Cotton's Future Meeting the challenges facing Australia's agribusiness

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Cotton's Future Meeting the challenges facing Australia's agribusiness Powered By Docstoc
					  Richard Haire – Queensland Cotton


            Cotton’s Future
     Meeting the challenges facing
     Australia’s agribusiness sector
A presentation to the Australian Rural Leadership Foundation
 A Recurrent Theme

The conflict that emerges when
     Domestic Economic
      Rationalisation
            meets
   Global Political Realities
1. Global Issues
How competitive is…..

     a.    Our Product

     b.    Our Country
    1a. Our Product

!    Declining Market Share
!    Innovative man-made fibres
!    Comparative Costs
!    Oil & Water
                                              World Consumption
                                                    World Fibre Demand - 1982 - 2001

                          30

                          25
       Millions of Tons




                          20
                                                                                                                          Man-made
                          15
                                                                                                                          fibres
                          10                                                                                              Raw Cotton

                          5

                          0




                                                                                                                   2001
                                                                  1994
                                                                         1995
                                                                                1996

                                                                                       1997
                                                                                              1998

                                                                                                     1999
                                                                                                            2000
                                      1990
                               1982


                                             1991

                                                    1992
                                                           1993




Source: Textile Outlook International
                              World Consumption
                         60

                         50
      Millions of Tons




                         40
                                                  Man-made
                         30                       Raw Cotton
                                                  All Fibres
                         20

                         10

                         0
                           82

                           90

                           91

                           92

                           93

                           94

                           95

                           96

                           97

                           98

                           99

                           00

                           01
                         19

                         19

                         19

                         19
                         19

                         19
                         19

                         19

                         19

                         19

                         19

                         20

                         20
Source: Textile Outlook International
                      World Consumption

       Since 1982, total fibre demand has increased

                                        Millions of
                                          Tons
       Man-made fibres                    14.84       76%
       Cotton fibres                       5.07       26%
       Wool                               -0.44
       TOTAL                              19.47


Source: Textile Outlook International
Innovative man-made fibres

      ! Microfibre
      ! Acrylic

      ! Polyester

      ! Elastane

      ! Lycra

      ! Polymide
                                Man-made Fibre
                              Man-made Fibre
                                   Production
                               Production
             30000
             25000
                                                                           Acrylic
             20000
 ‘000 tons




             15000                                                         Nylon &
                                                                           aramids
             10000                                                         Polyester
             5000                                                          Cellulosics
                0




                                                                     y)
                    79


                            82


                                     98


                                                99


                                                        00


                                                                01


                                                                      it
                                                                    ac
                 19


                         19


                                  19


                                             19


                                                     20


                                                             20

                                                                  ap
                                                                (C
                                                                03
                                                             20



Source: Textile Outlook International 2002
    The Weakness….?



an attractive alternative product
Cotton Prices




A bumpy ride
                                                                         $ value




                             0
                                 20
                                                             40
                                                                            60
                                                                                    80
                                                                                                                100
                                                                                                                                            120
                 01Aug1968
                 01Dec1969




Source: Bridge
                 01Apr1971
                 01Aug1972
                 03Dec1973
                 01Apr1975
                                                                                                                    China Importing




                 02Aug1976
                 01Dec1977
                 02Apr1979                             30 cent Support

                 01Aug1980
                 01Dec1981
                 01Apr1983
                 01Aug1984
                 02Dec1985
                                        US Farm Bill




                 01Apr1987
                 01Aug1988
                 01Dec1989
                                              US Crop
                                              50% Large
                                              Stocks/use




                 01Apr1991
                                                                                                    China Imports




                 03Aug1992
                                                                                                                                                    Historical Cotton Prices - 1968 - 2002




                 01Dec1993
                 03Apr1995
                 01Aug1996
                                                                          Failure
                                                                         US Crop




                 01Dec1997
                                                                                                                                   Highest Price




                 01Apr1999
                                                                                                                                  Since Civil War




                                           Bales
                                                                                     Asian Crisis




                 01Aug2000
                                      China Crop 23 M




                 03Dec2001
                                                            US Cent/Pound




