Innovative funding to include agri-business in ARD
Food & Fibre Feedback 2
1. Page 1 of 14
4th
August 2015
The Minister for Industry Lily D’Ambrosio MP
The Minister for Agriculture Jaala Pulford MLC
Re: Food & Fibre Feedback about the strategic choices Victoria should make
now to help set the sector up for continued success, growth and prosperity
Thank you for the opportunity to provide feedback on the Food and Fibre
Discussion Paper of July 2015.
This submission takes the perspective of the Investor with experience in
deploying funds into the Food & Fibre Sector.
The recommendations presented centre on:
1. Kahneman’s “thinking slow” (statistical analysis of data) and
“thinking fast” model (intuitive thinking brought about by the
need to act on instinct, hubris or the temptation to exercise
power). 1
2. Victoria as a pluralist society, where debate is required, but
action with clear and critical thinking from quality leadership is
of the essence, to compete successfully in the global innovation
market
1 Thinking Fast and Slow by David Kahneman, 2011
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Recommendations
Recommendation #1
To establish and fund a Food & Fibre Sector Innovation Investment
advisory board composed of people who are actively involved in the
international innovation investment by government, corporate, and private
equity.
The Board should exert strong moral leadership and be comprised of
people who can apply the modern principles of successful innovation
leadership to ensure that Innovation Investment funds are allocated in
order to effectively and impartially achieve the best outcomes.
Recommendation #2
To identify Food & Fibre Sector researchers and experienced practitioners
who have run multinational and private equity innovation systems and who
can generate credibility with innovators and Innovation Investors and
ensure that they are the ones advising the government on innovation-
related policy.
Recommendation #3
To identify, by analysing the various databases available, those Food &
Fibre Sector researchers in Australia, who produce sustainable world-class
outcomes and are considered world experts. They should be nurtured and
introduced to the multinational Innovation Investment community.
3. Page 3 of 14
Recommendation #4
To have Food & Fibre Sector mega trend processing capability.
Recommendation #5
To establish a benchmark for a Food & Fibre Sector Innovation Board.2
i.e.
To use Program Evaluation3
as a systematic method to analyse, impartially,
a) Food & Fibre Sector Innovation funding policy models from 1980 to
determine their payback return on investment, net present value
and internal rate of return.
b) Food & Fibre Sector Innovation political policy issues where
inefficiencies might exist in the A Innovation Investment system for
the period 1980 to present.
Or
An independent overseas company that has had no previous dealings with
the Victorian government or its Departments should be funded to
undertake this analysis. (E.g. Daniel Kahneman and his Associates)
Recommendation #6
To provide an evidence based best-practice paper that will underpin Food
& Fibre Sector innovation policy actions to ensure strategic international
engagement in science, research and innovation.
2 The Illusion of Validity; Chapter 20; Thinking Fast and Slow; Kahneman D
3
http://en.wikipedia.org/wiki/Program_evaluation
4. Page 4 of 14
Recommendation #7
To develop Food & Fibre Sector trade missions to focus on the proven
ability of Australia’s early and established researchers to add value for
Innovation Investors.
Recommendation #8
To interview, document and analyse a sample of 2,000 members of this
Food & Fibre Sector research and innovation workforce to define their
values and beliefs.
To conduct a similar survey of 2,000 individuals with similar career
backgrounds but drawn from the R&D departments of Fortune 500
companies.
Then to compare and contrast the responses with the goal of establishing
the gaps between the two groups in terms of a successful innovation bias.
Scope
The following underpin the responses to the 21 questions.
1. Government policy can be implemented via 2 mechanisms (a) taxes
or tariffs and (b) establishing funding programs
2. Soil type, water availability and the input costs of seed type,
fertilizer and diesel vs the yield and prices obtained, determine
efficient farm production vs competitor states and nations
3. The largest export through the Port of Melbourne is milk powder.
Therefore, dairy, meat and cereals are the big three food groups
5. Page 5 of 14
4. For fibre is it wool, Alpaca, and non-woven
5. The supply chain is well established and relatively efficient for the
large dairy, meat, cereal, and fibre producers compared with the
Small to Medium Enterprise sector.
General Comments
As someone who was born in 1953 with both sides of my family involved
over several generations in the Cattle Industry of Queensland and as
someone who commenced working with both Food and Fibre producers
and processors over the years around the world with multi Nationals such
as Nalco Corporation (http://nalco.ecolab.com/a subsidiary of Ecolab
http://www.ecolab.com/ ) ICI UK and Australia
(https://en.wikipedia.org/wiki/Imperial_Chemical_Industries) and Unilever
(http://www.unilever.com/); then the following are some broad
observations without the appropriate data.
