Podcast transcript
Velvet-Belle Templeman
Welcome to Boardroom.Media. My name is Velvet-Belle Templeman and I’m here talking to Tony Pititto, National Head of Agribusiness, Food and Beverage at Grant Thornton. Tony is an audit partner with a special focus on mid-cap and mid-market business. Today we’ll be talking about food production and food producers. We all need to eat, and Australia has some of the best produce in the world, but our farmers are no more immune to the coronavirus epidemic than the rest of us.
Thank you so much for joining us, Tony.
Tony Pititto
Thank you, and good morning, Velvet-Belle.
Velvet-Belle Templeman
Now Tony, let’s take a step back. We make more than enough food for Australians and then we export on top of that. What was the sector experiencing prior to COVID-19 hitting?
Tony Pititto
Yeah, well, look Australia has had a strong reputation for quality produce. It has a clean and green reputation for producing fantastic produce. Exports were very strong, especially in beef and lamb sectors and those prices are actually fairly high and mergers and acquisition activity was actually very strong, both within Australia and also from overseas countries. However, with any sectors, there are always winners and losers and there were some tough conditions. We had the drought and we had water crises in terms of availability of water and where that water was being allocated.
We also had, as a result of some very high input costs, such as feed, water, as I’ve mentioned, added to your costs, and then on top of that we did have also bushfires which impacted Southern Australia as well. So there were some tough conditions as well for Australian producers.
Velvet-Belle Templeman
And then the borders came down, and I assume when this happened, there was an immediate stop to imports and exports?
Tony Pititto
Look, not an immediate stop, but certainly things were made much more difficult, and mainly due to the inability to access infrastructure, such as shipping containers from either overseas or locally. In some cases, some producers also found it very difficult to obtain some imports such as fertilisers, which a lot of fertiliser comes from overseas. But also, that meant that in fact some Australian suppliers were able to fill in that hole and so there were winners there. So we are starting to now see some returns to exports but certainly not to the level we enjoyed previously.
Velvet-Belle Templeman
And Tony, this will, of course, have a massive impact on labour as well. So many producers rely on backpackers and people on working holidays.
Tony Pititto
Yes, especially so in the horticultural industry, and who are reliant on that form of labour. Also, in various meat processes, and processors generally where they rely on contract labour and these arrangements. But having said that, look Australian agricultural producers are very resilient and they have been able to utilise local labour and try to localise the usage of labour where possible.
Velvet-Belle Templeman
That’s great to hear. The domestic market is clearly very important to producers right now then. Does a smaller market make production any easier?
Tony Pititto
Look, unfortunately, no. Australian producers require economies of scale. They require that in order to produce efficiently and at a lower cost. And so whilst supermarket sales have increased with such items such as pasta and flour sales being a lot higher, food service unfortunately has not returned and this is the area of restaurants and fast food outlets where volumes have been significantly cut. And so what we’re seeing, for instance, is examples of some higher value meats, and meat cuts and mince, which has been heavily discounted through supermarkets because that product has generally been going through a food service sector. And of course, we’ve also had export markets that have slowed down significantly.
Velvet-Belle Templeman
And Tony, you mentioned a water crisis. SunRice has recently come out saying that Australia will run out of rice by December because of a lack of water. Is this down to drought?
Tony Pititto
Unfortunately, yes. Most rice is grown in Southern New South Wales and Northern Victoria and the summer crops that have been planted are 66 per cent down on prior year due to poor rain and, in fact, also higher water prices. We’ve also the impact of supermarket hoarding where you may have read there was a lot of – an increased demand for rice. Interestingly global rice production has also fallen significantly with adverse weather affecting regions such as the US, North Korea and Thailand. The government is now focussing more on water allocation and how that water should be allocated, so that area certainly does need revisiting.
Velvet-Belle Templeman
So we have a restriction on essentials for production, we have a reduction in exports, challenges with labour, and regions recovering from fire as well as issues around water rights. How are your clients responding to all of this?
Tony Pititto
Remarkably resilient. Australian producers are very nimble and they’re able to flex and adapt very quickly. So for instance, there’s examples of what was going into food service is now going into online sales. By no means, of course, are they replacing that, but they are creating new channels. So far, my clients and the industry in general has had very few instances of COVID outbreaks within their processing facilities and this is really important, as we’ve seen recently, what happened at Cedar Meats when there’s a COVID outbreak within a facility. So it’s important that those outbreaks are contained.
Australian producers have also been able to freeze and store an amount of product which can be used in production in later months, and of course, there are also Asian markets that we are able to export to, certainly not to the same extent as prior to COVID, but that’s also coming back on board now.
Velvet-Belle Templeman
And the easing of restrictions were announced by the government about a week ago, will this make a material difference to producers in the short term?
Tony Pititto
No, food service really needs to open up before we can see a significant positive impact and unfortunately, now we’ve had the issue with China banning four of our large meat processors, and threatening a tariff on barley. But we should point out there that whilst four processors have been banned or product is not coming out of four processors, there are other processors that are exporting into China and into other Asian markets. Unfortunately, those four are quite significant. But in the short-term Australian producers need to make sure that they can control outbreaks within their facilities. They need to make sure that their facilities continue to produce.
Velvet-Belle Templeman
So there’s no relief in the short term then. What sort of assistance is available to producers, either to keep them running now or to set them up to succeed in the future?
Tony Pititto
Well, look, apart from the usual suspects, such as JobKeeper, land tax, payroll tax relief, the Commonwealth Government, and various state governments have announced various funding and grants specifically for the sector. For instance, there’s a billion-dollar fund which the Commonwealth Government has set aside to support those regions and communities that have been severely impacted by the economic impacts of coronavirus, including agriculture. There is the $110 million international freight assistance mechanisms, which is designed to help exporters of high-value agriculture and fisheries to get their produce into key overseas markets and the government has organised return flights for these, to bring back critical products needed for the ongoing health response.
And so those industries that have been targeted include seafood, premium red meat, dairy, horticulture. The government has also announced a $300 million business and job supports fund which will assist the industry sector facing potential collapse and significant job losses. And finally, there’s a $500 million Working for Victoria Fund which is part of the Victorian Government’s response and they’ll work together with the Victorian Farmer’s Federation and other industry peak bodies to help identify workforce needs and facilitate job matching and training.
Velvet-Belle Templeman
So clearly this is a global issue. But Australia is doing better than many other countries. What do you think the future looks like for Australian producers?
Tony Pititto
Look one thing that COVID has shown is that consumers will always need food, and as I mentioned, Australia has a strong reputation for quality food and has a clean and green reputation. We have access to Asian markets. We have opportunities for expansion. Merger and acquisition activity will continue, not just from overseas but also from within Australia. So long term, Australian agriculture does have a very bright future.
Velvet-Belle Templeman
Tony, thank you for your time.
Tony Pititto
Thanks, Velvet-Belle.
