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Water Services Committee Conference The Parklake Hotel, Shepparton Thursday 31 July 2014 Market Trends & The Future of Agriculture Phil Ruthven AM, Chairman WHERE KNOWLEDGE IS POWER Topics 1. Brief Global Perspective 2. Australia’s Economy & Industries 3. The Agricultural Industry 4. Agribusiness 5. The Water Industry 6. Success in Rural Businesses 7. A Different Industry In The Future 1. Brief Global Perspective The World’s Economic Regions In 2014 Share of World GDP (ppp basis) Eastern Europe W&C Europe North America 4.0% 18.3% Indian 21.9% ME 5.3% S-C 7.3% Africa C&S 3.9% Asia Pacific 33.0% America 6.3% 2014 World GDP, $US 92.5 trillion IMF/IBISWorld 09/02/14 Asia Pacific Economy 2014 (F) Singapore Vietnam NZ Myanmar Cambodia Laos PNG Other 1.3% 1.3% 0.5% 0.4% 0.1% 0.1% 0.1% 0.1% Others 3.9% *Korea *North Korea 52.4% 6.8% 0.2% South Korea 6.6% China 25+ nations $US 30.5 trillion GDP (ppp terms) Wikipedia/IBISWorld 12/03/14 Asia-Pacific Arable Land % of total basis Myanmar Cambodia Vietnam Malaysia Malaysia NZ Laos PNG Other Australia 53.2% 17.5% Korea 1.5% Japan 1.5% China/HK Philippines 1.2% 2.7 million sq.km Source: CIA 04/02/12 Asia Pacific Renewable Water1 Singapore Vietnam NZ Burma Cambodia Laos PNG Others 0% 7.3% 3.2% 8.6% 3.9% 2.7% 6.6% 0.65 Others 3.9% Other 33.0% 23.2% China HK Japan 3.5% Korea 1.2% Indonesia 3.4% 23.3% 3.3% •North Korea 0.6% •South Korea 0.6% 12.2 ckm total Note: 1 Renewable water, essentially rainfall plus neighbouring nations’ source, desalination Source: CIA 30/6/11 Australia’s Exports Market Merchandise goods 2014 Asia Pacific 78% Asia 82% Other 5.8% 40.3% Other A-P 5.4% Greater China China 36.6% Taiwan 2.7% H/K 1.0% 17.9% Japan Indonesia 1.8% $274 billion (year to March 2014) IBISWorld: 22/05/14 Australia’s Exports Market Year Other Services 1.1% 1.2% Resources 57% Services 17% Business Services Freight/Postal 2013 Agriculture Tourism 8.0% 10.8% 49.3% Minerals Manufacturing 26% $319 billion IBISWorld: 11/09/12 Australia’s Exports Market By Category share of total (%) 1898 1972 1992 20141 Fiscal years Rural Mining Manufactures Freight Other Services Tourism $ billion Source: ABS & IBISWorld 2014 Note: 1 Year ending March 2014 Importance Of Rural Exports Share Of Total Exports F1970-2013 False dawn or new era? “Rural exports” in this chart include processed rural produce; otherwise < 5% of total exports Year, ended June Source: ABS 25/07/11 2. Australian Economy & Industries Australia’s Economic Growth Annual real GDP growth (%) progressed in quarters to March 2014 (and forecast to March 2019) 3.5% pa (52 years) 3.2% pa (since 1987) Years, ended June Source: IBISWorld: 05/06/14 Australia’s Economy & Population F 2014 Population GDP NT Tas ACT 1.0% 2.2% ACT NT Tas 2.3% 1.3% 1.6% 1.6% SA SA 7.2% 6.3% NSW NSW 32.0% 31.3% Queensland 20.2% Victoria Victoria 24.9% 22.2% $1.6 trillion 23.6 million IBISWorld: 21/05/14 Victoria’s Economic Growth Real GDP or GSP growth (% pa) Real growth F1991-2013 Year, ended June Source: ABS/IBISWorld 29/10/13 Ages Of Economic Progress GDP @ Constant F2011 Prices Australia 1788-2013 and onwards 2200 2000 1800 1400 1200 Agrarian Age Hunting, trapping, fishing, crafts, religion Agriculture, Mining, Banking, Commerce An Industrial Age is when Manufacturing and Construction dominate the economy (c. 30-50%+ of GDP) Transport the major utility Power the major utility (electricity) and telephony 1000 800 600 Industrial Age Infotronics Age Enlightenment Age ? Industrial Age Quaternary service industries IC&T Quinary service industries Imbedded intelligence, neural network Programs. More electronic “guardian angels” and other new technologies 400 200 0 1780 1790 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 