food & fibre feedback 2

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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.

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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

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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

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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.

http://www.ecolab.com/

https://en.wikipedia.org/wiki/Imperial_Chemical_Industries

http://www.unilever.com/

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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

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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.

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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

food & fibre feedback 2

Documents