Australian agribusiness: where have we been and where are we going?

Australian agribusiness continues to be a major focus of investment - both domestic and foreign. Below we look at some of the highlights from 2017 and future possibilities.

At a glance

• In 2016-2017, Australian agriculture was the fastest growing industry and largest contributor to national gross domestic product growth, contributing 0.5 percentage points of the national total of 1.9% growth.
• In its annual Agribusiness Outlook, Rabobank has predicted that 2018 will also be a positive year of growth, supported by a stable world economy, continued investment and greater market access for exports. Asian markets remain a key focal point for agribusiness with improved income levels lifting demand.¹

• Industry snapshots
• Watch this space - medicinal cannabis and hemp
• New legislation for agribusiness
• FIRB charges
• The rise of agtech
• TPP revived and signed 

Industry snapshots   

Dairy

• Following a tumultuous 2016 the infant formula market is back on track, showing stable growth towards the end of 2017. 
• Bellamy’s share price recently rose to a two-year high after China lifted a suspension on the export licence for its Camperdown facility. 
• a2 Milk continues to build its presence domestically and overseas. The company recently announced a partnership with New Zealand-based rival Fonterra which will increase production of its protein-specific milk across Australia and New Zealand. The speciality milk will soon be stocked in an additional 1,000 stores in the US as part of the company’s “region by region” growth strategy.
• Bubs Australia Ltd has also established itself as a competitor in domestic and export markets, having signed deals to supply its goat milk infant formula to Woolworths and Chinese e-commerce retailer JD.com. Following its acquisition of NuLac Foods in December 2017 (including Australia’s largest herd of milking goats), Bubs became Australia’s only vertically integrated producer of goat milk formula - a niche product in growing demand.   

Beef

• Rabobank has flagged possible downward pressure on prices in 2018, attributable to global growth and high domestic cattle numbers. However, exports are expected to remain reliable. 
• The grass-fed cattle industry has lost some traction in the pursuit of greater transparency around the investment of grass-fed cattle levies. A 2014 Senate inquiry recommended the establishment of a new body to represent producers and reform of the state-organisation based Cattle Council of Australia.² In a surprise move, the Cattle Council of Australia (CCA) has recently walked away from the implementation committee responsible for the restructure. The CCA says it will work on improving its existing model, while the other members of the committee intend to move forward with a new representative organisation.³  

Wine

• Rabobank predicts that wine “is likely to enjoy its best year in a long time in 2018”.⁴ Wine Australia reported historic levels of production in 2017. A major driver is the demand for premium wine in China. The industry’s future in the region looks promising with already-reduced tariffs under the China-Australia Free Trade Agreement due to be eliminated by 2019.⁵ 
• The Export and Regional Wine Support Package is a new $50 million Federal Government initiative to boost wine exports and tourism. Of the funding, $32.5 million will be targeted at marketing campaigns in China and the US. Applications are now open for grants to support growers to undertake promotion activities. 

Watch this space - medicinal cannabis and hemp

• Since medicinal cannabis was legalised in November 2016, the Office of Drug Control has granted 14 licences for cultivation and production. Queensland grower Medifarm, the first licence recipient, is finalising work on its Sunshine Coast facility with the potential to service as many as 5,000 patients this year.⁶ Two changes may signal a significant boost to the industry: 
  • As of 1 February 2018, medicines containing codeine now require a doctor’s prescription, potentially opening the way for medicinal cannabis as a viable alternative in the future.  
  • As of 14 February 2018, the export of medicinal cannabis is now legal as a result of amendments to the Narcotic Drugs Regulation 2016.
• Changes to the Food Standards to allow the consumption of hemp came into effect on 12 November 2017. This new “superfood” has since been welcomed in cafes everywhere. The use of the word “cannabis” or any representation of the cannabis plant (other than the seed) on packaging is prohibited, to alleviate concern around the promotion of hemp as having psychoactive properties. Earlier this year, Hemp Foods Australia listed on ASX under parent company Elixinol Global Limited (ASX:EXL). The company, preparing for its first commercial harvest, will distribute hemp and medicinal cannabis-based products in Australia, the US and other regions.  

New legislation for agribusiness

Horticulture Code of Conduct

• The new Horticulture Code of Conduct (Code) came into effect on 1 April 2017, replacing the original code first introduced in 2006. The Code:
  • prohibits trading in horticulture produce without a written horticulture produce agreement (HPA);
  • requires merchants to either use a method or formula to price horticulture produce or reach an agreed price before or upon delivery of the produce;
  • introduces an obligation to deal in good faith; and
  • specifies dispute resolution procedures.
• Traders and growers should review their existing HPA documentation and ensure they are Code-compliant before 1 April 2018, when the 12 month transition period ends.  
• The latest Small Business in Focus report published by the Australian Competition and Consumer Commission (ACCC) for the period July-December 2017 notes that the ACCC is now shifting its focus from education around the Code to enforcement. The ACCC issued 15 compliance check notices to traders during the period.⁷

