We are living in ‘The Asian Century’, which provides a huge opportunity for large-scale Australian farmers and food processing plants to position their businesses to satisfy the ever-growing Asian middle class’s new tastes in food and produce.
While many Asian nations once had a largely plant-based diet devoid of meaningful quantities of protein such as meat, that’s all changed. Now, Asian consumers are eating more meat – and Australian produce – than ever before.
According to the National Farmers’ Federation’s (NFF’s) 2015/2016 annual report, by the 2020/21 financial year, the value of Australian farm exports is predicted to grow to $45.3 billion. This represents an 11 per cent rise compared to the $40.7 billion in export sales which the food sector achieved last financial year.
China is our top export partner for farm sector goods, with $8.6 billion in farm exports sent last year. The US is our second top farm sector export destination, followed by Japan, Indonesia and South Korea.
In Australia, there are around 129,000 farm businesses, 12.9 per cent which operate under a corporate structure and over 14,000 food processing and manufacturing plants. Australian farms produce enough food for about 61 million people – 23 million people at home and 38 million people overseas.
These figures are expected to rise substantially in the near future. According to the NFF the value of goods produced by the farming sector is expected to reach $60.3 billion in the current financial year, with 60 per cent expected to be exported.
According to the Business Characteristics Survey, over 50 per cent of large food manufacturers were intending to provide new and/or improved goods and services. The same was reported for large farm and agriculture businesses which saw a further 50 per cent intending to do the same. To meet demand and to be profitable, this will require substantial new investment in plant and equipment.
The question is how to fund these opportunities, particularly if you’re a growing company and not yet exporting to Asia.
Securing the future
There are a number of options for large farming companies and manufacturers who want to update old infrastructure to ramp up production as demand from Asia for local produce grows:
- Transform your balance sheet
In a more traditional model, farmers and agriculture companies would buy their plant and equipment. Under older business models, agribusinesses tended to hold on to this infrastructure for long periods of time, often far beyond the normal life of the asset.
The result is a loss of productivity and, ultimately, competitive positioning for the business. This also puts a strain on the company’s resources, when immense debt loads and other financial pressures often burden those in farm and food processing.
Instead of using this ‘traditional’ method, companies could source funds by using a growth capital partner, enabling them to take key pieces of infrastructure off their balance sheet and free up funds for other long term strategic investment.
- Leverage growth capital solutions suitable to the business
In this approach, the business uses asset finance solutions to secure up-to-date infrastructure that it can use to maintain its competitive advantage. The contract’s terms can be designed so that the liability matches the asset’s potential to generate revenue for the business.
Maia Financial worked with an aquaculture business who were striving to grow. However, they had already exhausted their senior debt and due to a lack of interest from shareholders to provide additional funding, they were searching for a solution to get additional infrastructure and increase their business. In addition to this, the company was suffering from outdated infrastructure which was diminishing their productive output.
Working with the client Maia Financial found a way to release capital to fund its expansion and acquire new equipment by removing assets with little or no resale value off the company’s balance sheet without impacting cash flow. The business was then able to invest in expansion opportunities and take advantage of new netting technology which increased their yield.
As a result, the company achieved around $3 million in direct cost savings as a result of a significant reduction in stock losses, and thanks to the newly acquired infrastructure were able to grow their profitability.
If food processing plants and farm-related companies are to secure their place as Asia’s ‘go-to’ food source, state-of-the-art technology will need to be secured sooner rather than later.
While a variety of different funding methods are required, the key is to start planning now to ensure this opportunity to reach Asia does not slip through yourfingers.