GDP $ billion 1600 Hunting Age Year, ended June IBISWorld 24/09/13 Outsourcing Creates Most Industries We outsourced the growing of things to create the agriculture industry, aided by new technologies We outsourced the making and building of things to create the industrial age industries of manufacturing and construction, aided by new technologies and utilities. We are outsourcing services (household services and business functions) to create the current infotronics age from 1965-2040s, aided by new systems & technologies and a new utility sector. These created $ 1.2 billion in extra revenue pa by 2014 Importance of Industries 2050 2020 2000 1980 1960 1940 1920 1900 1880 1860 1840 1820 1800 Shares of GDP by Industry Division, 1800-2050 Agriculture Mining Primary Sector Manufacturing Utilities Construction Secondary Sector W’Sale Trade Retail Trade Transport, Postal Tertiary Sector Media & Telecom Finance & Insurance Rental, Hiring. R Estate Dwelling O’Ship Prof & Tech Services Quaternary Sector Admin Services Public Admin/Safety Ind taxes less subsidies Education Hospitality Health & Social Assist Quinary Sector 1800 1820 1840 1860 1880 1900 1920 1940 1960 1980 2000 2020 Arts & Recreation Personal & Other Serv 2050 New Age Industries 1965 – 2040s+ Household Outsourcing Hospitality (meals, accommodation) Entertainment (clubs, casinos) Household services (everything!) Personal services (beauty, fitness) Health (everything!) Tourism (transport, agencies) Education (pre-school, tertiary) services) Child minding (pre-school, nanny services) Finances (advice, management) Other services (inc. unmentionables) Overseas Outsourcing (To Us) Mining (energy minerals) Tourism (inbound) New era in agriculture? Education (mainly tertiary) Health Aquaculture (& crustaceans) Manufacturing (smelted ores) IP (royalty arrangements) Business Outsourcing Trucking Facilities management Business services (A/C. legal, computing) Knowledge services (data, consulting) Cleaning. Catering HR services (recruitment, staffing). Security Call Centres/CRM services Operations (via franchising) New Enabling Utilities (& technologies) ICT Nanotechnology Biotechnology Just-in-time systems Self-service systems IBISWorld Australia’s Industry Mix Shares of GDP, in F2012 price terms Year to March 2014 Hospitality Pers. & Other Serv. Cult & Rec. Serv. Agriculture 0.8% 2.2% Mining 10.3% Govt. Adm. 5.2% Utilities 2.4% 7.6% Construction 2.9% 8.2% Finance & Insurance 2.7% Admin. & Support Services Rental, Hiring & Real Estate GDP $1558 billion Info Media & Communications Sectors Primary Secondary Tertiary Quaternary Quinary Note 1: includes stat. discrepancy (0.15%) ABS 5206-26 IBISWorld 05/06/14 Importance of Industries States & Territories Shares of GSP by Industry Division, F2013 100% WA NT 14.3 90% 29.4 80% Qld 8.8 6.5 5.0 17.7 60% 12.9 50% 40% 3.5 4.8 3.1 30% 6.7 5.4 20% 10% 2.8 4.0 2.9 4.5 0% SA Tas 8.1 5.4 3.3 7.6 6.7 7.7 6.9 4.6 4.6 4.2 9.3 70% Aust 6.1 4.7 4.8 4.3 2.2 6.8 6.2 2.3 6.5 5.6 2.7 4.3 3.4 8.1 8.1 5.1 2.5 8.3 7.8 7.7 5.8 3.3 6.8 5.2 6.0 6.5 4.5 6.7 7.0 5.1 7.0 7.1 6.4 2 3 4 Agriculture Mining 9.7 6.0 5.1 2.8 4.5 4.3 4.3 4.7 4.0 9.9 11.9 2.6 2.8 8.3 9.3 4.5 7.5 Manufacturing Utilities Construction 3.9 2.5 Wholesale trade 7.9 Transport & Postal 9.8 Retail trade Media & Telecom Finance &insurance Rental & Real Est Dwell O'Ship Prof & Tech 29.0 6.3 4.6 6.1 ACT 7.3 8.6 5.9 5.7 NSW 7.6 5.6 4.1 4.8 2.7 4.6 9.2 5.5 4.1 4.5 5.8 3.4 6.6 5.1 3.1 4.4 9.6 7.7 Vic Adm. & Support Govt admin 4.1 4.9 7.6 7.3 4.5 Education 5.4 4.6 6.7 Accom, cafes &rest Ind taxes et al Health &community 8.5 9.9 5 6 92 24 6.8 6.2 5.8 7 8 9 Cult &recreation Other Services 1 239 19 284 1473 329 455 32 GSP $ billion IBISWorld 09/03/14 Australia’s Three Geographic