Free to forage: the new free-range egg standard

• In April 2017, the Federal Government passed the Australian Consumer Law (Free Range Egg Labelling) Information Standard 2017 (Standard), creating a new national standard to regulate the promotion of eggs as “free-range”. Free-range eggs are those laid by hens that:
  • had meaningful and regular access to an outdoor range during daylight hours;
  • were able to roam and forage; and
  • were subject to a stocking density of 10,000 hens or less per hectare.
• Producers must prominently display the stocking density of their hens on cartons.
• The Standard will commence on 26 April 2018 at the end of a 12 month transition period. 
• The ACCC has released guidance material to assist egg producers in understanding their obligations. The guidance advocates a common-sense approach to assessing whether hens have genuine ease of access to the outdoors by reference to factors such flock size, internal architecture and openings.⁸

Debate over the use of battery hen cages also has the potential to impact egg farmers. In November 2017, Animal Health Australia (AHA) released draft national welfare standards for poultry. A record 165,000 submissions were received during the public consultation period. In its submission, the Western Australian Government has called for caged-hen egg farming to be phased out over 10 years (so far the only state to do so). Industry body Egg Farmers Australia has warned that egg farmers would require $50 million in compensation to help subsidise the cost of any transition.⁹ AHA’s report will be released to state agricultural ministers later this year.

Farm debt mediation

• The Farm Business Debt Mediation Act 2017 (Qld) came into effect on 1 July 2017. Our previous article discusses the Bill in further detail, which you can read here.
• The legislation aims to provide an efficient and equitable means for farmers and mortgagees to resolve matters relating to farm business debts. A central measure is the compulsory mediation process that must be undertaken before banks can foreclose on farmland. The Queensland Rural and Industry Development Authority (QRIDA) will administer the initiative. 
• Earlier this year, QRIDA opened a Farm Debt Restructure Office which will assist farmers experiencing financial distress by providing free independent financial information and analysis of their farm business.
• QRIDA is also required to conduct periodic surveys of rural indebtedness for the previous five years. The next survey is due to be completed by 30 June 2018. 

Spotlight on safe farming

• The Western Australian Government has signalled its intention to review and update the Occupational Health and Safety Act 1984 (WA), with a draft bill expected to be introduced to parliament in mid-2019. Farmers will need to ensure their practices are compliant with the new laws, or risk increased penalties. For more information you can read our previous article here. HopgoodGanim Lawyers has partnered with SafeFarmsWA to ensure the farming industry is informed and prepared for the changes.   
• On 12 October 2017, the Queensland Government passed a number of significant amendments to the Workplace Health and Safety Act 2011 (WHS Act), including:
  • the introduction of the offence of industrial manslaughter, applicable where a PCBU (person conducting a business or undertaking) negligently causes the death of a worker;
  • the requirement for a PCBU to prepare a list of health and safety representatives and provide that to the regulator; and
  • prohibiting enforceable undertakings being accepted for contraventions (or alleged contraventions) of the WHS Act that involve a fatality.
• From 1 July 2018, PCBUs must also comply with codes of practice published under the WHS Act, or otherwise ensure their practices are at an equivalent or higher standard than that required by the relevant code.
• In July 2017 the Queensland Government released Serious about farm safety, a detailed guide designed to assist farmers to manage their workplace health and safety obligations.¹⁰ 

FIRB changes  

• In recent years the Federal Government has introduced significant new requirements around the sale of agricultural land to foreign investors.  They include, in 2015:
  • a reduction in the agricultural landholding threshold requiring Foreign Investment Review Board (FIRB) approval. Previously, a foreign person was required to seek FIRB approval for an acquisition where the cumulative value of their agricultural land exceeded $252 million - the threshold is now $15 million; and  
  • the introduction of a register to record foreign ownership of agricultural land.
• On 1 February 2018, the Treasurer announced a new rule requiring foreign investors seeking FIRB approval to show that land was “marketed widely” to local buyers under an open and transparent sale process for at least 30 days. Read our previous article on the policy change here. 
• The intention of the policy is to ensure Australian buyers have a genuine opportunity to purchase agricultural land, which the Treasurer cited as a factor of concern in his previous decisions over foreign investment, including the sale of the Kidman cattle properties to Gina Rinehart and a Chinese partner in 2016.
• Vendors should exercise care in planning their marketing process and ensure their agent complies with the 30 day marketing rule. Agents in the industry should ensure that their appointment documents are appropriate. 

