Trading in a growing worldNorthern Territory Cattleman’s Association

Industry Conference, Darwin

Dr Andrew StoeckelVisiting Fellow, CAMA,

Australian National University28 March, 2014

The all-important consumer!

…. who is also a voter

The Golden Math

Profit Revenue Costs= _

MarketingExchange rate

Trade barriers

CompetitorsIncomes

Price X Salesvolume

Fixed costs

Variable costs

Another 1 billion middle class consumers by 2030

China

http://info.publicintelligence.net/GlobalTrends2030.pdf

India

Other Asia

Japan

USA

EU

Others

Shares of Global middle-class consumption, 2000-2050

China’s Booming Middle Class

Source: http://www.brookings.edu/~/media/research/files/papers/2010/3/china%20middle%20class%20kharas/03_china_middle_class_kharas.pdf

Global food projections in White Paper

0 500 1000 1500 2000

Vegetables and fruit

Meat

Cereals

Dairy products

Fish

Other food

Vegetable oils

Vegetable meal

Fish meal and oil

Billion US$

Global demand by commodity

2050

2007

0 200 400 600

Asia

China

India

Rest of Asia

Billion US$

Global food demand

2050

2007

Breakdown of Asia imports

The good news: enormous growth in beef demand

http://www.daff.gov.au/ABARES/outlook-2014/Documents/presentation-slides/karen-schneider-presentation.pdf

Met by import demand for beef, not feed grain

http://www.daff.gov.au/ABARES/outlook-2014/Documents/presentation-slides/karen-schneider-presentation.pdf

… and the less good news: China faces some enormous challenges

Chinese funding costs

Source: Yiping Huang http://www.daff.gov.au/ABARES/outlook-2014/Documents/presentation-slides/yiping-huang-presentation.pdf

http://www.ft.com/m/html/expandable-picture.htm?d=true

China real effective exchange rate: 40% appreciation over last 8 years

Jan-1996 Jan-1998 Jan-2000 Jan-2002 Jan-2004 Jan-2006 Jan-2008 Jan-2010 Jan-2012 Jan-2014

150 150

140 140

130 130

120 120

110 110

100 100

90 90

80 80

70 70

Inde

x 20

05=

100

To restrain investment growth andnon-bank credit creation the Chineseauthorities are appreciating theexchange rate and raising the interbanklending rate.

40%

China’s Demographic Transition

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

0.8 0.8

0.7 0.7

0.6 0.6

0.5 0.5

0.4 0.4

0.3 0.3

0.2 0.2

0.1 0.1

0.0 0.0

Pro

port

ion

of 1

5-64

pop

ulat

ion

Old age dependencyratio

Total dependency ratio(child plus over 65s overworking age population)

China's one child policy has driven anextraordinary fall in the total dependencyratio, which in turn has contributed to highsaving rates. However the working agepopulation will be shrinking from 2014 asthe current generation moves intoretirement leading to rising old agedependancy.

Projection

Japan’s massive debt burden

http://www.ft.com/intl/cms/s/0/1ccc6df2-a86f-11e3-a946-00144feab7de.html?siteedition=intl#axzz2wvACigtJ

Eurozone banks in trouble

http://www.rba.gov.au/speeches/2014/sp-ag-160314.html

Public debt as percent of GDP

…. Nor do we have the world market to ourselves

http://www.daff.gov.au/ABARES/outlook-2014/Documents/presentation-slides/karen-schneider-presentation.pdf

Barriers to trade

• Asia is where growth is, our part of world and where barriers high

• Korean FTA to see barriers come down to achieve parity with the USA

• Trade Minister Robb currently in Japan negotiating FTA • China FTA talks but our view on in-bound investment• TPP talks but no ‘fast track’ for President• All FTA’s are preferential and also because all meats are

substitutable there is a lot of ‘switching’ of trade and net gains not as big as if multilateral free trade secured.

Productivity slowdown is global

http://www.ft.com/intl/cms/s/0/6cb5aece-7dee-11e3-b409-00144feabdc0.html?siteedition=intl#axzz2r04smn9t from http://www.conference-board.org/pdf_free/economics/TED3.pdf

The real competition is from resources sector

http://www.rba.gov.au/publications/bulletin/2013/jun/pdf/bu-0613-1.pdf

What can marketing do?

Integrity of the supply chain is critical

Have to ensure that marketers can consistently deliver on the attribute of the product they promote

Need a mix of individual and generic promotion

Input supplier Producer Processor Wholesaler& retailer

Consumer

Product flow

Information and communication

Input supplier Producer Processor Wholesaler& retailer

Consumer

Product flow

Information and communication

Key messages

• Long term prospects for beef promising• Expect short term volatility as global monetary stimulus

unwinds • Productivity problem is global and governments will finally

have to tackle hard structural change decisions• Trade liberalisation part of that, eventually Japan included• Absolute integrity of supply chain critical so marketers can

explore, promote and deliver the attributes that are valuable

• Success is a matter of getting a host of small things right