Chinese connections are the key to Australian agribusiness profitability, ACBC – NAB reports

Posted by AFN Staff Writers on 25th March 2015
Chinese connections are the key to Australian agribusiness profitability, ACBC - NAB reports
Chinese connections are the key to Australian agribusiness profitability, ACBC – NAB reports

Australian farmers, agribusiness and food business entrepreneurs working with Chinese businesses are reporting greater access to new markets and value chains, which is translating to increased profits, according to new research released today.

Commissioned by The Australia China Business Council (ACBC) and sponsored by the National Australia Bank (NAB), the 2014 Australia-China Trade Report is the only report of its kind to provide a deep analysis of the benefits to Australian agribusiness from trade with China.

The 2014 Australia-China Trade report was formally launched today by the Minister for Foreign Affairs, The Hon Julie Bishop, at the Australia China Business Council Networking Day at Parliament House in Canberra.

This year, in preparing the report, the ACBC conducted an exclusive business survey of over 200 Australian firms engaged in Chinese business, predominantly from its membership. The report is supported by case studies from different industries and a new data source, the World Input-Output Database.

Key findings from the report

  • 89 per cent of Australian agribusiness firms surveyed describe their two year business outlook with China as optimistic
  • 88 per cent of Australian agribusiness firms surveyed say China is important to their global expansion plans
  • 57 per cent of all businesses surveyed say Chinese contacts have provided access to value chains for new markets
  • the benefit to Australian households of trade with China increased five-fold from A$3,400 in 2009 to A$13,985 in 2013
  • direct trade from Australia to China contributes 5.5 per cent to Australian GDP, amounting to $79,150 million.

Beef and other meats see big increase in exports to China

ACBC President John Brumby said export of agricultural and food products from Australia to China have risen dramatically since 2009.

“China is now the largest market for Australian agricultural and food products,” Mr Brumby said. “Chinese demand for premium and high quality Australian food products, such as beef and other meats, has increased dramatically in the last two years,” he said.

Mr Brumby said that in 2013, Australian exports of beef to China increased nearly four times, oil seeds five times, and other meat exports doubled year-on-year.

Report provides close analysis

Khan Horne, NAB General Manager Agribusiness, said that the report has broken new ground by providing close analysis of the impact of bilateral trade between Australia and China on Australia’s business and economic integration with global value chains.

“Partnering and co-ordination with Chinese businesses allows Australian businesses to gain access to new value chains or to improve their position in existing value chains,” Mr Horne said.

“It can also afford Australian agribusinesses access to new markets and the ability to distribute goods and services to both Australian and Chinese markets,” Mr Horne said. “Thirty-seven per cent of surveyed Australian agribusinesses have a partnership in place with a SOE; however, there is still a lot of potential as this figure is as high as 83 per cent in other sectors,” he said.

‘Considerable’ opportunities for Australian processed food exports to China

Mr Horne said there is considerable growth potential for Australian agribusiness in processed food as Chinese incomes rise.

“Just three per cent of Australian agricultural exports are destined for the Chinese consumer market compared with 24 per cent of New Zealand’s exports, pointing to untapped markets opportunities for Australian exporters,” Mr Horne said.

“Physical infrastructure is still a barrier for Australian agribusiness exporters, with 50 per cent of respondents citing this as an impediment to dealing with China,” Mr Horne said.

Opportunities to take advantage of Australia-China Free Trade Agreement

Mr Brumby said the report’s release was perfectly timed, given Australian firms are looking at how they can engage with China following the signing of the Australia-China Free Trade Agreement late last year. He said the report clearly explains how many Australian businesses are already succeeding in China.

“An encouraging development is represented by Chinese plans to invest in the Australian agricultural sector such as the recent announcement by the Beijing Agricultural Investment Fund to invest $3 billion in an agribusiness supply chain stretching from Australian farms to Chinese consumers,” Mr Brumby said.

“This degree of transnational supply chain integration involves significant infrastructure investments at both ends of the chain, as well as major challenges in operations management,” Mr Brumby said.

Partnerships with China opening ‘global value chains’ for Australia

Mr Horne said global value chains — where different stages of the production process are located across different countries — have traditionally been difficult for Australian businesses to infiltrate.

“This research shows that existing relationships with Chinese trade partners are opening doors for Australians in previously untapped global networks,” Mr Horne said. “In fact, 80 per cent of businesses surveyed claim that their China business is part of their global value chain,” he said.

“A high proportion of Australian agribusinesses say their profits have increased over the last two years, with profitability linked to co-operation with Chinese partners and integration into value chains,” Mr Horne said.

The ACBC said its 2014 report goes further than previous reports by analysing the impact of Australia-China trade across industry sectors, including Australia’s integration with global value chains, and the flow-on effects for the Australian economy down to the household level. The report was funded by a major sponsorship deal with the National Australia Bank and seed funding from the Australia China Council of the Australia Department of Foreign Affairs and Trade (DFAT).