1. Governance in the Food and Fibre industry might be reviewed.
2. There is little evidence that there is concerted leadership to improve
governance in the Food and Fibre sector
3. Injecting funds into areas of poor governance could lead to above
average leakage of program funds
4. It might be worth giving consideration to quality programs assessed
with proven investment procedures, if $200 million is to be
strategically and effectively invested into Rural Victoria
5. There appears to be a difference in work practises and efficiencies
between multinational operated plants, local co-ops and local
companies.
6. There appears to be cash burn where the processor is operated in
order to maximise the benefit of growers in a co-op.
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7. There may be a resistance to Benchmarking across both State and
International Benchmarks
8. It would be interesting to compare rural manufacturers to urban
manufacturers under the Enterprise Connect program
9. The Enterprise Connect program have a data base that may be of
value to policy makers as does the National Food Innovation
Strategy Funding Program
10.The Tax system and its impact on hobby, gentlemen and
professional farmers might be a subject for consideration in order to
understand the efficient implementation of policy & programs
11. Typically, it is the amount of Value add that can be extracted that is
important. That is incremental cash in the bank over a set time
period.
12.Value add = Cash flow after – Cash flow before is greater than 1
13.Net Profit/ Investment is greater than the cost of capital
14.Typically, payback periods required may be from 1 to 3 years and if
these cannot be met the processor shuts down and makes the
investment overseas where these payback hurdles can be met
15.The other key measure is jobs created
16.However, there is evidence to suggest that in order to compete with
international costs, labour intensive production employs temporary
overseas workers, sometimes in inadequate accommodation
17.Similarly, there is evidence to suggest that processing industries
have moved offshore due to environmental and labour issues e.g.
Wool Scouring & Top Making
18.The efficient implementation of Science, Technology, Engineering
and Mathematics may be a source of high value jobs, improved
production and processing efficiency and a new industry viz. the
mechanical cane harvester: An Australian invention
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19.An $8 million proposal which was sponsored by the Gardiner
Foundation and written by Robert Weller & Associates (RWA) for
the Dairy industry in order to focus on STEM as it related to the
Dairy Industry
20.Similarly, RWA has been associated with (a) the introduction of
block top – block bottomed milk powder bars for increased tonnage
in export containers and (b) for novel preservation techniques that
lead to a new facility in NSW.
Response to Questions
Questions
1. Opportunities - Regional
For deep sea traded products such as milk powder; road mapping
with a view to identified areas of cash burn may be advantageous.
Road mapping should consider using established overseas methods
and computer based systems
Smaller growers and processors may benefit from consolidated
buying and selling systems on a state-wide basis
2. Opportunities - Urban
Anecdotal evidence suggests and as reported by buyers previously
employed by food chains overseas that the quality (in time, in full, to
the correct specification, at the agreed price) performance KPIs fall
behind overseas standards
Anecdotal evidence from multinational employees who have been
seconded from overseas shows that rural based manufacturing is
not as competent as similar operations overseas. This may be
8. Page 8 of 14
because overseas employees are more urban based due to the high
population densities
Urban processors are focussed on meeting KPIs for major retailers
who provide small margins and not enough cash flow to reinvest in
modern equipment
Programs such as the Food Innovation Grant and the Investing in
Manufacturing Technology grants have assisted with new
equipment investment
Next Generation Manufacturing and Melbourne North Investment
Fund has helped with jobs
The work carried out for the Gardiner Foundation by RWA would
suggest that Victoria has an advantage in developing nutraceuticals,
probiotics etc. due to its diverse ethnic mix for trials, a world class
STEM base in the area of Food & Fibre value addition
Consideration should be given to focussing of mega trends and the
associated problems and how Victorian STEM may provide a cash
positive result.
3. Information & Big Data
Consideration should be given to the establishing data sets of value
to the Food & Fibre such that queries and reports can be written
and changed at the request of the Industry participants are better
still undertaken by individuals
Food & Fibre Sector Programs are expertly marketed
4. Respective Roles
Consideration might be given to the proposition that defined roles
may define walls, borders or fences
Cooperative programs based on STEM aimed at solving (profitably)
mega trend issues
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5. Innovation – Drivers & Blockers
Profitable innovating tends to occur when an individual or groups
of individuals consider solutions that allow megatrends a
profitable solution to an issue or moves parts of the Mega trend
to a lower cost base4
Blockers may be that funding applications are applied for on a
competitive basis rather than groups being encouraged to
reapply on a cooperative lower funding risk proposal
Another blocker maybe the sense of entitlement of funding
regardless of the quality of the investment
6. Clusters
Clusters typically consist of individuals who are required to
attend meetings order to gather intelligence on the particular
player
RWA found during their Gardiner project that world class food
STEM clusters already exist in Victoria but need to be fed market
pull projects rather than work on product push projects based on
the philosophy build it and they will come
7. Effective networks
Might consider understanding their end consumer in detail
rather than relying on consolidators a being passive order
takers. They should consider studying what makes market
price makers successful
Government should consider providing regular supporting
data driven articles
8. SME Drivers & Blockers
4
capitalizing on Emerging Technologies; Sptitsberg, Verti, Brahmandam, Coulston;
Research Technology Management; July – August 2015; pp17-27
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Attendance a many industry and government forums suggest
less than a 10% attendance of SMEs
SMES are too busy staying cash positive
They are too busy to go to the mountain. Rather the mountain
should go to them and link them and drive the linkages. This
is a particular skill set that may not exist in Government and
industry associations but is very important within the complex
layers of multinationals
9. Skills & Training
Food and Fibre industries around the world have relied
historically on low cost work forces; from slaves through to
immigrant workers
Within rural communities reside practical engineers who
regularly invent and construct labour saving devices but with
limited sales success – the mechanical cane harvester is an
exception. Perhaps consideration should be given to assisting
these engineering solutions to see if they are reproducible,
repeatable and saleable over and above the initial problem it
was designed to solve.
