Produce - Westpac

Produce

Growing your business • AUTUMN 2013

In this issue
Cotton industry overview
Blueprint for Australian agriculture
Succession planning
Economic update

trailblazers

Proudly supported by Westpac

Australian Agribusiness today is a country mile from the old days. From next
generation farmers and cutting-edge technologies to revolutionary techniques
and innovations, there’s an exciting new world of endless possibilities. So it’s good

to know while you’re forging ahead, we’re backing you up.
Our experienced Agribusiness teams live and work in your community and share

your vision to see your business grow. From purchasing rural or investment
property to new farm equipment right through to your day to day working capital

and personal banking requirements – we’re here to help.
Talk to us today about how we can support you.
visit westpac.com.au/agribusiness

© 2013 Westpac Banking Corporation ABN 33 007 454 141 AFSL and Australian credit licence 233714. WBC3017/NSW/RMW/2503

Welcome
to the second issue of Produce,
Westpac Agribusiness’s magazine

for the agriculture sector

Graham Jennings At Westpac, we are dedicated to helping
you find financial solutions for all your
Nothing can replace the agribusiness needs.
rapport created through
meeting face to face and No matter what industry you’re involved in, nothing can
discussing ideas in person. replace the rapport created through meeting face to face
and discussing ideas in person. It’s something the entire team
here at Westpac believes in—and it helps inform our dealings
with all our agribusiness clients, no matter where they are
farming around Australia.

In our second issue of Produce, we delve deep into the
cotton industry and provide an overview of how different
agricultural sectors are expected to perform in 2013.

Although we’re only half-way through the season,
cotton farmers are coming off the back of a high-performing
2011–12 and this good fortune looks set to continue. We
take a look at new developments in the cotton industry,
from groundbreaking farming techniques, equipment and
seedstock, to trade and legislation updates. We reveal some
emerging trends in cotton and examine prospects for the
industry, here and abroad.

You’ll also find an introduction to the key findings from the
first-ever Blueprint for Australian Agriculture report, released
by the National Farmers’ Federation in February.

And we explore an issue of huge importance, but one often
neglected: succession planning. Remember that we’re always
here to offer you guidance and to help you plan a handover
strategy for your farm.

Finally, we chat with David Chomley, our Premium
Agribusiness Manager in country New South Wales.

Please enjoy this issue of Produce.

Graham Jennings
General Manager
Regional Commercial & Agribusiness
The Westpac Group

Autumn 2013 1

96% 1000

of the cotton fibre different insects can be found
grown in Australia is in a typical cotton crop.
sold to other countries.
43
215
species of cotton
pairs of jeans can be can be found
produced from a single around the world.

227kg bale of cotton.

China Cotton

is the world’s largest The word comes from
cotton importer qutun, or kutun, an
and producer. Arabic term used to
describe any fine textile.
1992
1830
In this year, Australia
produced a world-record In this year, Australia shipped
its first cotton cargo, comprising
2.2-million-bale crop. three bags, to England.

1250 500

cotton farms operate in million people are able to be
Australia, each averaging clothed by cotton produced
by Australia’s growers.
467 hectares.
Hibiscus

is the genus of plants to
which cotton belongs.

Cotton facts
Sources: Cotton Australia, Cotton Catchment Communities , The Australian

Contents

06 16

head of Editorial Triple A Angus Stud 18
Michael Butler
editor Produce Page 10 Regulars
Alarna Haigh
Production editor GrowinG your business • AuTuMn 2013 How Chinese 04 News
Paul Rodger demand for 32 On the land
SENIOR SUb-Editors In this issue cotton is
John Piggott, Merran White Cotton industry overview affecting global Industry
CONTRIBUTORS Blueprint for Australian agriculture production,
Fleur Bainger, Jeremy Chunn, Succession planning imports and 06 C otton: research and innovation
Cameron Cooper, Joanna Hall, Economic update exports in 2013. 10 C otton: industry update
Sasha Tohme, Susan Webster 14 Blueprint for progress
HEAD OF design Read online Page 16 16 Agribusiness round-up
Shane O’Brien
designer This issue of Produce A summer Life
Whitney Moothoo magazine can be viewed round-up of the
studio manager online at: www. westpac.com.au/ the beef, dairy, 18 Sweet succession
Narinder Kaur agribusiness wool and grain 22 Winter wonderlands
production coordinator industries. 25 Rescue chopper charity
Rhys Prosser Cover: Julia Goss/Getty Images
ACCOUNT MANAGER Page 18 Data
Liz Keene
[email protected] Succession 26 The economy
ACCOUNT DIRECTOR planning 28 Interest rates
Scott Crisp can be tricky 30 The dollar
CEO business, so
Eddie Thomas make it easier Autumn 2013 3
Print management with the right
SOS Print advice.

PRODUCE IS PUBLISHED ON
BEHALF OF WESTPAC BY:
Edge Sydney
51 Whistler Street,
Manly, NSW 2095
Edge Melbourne
Level 5, 115 Elizabeth Street,
Melbourne, Vic 3000

Disclaimer: The information included in this magazine
is correct as at March 2013 and is intended for interest
only. The opinions and views expressed in
this magazine are provided in the writers’ personal
capacities and are their sole responsibility. Their
publication does not imply that they represent the
views or opinions of Westpac or Edge and must neither
be regarded as constituting advice on any matter
nor be interpreted as such. The reproduction of
advertisements in this publication does not in any way
imply endorsement by Westpac or Edge of products or
services referred to therein. No part of this publication
may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise,
without the prior permission of the publisher. A
selection of the images featured in this publication
has been sourced from Thinkstock photos and
Getty Images. Business Essentials trading as Edge
ABN 22 062 493 869.

Did you know ... Workforce decline tackled

$407b Curtin University in Western Australia has joined a national
science network to address the growing demand for skilled
... is the estimated total value of family professionals in Australia’s primary industries.
businesses that will change hands over the
next decade as Australia’s baby-boomers— In an attempt to attract new students, the Curtin Primary
farmers included—bow out and retire. Industry Centre for Science Education (PICSE) activity centre
is promoting various work and research opportunities in the
Source: Bankwest Inherited Housing Report (2010) food and agriculture sectors to WA high schools.

The things they bring in … “As part of the Curtin PICSE program, students will be
exposed to cutting-edge research and will be shown
Snake meat, a witchdoctor’s bag with dead rodents attached, the importance of science to primary industry,”
skinned frogs, a tiger’s penis and products made of elephant says Gina Pearse, science education officer
dung are some of the items travellers have tried to bring into and leader of the centre.
Australia since the beginning of 2012.
PICSE activities will include
Tim Chapman, first assistant secretary for border compliance industry-placement scholarships
at the Department of Agriculture, Fisheries and Forestry, says the that enable students to work
items could introduce serious diseases and pests into Australia. alongside researchers and a
five-day camp showcasing career
“Biosecurity protects Australia’s plant, animal and human and research opportunities.
health by reducing the risk of unwanted pests and diseases
arriving in the country,” Mr Chapman says. Source: news.curtin.edu.au
Source: www.daff.gov.au/about/media-centre

Bees, please FAST
FACTS
The buzzing of bees in the garden is a
sound that’s synonymous with spring. Fast fact 1
But an international decline in the
honeybee is prompting scientists to farms
develop plans to ensure their survival.
Exports
Researchers say a decline in the insects reached a
could devastate dinner plates, with record high
honeybees responsible for the pollination of $36.4 billion
of many crops including apples, soybeans, in 2011–12.
citrus fruits and avocados. Source: ABARES

To help boost the population, the Rural Fast fact 2
Industries Research and Development
Corporation has launched a guide CAMELs
highlighting pollen and nectar planting
choices from backyard to bush. Their milk does
not curdle
Gerald Martin, chairman of the Pollination but it can be
Program R&D Advisory Committee, says fermented and
65% of agricultural production relies on used to make
bee pollination, which helps ensure new cheese.
fruit, vegetables and seeds. Source: www.fao.org

At the same time, honeybees are Fast fact 3
coming under pressure from urbanisation,
bushfires and changing agricultural FARMs
and land management practices.
Australia has
Source: www.rirdc.gov.au/news about 134,000
farms, 99%
of which are
locally owned.
Source: NFF

4 Produce

NEWS

Waste not, want not AgriNews

Up to half the world’s food production—about two billion Facts at a glance, industry
tonnes—is thrown out as waste every year, a UK study says. information and the latest
The study by the Institution of Mechanical Engineers found updates from around the traps
food waste can be attributed to several factors, including
the buying policies of large supermarkets, the cosmetic

appearance of produce and inefficiencies
on-farm and in the supply chain.
According to the report Global Food:
Waste Not, Want Not, between 30%
and 50% of the four billion tonnes of
food produced annually goes to waste.

