australian
Export market
share growth
Change 2005-10; Percent
Export growth
2008-13; Percent
CAGR
14.8
-1.5
-0.9
2.4
2.8
12.9
1 Includes tourism, education where data available
McKinsey & Company | 16
1990 1995 2000 2005 2010 2015
10
8
6
4
2
0
New
Zealand
Australia
Drought
NZ signs FTA
with China
New Zealand has unlocked its potential in dairy
Dairy Industry
Restructuring Act
Total dairy exports
A$ Billions
CAGR
2004–13
11.7
0.1
Deregulation;
levy on retail milk Levy ceases
SOURCE: ABS 5368.0; Statistics New Zealand Table EXP006AA; exchange 2004–2013 AUD/NZ = 1.19;
McKinsey analysis
McKinsey & Company | 17
Australian dairy is less competitive than New Zealand
SOURCE: Expert interviews; Dairy Australia
0
0
0
0.36
0.55
0.20
▪ Lack of farm scale, higher system costs reduce
margins to farmers Raw milk
Additional cost
A$/kg1 Root cause
Dairy
processing ▪ Plants lack scale and are higher cost
International
logistics ▪ Shipping is only a small component of the price
Domestic
logistics
▪ Processing plants located in close proximity
to farms
1 Landed cost per kilo of skim milk powder
2 Share of dollar exports using FAPRI 2013 data and oceania export prices
Import duty
▪ New Zealand has valuable Free Trade agreements
including one with China (consumes ~15% of the
total exports2)
▪ Limits the returns to processors and farmers,
discouraging investment Total
McKinsey & Company | 18
Australia’s competitiveness challenge 1
Growing demand for food 2
Unlocking our potential 3
Finding our niche 4
McKinsey & Company | 19
11
16
3
70
30
70
As developing economies drive global
GDP growth…
1 Megacities are defined as metropolitan areas with ten million or more inhabitants. Middleweights are cities with populations of between 150,000 and
ten million inhabitants.
2 Real exchange rate (RER) for 2007 is the market exchange rate. RER for 2025 was predicted from differences in the per capita GDP growth rates of
countries relative to the United States.
Contribution to GDP and GDP growth by type of city; Percent
GDP, 2007
100% = $55.5 trillion
SOURCE: McKinsey Global Institute Cityscope 1.0
Emerging market megacities1
Emerging market middleweight cities
Emerging market small cities
and rural areas
Developed economies
McKinsey & Company | 20
As developing economies drive global
GDP growth…
1 Megacities are defined as metropolitan areas with ten million or more inhabitants. Middleweights are cities with populations of between 150,000 and
ten million inhabitants
2 Real exchange rate (RER) for 2007 is the market exchange rate. RER for 2025 was predicted from differences in the per capita GDP growth rates of
countries relative to the United States
GDP growth, 2007–252
100% = $54.9 trillion
37
29
8
26
74
26
SOURCE: McKinsey Global Institute Cityscope 1.0
Contribution to GDP and GDP growth by type of city; Percent
Emerging market megacities1
Emerging market middleweight cities
Emerging market small cities
and rural areas
Developed economies
11
16
3
70
30
70
GDP, 2007
100% = $55.5 trillion
McKinsey & Company | 21
440 cities in emerging markets are poised to
deliver nearly half of global growth by 2025
1 Megacities are defined as metropolitan areas with ten million or more inhabitants. Middleweights are cities with populations of between 150,000 and
ten million inhabitants
2 Real exchange rate (RER) for 2007 is the market exchange rate. RER for 2025 was predicted from differences in the per capita GDP growth rates of
countries relative to the United States
GDP growth, 2007–252
100% = $54.9 trillion
10
13
14
29
8
26
29
45
26
Large
Midsized
Small
SOURCE: McKinsey Global Institute Cityscope 1.0
Contribution to GDP and GDP growth by type of city; Percent
Emerging market megacities1
Emerging market middleweight cities
Emerging market small cities
and rural areas
Developed economies
Mega
11
16
3
70
30
70
GDP, 2007
100% = $55.5 trillion
McKinsey & Company | 22
`
China can be divided into 22 city clusters,
each of which has distinct characteristics
SOURCE: McKinsey Insights China; McKinsey Global Institute analysis
Small
Large
Mega
Chongqing
Nanning
Kunming
Chengdu
Hefei
Changzhutan
Hangzhou
Nanchang
Shenzhen
Yangzi mid-lower
Coast West
Shandong Byland
Nanjing
Shanghai
Guanzhong
Taiyuan Central
Guangzhou
Changchun-Haerbin
Large cluster example
Chengdu
▪ 25 cities
▪ Cluster GDP 2.7%
Small cluster example
Kunming
▪ 15 cities
▪ Cluster GDP 1.2%
Mega cluster example
Jingjinji
▪ 37 cities
▪ Cluster GDP 10.8%
Liao central-south
CHINA EXAMPLE
Jingjinji
Huhehaote
McKinsey & Company | 23
A cluster approach to target markets can be simpler, cheaper and
more effective
SOURCE: McKinsey analysis; Expert interviews; literature search
58
11
200 cities.
81%
market
8 clusters.
70%
market
6%
threshold
cost to
serve
10 states.
75%
market
▪ 8 clusters with 67 cities
▪ Local supply chain
▪ Cluster-based targets
▪ 120 cities
▪ Centralised
supply chain
▪ Overall targets
▪ Key cities in
15 priority clusters
▪ 40 cities across
China
Packaged goods manufacturer
India China
From … To … From … To …
▪ Differentiated targets ▪ Similar targets
across all regions
▪ 2–3% reduction in
cost-to-serve
▪ Cost-to serve a
challenge
Accelerated
annual
growth
to 20%
Cost to serve
Percent
McKinsey & Company | 24