                                                      20
                                                           40
                                                                60
                                                                     80
                                                                          100
                                                                                120
                                                                                      140
                                                                                            160




                                                  0
                                    7-Ja
                                          n
                                   6-M -94
                                        a
                                  23-S y-94
                                        ep-9
                                    3-F       4
                                       e b -9
                                     7-Ju 5
                                  10-N l-95
                                        o




Source: Cotton Outlook Magazine
                                  22-M v-95
                                         a r-
                                    9-A 96
                                        u
                                  20-D g-96
                                        ec
                                  23-M -96
                                        a
                                  26-S y-97
                                        ep-9
                                    6-M       7
                                         ar-9
                                    10-J      8
                                         u
                                  20-N l-98
                                        o
                                  28-M v-98
                                        ay-9
                                    8-O       9
                                         ct-9
                                  10-M        9
                                         a
                                                                                                  Polyester Production Prices - Japan




                                  25-A r-00
                                        ug-0
                                    5-Ja 0
                                                                                                                                        Production




                                  25-M n-00
                                        a
                                  14-S y-01
                                                                                                                                 Man-made Fibre Prices




                                        ep-0
                                              1
                                                                                                                                      Man-made Fibre




                                    1-F
                                       e b -0
                                  31-M        2
                                        ay
                                   18-O -02
                                         ct-0
                                              2
                              0
                                  5
                                      10
                                           15
                                                20
                                                     25
                                                          30
                                                               35
                                                                    40




                 12/02/1995
                 12/08/1995




Source: Bridge
                 12/02/1996
                 12/08/1996
                 12/02/1997
                 12/08/1997
                 12/02/1998
                 12/08/1998
                 12/02/1999
                 12/08/1999
                 12/02/2000
                                                                                                         Oil Prices




                 12/08/2000
                 12/02/2001
                                                                         West Texas Crude - US$/barrel




                 12/08/2001
                 12/02/2002
                 12/08/2002
                     Water Prices - Nominal




Source: Australian Competition Authority
                            Water Prices - Real




Source: Australian Competition Authority
       But what are we trading?

Cotton = Land + Labour + Capital (financial & intellectual &
       (Water)                environmental)



Polyester = Land + Labour + Capital (financial & intellectual &
           (Oil)                         environmental)
Subsidised local resources
   + Free global trade
= Export of local resources
  We need to think, really
think, about relative market
   ‘perfection’ and trade
1b. Our Country
    Our Country

!   Natural ‘talent’ of country
!   Trade
!   Ag Policy
            Australian Cotton
            Industry’s Science
               Capability
         Since 1973:
         Net present value of benefits of research
         = $5 billion
         Benefit-cost ratio = 51 times
         Internal Rate of Return = 31 percent

Source: CSIRO
                                        Natural Talent
                                          Natural Talent
                                           Average Yields
                    2000

                    1800

                    1600

                    1400
    Yield – kg/ha




                    1200

                    1000

                    800

                    600

                    400

                    200

                      0
                                                     2001/02
                           Australia    Turkey       Syria           Spain    Mexico

                           China        Greece       Egypt           Brazil   United States

                           Kazakhstan   Uzbekistan   World Average



Source: ICAC
                       World Quality
Type         Specs              % World   Export Competitors

Extra fine   ELS (Pima)         3%        SJV, CIS, Egypt, Chinese
                                          T-149
Fine         21-2-36, 21-3-36   9.5%      SJV, Chinese T-129, CIS,
                                          IC Manbo, Australia
High-Medium 31-3-35, 31-3-36    15%       W. Africa, CIS, USA

Medium       41-4-35            34%       USA, W. Africa, China

Coarse       31-3-34, 41-4-34   35%       Short staple

Waste                           4%
Why So Popular?