Source: www.bbc.co.uk/news

CSIRO App dishes Sweetcorn a
dirt on soil weapon against
blindness
Want to have access to the most up-to-
date soil information at any location A new Australian
around the country in seconds? New variety of sweetcorn
mobile device technology means you could hold the key to
can now instantly visit Australia’s national fighting blindness. The
soil databases thanks to a new iPad app. ‘Supergold’ variety is
high in zeaxanthin, a
Called SoilMapp, it provides pigment that gives corn
information such as a soil’s depth, acidity, its distinctive colour.
salinity, carbon content, water-holding Studies have shown a
capacity and other attributes to help you link between high intake
make on-the-spot decisions about how of foods containing
to more effectively manage your land. zeaxanthin and a lower
incidence of age-related
Whether you’re a farmer, an agronomist macular degeneration,
or just plain curious, the app delivers the leading cause of
detailed scientific information on soils blindness in the western
no matter where you are. world. AUSVEG says
‘Supergold’ will contain
Source: www.csiro.au/en/portals/media enough of the pigment in
half a cob to help improve
weedsDidyouknow... eye health.

may one day be a thing of the past thanks to adaptive use Source: AUSVEG
of the same technology that heats the microwave oven.
Dr Graham Brodie, of The University of Melbourne, Autumn 2013 5
has developed a prototype machine that can successfully
focus microwave energy at ground level, killing weeds in
seconds. He says herbicide resistance and environmental
concerns limit the chemical options available to manage
weeds. But microwave treatment is immediate, chemical-
free and leaves no residue.

Source: www.nff.org.au

Cottoning on

The cotton industry’s history of innovation is paying off in spades

Words: Susan WEBSTER

6 Produce

Industry

Last year’s sale of Cubbie Station put
the 96,000-hectare cotton enterprise at
the pivot-point of Australian agriculture.
The nation’s most valuable farm was sold
to a consortium, comprising Chinese
company Shandong RuYi Scientific and
Technological Group and Australian-owned
Lempriere Group, for $240 million in
October 2012.

With Shandong RuYi holding an 80%
stake in the company, the sale raised
questions about foreign ownership
of land assets, water, land use, and
profitability versus productivity in
the wider Australian consciousness.

While the first three stirred public
sentiment, the profit/productivity nexus
remains the more pressing concern.

Constant improvement

Although a bag of cottonseed arrived
with the First Fleet, the cotton industry
did not really hit its straps until about 50
years ago, when American ‘agripreneurs’
set up farms around the Namoi River in
New South Wales. Initiated by foreign
capital and expertise, especially the US
model of large-scale, mechanised irrigated
farming and the use of chemical inputs,
the industry enjoyed the flow-on effect of
investment in infrastructure, a strong supply
chain through co-operative and corporate
structures, and a ready export market.

Production soared. In 1934, Australia
produced 17,000 bales; by 1971, it was
87,000. Now, as the entire industry pulls
out of 10 long, dry years, cotton continues
to surpass production records. Australia is
the world’s fourth-largest cotton exporter
and seventh-largest producer behind
China, India, the US, India, Pakistan,
Brazil and Uzbekistan.

A combination of factors have
contributed to this rise, says Adam Kay,
CEO of Cotton Australia.

“On a global scale, demand for fibre
is growing and cotton is the number one
natural, with the alternative being synthetic
fibre made from refined oils. Australia has
a yield three times better than the global
average, which highlights the efficiency
of our relatively small industry,” he says.
“What’s more, growers have confidence
in the research the industry does and
are fast adopters of new technologies.”

Autumn 2013 7

“When the CSIRO releases new varieties, This continual research and development
farmers pick them up and go with it. is another factor contributing to the
It’s a fantastic partnership.” industry’s success, says Kay. “Farmers invest
in research through the CRDC and then
In fact, the industry’s fortunes are seeing Clockwise adopt the output,” he says. “One example
expanded plantings—cotton is being grown from LEFT: is with biotechnology and genetically
in NSW as far south as the Victoria border. New round- modified varieties—when the CSIRO
module releases new varieties, farmers pick them up
But the industry has been working harvesting and go with it. It’s a fantastic partnership.”
on boosting quality as well as quantity. technology;
GM varieties; Currently, new varieties are being
Australia’s cotton exports make up 10% some GM crops developed for greater water use efficiency,
of the world’s total high/medium-grade require refuge pest and disease tolerance, and yields.
cotton volumes. A 2009 global survey found planting; and
Australian cotton ranked lowest for fibre qualilty. In 2000, the first genetically modified
foreign-matter contamination. Dallas Gibb, herbicide-tolerant cotton was introduced;
product program leader for the industry’s since then, GM cottons have been credited
FIBREpak project, says Australian growers with an estimated 30% reduction in overall
now receive a $20–$25/bale premium, herbicide use and a 46% reduction in the
worth more than $80 million a year. use of residual herbicides.

The Cotton Research and Development Meanwhile, in 1996, Australia’s first
Corporation reported in 2010–11 that the GM cotton trait, Ingard®, was released
previous eight years had seen important commercially, containing a single gene from
quality criteria, such as fibre length, the soil bacterium Bacillus thuringiensis (Bt).
improve ‘significantly’. Opportunities Over the following eight seasons, Ingard
remain for premium-quality fibres, with crops required 44% less insecticide than
cotton grown to specifications of 60Ne, conventional crops.
lifting to 70Ne and even 80Ne (Ne—
Number English—measures thread Then, in 2002, Bollgard II®, containing
thickness; higher numbers indicate finer two Bt genes of resistance, was approved
threads). Work on developing an extra-long for commercial use, resulting in 85% less
staple could see a 60%–80% premium on insecticide use.
standard cotton prices.
The impetus for adopting insecticidal
GM technology was the speed with which
the pest Helicoverpa armigera (cotton
bollworm) had developed resistance to
insecticides in the preceding decade.

Entomologist Professor Peter Gregg

8 Produce

INDUSTRY

explains: “H. armigera in particular had Furrow irrigation accounts for more than dynamics and uptake by farmers has been
a long history of resistance to insecticides 80% of the total irrigated area and can swift. Two seasons ago, they accounted for
delivered as sprays, and had destroyed return efficiencies in excess of 90% with 40% of the national crop; last season they
cotton industries in many parts of the optimal management. While some growers collected 80%; next season it is projected
world. Bt is just another insecticide, use pressurised irrigation systems, these that 90% of the crop will be harvested this
even if it’s delivered in a novel way.” are expensive and require regular use to way. “That’s a pretty quick adoption rate
return cost benefit, so the lower capital for a $750K piece of machinery,” Kay says.
The response has been mixed, partially cost of furrow systems suits the industry’s “The average Australian cotton farm is a
because GM technologies can impact highly variable water supply. family-run business ... so the rapid take-up
management practices. For example, of these machines is testament to our
Bollgard II must be planted with a refuge However, as furrow irrigation is typically commitment to innovation.”
crop to breed moths susceptible to the more labour-intensive, automated surface
proteins in Bollgard II cotton. irrigation with adaptive real-time control is The reason for the uptake is simple:
being explored as an alternative. Kay adds: instead of employing labour-intensive
Another issue was that the use of “The Federal Government, through its separate operations, the new machines
insecticides usually resulted in a decline Water for the Future program, is partnering combine the picking, module-building and
in beneficial predatory insects. Dr Moazzem with farmers to increase water efficiency wrapping processes almost automatically.
Khan, from the Queensland Department infrastructure—a win-win for both parties.”
of Agriculture, Fisheries and Forestry, led Improvements extend beyond the farm
research that found lower rates of The industry is also seeing the patenting gate—for example, technological advances
registered insecticides, combined with of biodegradable monolayers to reduce in the ginning process boost lint cleaning.
salt or petroleum spray oils, provided evaporative losses from water storages. The industry is adopting real-time
good control—with fewer negative monitoring to manage moisture during
effects on beneficial insects. Reaping the rewards ginning, using humidification to lower
costs and curb fibre damage.
“Mixing salt with a registered chemical Meanwhile, out in the fields, new picking
allows the chemical rate to be reduced by up technology delivers round bales that With an industry best management
to 70% without reducing effectiveness, which improve harvest efficiency. In the three years program, myBMP, being used to improve
is a big saving to the industry,” he says. since their introduction, round-module operations and sustainability, it seems there
pickers have radically altered harvesting is plenty more good news to come.
Water of life

After weeds and pests, the other big-ticket
item for cotton farmers is water. “The
industry is always looking at how to get
more crop per drop—how to produce
more fibre per unit of water—and the
past decade has seen a 40% improvement
in water use efficiency,” Kay says.

