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Getting the balance right: Australian Food in International Markets

Address to the Australian Food and Grocery Council Industry Leaders Forum
Bruce Gosper, CEO Austrade

Parliament House Theatre, 30 October 2013

Introduction

I’d like to begin by thanking Gary Dawson and Australian Food and Grocery Council for the invitation to speak today.

Austrade’s association with the Council is a relatively new one as far as trade development matters go. From my point of view, it’s an example of the kind of relationship we’d like to develop further.

I’m glad to say that all indications from our engagement with the Food and Grocery Council so far are that we’re well on the way to doing that.

Earlier this year, the Council became one of the first grant recipients under the Asian Century Business Engagement Plan. These grants help member-based organisations access in-market business networks and opportunities in Asia and to implement projects that extend their marketing each.

Austrade will provide ongoing support as the Council uses its grant to develop a series of export opportunity statements on individual Asian markets, providing valuable market intelligence and insight to the food and grocery sector.

We have also collaborated with the Council as we’ve drafted Austrade’s Agrifood Investment Attraction Strategy, and we’re consulting closely on our Brand Australia Global Food Strategy.

The preliminary research for the Brand Australia Global Food Strategy is now complete and Austrade is about to brief key stakeholders on the results. I will expand on this a little later.

Market insight, investment, and brand positioning all contribute to achieving success for Australian food in international markets.

Before I explain how though, I’d like to offer a few reflections on the changing nature of those markets. 

Changing international markets

The Australian Food and Grocery Council’s State of the Industry report paints a positive picture of the outlook for Australian food and grocery exports.

The impact of Asia’s growing middle class on food demand is, as the report correctly notes, widely recognised.
What is less widely recognised is the scope of this demand, and the extent to which economic and demographic changes across the developing world are transforming global food markets.

Rising incomes, combined with population growth and urbanisation, mean much higher demand for a wide variety of foodstuffs, especially higher value ones like processed products.

The United Nations Food and Agriculture Organization estimates that, by 2050, global food production will have to rise by 70 per cent on 2007 levels to meet this increased demand.

The sheer scale of this change means that food markets are becoming more demand-driven and less susceptible to the trade distortions of the past.

However, Free Trade Agreements will remain important to Australian food exporters for the foreseeable future, and there have been some new developments here.

As you’d know by now, conclusion of FTAs with Japan, Korea and China is a top trade priority for the new Government.

Japan is our second-largest agricultural export market and Korea our fourth largest but Australian food exporters face high trade barriers, including tariffs nearing 40 per cent on beef.

In negotiations with Korea, the Government has said it’s prepared to consider afresh previously sensitive issues, including Australia’s position on investor-state dispute settlement provisions.

With regard to Japan, Prime Minister Abbott and Prime Minister Abe are both personally engaged in securing an outcome.

Negotiations with China are not quite as close to resolution, but the Prime Minister has said he would be disappointed if we could not conclude a significant agreement within 12 months.

An Australia-China FTA would be significant for both countries; in 2012, China accounted for over a quarter of our total exports.

As well as a lowering or eliminating tariffs, Australia is seeking a reduction in non-tariff barriers and regulation, both of which can be major impediments to Australian food exporters.

There are precedents for the kind of thing that can be achieved here. 

Following the signing of our FTA with Chile, for example, the Australian Government was able to negotiate a Memorandum of Understanding to recognise Australia’s Beef Grading scheme which removed the requirement to employ Chilean beef graders. This has helped Australian beef to become a mainstay in local supermarkets, despite Chile itself being a major beef producer.

In addition to the FTAs still under negotiation, Australia’s Free Trade Agreement with Malaysia, or MAFTA, came into force on 1 January this year.

MAFTA deepens our economic links with an important regional partner and will enable the tariff free entry of 99 per cent of Australian goods currently exported to Malaysia – including a large range of agricultural and food products – by 2017.

Ultimately, however, while a more level playing field is welcome, there is also work to be done to improve our productivity and increase our market appeal.

Even in markets where an FTA is already in place, Australian firms have a fight on their hands to maintain market share. 

The changing global environment means that in future, the processed food industry’s success in international markets will depend as much on its capacity to meet demand as it does on market access.

Investment and innovation

Investment, and through it, innovation, can lead to significant improvements in the competitiveness of our food processing industry.

The State of the Industry Report notes a rebound in capital investment for the industry in 2011-2012 after several years of decline.

Research and development also showed solid growth, although much of that was due to a large increase in a single sub-sector – sugar and confectionary.

This is encouraging but the industry will need to attract more investment, including from offshore.

As well as boosting productivity and capacity, and building much-needed infrastructure, inbound foreign direct investment has an important role to play in integrating Australia with global value chains, complementing the role of outbound Australian investment in our offshore markets.

By creating links with overseas markets, direct foreign investment provides new opportunities for Australian food producers to export high-value, intermediate products in partnership with producers elsewhere.

One example of this kind of investment is the CJ NutraCon facility near Toowoomba.

Funded by an investment from Korean parent company CJ Corporation, the facility manufactures extract products which are then exported to Korea and China for further processing into beef seasoning. 

As well as creating local employment, the facility generates a strong demand for local beef and beef leg bones, trading on Australia’s strong food safety reputation and BSE-free status.

In the long term, there is evidence that global investment flows to the sector are increasing, no doubt in response to growing food demand.

The UN Conference on Trade and Development, for example, estimates total flows of foreign direct investment to food and beverage increased from US$7.2 billion in 1989-1991 to US$70.5 in 2008-2010.

Australia has good reason to expect a healthy share of this increase but investment attraction is a competitive business, which is why it’s been so important to have input from the AFGC to the Agrifood Investment Strategy I mentioned earlier.