! Quality

! Lack of Contamination
! Reliability of Supply
! Integrity of System

! Proximity to markets
                                                 West African
                       Australian




                                                 Memphis
                         Basis




                                                 SJV
                                                 CIS
  Quality Reward




                                                -02
Quality Reward




                                             ay
                                          -M
                                        17
                                                -02
                                             ay
                                          -M
                                        03
                                               -02
                                             pr
                                          -A
                                        19
                                                 02
                                             pr-
                                          -A
                                        05
                                                 02
                                             ar -
                                          -M
                                        15
                                                 02
                                             ar -
                                          -M
                                        01        2
                                              b-0
                                          -Fe
                                        15
                                               -02
                                            eb
                                          -F
                                        01        2
                                              n-0
                                          -Ja
                                        18        2
                                              n-0
                                          -Ja
                                        04
                                                -01
                                             ec
                                          -D
                                        14
                                                -0 1
                                             ov
                                          -N
                                        30
                                                -0 1
                                             ov
                                          -N
                                        16
                                                 01
                                             ct-
                                          -O
                                        05
                                                -01
                                            ep
                                          -S
                                        14
                                                -01
                                             ug
                                          -A
                                        31
                                                -01
                                             ug
                                          -A
                                        17




                                                                                        Source: Bridge
                                                -01
                                             ug
                                          -A
                                        03
                   4
                       2
                                    0
                                            -2
                                                       -4
                                                            -6
                                                                 -8
                                                                      -10
                                                                            -12
                                                                                  -14
                                                  US cents/lb
   The Strength…?


excellence and differentiation
But…..the competition ain’t fair!
                             Agricultural Policy




Source: Omaha World-Herald
                                                                                          d
                                                                                      lan
                                                                                   er
                                                                               itz
                                                                           Sw
                                                                                   ay
                                                                                rw
                                                                           No
                                                                                  a
                                                                               re
                                                                           Ko
                                                                                    d
                                                                               lan
                                                                           Ice
Agricultural Policy




                                                                                  n              n
                                                                              pa            nio
                      Producer Support Estimate by Country




                                                                           Ja an U
                        (% of value of gross farm receipts)




                                                                                 pe
                                                                              ro
                                                                           Eu
                                                                                 CD es
                                                                            OE Stat
                                                                                  d
                                                                               ite
                                                                           Un
                                                                                    y          lic
                                                                               rke pub
                                                                           Tu        Re
                                                                                 ak           lic
                                                                             ov            ub
                                                                           Sl           ep
                                                               1999-2001




                                                                                  hR
                                                                              ec
                                                                           Cz          y
                                                                                   ar
                                                                                ng
                                                                           Hu
                                                                                   da
                                                                               na
                                                                           Ca
                                                               1986-1988
                                                                                    o
                                                                                xic
                                                                           Me
                                                                                   d
                                                                               lan
                                                                           Po         a
                                                                                   ali
                                                                               str        nd
                                                                           Au          ala
                                                                                  Ze
                                                                              w
                                                                           Ne




                                                                                                     Source: OECD
                                                                 80
                                                                 70
                                                                 60
                                                                 50
                                                                 40
                                                                 30
                                                                 20
                                                                 10
                                                                  0
                                                                -10
                                                              %
                                                   Agricultural Policy
                                 Government Assistance to Cotton Sector                 Government Assistance to Cotton Sector
                                                     Government Assistance to Cotton Sector
                     30
                                                                                30
                     25
                                                                                25
                     30
                     20
                                                                                20                                               1997/98
                     15                                                                                                          1998/99
                                                                                15
                                                                                                                                 1999/00
                     25
                     10
                                                                                10                                               2000/01
                     5
    US Cents/Pound




                                                                                5
                     20
                     0
                              1997/99      1998/99       1999/00      2000/01   0
                                                                                                                                 1997/98
                                                                                        USA                  China (Mainland)
                                             USA              China
                                                                                                                                 1998/99
                     15
                                 Government Assistance to Cotton Sector
                                                                                                                                 1999/00
                     10
                     30                                                                                                          2000/01
                     25

                     20   5
                     15

                     10   0
                     5
                                                           USA                       China (Mainland)
                     0
                              1997/99      1998/99       1999/00      2000/01
                                            USA              China



Source: ICAC
                               Trade Fairness
                                    Agricultural Tariffs

             120

             100                                                      US
             80                                                       EU
   Percent




                                                                      Japan
             60
                                                                      Korea
             40                                                       India
             20                                                       World