Autumn 2013 9

10 Produce

Industry

Cotton:
the comeback king

After suffering through a long drought, cotton is back
and it’s in record-breaking form

Words: Susan WEBSTER

Autumn 2013 11

For the past two years, cotton has broken In some countries, notably the US and
the economic mould and defied the rules Turkey, competition with grains and
of supply and demand. soybeans is strong.

Global production has been swamping expected to increase production this strong. For 2013–14, the ICAC is predicting
consumption by an average of 10%. There season. Australian production is expected big production downturns in those two
have been three consecutive years of to drop 23% to 4.3 million bales. countries, of 25% and 30%, respectively.
oversupply and the global stocks-to-use
ratio has been the highest since the end And by 2013–14, the soft landing might International cotton prices were 20%
of World War II. be getting bumpy. lower in the first four months of 2012–13
compared to the same period last year;
Since March 2011, the world has seen There is no certainty that China will prices of maize, soybeans and wheat were
a 55% rise in cotton stocks. Typically, that support international prices, and Northern at least 15% higher. Plus cotton is generally
should send prices plunging. Hemisphere producers are selling their new more expensive to produce than those
crops at lower prices than they did last year. competing crops, generally needing
But so far in 2012–13, prices have shown more fertiliser, pesticides and fuel.
surprisingly little volatility. The Cotlook A The US Department of Agriculture
Index averaged 83 cents/pound midway expects China to consume 36 million bales And, as the ICAC notes, “a small gain
through 2012–13, well above the long- in 2012–13, a 5% dip in year-on-year in cotton prices could constrain the
term average of 69 cents. comparisons. increase in demand”.

Index volatility normally averages 34% The ICAC projects that the global cotton One major source of uncertainty
in a season. But for the first five months area will contract by 9% to 31.5 million regarding projections of short-term global
of 2012–13, that range was only 9%. hectares and total production will decrease cotton supply and use stems from China.
by 11%–14%, depending on rainfall. This
So why the cushioned ride for cotton? would be the second consecutive season The cotton market knows the China
of decline in cotton production and the National Cotton Reserve Corporation
The China connection smallest output in four years. (CNCRC) will continue buying Chinese
cotton until the end of March 2013, no
The International Cotton Advisory Crop competition matter the expenses involved. But how
Committee (ICAC) believes the reason is the CNCRC will manage the national
China. Since 2010, the world’s biggest user Other factors add to the mix. In some reserve after that is a big unknown.
of cotton has also been its biggest buyer. countries, notably the US and Turkey,
competition with grains and soybeans is The ICAC assumes China will import
By the time China reaches the expected
end of its buying spree in March 2013, it
will have stockpiled 40 million bales—more
than a year’s supply. Put another way, China
has amassed approximately half the world’s
total cotton stocks.

According to the ICAC, this explains
why prices have not been more volatile
and why production is not throttling back
significantly.

Yet globally, the industry is contracting,
with only the US, forecast at 11% higher,

12 Produce

Industry

Clockwise
from LEFT:
Australian
cotton farmers
are set for
another record
harvest; the
quality of our
product is
world-class;
a handsome
plant; round-
module
cotton-picking
machines
increase
efficiency of
harvesting.

less cotton in 2013–14 than it needs to are projected to decline 5% from a year Key figures
fill the gap between consumption and earlier. It should be noted that the 2011
production, and that the national reserve crop was a record, and earned $2.6 billion $2.5 billion
will contract slightly to make up for this in exports.
difference. Import demand from Turkey, The average value of Australia’s
Bangladesh and Pakistan is expected to In recent times cotton has attracted cotton exports exceeded $2.5bn
grow significantly. some big-name investors—not only the over each of the past two seasons.
headline-grabbing purchase of Cubbie
The cotton industry will not lose the shirt Station by a Chinese company, in $12 billion
off its back. But these are, according to the partnership with Australian-owned
ancient Chinese curse, interesting times. Lempriere Group but, more recently, The total value of the global cotton
the 13% stake in Namoi Cotton by market in 2011 (prices peaked at
Supply and demand US-listed giant Louis Dreyfus.
246.14 cents/pound, a new record).
The Chinese have a lot to do with cotton’s At the farm gate, the early indications
fortunes, although, depending on future are at last turning hopeful. After months $460
quota levels, 2013–14 might see less of languishing at lower than break-even,
our product heading to that marketplace. prices have risen, from $360–$380/bale Long-term average per-bale price
in October to $400–$420/bale in January for Australian cotton, calculated
Matthew Bradd of Ecom Commodities and February. Growers with uncommitted
said: “We anticipate Australia’s new crop cotton are taking heart, and there is talk of over 21 years (1991–2011).
will sell into traditional markets in Indonesia, a 17% price lift over the next 12 months,
Thailand, Korea and less into China, based which would encourage more cotton 66:34
upon less quota being released. plantings.
The ratio of the cotton crop grown
“We expect the sideways trading in Fortune favours the brave, and the in NSW compared to Queensland.
New York futures to continue, with the Australian cotton industry has always
US70 cents/pound finding support.” been braver than most. 1.5 million

Exports for Australia’s 2012–13 period Average Australian cotton
production, in bales.

Source: Cotton Australia

Autumn 2013 13

On the right track

In a first for the agriculture sector, a blueprint outlining its desired
future has been created, informing its actions for the next four decades

Words: Fleur Bainger

Trying to reach a new, far-off destination The National Farmers’ Federation chain infrastructure by using a dedicated
without a map can be hard going, spearheaded the blueprint’s creation but taskforce and cutting red tape. Building
particularly if you’re travelling with a its CEO, Matt Linnegar, says the industry ‘Brand Australia’ is an important goal.
directionally challenged back-seat driver. as a whole needs to carry out the ‘big
Not everyone likes unfolding the map, picture’ plan. “Its future implementation The next theme, addressing ‘trade
but most people would agree that it will and success relies on the input of the and market access’, draws on the
help you find your destination. And now, collective industry,” he says. “We must opportunities in Asia and building
agriculture has applied that method of work together to ensure the future we new and innovative—perhaps even
thinking to itself. wish to see … and the blueprint is just unconventional—trade agreements
the starting point in doing this.” with countries such as China and India.
After a year of Australia-wide
consultations, surveys, workshops and After listening to farmers across the ‘People’ zeroes in on the need to
round-table discussions with nearly 4000 country declare their most pressing build a larger, more flexible and better-
stakeholders, agriculture’s map for the concerns and obstacles, the blueprint’s skilled workforce while safeguarding
future, the all-important Blueprint for authors have distilled them to seven against labour shortages with alternative
Australian Agriculture, has been released. overarching categories—each of equal technologies. One strategy is to ensure
importance—on which to focus. agriculture is embedded in the national
The report, which was presented to school curriculum.
industry on 14 February, identifies the The first, titled ‘innovation and research,
sector’s key issues and, importantly, development and extension’, concentrates Image and perception are recurring
signposts the ways in which to address on increasing research funding and widely hurdles that ‘agriculture within society’
them over the long term. Significantly, implementing study findings to improve hopes to clear. By building closer links
the blueprint marks the first time the industry performance. with broader society (including activist
entire industry has come together to groups), working to improve its credibility,
form goals and find solutions that it can The second, ‘competitiveness’, aims to and turning a critical eye on itself, the
work towards for the next decade and embrace global markets and access foreign sector hopes to foster better relations
beyond, looking as far ahead as 2050. and domestic funding. It also seeks to all round. Crucially, earning public trust
improve telecommunications and supply- is strongly desired.

