Neil Andrews: Food demand to 2050 -- opportunities for Australia

Uploaded by ABARESoutlook2012 on 26.04.2012


Thank you Philip.
Good afternoon ladies and gentlemen.
As we know Australia is a net exporter of
agricultural products.
It exports more than half of its agricultural production.

Therefore, developments on global markets are very
important for the development of the
Australian agricultural sector.
In recent years there has been an increasing focus
on the impacts of long-term growth in global food
demand for world food security.
And Mark this afternoon has run through some of
those issues.
Given the importance of exports to the Australian
agricultural sector it is useful to take a look at
the opportunities that growth in global food
demand offers for Australia.
To do this ABARES has developed projections of
global agrifood markets from 2007 out to 2050.
The projections provide an assessment of a plausible
scenario for growth in global food demand.

As with all of these projection exercises, they
are conditional on assumptions regarding
likely trends in income growth such as income
growth rates as well as assumptions on parameter
values such as the responsiveness of food of
demand to changes in incomes.
This baseline may serve as a starting point for
considering the implications for Australia
of global food demand growth over the longer term.

Now we have used 2007 as a starting point for
our projections.
This is the most recent year that relevant data is
available for all countries on a consistent basis.

Today I will focus on three main areas in my presentation.

The key drivers of global food demand growth,
the size and composition of growth in global food
demand and how this growth in global food demand
might translate into opportunities for Australia.

As Mark and Joe have mentioned, key drivers of
the growth in food demand will be population growth,
income growth per person --particularly in those
middle income developing countries,
particularly in China--and increasing urbanisation in
developing countries.

Taking population first, the UN projects world
population to increase by about 40% between 2007 and 2050.

Over the same time, total world real income is
projected to increase by over 200%.

In the ABARES analysis, the real value of world
agrifood demand in 2050 is projected to be about 77%
higher than in 2007.

The higher growth in global agrifood demand
compared to population reflects the impact of
higher real incomes per person leading to higher
levels of food consumption per person.
As we see here growth in food demand is projected
to be lower than growth in incomes.
As a result, real food expended as a share of
world income falls over the projection period.
This reflects the point that as incomes rise
consumers spend an increasing share of their
income on non-food items such as housing,
consumer durables and services.

Where is this growth in food demand coming from?
As we see here, the bulk of the projected increase in
global food demand is expected to come from Asia.

More specifically, China accounts for over 40% of
the increase in global food demand in 2050
compared to 2007.

So global growth is growing but the
composition of demand is also expected to change
and we've heard Mark and Joe refer to that already.
Increasing incomes are expected to result in a
move away from staple foods to higher-value foods.

As we see here, the bulk of the increase in global
agrifood demand is projected to be for fruit
and vegetables category and meats.
There are also significant increases in dairy
products, cereals and fish.
With the value of demand for meat and dairy
products projected to more than double,
the shares of these groups in global demand
increases, while the shares of other product
groups such as cereals decline slightly.
This changing composition of global food demand
reflects shifts in diets to higher-value products
as incomes rise.

This leads us to the opportunities for Australia.

The projected increase in global agrifood demand is
expected to lead to increased production and
exports of key Australian agricultural commodities.

Turning first to production,
we see here that the largest increases in
agricultural production for Australia are for
beef, wheat and dairy products.
With Australia's position as an important exporter of
a number of agricultural commodities the increase
in global agrifood demand has the potential to lead
to higher Australian agricultural exports.

Given that much of the growth in demand is likely
to occur in Asia and given Australia's relatively
close proximity to Asia, Australia has a
comparative transport cost advantage in exporting to Asia.

The largest increases in the real value of
Australian exports are projected to occur for
beef, wheat, dairy products,
sheep meat and sugar.
I'll touch briefly on beef.
Consistent with the global demand story, the bulk of
the increase in demand for beef is expected to occur
in Asia, particularly in China.
And this is as those incomes in rural areas
sort of catch up with incomes in urban areas and
as the lower income groups in both areas sort of increase.

In practice, it is likely that much of the increase
in demand in imports will be the lower-value cuts
rather than the higher-value beef that Australia
has traditionally exported to Japan and Korea.

Over the longer term, this might prove to be a good
fit for Australia's northern beef industry.
The longer term prospects for this segment of the
industry will be discussed in detail at the northern
beef session in the Redmond Theatre tomorrow
morning for those who are interested.

While Australia is projected to meet some of
the increased global imports for key
commodities this will occur in the context of a
competitive global market.
Competition through increased imports--
competition through increased exports is likely
to come from other key exporting nations.
Again using beef as an example,
Brazil is likely to increase its exports significantly.

While from a proximity point of view Brazil might
be expected to focus on growing markets in the
Atlantic region, the strong growth in Asian demand may
well see Brazilian presence in Asia.
Something that we are already seeing.

Despite the substantial rise in total value of
Australian agricultural exports, Australia is a
relatively small player in the global agrifood trade,
accounting for only 3% of the projected growth in
global exports between 2007 and 2050.
As we see here, the growth in the Australian exports
is likely to come from a growth in the global pie,
so the size of the total export market rather than
an increase in the share, rather than an increase in
Australia's share of the pie.

To sum up, increased global production in
incomes out to 2050 are expected to lead to
increased global food demand.
Within income growth, particularly in middle
income developing countries, the composition
of demand is likely to change.
There are likely to be opportunities for
Australia to increase production and exports,
particularly in products where we have a
comparative advantage such as beef,
wheat and dairy products.
Any export opportunities will arise in the context
of a competitive global market.
While Australia is projected to increase its
agrifood production and exports these increases
will not happen automatically.
Australia will need to remain competitive in
order to meet the opportunities that may
arise from the higher global agrifood demand.
This means it will be increasingly important for
Australia to maintain growth in productivity through
ongoing investment in research and development.
Thank you.