The rise of agtech

• The world of agtech is seeing unprecedented levels of investment, sowing the seeds of innovation that will produce higher yields, improve efficiency and minimise risk for farmers.
• This is in part due to a new wave of “accelerators” - initiatives that essentially sponsor new ideas - entering the industry. SproutX, the first agtech-focused accelerator, is currently helping 11 teams bring their ideas to fruition - ranging from fruit fly surveillance, automated irrigation to an on-farm slaughtering service with an emphasis on animal welfare. The Western Australian government has launched its first accelerator program HARVEST and announced it will support nine successful applicants to workshop their innovations over a nine-week program.
• The following two solutions show the potential for agtech to deliver real solutions to practical issues: 
  • Agersens and MaiaGrazing have partnered to create a fully automated grazing system. The system will combine Agersens’ eShepard collar, which enables farmers to herd cattle virtually by sending instructions via a smartphone or tablet, with MaiaGrazing’s software, which monitors and collects data to improve decision-making. The product will be available commercially later this year.¹¹
  • The Yield Technology Solutions won various accolades in 2017 for its sensor-based technology. The company’s Sensing+ for Aquaculture platform uses submerged sensors to monitor and analyse water conditions. The technology has been used on Tasmania’s oyster farms to assess harvest areas and detect the threat of the Pacific Oyster Mortality Syndrome. The company has since launched Sensing+ for Agriculture, which employs the same sensor technology in crops, giving farmers the tools to make more informed irrigation decisions.¹² 
• More exciting developments will no doubt be showcased at the Agtech Summit in Melbourne this week.

TPP revived and signed

• Earlier this year, agreement was reached on the Trans-Pacific Partnership, now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). On 8 March 2018, the 11 partner nations - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam - signed the  final version in Chile. The United States has recently shown renewed interest in re-joining the trade pact, with Treasury Secretary Steven Mnuchin stating that high-level conversations had begun and it was something President Trump would consider.
• The CPTPP will provide significant opportunities for Australian agribusiness, streamlining the process for exports and reducing tariffs. A notable highlight will be new cost savings in Japan, with reductions in tariffs on beef and new market access for dairy products.¹³ The CPTPP may also pave the way for separate trade deals with individual signatories, as seen in the Peru-Australia Free Trade Agreement (PAFTA), signed on 12 February 2018. Under PAFTA, farmers will have the benefit of duty free access for key exports and tariffs on beef will be eliminated within five years. In 2016, Australia’s trade in goods and services with Peru increased just over 50% on the previous year.¹⁴

2018 looks to be a broadly positive year for Australian agribusiness, with changes in policy and technology presenting new opportunities across the sector.  

For more information on any of the items discussed here, please contact HopgoodGanim Lawyers’ Agribusiness and Food team.

<sup>1. Rabobank, Agribusiness Outlook 2018 (January 2018) <https://www.rabobank.com.au/knowledge/agribusiness-monthly/>; Brett Worthington, ‘Agricultural Commodity Outlook’, ABC (online), 31 January 2018 <http://www.abc.net.au/news/rural/2018-01-31/agricultural-commodity-outlook-2018/9377662>
2. Rural and Regional Affairs and Transport References Committee, Parliament of Australia, Industry Structure and systems governing levies on grass-fed cattle (2014).
3. James Nason, ‘Cattle Council resigns from grassfed industry structure’, Beef Central (online), 18 January 2018 <https://www.beefcentral.com/news/cattle-council-walks-away-from-grassfed-industry-restructure-process/>
4. Rabobank Agribusiness Outlook 2018
5. Wine Australia, Australian wine: Production, sales and inventory 2016-17 (January 2018) <https://www.wineaustralia.com/market-insights/australian-wine-production,-sales-and-inventory-report>
6. Jennifer Nichols and Joanne Shoebridge, ‘Medicinal cannabis firm Medifarm welcomes export opportunities but says Australian patients its focus’, ABC (online), 4 January 2018 <http://www.abc.net.au/news/rural/2018-01-04/australian-medicinal-cannabis-firm-welcomes-export-opportunities/9303830>
7. ACCC, Small business in focus: Small business, franchising & agriculture news - Report no. 15 (22 January 2018) <https://www.accc.gov.au/publications/small-business-in-focus/small-business-in-focus-1-july-to-31-december-2017>
8. ACCC, ACCC Enforcement Guidance: Free range chicken egg claims (6 February 2018) <https://www.accc.gov.au/publications/free-range-chicken-egg-claims>
9. Jenne Brammer, ‘WA egg farmers want $50m compensation if battery cages are banned under welfare standard changes’, The West Australian (online), 8 March 2018 <https://thewest.com.au/business/agriculture/wa-egg-farmers-want-50m-compensation-if-battery-cages-are-banned-under-welfare-standard-changes-ng-b88765781z>
10. Queensland Government, Serious about farm safety (15 June 2017) <https://www.worksafe.qld.gov.au/agriculture/health-and-wellbeing-at-work/serious-about-farm-safety>.
11. Agersens, Test Match Cricket and Grazing Management (29 January 2018)  <https://agersens.com/test-match-cricket-grazing-management/>
12. The Yield Technology Solutions, Sensing+ for Agriculture <https://www.theyield.com/products/sensing-plus-for-agriculture>
13. Department of Foreign Affairs and Trade, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) - Outcomes at a glance (21 January 2018) <http://dfat.gov.au/trade/agreements/tpp/outcomes-documents/Documents/tpp-11-Outcomes-at-a-glance.pdf>
14. Department of Foreign Affairs and Trade, Peru-Australia Free Trade Agreement - Outcomes at a glance (February 2018) <http://dfat.gov.au/trade/agreements/pafta/pafta-outcomes/Pages/outcomes-at-a-glance.aspx></sup>