department of agriculture and food’s northern beef futures ... nbf_ey kef... · northern beef...

Supporting your success

Department of Agriculture and Food’s Northern Beef Futures project

Value growth & innovation in the beef industry supply chain Key insights presentation to Kimberley Economic Forum 1 November 2016 Made possible by the State Government’s Royalties for Regions program

Kimberley Economic Forum

Value Growth & Innovation in the Beef Industry Supply Chain (Northern Beef Futures)

Key insights presentation

1 November 2016

RELIANCE RESTRICTED

Transmittal letter - Notice

RELIANCE RESTRICTED

Consultancy Services – DAFWA 269 Innovative Business Models for Value Creation in the WA Beef Sector

Ernst & Young was engaged on the instructions of the Department of Agriculture and Food Western Australia (“DAFWA”) to outline four high level supplychain scenarios as part of the Innovative Business Models for Value Creation in the WA Beef Sector Project ("Project"), in accordance with our PurchaseOrder number 404670, dated 27 November 2015.

The results of Ernst & Young’s work, including the assumptions and qualifications made in preparing the report, are set out in Ernst & Young's reportdated 18 May 2016 ("Report"). The Report should be read in its entirety including the transmittal letter, the applicable scope of the work and anylimitations. A reference to the Report includes any part of the Report. No further work has been undertaken by Ernst & Young since the date of theReport to update it.

Ernst & Young has prepared the Report for the benefit of the Department of Agriculture and Food Western Australia and has considered only theinterests of the Department of Agriculture and Food Western Australia Ernst & Young has not been engaged to act, and has not acted, as advisor to anyother party. Accordingly, Ernst & Young makes no representations as to the appropriateness, accuracy or completeness of the Report for any otherparty's purposes.

No reliance may be placed upon the Report or any of its contents by any recipient of the Report for any purpose and any party receiving a copy of theReport must make and rely on their own enquiries in relation to the issues to which the Report relates, the contents of the Report and all matters arisingfrom or relating to or in any way connected with the Report or its contents.

Ernst & Young disclaims all responsibility to any other party for any loss or liability that the other party may suffer or incur arising from or relating to orin any way connected with the contents of the Report, the provision of the Report to the other party or the reliance upon the Report by the other party.

No claim or demand or any actions or proceedings may be brought against Ernst & Young arising from or connected with the contents of the Report orthe provision of the Report to any party. Ernst & Young will be released and forever discharged from any such claims, demands, actions or proceedings.

Ernst & Young have consented to the Report being published electronically on the Department of Agriculture and Food Western Australia (DAFWA)website for informational purposes only. Ernst & Young have not consented to distribution or disclosure beyond this. The material contained inthe Report, including the Ernst & Young logo, is copyright and copyright in the Report itself vests in the Department of Agriculture and FoodWestern Australia. The Report, including the Ernst & Young logo, cannot be altered without prior written permission from Ernst & Young.

Ernst & Young’s liability is limited by a scheme approved under Professional Standards Legislation.

RELIANCE RESTRICTED

Introduction and Context

► DAFWA Northern Beef Futures (NBF) project is 4-year, $15M program to act as a catalyst tostimulate transformational change for the WA northern beef industry, with a view to supporting thedoubling of industry value by 2025

► The purpose of this project

► to identify critical success factors from a number of alternative global agrifood industrygrowth models to improve international competitiveness; and

► to outline four high-level WA beef supply chain scenarios for supply chain and investorconsideration

► The purpose of this high level summary presentation is to share the key insights from the projectdeliverables

Co-opetition

Investment by End-Customer

Digital Supply Chain

Producer Collaboration

We ran a rigorous global process to conceptualise 4 potential supply chains and funding models for the WA context

RELIANCE RESTRICTED

13 global case studies identified and evaluated….

…out of which 6 were studied in detail…

…to conceptualise 4 supply chains and funding scenarios

for the WA context

…and further developed with insights from EY’s

agriculture SMEs…

Selection Principles

► Growth

► Innovative business and financial models / incentives

► Risk management

1

3

2

3.1

3.2

3.3

3.4

The global case studies highlighted the importance of global competitiveness to achieving transformational growth

RELIANCE RESTRICTED

Case Study Market Led growth

Innovative models

Risk management

Critical Success Factors

Brazil Beef Leverage low-cost production; R&D and innovation, Government support for domestic consolidation and growth of global Brazilian companies

Queensland Beef

Export – led growth; consolidation; vertical integration and foreign investment

WA Grains Deregulation; Grain marketing , industryand government supported strategy; Increased information transparency

New Zealand Wine

Overseas investment and trade promotion; factual baseline; global brand power, industry collaboration – Government partnership, R&D and innovation

TasmanianDairy Products

Co-operative structure; forward integration; strategic market facingpartner

Ireland Dairy Factual baseline; collaborative growth model based on value add product / market development; global partners / alliances

Evaluation dimensions

From case studies… … to actionable insights

Global case studies demonstrated transformational growth, based on global competitiveness focus

A

A fact based understanding of current state industry performance was critical to future strategic direction

B

Successful case studies varied in how they delivered their global strategy

C

To drive growth, key client / market facing industry players took the lead, with government playing a supportive / active role

D

1

Low Medium High Alignment with Selection principles

RELIANCE RESTRICTED

Investor Insight

Supply Chain Insight

Mining Insight

The sector is ripe for digital disruption and commercial innovation to support higher productivity / profitability with new and emerging business models

Technological innovation based on customer insights and “direct-to-customer” supply chain approach will increase

Sustainability is emerging as an important commercial lever with its link to brand and natural resource management

Infrastructure, technology and entrepreneurial leadership are central to bringing about whole of industry transformational change

Significant interest from overseas and domestic investors impacting valuations.

