Welcome to today's roundup of key business stories in Australia. From significant structural changes in governance and industry reports to international relations and real estate milestones, we have everything you need to stay updated.
RBA Review: Strengthening Governance for a Changing Landscape
I joined the Reserve Bank of Australia (RBA) review panel with no initial inclination for change. However, after extensive consultations within and outside the RBA, my perspective shifted.
The media largely focuses on the proposed monetary policy board's composition and decisions, given their public impact. However, they miss the vital role of the proposed governance board.
The RBA, with 1400 employees, plays a crucial role in Australia's economy, managing banking services for the government, foreign exchange reserves, and vital payments infrastructure. Despite these responsibilities, its corporate governance practices remain outdated.
Currently, the RBA governor is the sole authority for management, supported by internal committees. This centralised system may inadequately distribute risk and responsibility, a scenario not in line with best practices in corporate governance. The Reserve Bank Board's management oversight is ambiguous and requires clarification.
Although the RBA has appointed a chief operating officer to handle some of the deputy governor’s management functions, establishing a dedicated governance board remains essential. This step aligns with corporate governance best practices, such as those outlined by the ASX Corporate Governance Council.
The increasing complexity of RBA operations, especially technological risks like cybersecurity and emerging AI challenges, underscores the need for robust governance. The RBA’s IT staff has doubled over the past decade, highlighting technology’s growing role in the financial system. AI introduces new risks that necessitate vigilant oversight, better suited to a governance board rather than a monetary policy board.
The review recommends continuity by involving current board members in new roles on the proposed boards and securing bipartisan support for these changes. Ensuring experienced oversight is crucial as Australia navigates high inflation and uncertain interest rate directions.
An independent governance board would focus on resourcing, succession planning, risk management, and technology, enabling the monetary policy board to concentrate on monetary decisions. This dual structure will better serve the Australian public by enhancing the RBA's operational efficiency and risk management.
The RBA must adapt to the evolving financial landscape, and a strong governance board is critical for maintaining its pivotal role in Australia's economy.
Australia's Cold Storage Capacity Lagging Behind Global Standards
Current Capacity vs. Global Benchmarks
Australia's supermarkets, pharmacies, and food delivery services like HelloFresh face a major challenge in meeting future demand due to a lack of refrigerated warehouses. This alert comes from CBRE's latest Cold Chain Logistics report.
These temperature-controlled facilities store fresh foods, frozen products, and pharmaceuticals, forming the backbone of Australia's $8 billion cold chain logistics sector.
Australia's current refrigerated warehouse capacity is 0.4 cubic metres per urban resident, trailing the U.S. at 0.6 cubic metres and the Netherlands at 0.9 cubic metres:
- USA: 0.6 cubic metres per resident
- Netherlands: 0.9 cubic metres per resident
- Australia: 0.4 cubic metres per resident
“Reaching U.S. levels means developing an extra 400,000 square metres of warehouse space, with as much as 1.3 million square metres needed to match the Netherlands," said Sass Jalili, CBRE's Head of Industrial and Logistics Research.
Rising Demand and Zero Vacancy
Despite a rise from 0.28 cubic metres per person in 2016 to 0.4 cubic metres currently, demand has left these facilities with virtually no vacancy. Population growth, online food shopping, and an expanding food export market are to blame.
"Western Sydney is seeing a surge in demand for space from cool-room and freezer operators," noted Adam Tresidder, CBRE's Industrial and Logistics Director. "Some developers are even considering speculative builds to attract long-term tenants."
Future Developments
Over the next two years, around 200,000 square metres of new cold storage facilities are planned, including a 43,500 square metre warehouse in Sydney by Charter Hall, due this year, and ISPT/Aliro partnerships. However, no major projects are in the pipeline post-2025.
To achieve 0.6 cubic metres per person by 2028, an additional 400,000 square metres of cold storage is needed, supporting the expected 1.9 million new residents over the next four years.
High Costs and Premium Rents
High construction and land costs, driven by the specific requirements of these facilities and their need for proximity to urban centres, mean they command higher rental rates compared to standard warehouses.
Leading Operators
The industry is dominated by Lineage Logistics, Americold, and Europe-based NewCold. Lineage Logistics, entering the Australian market in 2019, now operates 30 temperature-controlled warehouses with a capacity of 3.4 million cubic metres.
Nationally, Australia’s cold storage capacity has grown to 10.2 million cubic metres from 8.4 million cubic metres over the past four years, CBRE reports.
The future of Australia’s cold chain logistics hinges on significant investment in new facilities to meet rising demand and global standards.
Bitcoin ETF Launch Set to Shake ASX
Introduction
The ASX is gearing up for a significant shift with the imminent launch of the first Bitcoin ETF by VanEck. Investors are likely to encounter a mix of opportunities and risks, including potential market manipulators eager to profit at others' expense.
