HSBC’s Paul Bloxham is feel good kinda guy and has a note today on the prospects for a food boom:
Hard commodities are far and away the largest share of Australia’s exports. The bulk commodities, plus base metals and energy products account for 57% of Australia’s exports (11% of GDP). Iron ore alone accounts for 21% of total exports (4% of GDP). However, Australia’s small population and large land mass also make it a large global exporter of agricultural products. Even though these products only account for 12% of total exports, Australia is the world’s largest exporter of wool, the third largest exporter of beef, cotton and sugar, and the fourth largest exporter of wheat.
Australia’s large presence in these global agricultural export markets has prompted suggestions that Australia could become the ‘food bowl’ for Asia or that Australia’s recent ‘mining boom’ could be followed by a ‘dining boom’ (or even a ‘wining boom’, given Australia’s wine industry). However, while Australia has good prospects in agricultural production, we believe it is not a large enough sector to compete with mining in terms of its prominence in the local economy any time soon: agricultural output only accounts for 2% of production, while mining is around 10% of production (Charts 1 and 2).
Nonetheless, despite its diminutive economic size, there are likely to be opportunities in Australian agriculture, as Asia’s middle class incomes rise, diets change and demand for food increases. In particular, historical patterns show that as per capita income rises, demand for meat and dairy rises rapidly as people’s diets shift to consuming more protein.
Feedstock – such as coarse grains – is also needed to feed animals to meet this demand. Along the way Australia also faces challenges, including environmental limits to significant expansion and the need for further consolidation of the industry to benefit from economies of scale and thus lift agricultural productivity growth. Willingness to allow significant foreign investment in the sector is also a prominent local political issue, despite the relatively modest amount of foreign investment in the sector at this stage.
Indeed. Australia’s processed food exports haven’t grown in five years but raw goods have:
Bloxo shows where and what:
And why:
It’s hard to believe we could stuff this up and once the dollar falls you’d expect growth to resume in earnest. Full report here.