Zones (population in equal land masses) Top ⅓ 4.4% of population 82.9% of state 1.0 million people 12.5% of state 5.4% of state Middle ⅓ 17.1% of state 4.1 million people 86.3% of state 0.3% of state 17.9% of population 1.3% of state 17.9 million people 93.3% of state 99.7% of state Bottom ⅓ 77.7% of population Source: IBISWorld, ABS and mapsnworld.com 19.02.13 Importance of Industries By Zones Shares of GSP by Industry Division, current prices Australia Bottom 1/3 Middle 1/3 Top 1/3 100% 3.2 90% 9.7 7.7 18.4 7.1 80% 70% 60% 7.2 7.2 4.4 4.3 4.6 4.5 4.9 11.6 9.8 40% 6.6 2.2 30% 20% 10% 0% 7.7 2.4 4.8 51.2 7.7 4.9 4.7 50% 6.4 4.6 5.0 7.4 5.7 2.3 5.1 2.2 7.9 2.7 5.0 6.6 7.2 4.3 4.7 5.9 6.2 7.8 1.9 4.6 5.7 3.7 5.7 3.6 5.9 2.5 2.9 2.9 5.1 3.2 3.1 2.1 3.3 $1.48 trillion $1.09 trillion $277 billion $111 billion Agriculture Mining Manufacturing Utilities Construction Wholesale trade Retail trade Transport &storage Communication Finance &insurance Prop &business Dwelling O'Ship Govt admin Ind taxes et al Education Hospitality Health &community Cult &recreation Personal & Other IBISWorld & ABS 21/02/13 3. Our Agricultural Industry Agriculture’s Importance 100 90 90 80 80 70 70 60 50 Economic Importance (contribution to GDP, %) Revenue (constant 2004 prices) 60 50 40 40 30 30 20 20 10 10 0 0 Revenue ($billion, F2004 prices) 100 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Share of GDP (%) Agriculture, Fishing & Forestry Industry, share of GDP (%) Australia’s Broad Population Shift % of total 1901 2001 2051(F) 19% 25% Coastal 66% Capital Cities 7% 32% 64% 61% 5% 12% 4% 5% Rural (cities >30,000 ) Rural (towns & shires) Source: ABS & IBISWorld Agriculture’s Continuing Volatility % annual change in real value added 1976 to March 2014 50 Collapses average 3+ years apart, serious ones average 7-8 years apart 40 30 20 10 0 -10 -30 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 -20 Source: ABS5206-16 Agricultural Output and Net Profit 4-qtr.moving change to March 2014 $ million (current prices) Output is volatile Gross Output Net Profit ABS and IBISWorld 26/07/14 Farm Income 20,000 19,000 18,000 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Income is volatile 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Income ( $ million) Realised Agricultural Income, 1960- March 2014, $ millions Source: ABS5206-23 Agricultural Assets Total Assets and Debt Total Assets Debt Year, ended June Source: IBISWorld 14/02/14 Agricultural Returns NPAT & Capital Gains return on equity (%) Clearly Agriculture, in business terms, is a property speculation asset rather than an economic production asset Average Net profit/equity 2.3% pa Average Capital gain/equity 3.6% pa Average Total Return/equity 5.9% pa Capital gain (% of Net Assets) Net Profit (% of Net Assets) Year, ended June Source: IBISWorld 14/02/14 Agriculture’s Productivity Growth Real GDP or GSP growth (% pa) F1996-2013 Year, ended June Source: ABS/IBISWorld 15/02/14 The challenges for Agriculture and its rural operators is not productivity - which is the best of all the nation’s industries - but massively overpriced land, insulation from droughts and floods, competitive product selection, financial structuring, and economies-of-scale Importance of States Rural Land Value, % by states: 1989 and 2013 1990 2013 100% Qld 90% 8.6 13.0 9.9 80% SA 11.0 70% WA 10.9 8.0 2.6 2.9 60% Tasmania 29.7 50% 24.9 Victoria 40% 30% NSW 20% NT 10% ACT 0% 1 40.9 36.9 NT 0.7 ACT 0.1 NT 0.3 ACT 0.0 2 Land Value $ bn. (current prices) 3 62.3 4 5 261.0 IBISWorld 15/02/14 Importance of States Gross Output, % by states: 1990 and 2013 1990 2013 100% WA 90% 13.5 16.2 NT 80% 21.0 70% Qld 60% Victoria 22.6 22.3 50% 23.9 SA 40% 30% ACT 20% Tasmania 11.7 29.1 10% 0% 10.9 22.6 NSW 1 2 Gross