The New Inventors on the ABC seemed to present the above
mentioned inventions on a regular basis
10.Investment – SMEs
The rules of capital investment are well known. They tend to
be applied more rigorously in high risk high capital
expenditure projects (moon landing, jumbo jets,
petrochemical plants) than they do in the really lower risk and
lower capital intensive food and fibre industries
This may lead to issues regarding overcapitalisation of farms
(e.g.de-risking for drought).
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11.Production Intensification
Production typically relies on soil quality, water availability,
prices of inputs such as seed, fertiliser, and labour
Intensification would arguably be about delivery of these
factors in full, to specification, in a timely manner, at
sustainable prices
12.Climate Change
Climate Change may be considered in 2 ways
i. The change in the patterns of behaviours for Flora and
Fauna in response to their environment and,
ii. The results of modelling conducted using one of many
available models with a wide range of possible input
data sets
Government agencies and Universities might be considered to
be able to track changes in the response of Flora and Fauna
and report annually on the results to farmers and processors
which may allow them to make plans of 5 years or more.
Climate models should be explained that their level of
accuracy is about the area of Australia. This is because the
input data sets are global factors. It is considered by state
climate modellers that any further data entered to reflect
state data sets should be considered with some caution
particularly for small areas such as Victoria
13.Water Resources
Optimisation of water resources should be considered after
reading The Big Thirst; Fishman Charles; Free Press; 2011
14.Value adding
The Crean government invested in yarn manufacture in
Geelong but eventually the wool scouring and top making
industries disappeared
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Anecdotal evidence supports the notion that Japanese buyers
had to send engineers to train their top making suppliers to
improve their production as poor quality cost them, the
Japanese buyers, metres of lost fabric due to inconsistent top
ship shipments
This example regarding the quality of production by rural
processors and the level of waste and cash burn that may
exist in the industry, is a story that repeats itself to the
present
15.Technical Barriers to Trade
No comment
16.Branding
Branding is a part of the Ps of marketing: Perception; People;
Product; Promotion; Place; Price; Profit; Process; therefore, a
holistic approach should be considered
17.A Unique Selling Proposition
A USP is simply Value add = Cash flow after – Cash flow
before is greater than 1 or
Net Profit/ Investment is greater than the cost of capital
18.Channel access
Go to where the consumer is and deliver in full in
specification, on time at an appropriate consumer price level
A family farm in Longford can deliver fresh lettuce to North
Queensland overnight
Central service cloud based (Infrastructure as a Service)
platforms are available for hiring cars (Uber) planning trips,
booking hotels etc. all around the world
19.Centres of freight & Logistics
Deep sea traded commodities = Melbourne Port
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SME growers and processors = Melbourne airport
International benchmarking on both needs to be considered
and made epically available for policy and planning
20. Regularity Reform
Free Trade agreements and their advantages may require
immediate action from the Victorian Government and the
Food & Fibre Sector
Detailed analysis may need to be conducted on how to
improve competitiveness as low cost supplier given Victoria’s
distance from target markets
2. The Scenario
As presented it is the who, what, where, why, how and how
much that requires consideration
Conclusions
Research on both Federal and Victorian Government policy suggest similar
questions have been considered for years.
Tax payers’ funds via benchmarking, road mapping and early stage
investment should be designed to make the Food & Fibre industry investor
ready.
Further investment may be via listing, multinational take over, trade sale,
mergers and acquisitions
World’s best practise investment in STEM and infrastructure maybe
considered.
14. Page 14 of 14
The innovation exhortation industry (B Henderson Pers.comm.) should
receive less funding and that funding be directed to participants at the
field, factory or freight level
Thank you again for this opportunity
Robert Weller B.Sc. (Hons) MBA FAICD CMC MIMC