Peter Walton/Getty Images

14 Produce

industry

The tug of war between environmental decision-makers within the agricultural
and economic priorities is considered sector and the supply chain to drive
under ‘natural resources’. It is hoped the the blueprint forward,” he says. “To
development of sustainability indicators date, we have already had interest
will help manage this, along with a from around 100 industry bodies in
food and fibre production register that being part of the ‘legacy’ phase and
covers land use and soils. Eventually, the participating in these forums.”
blueprint aims to see farmers earn income
from their environmental stewardship. Westpac is one industry body that
will partcipate in the blueprint’s legacy
The final theme, ‘transformational phase, having supported the project
issues’, will tackle the unpredictable from the outset.
times ahead, recognising that the
blueprint must meld to future changes, For farmers and others who love
such as new technologies that will alter putting the foot down and getting
the way things are done, or deal with the job done, the blueprint is cause
faster, less predictable occurrences, for celebration: it seems set to get the
such as the impact of climate change. industry on the right track and heading
to the finish line in prime position.
Mr Linnegar says the blueprint’s
recommendations will begin immediately. Visit www.nff.org.au/blueprint to
download the Blueprint for Australian
“In 2013, we will be starting a series Agriculture.
of forums that will bring together the

‘‘We must work together to ensure the The blueprint’s
future we wish to see ... and the blueprint themes
is just the starting point in doing this.’’
ONE
TOP: Westpac
Agribusiness Innovation and research,
General development and extension
Manager
Graham TWO

Jennings, NFF Competitiveness
president Jock
THREE
Laurie and
Agriculture Trade and market access
Minister Joe
Ludwig at the FOUR
launch of the
People
blueprint.
FIVE

Agriculture within society

SIX

Natural resources

SEVEN

Transformational issues

SumAmuetur m20n120–13 15

Agribusiness round-up

How did our farming industries fare this summer?

Words: jeremy chunn

Beef: Europe dines out as South Triple A Angus Stud
America takes a bite out of trade
Dairy: nearing boiling point a tonne and whole milk powder up
Hear what you will about the dormant 1.6% to $US3199 a tonne.
state of the economies of the Eurozone, The heatwave during early January
but beef exports to the EU last year were had minimal effect on the dairy industry, But on a local level, resentment still
up 16% year-on-year, to 14,949 tonnes. despite some interruption to collections burns over the milk price war. In the
in Tasmania and damage reported to town of Noorat, southwest Victoria, 600
A lot of the volume can be attributed pastures in New South Wales. dairy farmers gathered on 16 January to
to the increase in the region’s grainfed discuss ways to alleviate price pressure
beef quota from 20,000 tonnes to Otherwise, the year began well inflicted on them by the supermarket
48,200 tonnes mid-year, with the result for the industry, with the first Global chains’ discounting of fresh milk. The
that in 2012, shipments of Australian DairyTrade auction for the year pushing farmers proposed a tractor blockade
grainfed were 48% higher, at 6263 tonnes, skim milk powder up 4.7% to $US3572
than they had been the previous year.
Shipped grassfed produce was up slightly
on 2011. The Russians, however, are eating
less of our beef, with orders for last year at
32,162 tonnes, 41% down on 2011.

A weaker Brazilian currency saw orders
from Russia for frozen beef chase value
in Latin America, including Paraguay.
Frozen beef is generally used for further
processing, but exports of Australian
chilled beef, which ends up on plates
at the better restaurants, had a good
year in 2012, up 9% to 1109 tonnes.

The United States is our major
competitor when it comes to quality
beef, and the Russians are taking
bigger orders from the Americans,
but Australia is very close behind.

16 Produce

Industry

Philip Quirk/Getty Images

of supermarkets and a consumer levy In the town of Noorat, Victoria, 600 dairy
on milk to help them remain solvent, farmers gathered to discuss ways to alleviate
and some have created a new lobbying price pressure inflicted on them by the
group, Farmer Power, to spearhead future supermarket chains’ discounting of fresh milk.
campaigns.
“Phosphorus is a significant on-farm “There is grave concern among
The first priorities are to get government input cost and is essential for pasture Australia’s grain-producing community over
assistance for struggling farmers and then growth, productivity and profitability,” the proposed increase, with the recent
to address the farm gate price, said group AWI head of on-farm R&D Dr Jane survey showing over 95% of producers do
organiser Chris Gleeson in February. Littlejohn said. “By identifying the pasture not support the test weight increase,” said
species that access the other forms of GrainGrowers policy group spokesman and
Come 20 June, the industry will phosphorous, woolgrowers would have Victorian grain producer Chris Kelly. “We
recognise its excellent contributors the opportunity to make better use of have not been shown any evidence that
at the 2013 Dairy Business of the Year limited phosphorous.” outlines benefit for grain producers—in
awards, of which Westpac is a sponsor. fact, we have been shown the reverse.”
Despite overall high fleece weights, the
Wool: a steady year with Newcastle Wool Centre closed its doors He says the proposed new standard will
prospects for improvement after its last sale on 25 February. After lower prices because few wheat varieties
selling wool at this location for about 50 reach 76 kg/hL. The organisation surveyed
Australia is the world’s largest wool years, woolgrowers in northern NSW will test weights for samples from the most
producer, with our flock of 75 million now have to make their way to Sydney. recent harvest and found that 12.2% fell
sheep responsible for more than 21% short of the proposed measure. For the
of the globe’s greasy wool. Grains: new measure is a current lower 74 kg/hL standard, just 3.7%
weight on growers of the samples did not make the measure.
The Australian Wool Production
Forecasting Committee has maintained Growers are concerned over Grain Trade “This is a significant impact for grain
its 2012–13 wool production forecast at Australia’s proposal to increase the test producers and the broader position of the
345 million kilograms of greasy, an increase weight for the 2013–14 harvest from Australian grains industry,” Mr Kelly said.
of 0.9% on the previous year. While drier 74 kg/hL to 76 kg/hL. The test weight
conditions in South Australia have led to a measures the density of the grain, with GrainGrowers says test weight does
fleece-weight reduction, Western Australian hL standing for hectolitre (100 litres). not determine flour yield, adding that it
fleece weights have been above average. tested more than 800 samples and found
GrainGrowers says more than 500 of there was no link between the two. “At
To ensure woolgrowers have the best its members believe the measure should very high test weights flour yields actually
chance of producing high fleece weights, remain unchanged. decrease,” it said in a media release.
Australian Wool Innovation (AWI)
announced in December that over the next
three years, it will be undertaking projects
with the objectives of benchmarking
phosphorous levels in pastures and
unlocking the reserves stored in soil.

