Candid take on trade with China from AACo boss at ABARES

In a deep dive into the challenges of growing markets against a backdrop of more regulation and increased expectations from consumers, managing director of Australian Agricultural Company Hugh Killen touched on the hidden trade restrictions that had hampered Australian beef's bid to target high-end demand in China.

There was a phenomenal opportunity in China - a forecast of $30 trillion worth of imports by 2030 - but it was a very large market with complex supply chains, he said.

Australia incurs a regulatory impost on its high quality fresh beef in relation to how many processing plants it actually has accredited to supply China, he explained.

That had just been further compounded in United States-China trade agreements, whereby fineprint gives immediate access to every plant in the US for chilled fresh beef.

While there may be a gateway via the likes of big online retailer Alibaba, "to premiumise our product will require the Australian and Chinese governments to open up the trade more broadly" and address technical barriers to trade, he said.

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"From a market perspective, China is quite rightly a real focus for Australian agriculture but the rest of Asia is on a continued growth path and in some of the other countries it may be easier to grow value," Mr Killen said.

The idea that Chinese consumers value sustainable agriculture and food more than Australians, and that this will only be amplified in the aftermath of coronavirus, was raised at ABARES.

Alibaba Group's Maggie Zhou said the middle class in China - more than 300m - was seeking high quality products and have strong awareness about sustainability.

"The long term direction as a result of coronavirus will be even more consumer consciousness of this," she said.

Coronavirus was shifting consumer behaviour in other ways as well, Ms Zhou said.

"More and more, consumers are getting used to taking care of their daily living needs by using digital ways," she said.

"Before coronavirus, people were buying house care and skin care products online but now more and more they are buying agricultural products and fresh food for everyday meals, including beef."

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Mr Killen said AACo's business in China - and around the world for that matter - highlighted the increased value being placed on traceability in the supply chain and knowledge of "the methods in which we produce a kilo of beef."

"Brand Australia is a compelling story and the Chinese were onto it earlier," he said.

"An impact of coronavirus will be an even greater determination of people to understand where their food comes from."

In outlining AACo's journey away from commodity beef business model to a premium brands business, Mr Killen said the highest value consumers had the highest expectations.

In that context, consumer expectations are not a burden to be managed - in fact they had become AACo's north star.

Producers who differentiate and connect to customers will do well, he said.

Those who connect to the right secondary producers further up the value chain do better and those able to work together to shape and control their whole value chain will do best.

The problem: regulations and customer expectations rarely align.

They do when things really go wrong because breaching basic food quality and safety regulations will always fail to meet customer expectations, Mr Killen said.

"But, at best, regulations reflect a lowest common denominator.

"Our day-to-day focus is always on exceeding any regulations for safety, quality or sustainability."

Where regulations were used as hidden trade restrictions, AACo tried to understand these barriers and manage them as best as possible.

"And we trust government negotiations to iron these out but they do not really inform our quality, safety or sustainability," he said.

Other regulations which apply to cattle operations were not designed for such businesses, such as land use laws.

"These are often based on a limited understanding of the diverse natural environment and they offer little capacity for dialogue, collaboration, innovation or a shared commitment to quality," Mr Killen said.

"This type of regulation can harm our ability to operate, our relationship with the world and when we argue, it can harm our reputation around the world."

Blanket regulations for things like land management could punish practices that are sustainable, he said.

"For example, Queensland land clearing rules might work in some areas but they don't align with best practice land and water management across our stations and if we protest, some will question our commitment to sustainability," Mr Killen said.

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Good regulation had to go beyond traditional negative incentives which prohibit certain behaviours, he believes.

They would include positive incentives which foster innovation.

This required regulators to share the industry's commitment to growth and sustainability and regulators who could become positive partners in growth, Mr Killen said.

"Imagine working together to help unlock the potential of rainfall in Northern Australia," he said.

"Imagine this asset being managed sustainably and helping increase production outside of stressed systems like the Murray Darling.

"Imagine if water regulations aligned with land use regulations in places like Queensland so that government support for managing water assets wasn't undermined by government prohibition on basic land management practices.

"None of this can happen when regulations are fragmented, and made up solely of negative incentives. When this is the case, most of our energy goes into getting as close as possible to the prohibition line and industries like ours become more fragmented, as individual operators work to avoid contact with regulators on the ground."

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