15/10/2015 - 13:53

Food exports may leave bitter aftertaste

15/10/2015 - 13:53

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Gas, tuna, and crayfish might not seem to have a clear connection, but there is a link – and it’s one Jeff Kennett thinks might become a worry for local supermarkets and promoters of Australian food exports to Asia.

TASTY: Australian food is in demand in a rapidly growing Asia.

Gas, tuna, and crayfish might not seem to have a clear connection, but there is a link – and it’s one Jeff Kennett thinks might become a worry for local supermarkets and promoters of Australian food exports to Asia.

What concerns the former Victorian premier is that a time may come when demand for Australian food becomes so great it overwhelms farmers and food processors, potentially causing shortages in local supermarkets.

But Mr Kennett’s warning about Asian demand goes beyond food; it touches on the challenge of Australia’s relatively small economy meeting the demands of a region that is much bigger, and getting richer by the day.

And that’s before considering the changes flowing from various free trade agreements, which will make it easier to export and import goods and services from other countries.

As the relationship between Australia and Asia currently stands, there are plenty of benefits for both sides. Asia wants Australian mineral, energy and food exports, and is prepared to pay a fair price.

Where the situation gets tricky is when a market as big as Asia, which is measured in the billions of people, demands the best Australian can produce and is prepared to pay prices significantly higher than what Australian shoppers are prepared to pay.

Mr Kennett’s warning was based on knowledge gained in his role as an independent arbiter of disputes between one of Australia’s biggest supermarket operators, Coles, a division of Perth-based Wesfarmers, and local suppliers.

He was also, later, brought in to review the company's arrangements with suppliers as part of a settlement with the Australian Competition and Consumer Commission which had taken an unconscionable conduct case against the retailer.

It’s from that grounding in the relationship between supermarkets and suppliers that Mr Kennett can now see a significant challenge ahead, as the Australian economy rotates away from its focus on minerals and energy towards an increase in food exports – the so-called shift from mining to dining.

“More and more overseas buyers are coming to look at (Australian) produce,” Mr Kennett said in an interview earlier this week with The Australian Financial Review.

“I know of one producer who committed the whole of next year’s crop to an overseas supplier and they were paid up front.”

That last comment triggered a memory of a time when people in Perth could not buy a locally caught crayfish (at a time before they were called rock lobster) because the entire catch was being exported to high-priced Asian markets, especially Japan.

A similar situation exists with high-quality tuna caught off the south coast, and then ‘farmed’ near Port Lincoln in South Australia before being exported (whole) to the Tokyo fish market.

For local fishermen and a growing list of farmers, the benefits of selling to Asia are enormous, with prices much higher than at home and with sales generally booked in US dollars.

The question Mr Kennett touched on is, how far can this food-for-Asia trend go before it starts to create shortages at home, or until the prices being paid by Asian buyers flow back into local prices?

That’s when gas enters the debate; because what’s happening along the Australian east coast is a gas-export revolution, as three new liquefied natural gas export projects in Queensland start supplying LNG to customers in Asia.

While the international energy market is currently flooded with supplies of oil, coal and gas, there is no problem satisfying local demand. But as energy markets rebalance, it is likely that LNG exports will be booked at a substantially higher price than what gas can be sold for in Sydney and Melbourne.

Being part of an international market is, in principle, a good thing for Australia, which has an open and trade-focused economy.

But that’s before local shoppers discover that certain goods are in short supply, or are unattainable, because they are all being exported to markets offering higher prices.

Mr Kennett cited higher beef prices over the past 12 months as an example of the emerging trend, with up to 50 per cent of locally farmed beef making its way to the US.

What he has identified is, so far, an economic issue that has everything to do with goods and services flowing to the customers prepared to offer the best price.

In time, however, the issue will become political, especially if certain food items produced in Australia become hard to find on local supermarket shelves.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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