A

B

C

D

E

Interview insights supported the case study findings and identified a number of disruptive innovators that will drive industry risk and opportunity

2

http://trackagility.com.au/

http://trackagility.com.au/

RELIANCE RESTRICTED

Key Feature

► Producers work together to increase scale, market power and forward integration, value add and digital technology options

Funding Model

► Models which do not involve upfront cash equity participation

► Individual and collective financing► Procurement and sales model

Expected Benefits

► Enhanced negotiating power► Greater information sharing► Enhanced capability and leadership► Scale / funding to add value

Likely Challenges

► Attracting sufficient participation► “Free rider” issue► Choosing the right business and

funding model

Scenario 1: Producer Collaboration

3.1

RELIANCE RESTRICTED

Key Feature

► A digital supply chain will drive more direct supply chain models with real time performance improvement information

Funding Model

► Initial component could be funded via a form of PPP / pilot project

► Subsequent stages funded by a transaction and/or value based fee

Expected Benefits

► Customisation / traceability► Sustainability / quality assurance► Flexibility / transparency► Margin improvements

Likely Challenges

► Critical mass of participants ► Upfront development cost► Regulatory and privacy issues► Connectivity

Scenario 2: Digital Supply Chain

3.2

RELIANCE RESTRICTED

Key Feature

► Alignment of incentives and objectives between end-customer/investor, processor and producer group

Funding Model

► Customer prepayment finance► Project finance model

Expected Benefits

► Committed offtake► Increased business certainty► Secure cattle supply for abattoirs► Customisation / quality assurance

Likely Challenges

► Securing enough offtake volume over an attractive timeframe

► Parties’ preference to maximise short term returns

Scenario 3: Investment by End-Customer

3.3

RELIANCE RESTRICTED

Key Feature

► WA beef industry participants, would work collaboratively to improve their global competitiveness

Funding Model

► Industry leaders providing funding via the industry association in line with their relative market size

Expected Benefits

► Improved decision making / transparency (factual baseline)

► Margin and cost improvements ► Collaborative use of spare capacity

Likely Challenges

► Getting the necessary industry leadership and government support

► Potential approval issues from regulatory authorities

Scenario 4: Co-opetition

3.4

Phase 1 Phase 2

RELIANCE RESTRICTED

Next Steps Happy to discuss these global insights and potential scenarios in further detail

with you on how best we can take forward with DAFWA-NBF from a WA beef industry perspective

Next Steps

Appendix

RELIANCE RESTRICTED

Global Case Studies - Industry Growth Scenarios

2001 2014

Performance: Key Drivers that led to growth

Export focus based on competitive price

Investment in Research & Technology

Growth Drivers

Growth-oriented government policies

Conceptual & Not to Scale

Production 6.9 mn metric tonnes Exports 0.74 mn metric tonnes

Production 9.9 mn metric tonnes Exports 1.9 mn metric tonnes

Brazil Beef Industry

RELIANCE RESTRICTED


1990 2012


Break - through export growth driven by brand power

Overseas investment and global distribution

Growth Drivers

Industry -Government partnership and R&D

Grape tonnage crushed 70k

Grape tonnage crushed 269k


New Zealand (NZ) Wine Industry

RELIANCE RESTRICTED


2009 2015


Capacity expansion Investment at producer / processor

Value chain collaboration

Growth Drivers

Industry review -Export value growth strategy

Export value (Euro 2 billion)

Export value (Euro 3.25 billion


Ireland Dairy Industry

RELIANCE RESTRICTED

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 190,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

For more information about our organization, please visit www.ey.com

© 2016 Ernst & Young, Australia.All Rights Reserved.

The information in this document and in any oral presentations made by EY is confidential to EY and should not be disclosed, used, or duplicated in whole or in part.

If an engagement is awarded to EY, the right to duplicate, use, or disclose such information will be such as may be agreed in the resulting engagement contract. If an engagement is not awarded to EY, this document and any duplicate copy thereof must be returned to EY or destroyed.

© 2016 Ernst & Young AustraliaAll Rights Reserved.

RELIANCE RESTRICTED

http://www.ey.com/

Supporting your success

Thank you

Important disclaimer The Chief Executive Officer of the Department of Agriculture and Food and the State of Western Australia accept no liability whatsoever by reason of negligence or otherwise arising from the use or release of this information or any part of it. Copyright © Western Australian Agricultural Authority, 2016

department of agriculture and food’s northern beef futures ... nbf_ey kef... · northern beef...

Documents