22 August, 2015
WHAT YOU NEED TO KNOW
- The Australian Government has recently released the Agricultural Competitiveness White Paper, which outlines its plan to commit more than $4 billion to invest in priority areas.
- The Government's commitments relate to a broad range of opportunities in Australia's agricultural sector beyond the farm-gate, including in building the necessary water, road and rail infrastructure to enhance Australia's competitiveness and underpin future growth.
- While not all of the initiatives set out in the White Paper are new, the White Paper confirms that the Government continues to see investment in agriculture as critical to Australia's economic future.
WHAT YOU NEED TO DO
- Current and future investors in the Australian Agriculture industry should consider the potential benefits to them of the Government's initiatives set out in the Agricultural Competitiveness White Paper, together with other Government initiatives including the recent free trade agreements and the Developing Northern Australia White Paper.
- Foreign investment will continue to play an important part in realising the potential of Australian agriculture, notwithstanding changes in Australian foreign investment laws and policy which encourage greater transparency and visibility of foreign investment in this sector.
The Australian Government recently released the Agricultural Competitiveness White Paper (White Paper). The White Paper represents the Government's proposed "road map" to establish agriculture's long term contribution as one of the "five pillars" of the Australian economy along with manufacturing innovation, education and research, services industries and mining.
Background to the White Paper
Current and future global and regional population and demographic "megatrends" will have "profound implications" for the Australian agricultural industry.
However, the industry is currently not in a position to take full advantage of those trends. The Australian Government proposes to address identified areas through the proposals and strategies discussed in the White Paper. If properly implemented the Government anticipates that the industry will be well placed to take full advantage of these trends and Australia's proximity to growth areas, including Asia, and continue to be a substantial contributor to the Australian economy as a whole.
The objectives of the White Paper include to:
- improve competitiveness within the sector and its supply chain;
- build infrastructure to facilitate growth and enhance competitiveness; and
- encourage greater investment in the industry, in particular foreign investment.
The White Paper addresses a number of other issues and we refer you to the White Paper itself or the summary for further information about the Government's further objectives.
Water
Australia is the driest inhabited continent on earth. Efficient use of water is critical to the continued profitability and productivity of Australian agriculture, while also ensuring that the needs of the community and the environment are met. Water is self-evidently critical to all agriculture but is particularly central to dairy, cotton, rice and sugar production. Development of Northern Australia will also be dependent upon access to, and maintenance of, long term sustainable supplies of water.
Given the multi-layered regulation and governance of water and associated water infrastructure, the White Paper highlights the Government's leadership role through initiatives such as the National Water Initiative, the Murray-Darling Basin Plan and the review of the Water Act 2007 (Cth).
The Government's commitment to establishing a broader water management framework will be extended through the establishment of the National Water Infrastructure Development Fund. This fund will be responsible for investing $450 million to construct national water infrastructure in conjunction with State and Territory governments and the private sector.
Relevantly, almost half of this investment has been reserved for water infrastructure and better water resource information in Northern Australia, most likely through dam construction. The White Paper notes that projects with strong potential to receive government involvement include development of the Ord Stage 3 irrigation scheme in Western Australia and the Northern Territory, the Pilbara ground water development options in Western Australia and the development of the Emu Swamp in Queensland.
In addition, $50 million will be made available to examine water infrastructure investment in Northern Australia.
The Government intends to use the Water Infrastructure Development Fund in conjunction with the States and Territories and the private sector to support the detailed planning and development of water infrastructure projects. There may be opportunities for local and foreign investors with long-term outlooks to secure new investments in these areas.
Road and rail infrastructure
As with water, developing and maintaining efficient transport infrastructure is a key requirement for the long-term success of Australian agriculture. Transportation costs account for a large component of overall costs for agricultural products – reducing these costs and time to market will enhance Australia's competitiveness.
Long-term trends and forecasts indicate that the pressure on Australia's road and rail infrastructure will continue to increase and will become critical impediments on growth if capacity and access issues are not identified and acted upon.
While the Federal Government is not responsible for the construction of Australia's road network, it does contribute significant funding to national projects. The White Paper does not allocate additional funds to transport infrastructure for agriculture, but notes the significant commitments already in place, including $42 billion for the Infrastructure Investment Programme to build road and rail infrastructure. This investment is targeted at improving the capacity of transport networks within Australia to reduce costs. It includes a $5 billion commitment to the Northern Australia Infrastructure Facility to support investment in Northern Australia infrastructure projects, including cattle supply chains and key road infrastructure in Northern Australia.
Rail will also continue to play an important role in the shipment of agricultural products to their final markets – whether domestic or international. Presently 80% of rail freight is constituted by coal and iron ore with just 8% being for agricultural products. Construction of greater rail capacity, particularly inland rail, available for agricultural production will reduce transit times and costs and also reduce the movement of these products by road.
Opportunities will be present for investors who are able to identify and deliver on opportunities to enhance rail infrastructure for agricultural products. For example, the White Paper noted that GrainCorp has already announced $60 million dollars' worth of investment in its eastern states network.
Access to markets
Access to numerous export markets is a key component of the framework for the long-term sustainability and profitability of Australian agriculture. The ability to mitigate risks associated with being dependent on only a few markets has been a factor in the Government's push to open up premium markets through free-trade negotiations with Australia's key trading partners in Asia – Japan, Korea and China.
To extend Australia's full reach into other markets:
the White Paper proposes to appoint five trade counsellors across Asia, America and Europe;
the Australian Government continues to negotiate a free trade agreement with India;
the Australian Government's World Trade Organisation activity to reduce subsidies available to producers in other countries; and
the Department of Agriculture's discussion paper seeks input on how to reduce red tape and identify more efficient processes for the regulation of agricultural export.
This has been a strong focus for the Government and has potential benefits foreign investors who are considering vertically integrating their existing business to include investing in the primary production of agricultural produce.
Foreign investment
Foreign investors should also be aware of recent changes to the foreign investment regulatory regime which responds to demands for greater scrutiny of foreign investment in agribusinesses and agricultural land (for example reducing the threshold for acquisitions not requiring approval of the Foreign Investment Review Board to $55 million for agribusiness). However foreign investment will continue to play an important part in realising the potential of Australian agriculture, and we believe that in the vast majority of cases, proposed investments in this sector will be approved as not being contrary to national interest.
Summary
The White Paper seeks to provide a "road map" for the industry, Government and stakeholders to facilitate the transition of Australian agriculture into a significant contributor to the national economy into the 21st century. As with all plans, its success will be heavily dependent on its implementation and the ability of governments (federal, state and local), stakeholders and investors alike to work with each other to achieve the Government's objectives.
For further information, please contact:
Tiffany Barton, Partner, Ashurst
tiffany.barton@ashurst.com