Autumn 2013 17



LIFE

Ssuwcceeestsion

Succession planning is a complex issue often
involving emotional, financial, business and family
considerations. Farmers and agribusiness operators
must not ignore the importance of safeguarding
their business for future generations

Words: Cameron Cooper

Monty Rakusen/Getty Images For many farmers, succession Both agree the broad goals must be to:
planning is a topic that is all • ensure all family members understand
too often avoided.
They love the land; it’s been their the options and feel as though they
life and they dearly want their sons and have input into the plan;
daughters to pick up the reins. But often, • work out who wants to be an integral
they find the thought of transferring the part of the business and who wants
property and business too hard to consider. to opt out or play a smaller role; and
• g uarantee the effective transfer of the
Philippa Taylor, chief executive of Family business and its associated wealth from
Business Australia, says even if farmers do generation to generation.
seek advice on the practical aspects of A team comprising the bank manager,
succession, they often struggle with the who acts as a mediator, a financial planner
emotional wrench of retiring. and a lawyer, who both specialise in tax,
succession and estate planning, assist
“If you think about it, why should a with the decision-making process.
70-year-old who has spent six-and-a-half
days a week, 15 hours a day working on Handing over the reins
the farm suddenly decide that he’s got
to step aside to hand over to somebody In a report on inherited housing released
else?” she asks. “He hasn’t had time to in 2010, it was estimated that within 15
learn to go fishing. He probably doesn’t years family businesses worth a total of
have any other hobbies. It’s tantamount about $407 billion would change hands
to telling him that he’s being put out in Australia as baby-boomers retire.
to pasture.”
Richard Shrapnel, a partner at advisors
Taylor advises taking a considered, Pitcher Partners, says this immense
long-term approach to succession planning transfer of wealth underlines how
to ensure the handover or sale of an important proper succession planning
agribusiness goes smoothly. Westpac really is. Handled well, it can save the
Relationship Manager Michael Peoples farm—and family relationships. “Family
agrees. “Most farm owners understand unity and wealth is often destroyed in
that a plan for the future is crucial but for that next generation where you’ve failed
many the issue seems too vast and they to have the right discussions up front,”
don’t understand how to tackle it.” Shrapnel says.

Autumn 2013 19

Clockwise Succession options fit into a number simpler than we expected because of the
from above: of categories. Parents can hand property on people who help each step of the way.”
to the next generation; sell to a third party;
Never assume arrange a partial or total management Before starting succession planning,
you know your buyout; or liquidate the business. The owners are advised to:
family’s wishes; earlier it’s started, the better, says Shrapnel. • Think about the desired outcomes. This
“Those who have done it well are those
think about who have planned it early. They’ve started may involve transferring or selling the
the future of to think about it 10 years out and they have farm, or providing for a certain amount
the business; started to structure their business to allow of income or capital from the property.
succession is it to go to a succession process.” • C onsider the family dynamic and ask
handled best family about the roles they want rather
when talked However, as Westpac agribusiness than making assumptions.
about early; customer Philip Swansbra says, the • D etermine how much the business
think about important thing is just to get it done is worth, whether it can be divided
legacies you even though it’s sometimes easy to up and whether it is carrying debt.
want to leave. put the planning on the backburner. • Examine the likely future of the business
and how it can best be operated.
“We had thought about succession • T hink of legacies and what owners
planning about seven to eight years want to leave behind for the family.
ago but never got too in-depth until Shrapnel says having such an overview
our Westpac Relationship Manager allows wills, estate planning and legal
mentioned it to us,” Swansbra says. structures to be completed while ensuring
“There are definitely aspects we would lawyers, accountants, advisors and family
not have considered if we did it alone, members can plan for the future.
but the process has really been much Such planning is even more critical for
agribusinesses, he says, because of the
complexity of transferring land assets if
the property is not sold outright for a
capital sum that can easily be divided.
He also suggests dividing the business
into areas, structuring it so that each
family member has responsibility for his
or her part and can begin to build on it.
Likewise, it is essential to ‘tax-test’
any scenarios to ensure the desired
financial outcomes are achievable.
What owners should realise is that
succession plans don’t happen overnight
and can take varying lengths of time
to complete, depending on the size

20 Produce

LIFE

“Family unity and wealth is often destroyed
in that next generation where you’ve failed
to have the right discussions up front.”

Vicki Reid/Getty Images

of the operations, how many people are choosing neutral third parties to assist the The checklist
involved, and how quickly agreements process, rather than the retiring party’s
can be arrived at. long-time accountant or lawyer. This ONE
ensures greater impartiality and helps
“For some people it takes 12 months; keep the focus on business issues. Set goals and a vision for the
another family we’re working with are “An advisor will sometimes be able to transfer of an agribusiness’s
about eight months in but still have a deliver an unpalatable message in a far ownership and management.
long way to go,” Peoples says. more diplomatic manner than the family
member. They’ve seen it all before.” TWO
Not all of this is discussion time, either.
Swansbra says his family’s succession plan A strong constitution Decide on options three to
will probably take up to a year, simply five years in advance of a
because of the difficulties in scheduling Family businesses often fail to distinguish handover or sale.
times when all parties are available to meet. between management succession and
equity succession. Typically, family members THREE
Mother knows best? are entitled to financial benefits as a result
of a business being handed down, but this Identify likely successors and
Pitcher Partners is engaged in a study doesn’t mean they have automatic rights the role of family members in the
with the Australian Research Council to management or executive roles.
and Swinburne University to examine business, if applicable.
family business succession. The resulting This is where a family ‘constitution’—
report from the ‘Baker Tilly International detailing criteria for joining the business, FOUR
Global Family Business Succession Survey: defining roles and responsibilities, and
Dynamics, Barriers, Strategies’ will build establishing mechanisms for transfer of Appoint external directors or
on 2.5 years of existing research and is ownership and leadership—can be a saviour. advisors to help with a succession.
expected to be available in mid-2013.
There is little doubt that a good plan can FIVE
Early findings indicate female heads of deliver crucial benefits for all stakeholders
family companies are having a greater say and family members, increasing the value Write a family mission statement
and questioning the view that the business of the business, safeguarding its future, and or ‘constitution’ to describe family
must be passed to the next generation. preserving wealth and career prospects for members’ vision for the business
future generations.
In addition, while men still prefer and their role within it.
continuing businesses along family lines, Taylor restates that it is imperative to be
their spouses are becoming more inclined mindful of the emotional challenges retiring SIX
to express reservations about the possible parents may be experiencing. One way to
impacts on the children’s wellbeing. ease their concerns is to ensure they have Ensure you have a contingency plan
a genuine role to play under the new in the event of deaths or changes
Opening lines of communication is arrangement. “We’ve seen some successful of circumstance.
also vital, especially since, in many cases, examples where the grandfather is starting
farmers find it hard to discuss retirement, to mentor the grandchildren, helping them Autumn 2013 21
says Taylor. “This is one of the reasons to understand business,” he says. “That
succession becomes so tricky, because can make it very meaningful.”
too much is assumed and not discussed.”

It is for this reason that Taylor advises

Winter
Wonderlands

The mornings are getting chillier and the days
shorter but that’s no excuse to go into holiday
hibernation. Joanna Hall uncovers some getaway

ideas that will put a spring in your step

Best of all worlds
Lake Crackenback, NSW

Nestled in Thredbo Valley on the edge
of Kosciuszko National Park, Lake
Crackenback is a winter playground
for couples and families set against a
spectacular Snowy Mountains backdrop.
It’s only a 15-minute drive to Thredbo if
you’re keen to spend some time engaged
in snow sports, but the lake area itself
is perfect for hiking, mountain biking,
canoeing and fishing—or you can opt
simply to enjoy a log fire and pamper
yourself at Lake Crackenback Resort,
one of Australia’s top spas.
Where to stay: Lake Crackenback Resort &
Spa has apartments and chalets next to a
beautiful lake within striking distance of the
best of this region. Phone 1800 020 524
or visit www.lakecrackenback.com.au

22 Produce

life

Saffire Freycinet Clockwise Treat yourself Cultural city break
from ABOVE: Freycinet, Tasmania Melbourne, Victoria
Kangaroo
Island is famed It’s billed as one of Australia’s ‘super- If you’re looking for a weekend getaway
for its coastline; lodges’ and deservedly so. Saffire with a bit of everything, it’s hard to go past
marvellous Freycinet on Tasmania’s east coast is a Melbourne. A quintessential city-break city,
Melbourne destination in itself, with pure luxury and with gracious Victorian-era architecture and
by the Yarra; indulgence at the core of the experience. leafy boulevards, it’s a place where you
the ultra- All suites are beautifully styled and can take your pick of pastimes: cultural
modern and overlook the Hazards mountain range, pursuits, shopping, dining out or bar-
luxurious Saffire Freycinet Peninsula and Oyster Bay. hopping. Or you can go sports-mad: as
Freycinet in From Saffire Freycinet you’re also within well as being the stronghold of the AFL,
Tasmania; Lake easy reach of historic villages, picture- Melbourne has an NRL team, a Super 15
Crackenback is perfect seaside towns, unspoilt national rugby side and is home to an A-League
for adventure. parks, and fine food and wine. soccer club.
Where to stay: Saffire Freycinet has just Where to stay: Crown Casino Melbourne
20 luxurious suites along with an exclusive is close to the CBD, has great restaurants
day spa, a restaurant, a guest lounge and and is ideal if you fancy a bit of a flutter
a well-stocked bar. Phone (03) 6256 7888 while you’re away. Phone (03) 9292 8888
or visit www.saffire-freycinet.com.au or visit www.crownmelbourne.com.au