Output $ bn. (current prices) 3 34.5 4 5 67.7 IBISWorld 15/02/14 Importance of Product Groups The Changing Mix: 1990 and 2013 1990 100% 90% 2013 Wool Sheep, cattle 70% 50% 40% 20% 10% 22.8 5.8 1.1 Milk Wheat Barley, oats, sorghum 5.2 12.3 Other grains, oilseeds 6.4 3.2 5.1 3.8 2.2 9.9 Fruit, nuts, vegetables Other agriculture Other Livestock prod. 0.0 1 2.3 1.3 2.3 2.9 16.3 10.3 2.8 4.5 2 Output $ bn. (current prices) 3 34.5 4 Poultry, pigs etc Milk 2.1 Plants. Flowers Other animals Sugar Cane 6.6 Wheat Non-agriculture 0% Sheep, cattle 1.4 Pigs, poultry, deer Fodder, grass 30% 20.3 Sugar cane Eggs, honey 60% Wool 19.7 Other live animals, pets 80% 4.1 Barley, oats etc Other (oil seeds etc) Fodder, grass Plants, flowers Fruit, Nuts, Vegetables 5.3 Other agriculture 5.3 Non-agriculture 5 67.8 IBISWorld 15/02/14 So, just what is happening as we head down the 21st Century? What is Happening to Agriculture in the 21st Century 1. 2. 3. 4. 5. 5. 6. It is growing in volume and dollars, but its growth is much slower than new age industries. Average revenues per holding need to move from c. $460,000 to well over $1 million, and ROSFs from <3% to 15%+ to match other SMEs in the economy. The industry is integrating into an agribusiness input-output chain with greater discipline. The industry is moving into a more professional and businesslike status. Many Gen X offspring and most Gen Y offspring don’t want to inherit or follow their father (or parents) into the business World best practice and technology transfer is a condition of survival. The industry is changing its markets, its products, its locations, its systems & technology and its ownership. The Big Changes in Agriculture New markets: Shift from Europe and North America to the Asia Pacific. New products: Shift from livestock products (esp.wool and dairy) into beef, horticulture, cotton, oil seeds, grain legumes, aquaculture, crustaceans & molluscs, floriculture and outsourced services. New systems & technologies: Water husbandry, dry land farming, hydroponics, fish farming, dominance of man made forests (over native), laser levelling, varietal development, biotechnology( genetic engineering, tissue culturing, hybridisation etc). New locations: Shift northward with Western Australia, Queensland, Northern Territory emerging as the key growth areas. New ownership and corporate structure: Shift from land ownership to leasing/rental (from specialised property trusts); subcontracting of agricultural services; contract supply of agricultural produce to local and overseas manufacturers; development of franchising. Growing foreign investment and ownership (esp. China) due to food security concern. New Markets 2010 1901 Other Countries 12.8% Asia Pacific Indian S-C 0.8% Other Nations 8.4 % 10.7% Other EU 18.7% Asia Pacific 69.5% UK 53.5% Merchandise Exports $A 67 million Source: IBISWorld Merchandise Exports $A 201 billion New Products 1910 2010 Fishing, Hunting, Forestry 4.0% Livestock Products 9.6% Crops & Horticulture Livestock Products 40.3% Livestock 23.7% Wool, Hides Milk, Eggs Honey 33.4% Crops & Horticulture Livestock 45.3% 22.3% Revenue $A 56 billion Revenue $A 0.24 billion (c. 20% of national revenue) (1.5% of national revenue) Source: IBISWorld New Systems & Technologies Land laser levelling/watering systems/cultivation methods. Hydroponics/aquaculture (horticulture/fishing). Satellite technology (ground preparation, forecasting, harvesting) Biotechnology (genetic engineering, hortmones, hybridisation, tissue culturing, hormones, varietal selection Large scale technology. Intensive agriculture (poultry, pigs etc). Outsourcing (services), such as ploughing, seeding, harvesting etc.) Corporate/franchised operating systems. New Locations 1910 2010 Tas Tas 4% WA