Rising values and increased investment to shape hot agricultural sector in 2016

Growth in demand from Asia for Australian exports of protein is set to continue to grow unabated in 2016 and beyond.

Shane McIntyre, Colliers International National Director of Rural & Agribusiness, said demand from Asian markets was likely to increase in the year ahead as the growing middle class continued to seek quality products. This would be met by growth in the market share of Australian exports.

“The execution of a number of Free Trade Agreements with China, South Korea, and Japan will phase out a number of tariffs of up to 40% on a range of Australian meat and livestock products, which, coupled with the weaker Australian dollar, will reduce the price premium on Australian protein products on shelves for consumers and restaurants,” Mr McIntyre said.

“Broadly, the Australian product is considered superior to other options in these markets which leads to increased demand as the growing middle class in the region are demanding more certainty and higher quality in all aspects of life.

“These consumers will no longer accept inferior, and in some cases dangerous, product as evidenced by the recent infant milk scandal and subsequent increase in demand for the equivalent Australian product. The existing licencing and regulatory environment in Australia is well regarded in the Asian markets and this goodwill is expected to translate into increased sales as cost impediments are reduced.

“The likely limiting factors are on the supply side where, due to record slaughters in recent years and ongoing drought conditions, the Meat and Livestock Association is forecasting a reduction in 2016 slaughter rates in beef and other proteins with a lack of available head for slaughter. This is expected to abate in the outer years as stock levels recover. However, the interim period will see livestock values maintained at current levels or slightly improve.

“India is growing at the rate of the population of the City of Los Angeles every year, and China has softened its one child policy. These two factors alone, will create unprecedented demand for protein over the coming decade."

Mr McIntyre said the combination of these factors would ensure the Australian agricultural sector was poised for its most buoyant period in decades, with values expected to rise due to increased commodity returns and a heightened interest from national and international investors.

He also expected 2016 to bring with it increased demand for logistical and storage space for food products driven by rising retail trade in food sales and exports.

“To meet growing domestic and international demand, the industry now requires more sophisticated facilities in the supply chain,” Mr McIntyre said. “High demand for food products has led to increased demand for storage space and specialised industrial assets, such as cold storage, over recent years, particularly in domestic distribution hubs and surrounding export points such as ports."

To date, the major supermarkets and non-discretionary spending retailers, led by Wesfamers, Woolworths and Metcash, had begun to occupy larger distribution centres and specialised storage facilities such as cold storage to service domestic markets.

“We expect to see primary producers, collectives and existing logistical providers interject themselves further into the food product supply chain beyond the farm gate to capitalise on efficiencies,” Mr McIntyre said.  “As the customer profile for primary producers expands further into export markets, we expect to see further demand for storage and specialised facilities from occupiers outside of the domestic supermarket and non-discretionary retailers.”

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