Get away from it all
Kangaroo Island, South Australia

Just 13 kilometres off the coast, Kangaroo
Island is a dreamy kind of place that’s a
nature lover’s paradise with abundant
native wildlife and breathtaking scenery.
Some of the best sights, including
Remarkable Rocks, a cluster of granite
boulders shaped into all sorts of weird and
wonderful forms, can be found in Flinders
Chase National Park. Or there’s Admiral’s
Arch, home to New Zealand fur seals, and
Seal Bay with its colony of sea lions. Tour
groups can watch the seals from a distance
of about eight metres as they sunbathe,
swim and jostle for position on the beach.
Where to stay: Superb for families, Cape
du Couedic Lighthouse Keepers’ Cottages
is a beautifully restored accommodation
precinct right in the heart of the national
park; it’s a terrific base from which to go
exploring. Phone (08) 8553 1185 or
visit www.tourkangarooisland.com.au

Autumn 2013 23

life

Best for chilling out
Broome, Western Australia

Far from the madding crowd, relaxed and
blessed with great year-round weather,
Broome is the type of place that’s perfect
for a winter break—especially if you’re
looking for natural wonders and wildlife.
The town itself has a colourful history and
diverting attractions such as the Pearl
Luggers’ Museum; the Japanese Cemetery
(where hundreds of pearl divers’ graves
attest to the dangers they faced); and
Chinatown, including the Sun Picture
House. But it’s the surrounding area that
draws you in. The long strand of Cable
Beach, red cliffs of Gantheaume Point
and birdlife of Roebuck Bay are just out
of town and show why so many artists and
photographers travel here for inspiration.
Where to stay: Pinctada McAlpine House
is a century-old home that has been
transformed into eight luxurious boutique
rooms set among lush landscaped gardens
and a swimming pool. Phone (08) 9192
0588 or visit www.mcalpinehouse.com.au

Walk on the wild side Clockwise
Darwin, Northern Territory from left:
Feast your eyes
Forget images of a dusty ‘last frontier’: on Roebuck
today, Darwin is a cosmopolitan, Bay; watch out
multicultural city with a myriad exotic and for crocodiles
diverse experiences to enjoy. At the same in the Top End;
time, it retains a well-earned reputation tiptoe through
as a social town with a distinctly outback the rainforests
attitude to life. It’s still a knockabout type of the Daintree.
of place but nowadays, it’s a great
destination for families with a taste for The Daintree is the only place in the world
adventure, being within easy reach of where two of the most complex ecosystems,
Darwin Crocodylus Park and Zoo, the rainforest and reefs, converge in grand style.
Territory Wildlife Park and glorious
Litchfield National Park. Rainforest and reef
Where to stay: Travelodge Mirambeena Daintree, Queensland
Resort Darwin is a good mid-range hotel
right in the middle of town. Phone (08) Imagine stepping out of the world’s oldest
8946 0111 or visit www.travelodge.com. tropical rainforest onto a pristine beach and
you’re wading in warm water as colourful
au/travelodge-mirambeena-resort-darwin fish dart around your legs. This is the
Daintree in Far North Queensland: the
only place in the world where two of the
most complex ecosystems, rainforest and
reefs, converge in grand style. The Daintree
represents 0.1% of Australia’s landmass,
yet contains 30% of the country’s frog,
marsupial and reptile species along with
65% of our butterfly and bat species,
and 20% of our bird species.
Where to stay: Daintree Wilderness Lodge
is made up of family-friendly and eco-
conscious cabins set deep in the tropical
Daintree rainforest, not far from Cape
Tribulation. Phone (07) 4098 9166 or visit
www.daintreewildernesslodge.com

24 Produce

LIFE

Chopper charity

Cattle producers come out in full force to support a charity fundraiser
for the Westpac Rescue Helicopter Service

Words: Alarna Haigh

Peter Lorimer/Namoi Valley Independent Left:
A Westpac
As rain fell around New South Wales aeromedical transport to about one Rescue
on 1 March, eager cattle buyers and million people living over 132,000 square helicopter lands
sellers gathered at the Tamworth kilometres of regional NSW. at the scene of
Saleyards’ cattle sale to help raise funds a road accident
for the New England and North West The four choppers are available 24 on the Oxley
Westpac Rescue Helicopter Service. hours a day and also specialise in search Highway, 16
and rescue operations throughout the kilometres west
The second annual charity event was region. Importantly, the service is free to of Gunnedah,
an all-round success despite the wet those who need it in times of emergency. in 2012.
weather, says Service Community Liaison
Officer Michael Wilson, who promotes Westpac’s Head of Agribusiness, Susan TO THE RESCUE
the charity sale and encourages grower Bower, was in Tamworth for the sale and
support and donations in the lead-up was pleased to see farmers getting ONE
to the event. together for such an important
community service. The Westpac Rescue Helicopter
“The sale went well, all things Service is free of charge for those
considered, what with the rain and all,” “For us, helping to bring the Westpac
he says. “This initiative has grown with Rescue Helicopter Service to rural, in need of emergency care and
the support of local farmers and primary regional and remote communities is transport.
producers and is only successful because part of our commitment to champion
of the generosity of our local the things that matter most in the TWO
community.” regions we are part of.”
It operates across the Hunter,
Approximately five animals were Inspiration for the event is credited Central Coast, Mid North Coast,
donated to the charity this year although to Anne Legge of the Bingara Volunteer New England, and North West
at the time of going to press the exact Support Group. Ms Legge was the first
dollar figure gained from the auction person to donate two steers, aptly regions of New South Wales.
was unknown. named Westpac and Rescue, last year,
thereby starting a program that raised THREE
Donations, both of animals to sell and $10,000 in 2012.
monetary donations, are essential for the The service’s four choppers
running of this regional service, which Along with the Tamworth event, there undertake around 1400 missions
relies on a combination of government, was a fundraising sale held at Gunnedah
corporate and community funding. The on March 15, and Armidale, Narrabri, every year.
service is essential to supplying fast Maitland and Scone will hold other
events throughout the year. Farmers, stock and station
agents can participate in this
initiative by donating to any
of the agricultural programs.

Call Michael Wilson on
02 6764 9400 for more details.

Autumn 2013 25

The Australian economy

Andrew Hanlan, Senior Economist, Westpac

Momentum Australia’s economy is performing better than most other advanced countries and the unemployment rate remains
waned in 2012. relatively low. Even so, Australia is feeling the impacts of a challenging international backdrop and the domestic
economic environment is very different to that prior to the global recession of 2008/09.

Growth to be sub- GDP growth over the four quarters to December 2012 is likely to be about 3.0%. While in aggregate this is a sound
par this year and result, a loss of momentum emerged as the year progressed. However, growth slowed in the second half of 2012,
next. leading to a soft start to 2013. We have nudged down our GDP growth forecasts for calendar 2013 and 2014, to 2½%
(from 2¾%) and 2¼% (from 2½%), respectively. This reflects softer consumer spending and business investment.

The looming peak Current soft conditions reflect both global and domestic factors. Australia’s terms of trade declined by an estimated
in mining capex ... 16% over the five quarters to December 2012 on weaker global demand, a fall comparable to the 18% drop during
2008/09. This hit to national income and the associated global uncertainty dented consumer and business confidence.
... will be a major Compounding matters, the Australian dollar has remained stubbornly strong, despite commodity price fluctuations, as
‘shock’. other advanced economies pursue aggressive, non-conventional monetary policy easing. Contractionary fiscal policy,
as the Federal and state governments’ attempt to repair their budget positions, is another headwind. High household
debt levels and, until recently, declining house prices have weighed on consumers. Not surprisingly, business investment
outside of the resources sector has been patchy, with non-residential building activity particularly weak. Credit growth is
low, stuck at around 3½% annual, as some households and firms continue to seek lower debt levels.