SA 2% SA NT 1.2% 12.2% 10% NSW/ACT 14.7% NSW Qld. 47% 13% WA Victoria 17.8% Victoria 24.5% Qld. 25% 25.0% Shares of Factor Incomes Source: IBISWorld 25/07/11 New Ownership (Sectors going Corporate/Agribusiness) Poultry (Inghams, Steggles) Grapes/Wine (Treasury etc) Cotton (Kahlbetzer) Olives Aquaculture (Tassal) Some Vegetables (incl. hydroponics) Some Beef Cattle & Feedlots/Abattoirs Some Pig Farming Some Grain/oilseeds 4. Agribusiness (input-output flows & power shifts) The Agribusiness Input-Output Chain Revenue F2014 (E) Imports* Revenue $460 billion (10.5% of nation) Value of final goods $191 bn (!2.3% of GDP) $11 billion Food Agriculture & Fishing $56.5 billion Input-Output Chain Food Manufacturing Food Wholesaling Food Retail Consumer $100 billion1 $58 billion2 $138 billion3 $154 billion Hospitality & Institutional Packaging, Utilities, Transport/ Other Costs $59 billion Exports* $37billion Power Points In The Agribusiness Chain Least Power New Infotronics Age (1965-2040s) Vertical Integration/alliances Most MostPower Power Vertical Integration/alliances Final Hospitality Markets Imports Manufactg. Agriculture Crude Moderate Elaborate W’saling Retailing & Final Resellers Consumer Exports In the Industrial Age, each link in the chain usually owned and operated independently Most Power Industrial Age (1865-1964) Least Power Agriculture, Fishing, Forestry & Services Shares of industry revenue F2014(F) Food Agriculture 73.6% 12.9% 4.5% Fishing & Aquaculture Forestry & Logging Revenue $A 73.5 billion IBISWorld 20/01/12 Agriculture, Forestry & Fishing Industry F2014 (F) Industry Firms (‘000) Vegetable Growing (outdoor) Vegetable Growing (indoor)` Grape Growing Apple, Pear, Stonefruit Other Fruit Growing Grain Growing Sugar Cane Rice Growing Sheep Beef Beef Feedlots Sheep-Beef Grain + Livestock Poultry (meat) Poultry (eggs) Other Livestock Pig Farming Dairy Cattle Hay & Other Crops Food Based Revenue Agg. Growth Ave. Rev. ($ billion) 3.27 0.94 7.98 2.06 4.34 11.96 2.55 0.30 12.81 30.02 0.52 6.93 20.92 1.10 0.15 3.60 1.16 6.69 2.49 3.20 0.80 1.14 1.06 2.26 12.80 1.03 0.69 3.33 5.54 2.79 2.13 9.84 0.46 0.58 0.81 1.01 3.97 1.27 119.79 54.71 5 yrs, % 0.3 0.8 4.5 3.6 7.8 9.5 6.9 5.4 4.8 4.0 7.3 5.2 2.1 7.4 5.2 0.5 9.3 5.6 6.9 ( pa) per firm ($m) 0.978 0.851 0.143 0.515 0.520 1.070 0.402 2.281 0.260 0.185 5.363 0.306 0.470 0.418 3.867 0.225 0.871 0.593 0.510 0.457 IBISWorld: 23/06/14 Industry (ANZSIC Class) Ocean Fishing Seafood Farming Seafood Total (all food) Firms Revenue Agg. Growth Ave. Rev. (‘000) $ Billion 5.52 1.44 6.96 1.33 1.16 2.49 126.75 57.20 5 years (real) 5.3 3.0 ($’milln.) 0.241 0.805 0.358 0.451 . IBISWorld: 23/06/14 Industry Firms (ANZSIC Class) (‘000) Revenue Agg. Growth Ave. Rev. $ billion 5 years (real) ($’milln.) Non-food Plant Nurseries Cut Flowers Horse breeding Cotton Growing Turf Growing Sub-total 1.06 0.94 3.60 0.70 0.27 6.57 0.76 0.33 0.81 2.11 0.23 4.24 0.717 0.351 0.225 3.000 0.873 0.645 Forestry Logging Forestry 1.34 0.53 1.40 1.49 1.045 3.489 Sub-total 1.87 2.89 1.545 10.16 0.03 5.68 3.43 0.559 114.333 1.39 0.65 0.468 11.58 9.76 0.843 Services Shearing (+ other outsourcing) Cotton Ginning Services to Forestry Sub-total 5. The Water Industry Water Supply ANZSIC D2811 Australia F2014(E) Revenue $ 9.5 billion Growth, F2013-F2018 (real) 5.4% p.a (nearly double GDP) Value Added Enterprises Employment Wages $ 4.76 billion (0.3% of GDP) 263 c. 15,900 $ 1.4 billion Key Players (F2013 est.) Watercorp (WA) Sydney Water SA Water Melbourne Water Qld Urban Facilities Yarra Valley SE Water GMW 11.9% 11.5% 9.4% 6.0% 5.2% 3.8% 3.5% 1.8% The Water Market Share of total basis c. 2013 estimate Products Markets $9.5 billion (F2014 forecast) Utilities Other Industries Water gathering & Supply 2.5% 