Agribusiness // Government | Regulation

Agribusiness big winner in free-trade agreements

“The signing of these free-trade agreements is coming at a time when the growing middle class of China is starting to have a genuine impact on global demand and consumption patterns,” Commonwealth Bank Managing Director Industrials, Food, Beverage and Agriculture, Peter McGregor has told a CEDA audience.

Speaking at the Melbourne launch of CEDA’s policy perspective, Global networks: transforming how Australia does business, Mr McGregor said there are many positives, but agribusiness was a big winner in free-trade agreements (FTAs).

“The change of consumption patterns…favours those industries where Australia has a real competitive advantage. It’s about wine, it’s about beef and frozen meat, live cattle, it’s about diary in particular,” he said.

“Tariffs on wine, beef and dairy, range up to the 20-25 per cent level today. So the impact of those tariffs down to zero over the next few years is significant.

“Post the signing of the FTAs with both Korea and Japan where frozen beef was subject to very very high tariffs in the 30 – 40 per cent range…we have seen 50 per cent growth in the export of frozen beef to Korea and 30 per cent growth in the export of frozen beef to Japan.

“Wine is a perfect example. As a point of reference in 2013, China overtook firstly Italy and then France as the largest consumer of red wine in the world, having seen 150 per cent growth over a five year period. China now consumes about 1.9 billion bottles of red wine a year versus 1.8 billion in France and 1.7 billion in Italy.

“The reason to get excited about that is that equates to about one and a half bottles per capita, per annum in China versus 27 bottles per capita, per annum in France and Italy.

“No one is suggesting for a moment that the Chinese are going to develop those famous French and Italian consumption habits, but by the same token, even if Chinese consumption was only to get to 10 per cent of the level that it is in Europe, that’s a doubling of demand in what is already the world’s largest market.

Mr McGregor also issued words of caution in regards to agribusiness export opportunities.

“Australia’s agricultural exports to China make up a total of about eight per cent in exports…absolutely dwarfed by for example coal, iron ore and other energy and hard commodities.

“Of that eight per cent, only about 20 per cent of it is in…wine, in beef, in dairy. The rest of the opportunities are in wool…and grains and oil seeds…where there is no change on tariffs.

“So if you do the maths all the way through, those exciting agribusiness commodities…account for about two per cent of Australia’s current exports to China, so it is worth keeping that in context.”

Also speaking at the event, Export Finance and Insurance Corporation (Efic) Managing Director and Chief Executive Officer, Andrew Hunter said FTAs “break down barriers and provide market access that previously wasn’t available to Australian businesses” but for companies wanting to export, it can be difficult to get financing.

“People find it harder to do business overseas than they do domestically,” he said.

“Roughly 40 per cent of our clients will tell you it’s more difficult to do business in the US than it is in Australia. Two comparative economies and all it is, is the fact that it’s foreign, it’s different, the rules are different, the culture is different.

“Therefore we should not be surprised to hear banks find it harder to bank a business who wants to export rather than produce domestically.

“But the good news is, certainly under this government, we have refocused Efic on supporting small businesses and we have good arrangements in place with all the major banks…rather than saying to a client ‘we cannot help you export to Kazakhstan’…they’ll say ‘but we’ve got an arrangement with Efic and they will help you’.

“We wrote $112 million dollars’ worth of business in the last 12 months specifically for supporting small businesses that are going off to weird and wonderful places that I think legitimately Australia’s banks would scratch their heads and say ‘not with my money’."


Watch more discussion from the Melbourne launch of Global networks: transforming how Australia does business