Indeed, food technology and processing is one of Austrade’s key priorities in its role as the federal government’s investment attraction agency.

The Strategy will help frame our efforts as we work to attract foreign direct investment into agricultural and food industries.

It focuses on Australia’s strengths as one of the world’s leading producers of premium food and beverage products, with strong protection for intellectual property, a stable policy environment and highly skilled workers.

Better brand positioning

Capital investment and R&D are hugely important but there’s another area where the industry also needs to make substantial investment: branding and promotion.

One of the things we hear consistently from our network, particularly in Asia, is that Australian exporters could be doing more in-market to sell their products.

We recognise that some of this may be “lag” from some years ago when many exporters were content simply to see their products off in a container or worked through consolidators. 

This approach may have changed, but the perception of a marketing shortfall is nevertheless one Australia can’t afford to ignore.

While consumers in Asia are aware of Australia’s credentials as a reliable supplier of safe, healthy food, we know they sometimes struggle to identify an Australian brand.

There’s a feeling among retailers and distributors that we tend to take our reputation for granted.

Many of our competitors like New Zealand benefit from strong country branding. Australia’s country branding approach has been fragmented, with individual governments and industries taking their own direction.

The Australia Unlimited branding, coordinated by Austrade, has attempted to make some inroads here.  We are now working with the states and territories and our food industry partners to develop a brand that specifically focuses on food products through the Brand Australia Global Food Strategy.

Some of our industries and marketing bodies are doing a great job with individual branding, but we need to assess what value might be added through better positioning of the total product mix.

As I mentioned earlier, the first part of this project is now complete. We’ve consulted with industry and government undertaken a stocktake of previously commissioned research.

In part, this told us is something many of you may already know: Australia’s “clean, green and safe” image provides a strong basis for a national food brand.

Will that be enough?

Some of our competitors, including, once again, New Zealand, can boast similar clean and green credentials.

Few, however, can match the diversity of our food and beverage offering, and this is another area of potential brand differentiation for Australia.

We’ve also confirmed the strength of some individual brands across meat, dairy, wine and some speciality products.

Capitalising on the best aspects of each of these would give us a strong, unified message to take to hotly contested export markets.

Our ability to innovate and respond to specific demand-drivers may also be important to our future positioning.

The Brand Australia Global Food Strategy project will now start to refine our understanding of consumer perceptions and preferences in foreign markets through quantitative and qualitative research and fieldwork.

When these further results are in, we will be closer to being able to shape a national brand flexible enough to meet the needs of the entire industry.

We know from experience with previous projects like our international education brand, Future Unlimited, that it’s always possible to accommodate nuances and distinctions between states, industries and firms within a coordinated national approach.

Tourism Australia’s recent launch of the Restaurant Australia campaign is another example where distinct messages promoting a culinary experience in Australia can support our efforts to build brand in overseas markets.

The campaign is aimed at building Australia’s reputation as a gourmet tourist destination, but it sits well within broader brand messages about food quality, purity and freshness. 

Meat and Livestock Australia’s successful and long standing efforts to promote fine Australian red meat in conjunction with complementary products like wine are an example of an integrated approach that increases value to all participants.

Market insight

As we build a coordinated country brand, we also need to bear in mind the differences between individual markets and tailor promotional efforts to suit them.

Another clear message I hear from Austrade’s network is that Australian exporters sometimes rely too heavily on generic packaging and promotional material, which can be problematic in regions as diverse as Asia.

That’s one reason why we’ve been pleased to support the market opportunity statements I mentioned before, currently being developed by the Australian Food and Grocery Council.

With over 80 offices in 48 markets worldwide, we are keen to share our local knowledge and insight more widely with industry.

Understanding individual markets requires a familiarity not only with local food trends and tastes but also with domestic food suppliers and the evolving nature of retail distribution channels.

In Thailand, for example, traditional fresh food markets remain popular but there is a growing preference for ready-to-eat food items sold in modern supermarkets and convenience stores.

This reflects broader changes in Thai society such as the increase in smaller, dual-income families – and it presents opportunities for Australian exporters to reach more Thai consumers directly, as well as integrate with local value chains.

Awareness of these changes has already helped Australian food, grocery and ingredient exporters establish a strong presence in Thailand.

Australian ingredients feature in many locally manufactured packaged food and baked goods and Australian products are prominent on the shelves of national chains such as Tops Supermarkets, Macro Cash and Carry, and Villa Market.

This is not limited to food. Cancer Council sun screens recently acquired a distributor in Thailand, for example, and its products are now available in speciality chains such as Boots, as well as in supermarkets.

New patterns emerging in Thailand now, like the growing popularity of health food, will play an equally important role in shaping future demand.

The Government agenda

Australian businesses face many challenges and I have only mentioned a few of them today.

The Government is committed to helping businesses to meet those challenges, both at home and abroad.

Along with its commitment to concluding FTA negotiations with major trading partners, the Government has signalled that it will take a more activist approach to attracting foreign direct investment.  The creation for the first time of the position of Minister for Trade and Investment is key to this.

The Government will use Australia’s period as Chair of the G20 in 2014 to advance work to improve the international investment environment, especially for infrastructure, and to reduce remaining barriers to trade and competition.

On the domestic front, the Government wants to reduce regulation and boost productivity

The right incentives, for businesses to invest and innovate are part of sustaining a healthy food industry.

The infrastructure gap remains an issue for all Australian businesses, including those in the food and grocery sector, and the Government is aware of the need to fast-track critical projects including roads, bridges and freight rail.

Conclusion

In conclusion, I look forward to a long and productive relationship with the Council as we work together to advance the interests of Australian food and grocery exporters.  Thank you for your attention.

For further news and information from the Australian Trade Commission (Austrade) visit www.austrade.gov.au/mediacentre.

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