AUSTRALIA should consider emulating New Zealand’s decision to overlook competition concerns and create a dairy monopoly like Fonterra, consulting firm McKinsey & Company says.
In a report commissioned by the Business Council of Australia, McKinsey says New Zealand’s dairy exports and milk production has boomed while Australia’s has lagged.
Australia’s biggest dairy group Murray Goulburn was stymied by regulators this year in its efforts to consolidate the industry in the $500 million bidding war for Warrnambool Cheese & Butter.
Murray Goulburn head Gary Helou was left floundering in a long process before the Competition Tribunal where he argued «Australian Fonterra» will make the nation competitive.
The report points to the success of New Zealand’s Dairy Industry Restructuring Act. It argues «a purposeful redesign of the regulations and incentives that shape a market may be required to unlock Australia’s potential».
The Business Council says there is a lesson to be learnt and agriculture is at the forefront of the many industries that play to Australia’s strengths.
Like New Zealand’s dairy industry 15 years ago, Australia has plenty of potential, particularly because many of its farms lack the scale needed to take on the global market.
The first priority for the Abbott government, if it wants to help the sprawling sector, would be to cut trade deals with Taiwan and Hong Kong.
It calls for negotiations on the Trans-Pacific Partnership – a Pacific trade agreement – and a two-way trade deal with China to be fast-tracked.
The McKinsey report identifies agriculture as the only industry in Australia that is «strongly competitive» and still has plenty of untapped potential.
One of the biggest opportunities is in the dairy sector, according to McKinsey: «The milk industry is a story of squandered potential.»
At the start of the 2000s, Australia’s milk industry was on par with New Zealand’s. A decade later, New Zealand has doubled production and Australia has remained flat. The report estimates New Zealand’s dairy industry has added $7.5 billion to export earnings.
«Their success was underpinned by a whole-of-system approach where New Zealand farms got bigger, processing scale and efficiency increased and investment in branding and technology was scaled up.
«Australia, at that time, deregulated but without anything approaching the intent and ambition across the Tasman,» says the report.
New Zealand dairy farms are 80 per cent larger than Victorian ones and the use of processing plants is 15 per cent greater. At the same time, New Zealand dairy giant Fonterra – the nation’s largest company – spends 40 per cent more on research and three times as much on marketing than Australia’s Murray Goulburn Co-operative.
«New Zealand created a dairy industry structure that was designed to compete globally,» the report finds.
Other headwinds facing Australian agriculture include the average age of farmers, currently around 52 years, and the number of graduates from agriculture courses, which has slipped 30 per cent over the past decade.
«This will hinder the capacity of the sector to expand in response to rising demand from China,» the BCA says.
Farm exports could grow from around $37 billion a year to $73 billion, and by as much as $115 billion, depending on how much global demand Australia captures, it says.
McKinsey notes that wine is a good example of Australian excess. Wine tripled its market share to nearly 10 per cent between 1995 and 2005. Even though the share has fallen since, it still generates US$2.8 billion ($3 billion) in export earnings.
Source: The Land