Building Partnerships for a “Smarter, Uniquely Australian Innovation Process”

1. Building Partnerships for a “Smarter, Uniquely Australian Innovation Process” Paul Ford Geoffrey Gardiner Dairy Foundation paul.ford@gardinerfoundation.com.au www.gardinerfoundation.com.au 2008 Outlook Conference

2. The Current View Of Dairy? 2008 Outlook Conference

3. Dairy - Farming • 9.1 billion litres • 2007 – 2008 - 7% drop in milk production • Western Victoria and Gippsland steady, Murray Irrigation down 15% • World competitive costs of production • Key $1m plus projects • Pastures CRC – Dairy Australia, Gardiner, Meat & Livestock - $1m pa • Sub-surface irrigation – DPIV, Melb Uni – three projects $3.6m • Robotic milking – Dairy Australia – future farms program 2008 Outlook Conference

4. Dairy - Manufacturing • 140 processing sites in Victoria, around 15 process 80% of the milk flow • Large sites processing 3000 to 5000 tonnes of milk per day • Small very innovative plants creating high value fine foods • Key $1m plus projects • Closing The Loop – water utilisation / effluent reduction - $1m • Smart Drying – cutting costs / energy in producing 600k tonnes powder • Dairy Health & Nutrition Consortium - $12.5m over 5 years 2008 Outlook Conference

5. Dairy – Major Markets Markets by tonnage: • Australia 395,800 • Japan 137,700 • Singapore 84,600 • Malaysia 64,400 • Indonesia 63,650 • Philippines 45,600 • Australian dairy exports represents 12% of world trade • A$2.5billion per annum • North Asia • Rapidly aging • Increasingly affluent • Demand exceeds our ability to supply 2008 Outlook Conference

6. Dairy People / Dairy Communities • 100 000 people work in dairy • 50 000 live in small communities of less than 10 000 people • Two defining issues • Reducing workforce – dairy’s ability to attract, retain & develop • Vibrancy of small dairying communities • Key Projects • Cows Create Careers • Health of Dairy Communities • Volunteerism 2008 Outlook Conference

7. Trade position • Tight supply-demand conditions in the world market for dairy commodities with supply constraints affecting major exporters • Growing demand from emerging economies in Asia and the Middle East • Improved trade environment with less intervention to support EU and US exporters • Expanded share of global ingredients trade in the hands of fewer major traders • Emerging low-cost exporters gaining market share • Dairy farms • About 8000 farm enterprises, dominated by family farm models • Low-cost production by world standards • Confidence and image threatened by sustained drought conditions • Resource competition • Development of water markets allowing trading of water between different user industries and irrigation systems • Greater competition for feed grains and fodder from other intensive livestock sectors • Increased competition for land, water and cattle has increased options for producers • Dairy’s proposition to consumers • A platform based on wellness, indulgence and convenience water feed production milk production processing/ manufacturing export 45% marketing retail supplements 9.1BL Dist’n 55% Import Out of home eating • Milk production • Output falling by 5-7% last 2 seasons • Decline forecast in 2007/08 due to effects of drought on pasture growth and cost of purchased feed • Encouraging signs of growth at farm level, offset by effect of exits, and a large % maintaining constant output • Domestic retail markets • Retailer control of supply chain increasing • Growing strength of independent retail sector • Pressure from retailers for brand consolidation alongside expansion of private label • Consolidating but expanding food service channels • Consolidating processing/marketing • Fewer owners of dairy facilities through acquisition • Integration of Fonterra operations in Australia • Consolidating brand ownership • Restructuring of plant configuration and factory rationalisation has reduced plant capacity • Contraction of regional milk supplies in NSW and Queensland has meant consolidation of facilities Reference: Fresh Logic Report February 2008 Value contributed: Farmgate $4.1bn Ex-factory $7.5bn Exports $3.0bn Dairy Value Chain - A$14.6bn 2008 Outlook Conference

8. Innovation? Common Terms; • innovation, R&D, new etc used interchangeably USA, Europe and some Australian Science Providers • Sequential process • R&D, IP protection, commercialisation Australian Food Manufacturer • “Innovation” is a process that draws together two elements; • “R&D” • Invent, create a new product, process, technology or service • “Commercialisation” • Take the new product, process, technology or service through to a commercial outcome. 2008 Outlook Conference

9. Innovation Demands Shared Strategic Focus 2015 Innovation Aligned With Industry / Company Objectives NOW Priority issues for innovation projects 2008 Outlook Conference

