Duxton’s Agri Bits and Pieces Vol. 212
Posted on: December 11th, 2014

QUOTE OF THE WEEK

A mix of farmer and external investment will be the key to driving agriculture in Australia forward, according to Rural Bank’s new board appointee Alex Gartmann.

Ms Gartmann, who is also the chief executive of Rural and Regional Renewal and spent nearly a decade at the helm of Birchip Cropping Group (BCG), said the financial industry serving agriculture needed to foster innovation to allow maximum returns from investment in the sector.

There’s been a lot of commentary about whether the traditional family debt-driven model can raise enough capital to continue to bring the industry forward. The truth is, family farming will always be an important part of Australian agriculture, but we may see it linked in with other sources of capital in the future.

Already we are seeing some innovative arrangements where family farms transition to a corporate style set up while still allowing facets of traditional family ownership, whether that be the farming business set up separately from land ownership or other models. It’s something that’s working for farmers wishing to free up capital and while it won’t be for everyone, it is something I think we’ll see more of in the future.

http://goo.gl/Pq0o98

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SOUTH AUSTRALIA DESERT TO GROW TOMATOES

Sundrop Farms has received a capital injection from private equity firm Kohlberg Kravis Roberts to aggressively expand its operations, which grow tomatoes on desert land north of Port Augusta in South Australia using solar thermal energy and desalination.

KKR is understood to have provided around $100 million in extra funding to Sundrop Farms, with a new 10-year contract with supermarket giant Coles to buy tomatoes cementing the investment.

Combined with $6 million in funds being tipped in by the South Australian Government announced by Premier Jay Weatherill last Thursday, Sundrop Farms is expanding with up to 300 jobs being created.

Sundrop Farms grows tomatoes and capsicums using solar thermal technology to take the salt out of sea weater, and for heating and cooling greenhouses.

The company’s majority owner is chief executive Philipp Saumweber, who is based on the Isle of Man in the United Kingdom. The expanded output means Sundrop Farms will be producing up to 15,000 tonnes of tomatoes, capsicums and other vegetables each year after 2016.

Mr Weatherill said a contract with Coles to purchase Sundrop Farms’ truss tomatoes for the next 10 years and sell them across its national network was vital in securing financing.

The Sundrop Farms operations will stretch across 20 hectares once the expansion is complete. The company has been successfully trialling its technology on a smaller scale.

“The project is the first in SA to integrate, at a commercial scale, leading technologies across solar thermal energy, solar seawater desalination and freshwater neutrality across 20 hectares of energy efficient greenhouses,” Mr Weatherill said.

The Sundrop Farms operations are about 300 kilometres north of Adelaide, near Port Augusta. The dry climate and the close proximity of the sea waters of the Upper Spencer Gulf are viewed as ideal for the use of the solar thermal technology. It works at its most efficient in flat, arid regions that are close to the ocean and in an area of low humidity.

http://goo.gl/dX4qQm

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GLOBAL MARKETS CHANGES THE STEAKS

Australia may be banned from shipping beef to Russia, but that doesn’t mean that Russia’s current economic woes won’t affect our beef market.

In a briefing note, ANZ senior agricultural economist Paul Deane tracked a cascade of cause and effect produced by current economic sanctions on Russia – and concluded that it means more Australian beef will be shipped to the United States in 2015.

Mr Deane’s reasoning is based on the activities of another player, Brazil, which he forecasts could in 2015 re-enter China and the Middle East with a bang.

At the G20 meeting in Brisbane, Brazilian beef was granted fresh access to China after being banned in late 2012 following the discovery of an atypical BSE (bovine spongiform encephalopathy) case.

Brazil was also banned from parts of the Middle East, but Saudi Arabia is sending inspectors to Brazil this month as a prelude to re-opening its doors.

Mr Deane reasoned that the reopening of these markets will be extremely timely to Brazil, because the huge beef market it had cornered in Russia is contracting fast as economic sanctions push down the value of the rouble, in turn driving up the price of beef.

“In 2013, wholesale forequarter prices in Sao Paulo averaged RUB75,500 a tonne, but the collapse in the rouble has pushed the equivalent price to RUB146,000/t by early December 2014,” he wrote.

“For Brazilian-sourced product, this represents a 90 per cent increase in the cost to Russian beef buyers.”

Russians tend not to eat high up the beef food chain. Most imported product ends up in sausages, meaning that under price pressure, beef can be easily substituted with lower-priced proteins like pork.

Russian pork production is expected to expand by 7pc from 2014-2015, Mr Deane reported, but he forecasts Russia’s beef imports could fall 18pc to 665,000 tonnes, their lowest level in 15 years (see chart of the week below).

That means that Russia’s main beef suppliers, Brazil and Paraguay, will have to find a new home for 150,000 tonnes of beef not wanted in the shrinking Russian market, as well as the additional 220,000 tonnes of extra beef production expected to come out of the two countries in 2015.

China is one likely home for some of that orphaned beef. Brazil already has eight beef processing plants licenced to ship to China, and another 11 have tendered their paperwork to the Chinese. The Middle East, should it re-open its doors, also has long familiarity with South American beef.

Those two markets have been generous to Australia since Brazil was locked out of them in 2012. Brazil’s re-entry will set up some stiff price competition that Australia may be ill-equipped to handle, Mr Deane noted, if a breaking of the northern drought ignites cattle prices and constricts supply.

That leaves the United States. This year the US reclaimed its place as Australia’s biggest beef market. In Mr Deane’s estimation, the US could become even more important in 2015 if Brazil takes market share in China and the Middle East.

“The positive for Australia is that it will still have US quota capacity to further expand trade to the US if needed.”

“For example, with just five weeks remaining in 2014, Australia has only filled 72pc of its US beef quota, leaving more than adequate room in 2015 for Australia to re-divert sales into the higher-priced US market.”

http://goo.gl/x9eMCO

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CHART OF THE WEEK

Russia’s meat imports versus meat consumption have shown an uncorrelated trend in recent years. Whilst meat consumption has been increasing, meat imports have declined to 20 year lows.

http://goo.gl/MgF07h

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JOKE OF THE WEEK

 

 

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