A number of factors have aligned to make now a good time to increase apple exports, and growers can best take advantage by understanding the market and supply windows, and building synergistic relationships with partners.
Australia’s potential as a food exporter has long been the basis for investment in food production. In recent times, this target has moved a lot closer to a reality as a number of influences have favourably aligned.
The demand and appreciation of Australian food quality in export markets has lifted, and this has coincided with higher household incomes in many target markets. Success with new trade agreements, enabling access and tariff reductions, have combined with more favourable exchange rates, to open more markets and improve the value of our food products.
While the food export growth is dominated by meat and grains, in the last three years the growth in levels of fresh fruit, nuts and vegetable exports has moved horticulture onto the radar. More importantly, the food export momentum is combining to fuel both market demand and the exporting confidence of Australian food producers.
How these influences have evolved, and what they mean for horticultural producers and marketers, are discussed in the following article.
Exchange rate relativities have moved in favour of the Australian dollar (AUD). Data from the Reserve Bank of Australia shows that the AUD has decreased 30.4 per cent from January 2013 to December 2016, which is a change that has a direct impact on reducing the prices of Australian food products in export markets.
Where trade agreements have included tariff reductions, the competitiveness of Australian food prices has been further improved.
Available discretionary dollars has increased in export markets, as economic growth has flowed through to an expanding middle class and increased their household income. Some of this increased income has been drawn into spending on food and with that, imported food.
World economic growth was 3.1 per cent in 2016; forecast to be 3.3 per cent in 2017 and 3.4 per cent in 2018, led by stronger growth in emerging economies, most of which includes Australia’s nearby Asian neighbours and target export markets.
Food safety awareness
The awareness of higher quality, safe food has been elevated by food safety lapses, most notably with infant food. This has flowed on into a wider appreciation that some food safety is more assured from some sources than others and Australian food has been included in this group of suppliers.
Australian food is also increasingly on the international radar, as is reflected in the growth of food tourism. Research undertaken by Tourism Australia reveals that visiting tourists rank Australia as second for food and wine experiences, after culinary giant France, and ahead of Italy. Importantly, for people visiting from China, USA, France, India, Indonesia, Malaysia, South Korea and the UK, Australia is ranked as the number one destination for food and wine.
These tourists are likely to have the income to afford to buy imported food when they return to their country of residence.
This flows on to mean that the tourism experiences we are delivering are fuelling the export market demand for our food. It is encouraging that 50 per cent of the international tourists that entered Australia in 2016 are residents in our close Asian neighbour countries.
Food export sales growth
Food export sales growth has fuelled momentum with Australia generating $44.6 billion in export sales of farm products in the 2015-16 financial year. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is forecasting this to grow in 2016-17 to $47.7 billion, with farm products forecast to contribute 15 per cent of total Australian exports.
While the majority of these sales are generated by meat and grain products, the growth levels achieved by fruit, vegetables and nuts is 30 per cent and second only to pulses at 51 per cent. Fruit and nuts dominate horticultural exports comprising 40 and 35 per cent respectively.
In the five years to 2015–16, the total value of fruit exports increased by over $480 million and is forecast to reach $1.2 billion in 2016–17. Table grapes were the highest value fruit export in 2015-16, followed by oranges, mandarins and cherries.
The dominance of fruit in these export sales reflects the southern hemisphere production of fruit, along with the supply window advantages that enables.
Fruit and vegetable exports are distributed in similar ways, with common handling stages and often common intermediaries involved, before products reach outlets selling to consumers. As Australian export volumes increase and these products generate commercial gains for the supply chains involved, opportunities for other products to be sold in tandem, and scope for overarching promotional investments to add further value are created. In essence, it is the scale that generates the further opportunities.
Export market development agenda
Australia’s export market development agenda has been a long-term investment that has been calibrated by the favourable alignment of other export market influences. It is framed by a National Food Plan, guided by a set of country and product priorities, and has recently resulted in trade agreements with China, Japan and South Korea. These trade agreements have secured access and, in some instances, tariff concessions for selected fresh fruit and vegetable products.
These three agreements are substantial wins, and provide a new platform for export growth. The scale of market access enabled can be assessed by comparing it to the size of the Australian market. If Australian exports can find appeal with 10 per cent of the population in China (1,380 million), Japan (126 million) and South Korea (51 million,) they will be reaching a market of 156 million people, and one that is over six times the size of the Australian market. Given that size of market, the early challenges include producing credible quantities of consistent quality product that will interest the buyers in these markets.
It should also be remembered that it is an international trade reality that access agreements are often reciprocal. This means that wins in trade access will be matched with counter season access into the Australian market.
Impact on domestic market
An impact on the Australian fruit market dynamics is apparent in the higher volume export products. The grape and citrus exports, now taking well over 50 per cent of total production, invites more questions about what that does for these products in the domestic market.
The supply pressure that was evident with these products three to five years ago as export markets were being developed has eased, and local market prices have firmed. This reflects the investment decisions that were required in the lead up to creating the production to service export markets.
Consumers typically have a view of the fresh fruit they want to buy, and use what they see in a retail display to look across the fruit range, assessing quality and value to guide their selection. The higher prices for selected fruits are unlikely to discourage all consumers from buying that product, but it is likely to impact the quantity of some purchases. This is expected to open the share of some of the fruit market to other fruit products. It is also expected to create an increment of fruit category value growth due to increases in the average price of fruit sold.
The impact of exports on the Australian fresh fruit market is expected to be highest around the early New Year, as the fruit products available at that time have the highest export potential.
An option to assess export market activity in the context of other distribution options is to determine the wholesale value of product sold into the three primary distribution channels. When this is defined for all fresh fruit and vegetables it reveals a channel contribution of retail (74 per cent), food service (14 per cent) and export (12 per cent) of total wholesale sales. Clearly this is different for the high export crops like grapes and citrus where their export share is larger than both retail and food service combined.
This signals another impact on the local market dynamics where the combined buying volume of export buyers is now greater than the scale of the Australian supermarkets. This leaves producers and marketers of these products needing to balance the needs of both channels.
Implications for apples growers
The implications for apple growers are anchored on the favourable alignment of most export market influences. It is a good time to explore export growth options and the pathway to do this could include:
- Setting out to understand your market, and align with distributors that match your capacity. Exporting is a long-term commitment that requires sound relationships with trading partners.
- Look for synergies with other fruit export supply chains, including those who may be managing supply from other parts of the world.
While storage technologies have significantly altered market supply options, advantages may be related to supply windows.
- Collaborate across the industry to best manage market interfaces and build advantages from combined volumes. Do what you do well and that is unlikely to be managing all aspects of an export supply chain.
This article has been prepared as part of the National apple and pear grower communications program that is delivered by APAL and funded by Horticulture Innovation Australia Limited using the research and development apple and pear levy and funds from the Australian Government.