The situation in the world today is one of fast growing demand for food products, due primarily to world population growth and growing disposable incomes in developing countries, along with changing tastes from grain based, to meat or protein based diets in those countries.
Global demand for food is increasing
The world population continues to grow which increases the baseline demand for food.
World population growth projections estimate world population increasing from almost 7 billion in 2010 to around 9.5 billion in 2050 (US Census Bureau, International data Base, June 2010 Update).
This demand is evidenced by the global growth in demand for meat.
The global meat market for sheepmeat, poultry, pork and beef has grown exponentially from 1980 (125,000,000 tonnes) to 2010 (290,000,000 tonnes) and is expected to grow by a further 40% over the next 20 years to around 400,000,000 tonnes. Source: Rabobank, Agriculture, Roundtable Conference November 2010.
Growth in GDP and the associated industrialisation and urbanisation in Asia and north Africa is producing an increase in disposable income for these countries.
Gross Domestic Product of the emerging BRIC countries- Brazil, Russia, India & China – is growing at an average rate of 6.9% compared to a world average rate of 3.6%. Jing Ulrich, Sydney Morning Herald, 29 September 2010.
In addition to population growth, these rising incomes and changing tastes are driving a further increase in protein demand.
Population growth, urbanisation and income growth are fuelling a massive increase in the demand for protein from livestock and fish in human diets. This 'livestock revolution' is demand-driven, in contrast to the green revolution. The opportunities for the poorer communities in developing countries to benefit are considerable.
From the 1970s to the 1990s, the consumption of meat in the developing world grew by 70 million tonnes, compared with only 26 million tonnes in the developed world.
Australian Centre for International Agricultural Research "Meeting rising demand for animal protein".
Global supply of food is not keeping pace with demand.
Global expansion of beef and sheepmeats supply is constrained, with arable land declining around the world, and arable land available for primary production being used up for industrialisation.
World cattle numbers have declined by 3.2% from 2008 to 2010, from 999,184 million to 967,589 million. This decline is expected to accelerate in 2011 because of a continuing fall in numbers in Argentina and the US. (USDA Foreign Agricultural Service, Cattle Buyers Weekly, September 2010).
Why invest in Australia?
Australia enjoys substantial competitive advantages in grassfed livestock production and is ideally situated geographically to capitalise on the expanding markets of Asia and north Africa and the growing demand for protein from these regions.
Australia's close proximity to Asia offers it a comparative advantage to northern hemisphere agricultural producers in terms of reduced costs of shipping. Furthermore the fundamentals underpinning rising protein demand from Asia (growing population and GDP) are strong. Citi Agrigator Issue 10, 10.5.11.
Australia has a significant exportable surplus, and is a major exporter of beef (no.2 in the world) and the no. 1 exporter of sheepmeat (i.e. lamb plus mutton).
Australia produces 4% of the world's beef supply, and is the second largest beef exporter in the world (behind Brazil) (Meat & Livestock Australia, Fast facts 2009, Australia's Beef Industry).
While not the biggest producers of sheepmeat in the world, together Australia and New Zealand provide over 90% of the world's sheepmeat exports. Source Wendy Voss Rabobank, www.farmbusiness.com.au 18 February 2010.
Australia is also a major exporter of wool.
Australia is the world's dominant producer and exporter of wool, accounting for 67% of the world's wool exports. (ABARE, Australian Commodities 2008).
Australia is a world leader in low-cost broadacre grazing production systems and has an exemplary record in the areas of resource management and technology uptake with beneficial effects on production.
Farmers have led Australian primary industries in reducing greenhouse gas emissions by a massive 40% between 1990 and 2006. This is Australia's leading greenhouse gas reduction contribution (Australian Government Department of Climate Change, National Inventory by Economic Sector 2006).
Efficiency gains through new technologies and farm management practices, achieved on the back of research and development, have enabled Australian agriculture to stay a step ahead of our international competitors – returning average productivity growth of 2.8%-a-year over a 30- year period (Australian Government Productivity Commission, Trends in Australian Agriculture 2005).
In Australia the production of beef cattle, wool and sheep meat is not dependent on government subsidies which reduces political risks to returns. Australia is politically stable, has a sound economy and strong currency, a widely respected legal system, and mature investment markets.
It also has a well developed trade infrastructure which has been proven over time. Australia has an enviable product health status and a temperate climate.
"Those with longer term inclination should bear in mind that the Agricultural sector has been driven primarily by supply-side factors, rather than demand, which has been the key driver of gains in other commodity markets such as energy and metals. Agricultural commodity supply will be a critical challenge for the foreseeable future and it appears demand will only increase. This should provide opportunities, across the whole supply chain, for companies that are seeking to overcome the global inefficiencies in feeding the world" (Bill Barbour, Deutsche Asset Management, Australian Financial Review, 22 November 2010).