Executive Director, Supermarket to Asia.

The export opportunity and recent trends

Asia is an important market for the Australian food industry. The Asian market takes around 60 per cent of Australia’s total food exports. Before the Asian financial crisis hit around mid-1997, the share was as high as 65 per cent.

The Asian financial crisis adversely affected Austalia’s food trade in the region. Although the financial crisis was not evident until mid-1997, the turnaround in Australia’s food exports occurred over 1996-97, with exports declining by 2.5 per cent over the year. Food exports to Asia recovered by around 2 per cent over 1997-98 (refer to Figure 1).

The most recent analysis of export statistics by Supermarket to Asia is based on quarterly statistics to March 1999. This analysis indicates that a recovery of Australia’s food trade in Asian markets is underway, with an improvement in exports over the December 1998 and March 1999 quarters¹. Food exports to Asia during the December 1998 quarter were 2 per cent higher than those for the December 1997 quarter, while those in the March 1999 quarter were 14 per cent higher than those for the March 1998 quarter – and 11.5 per cent higher than for the March 1997 quarter, the quarter which preceded the Asian financial crisis. Therefore, we expect that the annual statistics for 1998-99 will show that food trade in Asia is returning to the seven-year long-term trend line shown in Figure 1.

At Supermarket to Asia, we believe that the medium to long-term trends in Asia point to a generally positive outlook for food exports to Asia. These trends include a combination of population growth, increasing urbanisation, diets changing to include more western style foods and improving market access. However, these trends must be tempered against the current financial situation in the economies of our important trading partners in Asia.

However, there are encouraging signs of recovery in some of the crisis economies of Asia. The East Asian countries which experienced financial difficulties – Indonesia, Korea, Malaysia and Thailand – have begun a process of restructuring and repairing their financial systems. With the exception of Indonesia, the initial crisis economies of East Asia have shown signs of stabilising, although Singapore and Hong Kong have experienced deep recessions. Economic activity in Korea and Thailand is thought to have bottomed during 1998.

Japan accounts for some 30 per cent of Australia’s global food exports. Although Japan has been experiencing a recession, with weak domestic demand resulting in substantial declines in imports, Australian food exports to Japan have remained relatively strong. In the March 1999 quarter, food exports to Japan were down by one per cent compared to the March 1998 quarter, but remained above those for the March 1997 quarter. The Japanese Government’s success in its efforts to stimulate the Japanese economy and drive it out of recession is of considerable interest for Australia’s food exporters.

A factor that has contributed significantly to Australia’s food exports maintaining competitiveness over the period of the financial crisis was the depreciation of the Australian dollar, by up to 17 per cent against the major currencies. The depreciation of the Australian dollar against the United States dollar was particularly relevant as most international food trade is denominated in $US, and the United States is a keen competitor in the Asian food market.

Why Export?

The economic wellbeing of the Australian food industry is geared to exporting. Quite simply, if we relied on the domestic market, production and prices would not be at current levels – this of course is not news to grain producers. In food, we have the cleanest, greenest ingredients, the technology and the critical mass to be reliable long-term suppliers of food to global markets, and given our location, particularly markets in Asia. Australia’s food production potential is enormous and the continuing supply push means that we must improve our position in export markets.

Building a profitable value-added food industry is probably the most effective decentralisation and regional employment creating program any government could have. Growth in regional employment will be greatly facilitated by, not only growth in food exports, but also growth in exports of processed foods. Analysis of Australian quarterly trade data for Asia shows that there was an increase in the proportion of unprocessed foods in food exports – from 16 per cent (for all countries) and 18 per cent (for Asia) in the March 1997 quarter to 22 per cent (for all countries and Asia) in the March 1999 quarter. However, these results largely reflect the impressive increases in canola exports and their weighting in total exports. For example, canola exports to the Asian market increased by more than $125 million from the March quarter 1997 to the March quarter 1999, accounting for 3 percentage points of the 4 percentage points increase in the share of unprocessed foods in food exports to Asia over the period. Overall, the value of exports of processed foods to Asia has held up quite well, with exports in March 1999 valued at $82 million more than in March 1997. These results are quite encouraging for value-adding prospects, given expectations by many that the Asian financial crisis would result in a significant decline in exports of processed foods to the Asian region.

Another export imperative is the contribution of exports to the balance of payments. The following figure shows that on a quarterly basis, the balance of payments for trade in goods has not been positive since the December 1997 quarter. On a seasonally adjusted basis, and in current prices, the deficit on trade in goods deteriorated from 1.7 per cent of GDP in the December 1998 quarter to 2.4 per cent of GDP in the March 1999 quarter. The deficit on the balance of payments has been largely financed by capital inflows.

Figure 2. Balance of payments – Goods, seasonally adjusted, current prices, quarterly.

Source: Supermarket to Asia chart based on ABS data.

Meeting the challenges to exporting

The Supermarket to Asia Strategy was developed jointly by industry and government to meet the challenges of growing Australia’s food sales to Asia. The Supermarket to Asia Council, comprising senior representatives of government and industry, was established by the Prime Minister in September 1996 to provide the leadership and drive necessary to do this. Supermarket to Asia Ltd services the Council by coordinating the various elements of the Strategy and undertaking a work program on its behalf.

The May 1998 Commonwealth Budget provided funding to continue the Supermarket to Asia Strategy for another three years. The role of Supermarket to Asia was expanded to include the new Food and Fibre Chains Program.

Supermarket to Asia undertakes a catalyst role aimed at:

• developing a market-led export culture,
• identifying and removing barriers to trade,
• building points of product difference, and
• improving competitiveness through the chain.

Importantly, the Council recognises that Asia is not one homogenous market and that each country provides unique opportunities for Australian food exports.

Council’s activities fall into two broad areas. First, implementation of the Supermarket to Asia Strategy involves working to a planned work program designed to develop opportunities and export capacity, and second, having the Supermarket to Asia secretariat pursuing a representational and motivational role, including that relating to coordinating delivery of government programs to exporters. These activities include widespread involvement with food companies, industry organisations, and state and Federal Government departments.

In summary, the main strategies adopted by Supermarket to Asia to improve food exports include:

• undertaking a catalyst role in influencing both government and industry processes;
• working towards achieving a national approach to food exports through work with state government food industry councils and state agencies;
• undertaking the Supermarket to Asia Ltd work program and the Food and Fibre Chains Program;
• undertaking market access work, including involvement in preparations for the next round of WTO negotiations; and
• adopting an extensive communication’s strategy.

¹ Supermarket to Asia will be able to provide an analysis of the June 1999 quarterly statistics and the 1998-99 annual statistics at the Symposium.