              0
                   Average Maximum Allowed Tariff Under Current WTO

Source: American Cotton Shippers Association
        Government Assistance to Cotton Sector                  Government Assistance to Cotton Sector

30
                                                           30
25



                                     We are dependant on
                                                           25
20
                                                           20                                            1997/98
15                                                                                                       1998/99
                                                           15
                                                                                                         1999/00
10
                                                           10                                            2000/01
5



                                                       export markets
                                                            5
0
     1997/99      1998/99       1999/00      2000/01        0
                    USA              China                      USA                  China (Mainland)




                            for 95% of our production
        Government Assistance to Cotton Sector

30

25

20

15

10

5

0
     1997/99      1998/99       1999/00      2000/01
                   USA              China
               X-Port Vulnerability
                             Australian Exports - 2000-01

                                                                    ×     Indonesia
                                                                    ∞     Japan
                                                                    ×     Thailand
                                                                    ×     South Korea
                                                                          India
                                                                          Pakistan
                                                                    ×     Taiwan
                                                                    ≈     Italy
                                                                          Phillipines
                                                                          China
                                                                          Other
Source: The Australian Cottongrower Cotton Year Book


                                                       × Asian Crisis – 1997-98
                                                       ∞ Recession since 1997
                                                       ≈ Euro Introduction - 2001
                               0
                             0.1
                             0.2
                             0.3
                             0.4
                             0.5
                             0.6
                             0.7
                             0.8
                             0.9




Source: Bridge
                 6/01/1996

                 6/07/1996

                 6/01/1997

                 6/07/1997

                 6/01/1998

                 6/07/1998

                 6/01/1999

                 6/07/1999
                                   AUD/US




                 6/01/2000

                 6/07/2000

                 6/01/2001
                                            Exchange Rates




                 6/07/2001

                 6/01/2002
                                               Exchange Rates




                 6/07/2002

                 6/01/2003
                                                                                             0
                                                                                            20
                                                                                            40
                                                                                            60
                                                                                            80
                                                                                           100
                                                                                           120
                                                                                           140
                                                                                           160




                             0
                                  500
                                        1000
                                                1500
                                                       2000
                                                               2500
                                                                                   2/02/1996
                 2/02/1996
                                                                                   2/06/1996
                 2/06/1996
                                                                                   2/10/1996
                 2/10/1996
                                                                                   2/02/1997
                 2/02/1997
                                                                                   2/06/1997
                 2/06/1997
                                                                                   2/10/1997




Source: Bridge
                 2/10/1997
                                                                                   2/02/1998
                 2/02/1998
                                                                                   2/06/1998
                 2/06/1998
                 2/10/1998                                                         2/10/1998

                                                                                   2/02/1999
                 2/02/1999
                 2/06/1999                                                         2/06/1999

                 2/10/1999                                                         2/10/1999
                                                                                                       USD vs JPY




                                                                                   2/02/2000




                                                                      USD vs KRW
                 2/02/2000
                 2/06/2000                                                         2/06/2000

                 2/10/2000                                                         2/10/2000

                 2/02/2001                                                         2/02/2001

                 2/06/2001                                                         2/06/2001

                 2/10/2001                                                         2/10/2001

                 2/02/2002                                                         2/02/2002

                 2/06/2002                                                         2/06/2002

                 2/10/2002                                                         2/10/2002




                             0
                                 10
                                      20
                                           30
                                                40
                                                       50
                                                              60
                                                                                                   0
                                                                                                2000
                                                                                                4000
                                                                                                6000
                                                                                                8000
                                                                                               10000
                                                                                               12000
                                                                                               14000
                                                                                               16000
                                                                                               18000




                 2/02/1996                                                         2/02/1996
                 2/06/1996                                                         2/06/1996
                 2/10/1996                                                         2/10/1996
                 2/02/1997                                                         2/02/1997
                 2/06/1997                                                         2/06/1997
                 2/10/1997                                                         2/10/1997
                 2/02/1998                                                         2/02/1998
                 2/06/1998                                                         2/06/1998
                 2/10/1998                                                         2/10/1998
                 2/02/1999                                                         2/02/1999
                 2/06/1999                                                         2/06/1999
                 2/10/1999                                                         2/10/1999
                                                                                                       USD vs IDR