The nascent The 2013 and 2014 years will see a rotation in the growth drivers of the Australian economy. Mining investment will
housing peak and then decline, while conditions in the broader economy will strengthen, led by a housing construction upturn.
A shift to expansionary monetary policy will act to facilitate this rotation of growth. However, our analysis points to the
upswing ... likelihood that economic growth will remain below trend (judged to be 3¼%) over the two years ahead.

... is unlikely We expect international conditions to disappoint and anticipate that business will be unnerved by political
to fill the gap uncertainty. The current improvement in world growth will be modest and will quickly fade in our view. The terms of
completely ... trade is forecast to decline for four consecutive quarters to June 2014, retreating almost 10%, following a brief and
modest rebound over the first half of 2013. Export volume growth will be constrained over this 2013/14 period. The
Federal election, set for 14 September, risks exacerbating business uncertainty, both in the lead up to the vote and
in the initial months following. We have explicitly built into our forecasts an under shoot of business investment in
the general economy relative to household demand to reflect the negatives of global disappointment and domestic
political uncertainty.

... as headwinds The looming peaking in mining investment will be a major “shock”. Currently, our forecast is for mining sector CAPEX
persist ... spending to decline by almost 20% through 2014. The commissioning of these mining projects will boost export
capacity in the years ahead. However, the major uplift in LNG exports is not due until 2015 and 2016, thus adding
to our concerns of a growth gap.

... amidst electoral The risk is that the rotation from mining investment led growth to strength in the broader economy will be a bumpy
uncertainty ... one. Significant headwinds persist, notably: the high dollar, fiscal policy tightening and high household debt levels. It
falls then to monetary policy to facilitate this rotation of growth drivers. Interest rate settings are now expansionary. It is
... and possible to get a home mortgage from a bank for as little as 5.5% which, apart from a brief period during the heart of
disappointing the global financial crisis, is cheaper than at any time since the 1960s. However, this easing cycle is different. Yes, the
global outcomes. housing sector is beginning to respond and dwelling approvals have moved off their lows. However, the magnitude
of the response to date, and the likely follow through, is modest by historical experience. In recognition of this, our
forecast for dwelling investment growth is a modest 4½% through both 2013 and 2014. Housing investment as a share
of the economy is little changed over the forecast period, in contrast to sizeable gains achieved in the upswings of the
1980s, 1990s and early 2000s (see chart 4).

26 Produce

Chart 1. OVERVIEW
Australian economic conditions
Chart 2.
Australian growth mix

Chart 3. Chart 4.
Mining projects Housing & mining investment, share of GDP

Chart 5. Chart 6.
Commercial finance and business confidence Equipment investment & household demand

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks
and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Autumn 2013 27

Australian interest rates

Bill Evans, Chief Economist, Westpac

The RBA stood The RBA kept rates on hold and signalled it has scope to ease further after its February meeting. The Bank seemed to be
pat in February ... communicating considerable dissatisfaction with the strength of the domestic economy.

... as widely The narrative around the domestic story was largely similar to the discussion following the December Board meeting.
expected. That is, two extra months of low rates have not provided the Board with much encouragement that things are turning.
For example, investment outside mining is still described as “remains relatively subdued”. The labour market is still
described as “softening somewhat and unemployment edging higher”. Further, new labour market concerns emerged
in the statement, with the Bank noting for the first time that “businesses are likely to be focussing on lifting efficiency”.

The state of the The ABS’ monthly employment report, released two days after the RBA decision, emphasised that the labour market
labour market ... remains weak. Despite the unemployment rate holding steady at 5.4% we saw a further fall in hours worked and
another decline in the participation rate. We assess that if the participation rate is steady in any given month, then
around 18k jobs need to be added for the unemployment rate to remain unchanged. Over the last twelve months only
four have registered a net gain in jobs exceeding that threshold. Employment has grown by only 0.9% over the last
year while the working age population has expanded by 1.7%. If workers had not been leaving the workforce, partly
due to being discouraged about job prospects, then the unemployment rate would now be above 6%. I expect that
the Reserve Bank appreciates that point and will be discounting the importance of the headline unemployment rate in
its holistic assessment of the labour market.

... the insensitivity On the other hand there has been a modest uplift in the Governor’s assessment of the housing sector. House prices
of housing ... are being described as having “moved higher” compared to the December assessment of “moving a little higher”.
The strength of car sales is recognised for the first time: “the demand for some categories of consumer durables has
picked up”. And the mild reduction in risk aversion by savers is noted: “savers are starting to shift portfolios towards
assets offering higher expected returns”.

... and general Optimism around the house building cycle looks a little premature, with the recent news that building approvals fell
confidence by 4.4% in December. These numbers are volatile. On a trend basis total approvals are up by 12.7% although private
levels ... houses are down by 1% (units up 39%). Given that the cash rate has been cut by 175bps this is a disappointing
response from the housing sector. Despite a modest fall in the currency and a 30% jump in the iron ore price since the
last Board meeting, the Board continues to note the high exchange rate in a context of the observed decline in export
prices. It is clear that the elevated currency is a source of considerable concern for the Bank.

... to the easing The main recent motivation for markets beginning to price out further rate cuts is around developments in the world
cycle to date ... economy. In previous statements, the Governor had consistently described risks to the global economy as to the
down side because of Europe. He now qualifies that by talking about these risks having “abated, for the moment at
least “. The wording around China is a little more upbeat with growth being described as “fairly robust pace”.There is
also a clear lift in confidence around the US. One channel for boosting domestic business confidence would be clear
sustained improvement in the US. Equity markets have been boosted in the US and there is conjecture around the
relative importance of the liquidity impact of QE and a genuine improvement in earnings. Optimists argue that the US
market is still fair value. We expect their underlying growth numbers are significantly higher than ours.

... argues the With the Bank’s major concern being the need to rebalance the economy towards non-mining investment, the Bank
cutting cycle will be closely watching capital expenditure surveys to see if business is responding to the low rates and the more
constructive global environment, or whether more encouragement is required.
is not over.

28 Produce

OVERVIEW

Chart 1. Chart 2.
RBA cash rate, 3 year swap 10 year bonds

Chart 3. Chart 4.
Core inflation: 2.3% Labour market: remains soft

Chart 5. Chart 6.
Dwelling approvals & RBA easing cycles Credit momentum

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks
and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Autumn 2013 29

Australian Dollar

Bill Evans, Chief Economist, Westpac

The AUD has Since December, the AUD has weakened against the key currencies: AUD/USD has moved from $1.05 to below $1.03 and
fallen ... AUD/EUR from €81.2 to €76.8. However it has been unchanged against the Trade Weighted Index (77.5). The offsetting
factor has been a sharp appreciation against the Japanese yen. AUD/JPY has moved from ¥86 to ¥96.

... against the Clearly the key disturbance to foreign exchange markets over the period has been the spectacular fall of the Japanese yen.
dollar and euro ...

... while spiking When the Liberal Democratic Party was elected in Japan in mid December it announced a substantial and protracted
higher against fiscal stimulus package in tandem with very strong ‘moral pressure’ on the Bank of Japan to complement this policy
the yen ... by adopting an explicit inflation target of 2% with the aim to achieve the target “at the earliest possible time” through
“aggressive monetary easing”. Those decisions have triggered spectacular falls in the Japanese yen including a 15%
fall against the Australian dollar since the election.

... as Japanese As noted, however, the other G3 currencies have appreciated even further against the yen. This relative performance
investors reflects a large capital withdrawal from Australia by Japanese investors as they moved to take FX translation profits on
their considerable Australian bond holdings. This reduction in AUD exposure has been occurring over the last six months
took $A profits. but has accelerated since the Japanese election. Westpac’s own proprietary flow data indicates that the Japanese have
been selling their lowest yielding assets (government bonds and semi government securities) and have been net buyers
of higher yielding corporate paper. This search for yield is also pointing to the attractiveness of higher yields in emerging
markets such as Russia, Turkey, Mexico, India, Brazil and Indonesia, to wholesale and retail investors alike.

