Duxton’s Agri Bits and Pieces – Vol. 339
Posted on: June 19th, 2017

QUOTE OF THE WEEK

This week’s quote of the week comes from Adam Kay, CEO of Cotton Australia on the increased consumer desire for sustainably produced goods being a key driving force behind the renewed demand for Australian cotton.

“We use less land to produce more fibre than anywhere else in the world and we’re also the most water-use efficient cotton producer globally. We can clearly demonstrate over 40% improvement in water use efficiency over the last decade and we’ve reduced the amount of pesticide used by 90% in the last 15 years…More and more international retailers and brand owners want to know the story about the production cycle…they want to know about the sustainability and the environmental story.”

HOW U.S. FARMERS ARE WINNING – AND LOSING – WITH EXPORTS BOOMING

For many years, U.S. dominance as the top agricultural exporter has been slipping even as rising sales have allowed producers to prosper. Simply put, other countries have been able to catch up as they develop more farmland and improve their own trade prospects. Now President Donald Trump’s aggressive positions on U.S. trade relations threaten to worsen the relative decline of U.S. exports, as countries look elsewhere for agricultural products.

Proposed legislation introduced in Mexico’s parliament would block U.S. corn in favor of Argentinian and Brazilian products, and South American countries are trying to seize market share away from the U.S. Adecoagro SA, an Argentine operator of farmland, made its first-ever rice sale to Mexico after betting that souring trade relations with the U.S. could boost South American producers.

And that could exacerbate a problem for the U.S. apparent in agricultural commodities data. A look at the U.S. share of bulk farm commodities shipped overseas—ranging from corn, soybeans and wheat to cotton, coffee and rubber—from the past 15 years shows the U.S. portion of global exports has fallen from 26 percent in 2000 to 18 percent in 2015. While U.S. exports have increased, Brazil and the Black Sea have risen proportionally much faster, making the U.S. less central to agricultural trade.

Much of the trend is simply due to the rest of the world having more room to grow, said Gary Blumenthal, chief executive officer of World Perspectives Inc., an agriculture consultant based in Washington. Brazil had more uncultivated farmland, and still does, while the Black Sea nations of Russia and Ukraine were recovering from the inefficiencies of communism. And greater diversity of food sources is good for the world, he said.

“Considering the underutilization or misutilization of existing agricultural assets, meeting future food needs is not that difficult if other countries can better meet the demand,” he said in a telephone interview.

In some ways, U.S. agriculture has benefited from the rise of its competitors, whose prosperity creates new markets, said Joe Glauber, a former chief economist for the USDA and the lead U.S. farm negotiator during the Doha Round of global trade talks. Increased trade has brought gains across the board, with American farm sales rising 134 percent during the period as sales to China mushroomed and other trade relationships, including those with Canada and Mexico, have prospered. Those three nations are expected to buy 45 percent of U.S. agricultural exports in 2017, the USDA said last month.

Still, from a competitive position, a less-central U.S. has less control over its own destiny, Glauber said. Policies to limit overproduction become useless when other countries can replace acreage, and the U.S. is also more vulnerable to long-term export damage should it discourage trade, simply because rivals are now more able to take advantage of missteps, he said. “If a trade war led to the U.S. being less able to sell its soybeans or wheat, you would find quickly that the rest of the world would say, ‘thank you.’ ” he said.

AGTECH: NOT JUST ANOTHER BUZZWORD

In 2016, global investment in agtech was $A3.2 billion and there was a 10 per cent increase in global venture capital deals.

Agtech uptake in Australia is growing at about 2.5 per cent a year.

Australian agriculture has long been influenced by technology. In fact, 62 per cent of the sector’s productivity growth since 1995-96 is a result of technological advancements.

Now, increasingly refined on-farm technologies such as robotics, sensors, genetic technology and the growing use and adoption of precision farming, are all likely to play a role in helping Australian farmers access higher levels of productivity – and profit.

ANZ’s latest paper AgTech – Advance Australia Agriculture, shows a 1.5 per cent annual growth in capital investment and 3 per cent annual increase in productivity driven by scale-generated technology has the potential to help the Australian agriculture industry grow to $A98 billion in size by 2030, meeting 2.1 per cent of global food demand.

In contrast, current trends of a 0.5 per cent a year increase in capital and a 1 per cent increase in productivity would see the industry grow to a $A74 billion industry, meeting just 1.5 per cent of global demand.

The choices facing the industry have significant implications. Under a high growth scenario the cumulative growth opportunity above today’s production level of $A63 billion totals almost $A418 billion by 2030 – compared with just $A177 billion in a low growth scenario.

With the impending influx of agtech, top of mind for many farmers will be securing a much-needed upsurge in productivity, which has stalled since the early 2000s.

Agriculture is now the only sector, except for mining, where productivity was lower in 2015-16 compared with 2000, but new technologies show a path to productivity.

There are many giant global tech companies today investing heavily in agtech, seeking solutions in-country and around the world, including Australia.

Technology and data have the power to influence farm production but also supply chain efficiency and product positioning. Delivering more effectively to a consumer creates new value which in turn creates a bigger profit pool. This is an important incentive to drive investment and output to satisfy growing market demand.

Technology also has the potential to change the way we currently finance the working capital cycles for farmers into today’s economy.

The ability to produce real-time information about an inventory flow – from a farm production system to the value chain and on to a consumer – enables money to follow those goods in a more consistent and certain way, creating a visible end-to-end transaction which is well understood and aligned with customer needs. Its potential is endless and when you think about how technology has revolutionised other sectors such as retail and media, one can only begin to imagine the future state of Australian Agriculture in a technology and data driven world.

 

CHART OF THE WEEK

This week’s chart of the week comes from Bloomberg’s How the World’s Farmers Went to Work for China demonstrating how China has single-handedly reshaped the global agricultural commodity-supply chain in the 21st century. Increasing the value of agricultural commodities imported from US $3.7 billion in 2000 to $48.5 billion in 2015.


 

JOKE OF THE WEEK

 

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