                 2/02/2000
                                                                      USD vs THB




                                                                                   2/02/2000
                 2/06/2000                                                         2/06/2000
                                                                                                                    Key Market Exchange Rates




                 2/10/2000                                                         2/10/2000
                 2/02/2001                                                         2/02/2001
                 2/06/2001                                                         2/06/2001
                 2/10/2001                                                         2/10/2001
                 2/02/2002                                                         2/02/2002
                 2/06/2002                                                         2/06/2002
                 2/10/2002                                                         2/10/2002
GMO Global Policy
 Market continues to grow
 58.6 million hectares
 12% increase from 2001 to 2002
    ! 16 countries/6 million
      farmers in 2002
    ! 13 countries/5 million
      farmers in 2001
                           Costs
  Country                Transgenic Cotton in Australia Variety
                       Technology Fee
   USA          US$80 per hectare               Bt Cotton
              Year     Ingard Area                   Technology Fee
                US$17-22 per hectare            Roundup Ready
                          (Ha)     % of Total Area          (A$)
                US$15-25 per hectare            BXN
            1996/97         30,000        10              $245
                US$101 per hectare              Bt + RR
            1997/98         60,000        15          $245 net $210
                US$60 per hectare with a
South Africa1998/99         85,000
                possible US$10 per hectare20          $185
                                                Bt Cotton net $155
                rise
            1999/00 in 2002125,000        25          $185 net $155

   India    2000/01      165,000         30
                US$10.00 per hectare (approx)         $185
                                                Bt Cotton net $155
           2001/02      186,000            30         $185 net $155
   China       unknown – likely to be free
           2002/03        85,000           30         $185 net $155
 Australia     US$98 per hectare                Bt Cotton
        `
       Overheads
Compared to our primary
competition, Australian producers
face higher stewardship cost for:
     ! Communities
     ! Environment
     ! Capital
     ! Taxation
    ` Threat…?
  The


unfair competition and
its impact on trade
2. Domestic Issues

   a.   Our Industry’s
        Competitiveness
2a. The Industry in Australia

   !   Economic value
   !   Social License
   !   Resource Allocation
 Economic Value

! Declining terms of trade
   – but still attractive
! Risk Management –
    removing the bumps
! Potential for Growth –
    through productivity
               National Accounts - June 2002     Total - Agriculture, Forestry &
                                                 Fishing
                                          3.5%
                                                 Mining

                                                 Manufacturing

                                                 Construction

                                                 Retail trade

                                                 Transport & Storage

                                                 Finance & Insurance

                                                 Property & business services

                                                 Government administration and
                                                 defence
                                                 Education

                                                 Health & community services

                                                 Other




Source: Australian Bureau of Statistics
      Social License
Sustainable Resource Management
!    Environmental Audit – 1992 & 2003
!    Eudosulphan
!    Helix
!    BMP
!    IPM
!    Ingard
!    RWUE
                   BIG DEAL……!
Resource Allocation

  !   Land
  !   Labour    declining
                availability
  !   Capital
       The Industry
 Industry Structures/
 Institutional Arrangements
 !    Supply Chain Manager
                OR
 !    Commodity Trader

Maximising value of the product or
        the opportunity
Not all competition is
         good
The Opportunity…?



To differentiate our product
and practices
    SWOT Analysis
S   Excellence and differentiation

W   An attractive alternative

    Differentiate our product and
O   practices

T   Unfair competition & impact on
    trade
The Key
Questions
            Questions
1.   Is broadacre irrigated agriculture
     sustainable in Australia?

2.   Will our major competitors move to a
     more equitable trade policy position?

3.   Will they move to a more comparable
     resource management regime?

4.   Can we sustain our quality
     differential?

5.   Will the customer reward high
     quality cotton?
 If no…….




Bugger!
If yes…….
But the real choice is ours….
We are not being
   fair dinkum
if our local actions
    contradict
our global thinking!