Commodity The strength of this flow has, for the time being, offset the improved environment for commodity prices over the
prices & interest period. Spot iron ore prices have increased by 25%; coal prices have stabilised (up 2%); and Westpac’s Exchange
Traded Commodity Price Index has increased by 2%. We see further strength on this front in the first half of the year.
rates ... Inventory dynamics in the iron ore market will be a strong positive in the first half of 2013. The non-ferrous metals will
remain supported by the global liquidity environment and the consolidation in global trade that became evident in
late 2012.

... are presently on We are retaining our call for AUD/USD to sit around $1.06 by end March, although the diminished starting point
the sidelines ... makes this look somewhat distant.

In that regard the Reserve Bank’s Statement on Monetary Policy which was released on February 8 provides guarded
support for further rate cuts for our view.

... as these global The Bank’s forecasts are certainly not consistent with a central bank accepting that a desirable equilibrium has been
trends play out. reached. Forecasts that growth is likely to be around 0.5–0.75% below trend and inflation at the middle of the band
suggest that there is more work to be done in monetary policy. In the near term the critical report will be the Capex
survey which as discussed above was the main motivation behind the decision to lower the growth forecast in November.
If as we expect, the first measure of 2013–14 investment plans disappoint then the Bank may have to reconsider its
assumption that growth will return to 3% in 2014 with a necessary further interest rate cut following.

$A strength While that summation implies that interest rate spreads will be narrowing further before too long, we believe that the
should be dominant driver of the AUD in the period up to mid year will be a further uplift in global confidence complemented by
ongoing quantitative easing by the major central banks. Confidence will be built around positive expectations in the
back before long. US; anticipation of stability in Europe; and confidence that China’s growth rate has stabilised at a “fairly robust pace”
(RBA Governor 5th February). Ongoing balance sheet expansion from the major central banks will complement the
confidence boost to ensure upward pressure on the AUD. While QE will persist in the second half of 2013 a gradual
retrenchment in global confidence will weigh on the AUD. We maintain our call for AUD to be back around USD 1.03
by year’s end and heading back to and then below parity in 2014.

30 Produce

Chart 1. OVERVIEW
AUD/USD & AUD/JPY
Chart 2.
AUD/EUR & AUD/NZD

Chart 3. Chart 4.
The Australian dollar & 2yr swap spreads Australian dollar & US equities: volatility

Chart 5. Chart 6.
The Australian dollar: actual versus fitted US dollar cycle to turn from mid to late 2013

Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to
ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks
and uncertainties. The results ultimately achieved may differ substantially from these forecasts.

Autumn 2013 31

on the land

Talking farming

Hailing from Gundagai in rural New South Wales, David Chomley,
Premium Agribusiness Manager Moree, is well placed to discuss the state

of play for farmers in 2013

left:
Graham
Jennings, John
Seery, principal
of Brighann
Ginning, and
David Chomley
with cotton
at Brighann
Ginning,
Moree.

Q. How did you get involved in Q. What is the dominant industry in Q. What options does Westpac
agribusiness? the Moree area? provide to farmers facing adversity?
I was raised on a grazing property Broadacre farming, which is split between Westpac has a number of options that
so witnessed the fluctuating fortunes, winter cereal crops and summer sorghum are assessed individually. In the event
resilience and relaxed lifestyle of rural and cotton crops. of major disasters, our natural disaster
communities. I joined the banking sector policy can help growers with cash flow,
upon leaving school in 1976. When Q. What are your predictions for debt restructuring and repayment
Westpac established its network of cotton yield and quality in 2012/2013? deferrals. Westpac understands that
specialised agribusiness centres in With plantings almost restricted to agribusiness is a cyclical business and
the mid-1980s, the opportunity to irrigated crops, the planting area has will always seek to assist our loyal
be involved was a natural progression. reduced substantially; however, this year clients through tough times.
will still be high by long-term averages. I
Q. What does your job involve? expect an average yield of 11–12 bales per Q. What are farmers’ common
I work with major farming enterprises hectare, but favourable growing conditions concerns in your region?
and support industries situated on the and a dry picking window will be critical to There is a general feeling that the political
Macintyre, Gwydir and Namoi rivers in maintaining the quality of the 2012 crop. influence seen in capital cities now
northern NSW and southern Queensland. outweighs need for thorough consultation
Q. What factors are driving this? and communication with the agribusiness
Q. What’s your favourite aspect? The dry end to 2012 left most dryland sector. Farmers are also concerned that
Undoubtedly it’s the client interaction growers with no prospect of planting crops coal seam gas mining on farming lands,
with business owners and operators. this season. On the other hand, irrigators and its potential risk to artesian water
It’s satisfying to develop a deep had the benefit of both full irrigation tables, is not being paid due consideration.
understanding of the key drivers allocations and on-farm storages at the
of their business and their success, commencement of planting, the outcome Q. What is the hot topic for
and assist them with financial and of two major flood events in late 2011 agri-advice in 2013?
management consultation. and early 2012. Family succession and intergenerational
transfer of holdings will continue to be
a hot topic. The generally declining
terms of trade for agriculture, coupled
with fluctuating seasonal conditions
and commodity prices, are a constant
challenge. When a family is faced with
restructuring their business enterprise,
this becomes an even more daunting
challenge.

32 Produce

Contact us

Graham Jennings Susan Bower
General Manager Head Of Agribusiness
Regional Commercial & Agribusiness Australian Financial Services
Westpac Group Westpac Group
0417 061 634 0478 880 308
[email protected] [email protected]

Rod Kelly Stephen Hannan
State General Manager QLD State General Manager NSW
Regional Commercial & Agribusiness Regional Commercial & Agribusiness
Westpac Group Westpac Group
0427 224 280 0419 435 079
[email protected] [email protected]

Rick Aylett Ben Marini
State General Manager VIC State General Manager WA
Regional Commercial & Agribusiness Regional Commercial & Agribusiness
Westpac Group Westpac Group
0427 249 059 0419 812 821
[email protected] [email protected]

Richard Hockney

State General Manager SA, NT & TAS

Retail & Business Banking
Westpac Group
0427 600 239
[email protected]

Aauussttrralia

Proudly supported by Westpac

RRiigghhtt hheerree iiss aa ppretty good place ttoo bbee rriigghhtt nnooww..
NNaattiioonnss eevveerryywwhere are facing touugghh cchhaallleennggeess..

BBuutt tthhee lliittttllee country at the endd ooff tthhee wwoorrlldd
hhaass nnoow become the envvyy ooff iitt..

SSttiillll,, iiff aannyone’s surprised, itt’’ss nnoott uuss..
WWee’v’veebbeeeennaarroouunndd ffoorr 11996 years. We were AAuussttrraalliiaa’s’s ffiirrssttccoommppaannyy..

AAnnddwwee’’vvee sseeeenn AAustralians face mannyy hhiigghhss aannddlloowwss..
BBuutt wwee’’vvee aallways had a simplee pphhiilloossoopphhyy..
IIff ssoommeetthhiinng’s worth backing, wwee bbaacckk iitt..

FFrorommtthheebbigigiinnssttiittuuttiioonnss aannd infrastructure thhaatt hheellppeedd bbuuiillddtthheennaattioionn, ,
tototthheeliltittlleetthhiinnggss tthhaatt hhaave become part ooff tthhee ffaabbrriicc oofftthheepplalaccee..

BBeeccaauusseewwhhaattwwaassttrruuee aabboouutt AAustralians in the bbeeggiinnnniinngg iissssttiilllttrruueennooww. ;
wWitihthtthheerrigighhttssuuppppoorrtt wwee ccaann do just about anyytthhiinngg..
AAtt WWeessttppaacc wwe’re proud to keeepp ssuuppppoorrttiinngg
aalll ooff tthhee tthhiinnggs that make Austraalliiaa,, AAuussttrraalliiaa..

© 2©012201W2 eWstepsatpcaBcaBnakninkigngCCoroprpooraratitoionnAABBNN 3333 0007 457 114411 AAFFSSLLaannddAAuustsrtarlaialinancrcerdeidt liitcleicnecnec2e332731347.14.

AGP100 11/12