12.5% Agriculture 26% 37% Water supply, drainage, sewerage 21% Distribution 22% 74% Households IBISWorld: 16/02/14 The Water Market Locations of operation, % of total basis NT 1.3% SA 38.1% Queensland NSW 22.2% Source: BEA/IBISWorld 8/6/13 Distribution of Water Consumption vs Population Water Consumption Population Percent Source: IBISWorld 28/07/14 Water Industry Major Players F2013 Enterprise Assets Revenue ($ bn) ($ billion) ROSF1 Staffing (5 yr ave) (empl/$bn. Asset) Melbourne Water 14.48 1.286 4.0 60 Sydney Water 14.45 2.521 6.2 188 SA Water 13.83 1.436 2.8 111 Water Corp (WA) 9.48 2.184 5.7 313 Qld. Urban Utilities 5.20 0.951 4.7 213 Goulburn Murray Water 4.33 0.257 -1.6 159 Yarra Valley 4.01 0.763 6.5 144 SE Water Corp 3.30 0.706 4.6 166 ACTEW 2.81 0.323 7.9 142 Hunter Water 2.68 0.318 2.2 178 City West Water 1.95 0.477 0.8 228 76.52 11.222 4.0 152 Total/Average Note: 1 Return on Shareholder Funds after tax, net profit (after tax) on net assets GMW Profitability GMW has virtually the same number of employees per $ billion assets under management (159) as the industry average (152), so is clearly as efficient. However, being a NFP enterprise, it is not intended to match industry profitability. If that exemption ceased, GMW might need to raise prices for its services by $204 milion (79%) to earn the industry’s low average ROSF of 4.0%. Whether it could do that with the already-low profitability of farmers is another matter. The GMW 5-year Financial Plan shows a reduction in the losses but does mean customers will have been subsidized by some $400 million over a 10-year period from 2009? A state government, one day, might change the rules; suggesting a contingency plan in a drawer somewhere could be handy. 6. Success In Rural Businesses Success in any business Australian Profitability By Major Industries Return on Shareholder Funds (after tax), Top 555 businesses 5 years to F2013 Wholesale Trade includes multinational importers/marketers 8.8 Includes private and government enterprises Percent Source: IBISWorld 13/11/12 Australian Profitability By Major Industries Return on Shareholder Funds (after tax), Best 100 5 years to F2013 2 company 2 companies Includes multinational importers/marketers 19 companies 21 companies 16 companies 100 companies 9 companies 5 companies 8 companies 7 companies 5 company 1 company 2 companies 1 company 1 company 1 comp. 40.7 40.7 Includes GBE & private enterprises ROSF Percent Source: IBISWorld 20/11/13 The 100 Best Companies ROSF after tax (%), 5-Year Average to F2013 By Focus Focused (mainly single industry class) Theme Conglomerates Classic Conglomerates Number of companies 97 1 3 0 ROSF (%) 49.3% 51.0% - 100 49.4% 44 56 43.5% 54.0% 100 49.4% 38 59 3 46.5% 51.3% 48.7% 100 49.4% By Ownership Local Owned Foreign Owned By Ownership Public Company Proprietary Company Government Body Note: 1 This is highlighted to show that the majority of companies are in onebusiness only, even if slightly lower in ROSF Source: IBISWorld 20/11/13 20 Best Performing Australian Enterprises 5 years average ROSF, after tax, (%) to 2013 Enterprise ROSF Industry (Local/Foreign) (%) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Rondo Bechtel Phillips Electronics Hatch Associates John Deere Phillip Morris Federal Express Shindlers Lifts Tcorp British Tobacco Revlon Australia WorkPac Reed Elsevier Mars Pandora Schroder Investment Jardine Lolyd Novo Nordisk Pharm Wotif.com Cliffs Natural Res. 152 148 139 119 117 114 94 89 87 80 72 72 69 68 66 64 63 59 58 58 Ownership Manufacturing Prof. & Tech. Services Wholesaling Prof. & Tech. Services Wholesaling Manufacturing Transport Manufacturing Finance & Insurance Manufacturing Wholesaling Admin. & Support Serv Info. Media & Comm. Manufacturing Retailing Finance & Insurance Finance & Insurance Wholesaling Admin. & Support Serv Mining L F F F F F F F L F F L F F F F F F L F Revenue ($mill) 155 4277 364 691 932 984 209 331 8197 1961 95 432 209 1315 134 101 194 188 147 1411 Source: IBISWorld 29/01/14 What the Best Enterprises Are Doing 1. They stick to one business at a time and do not diversify 2. They aim to dominate some segment (s) of their market 3. They are forever innovative, valuing the business’ IP. 4. They outsource non-core activities to enable growth. 