10. Leadership & Vision Innovation as part of business strategy Supportive Culture Enterprise Innovation Capability Knowledge Management Integrative structures Creative & Entrepreneurial Individuals Enabling systems & processes Metrics Innovation - Unique Architecture From: Christine Pitt Meat & Livestock Australia 2008 Outlook Conference

11. Open Innovation • Henry Chesbrough – University of California • Your organisation doesn’t have all the smart people • Trusted intermediaries • Building diversity and size your personal network • Building global networks • Forming, managing and disbanding multi-disciplinary project networks on an ongoing basis • Creating uniquely Australian innovation that provides “membership” of a global network 2008 Outlook Conference

12. Innovation – The Challenges • Low Private / Public R&D Investment • Food CEO Perception – IP is difficult and expensive to access • Linkages between food companies and science providers not effective 2008 Outlook Conference

13. Low Investment In R&D Australia Private Investment • Australian food companies = 0.3% Sales • International Benchmark is closer to 1% • Scale is important – US / EU food companies are bigger Public Investment • Australia Agriculture Public R&D investment $US375m International Competitors • USA • John Hopkins, Madison, Cornell, Penn State all invest in excess of US$500m per annum on innovation • US Dept Ag Agricultural Research Service > US$1Bn pa • EU • 6th Framework R&D Funding 2008 Outlook Conference

14. Intellectual Property IP Australia - Part of Department Of Innovation Industry Science & Research • By encouraging increased innovation, investment and trade through the effective use of IP, IP Australia is making it possible for Australian businesses to establish and maintain globally competitive positions. Food Company Executives • See Science providers as double dipping • Tax payer and farmer levies paying for fundamental science; • Then asked to pay again for IP • IP Agreements seen as very complex and with huge lead times to negotiate • See IP developed within a project as “owned” by the company 2008 Outlook Conference

15. Linkages • No strong networks or linkages • Between science providers and food companies • Links between management functions of marketing, R&D, production, finance, process engineering • R&D and Commercialisation Processes • Basically the US or European R&D model • Two separate and sequential steps • Food companies see: • Elegant science, not: • Elegant AND relevant science 2008 Outlook Conference

16. What’s Needed? • Recognition that Dairy/Food is a defining, sustainable industry supporting the Australian economy and rural communities • We need to develop a smart “Uniquely Australian” food innovation process • Dairy/Food Innovation Centre 2008 Outlook Conference

17. Dairy $14.6bn per annum value chain Exports - $2.5bn 8 major companies 6500 SME suppliers 100 000 people 60 000 in small regional communities of <10 000 people Vehicle Manufacture $15bn per annum value chain Exports - $4.85bn 4 major companies 200 large component suppliers 70 000 people Concentrated Melbourne / Adelaide Industry Recognition 2008 Outlook Conference

18. Smarter Dairy Innovation • Consolidates five dairy industry Centre’s in one entity • Based in Werribee Food Research Precinct • Membership • Eight dairy companies representing 85% Australia’s milk • Dairy Australia, Gardiner Foundation • $7m per annum • Larger dairy companies investing $900k pa membership • Structure • Company limited by guarantee • Industry drives Board / strategy 2008 Outlook Conference

19. Dairy Health & Nutrition Consortium • $12.5m of new investment over next 5 years • $5m Gardiner Foundation - $7.5m by dairy companies • Seven Victorian dairy companies participating • Builds capability in science that underpins label claims • Capability building / Company specific projects supported by 1:2 funding • Links to Global Dairy Platform 2008 Outlook Conference

20. 2008 and Beyond……….. • Operating Environment: • Faster communication = global networks • Central R&D laboratories are dead • Innovation projects will be completed by global project teams • Multi disciplined project teams will be created, managed and disbanded on an as required basis • Limited funds for innovation investment • Australia needs smarter innovation processes • Pre-competitive innovation projects have huge leverage • Evolving Federal/State Government initiatives 2008 Outlook Conference

21. Agrifood / Dairy Innovation Centre • Created as part of the new Federal Government Innovation initiative • A partnership between Government, Food Companies and Science Providers • Key Components • Investment in Capability • Develop smarter, uniquely Australian innovation processes • Food Science Australia, CSIRO, Universities • Build global networks • Collate agri-food market demographics, market access functions • Innovation Grants • Demonstrate best practice innovation • Build linkages between food companies and providers 2008 Outlook Conference

22. Geoffrey Gardiner Dairy Foundation Level 1, 84 William Street Melbourne Victoria 3152 Australia Phone: +613 9606 1900 Website: www.gardinerfoundation.com.au 2008 Outlook Conference