5. They don’t own “hard” assets. 6. They have good and professional financial management. 7. They plan from the outside-in not the inside-out 8. They anticipate any new industry lifecycle changes. 9. They follow world best practice for their own type of business. 10. They develop strategic alliances. 11. They develop unique organisational cultures. 12. They value leadership first and management second. Success in agriculture The Agricultural industry had assets of $425 billion in 2013 to produce just $68 billion revenue and earn a trading profit of 3% on net assets (equity). One fifth of the national allindustries SME average, and well below WBP of 20-25% ROSF! Most farmers are in the property business (for capital gain) more than being in an operating business (for trading profits) Very Profitable Farmers I. Become a business, not a way of life. II. Don’t blame other countries, play a different game. III. Grow what the market wants, not what have always done IV. Don’t pray for rain, make sure you have got water. V. Outsource everything you can get cheaper & better than DIY (ploughing, seeding, harvesting etc). VI. Do not own land, buildings, equipment, stock or debtors. VII. Work the brain (intellectual property) harder than the body. VIII. Add value at the farm not factory (ie. high quality fresh is often better than processed). IX. Have long term contracts & relationships, not spot markets. X. Franchise or be a franchisee, wherever possible. 7. A Different Industry In The Future Some Issues 1. Our agricultural industry will be expected to make a contribution to the food security issue in Asia in this Century, even though we cannot be a major supplier. 2. Nevertheless, we could probably increase output by some 5-fold, as we did in the 20th Century, but with different products, systems, localities and types of businesses. 3. High-density/intensive production (hydroponics, undercover, aquaculture etc) - where water costs are not an issue - is already emerging as corporate endeavours, sometimes including franchising. 4. Also likely to emerge are mega-buck investments (a la mining scale) especially in the top end of Australia, with many being over a billion dollars. Some mining companies are thinking this way already 5. The current methods of agriculture do not earn a proper income and return on equity, and the younger generation are reluctant to take on “the family farm”. 6. New financial structures will emerge to focus on passive agricultural assets (land, buildings, general infrastructure) with modest returns and some capital gain to match the (low) Bond returns in super and other funds. 7. The outsourcing of many farming functions (as as happens in mining – eg contract mining - and other industries) will lead to other big agricultural service organisations So? 8. What products should be grown in the GMW zone for best growth and a profitable future? 9. How can GMW go about helping agricultural customers know the future, enjoy growth and become more profitable? 10. Which other sectors within the GMW zone of influence can also benefit from advise and help (tourism, other industries)? To download this presentation go to: www.ibisworld.com.au ruthven gmwater Enter details here to download presentation