What This Means for Crypto Market
These listings have pushed Bitcoin prices higher and boosted the overall crypto market cap to new heights. Following the US Bitcoin ETF debut, the sector’s market cap surged 40% in February, driving a bull run that started in November 2022, according to Citi analysts. These ETFs are also part of the crypto industry's efforts to clean up its image and attract institutional investors.
Binance and Regulatory Push
Binance, the world’s largest crypto exchange, recently met with Australian regulators and politicians. Binance stressed the importance of Australia not lagging behind regions like Europe and Asia in Web3 technology. This push comes despite Binance’s founder, Changpeng Zhao (CZ), being jailed in the US and the company agreeing to a $6.5 billion settlement.
Regulations on the Horizon
Advanced regulations seem inevitable, with digital assets reaching a significant valuation near $3 trillion. The Australian government is actively working on regulatory frameworks, with ASIC receiving $7.5 million in budget allocations. Binance supports integrating exchanges into the Australian Financial Services licence regime, seeking rules that encourage innovation yet maintain market stability.
Impact on Investors
VanEck's Bitcoin ETF is expected to attract a lot of interest. Comparable US-listed ETFs have seen over $15.4 billion in inflows since January. There are also plans for ETFs tied to other popular cryptocurrencies like Ether and Solana.
Binance's Market Dominance
Binance dominates the Australian market with 1 million users, far outpacing competitors like FTX and Digital Surge. Globally, Binance boasts 200 million users, comparable to platforms like Canva.
Building a Social Licence
Despite its efforts to improve and push for stricter regulations, Binance still lacks broader social acceptance. Strong regulatory frameworks are essential to win public trust and ensure a robust, transparent crypto sector.
Conclusion
The debut of the Bitcoin ETF on the ASX is seen as a positive move by many, including product sponsors, brokers, and the crypto community, all eager to profit. If the US experience is any guide, substantial capital inflows are expected, signalling extensive growth in the Australian crypto market.
Gippsland Jersey Booted from Coles: Small Dairy Faces Major Setback
Gippsland Jersey, a small Victorian milk producer, claims Coles has drastically cut its shelf space in a move to increase profits. Starting next month, the dairy's products will only be available in about 16 Coles stores in Victoria, down from over 80.
Sallie Jones, who co-founded Gippsland Jersey with Steve Ronalds in 2016, expressed her disappointment: "We've gone from being Australia's best milk to being removed from most Coles shelves. It's super disappointing."
Jones attributes the cut to Coles' demand for a larger profit margin, which the small dairy couldn't meet. "Coles is a big business focused on margins. We're not willing to go broke just to keep our milk on their shelves," she said.
Coles introduced its private-label milk in 2019 and has since taken significant steps to control its supply chain, including purchasing Saputo milk factories. According to IBISWorld, over 55% of milk sales in supermarkets come from private labels, which are generally cheaper and more popular among consumers.
The increasing dominance of supermarket private labels has put extra pressure on small producers. "We’re a small player competing with major multinationals and supermarket brands. It’s disheartening," Jones added.
Coles, in a statement, said it regularly reviews its product range and will continue to support local producers where there is demand. "From July, we'll focus on selling Gippsland Jersey in 16 stores in Victoria," a spokesperson said.
Jones is concerned about further backlash but remains hopeful that new retailers will step in to stock Gippsland Jersey milk. "We hope consumers choose to support Australian-owned companies. We need to find new homes for our milk," she said.
In the face of these challenges, Jones calls for better support for local producers to ensure they can compete fairly in a market dominated by large supermarkets and foreign-owned dairy brands.
Albanese Navigates Diplomatic Waters with China
Prime Minister Anthony Albanese has been steadfast in his approach to stabilising Australia-China relations since taking office. His efforts have yielded results, such as the removal of most trade tariffs and the resumption of annual leadership meetings.
Last week, ahead of Chinese Premier Li Qiang's visit, Albanese emphasised a commitment to engaging Beijing while being straightforward about differences in values, governance, and global perspectives—a hallmark of diplomacy. This directness may be a response to criticism, particularly from former Coalition government officials, who argue that merely softening rhetoric does not address China's more profound challenges.
Former Department of Home Affairs Secretary, Michael Pezzullo, has expressed concern that moderation in language might mask the real threats posed by China. A recent survey found nearly six in 10 Australians support a tougher stance towards China, particularly after recent military confrontations in regional waters.
Elena Collinson, ACRI’s Research Director, noted that public sentiment is shifting towards a preference for robustness over cooperation. The government's formula—“co-operate where we can, disagree where we must”—seems to be heard more for its cooperative aspects.
Critics argue that while stabilisation is essential, it shouldn't replace broader, long-term strategy planning for future Australia-China relations. Overemphasis on stabilisation might limit the necessary policy evolution, especially with the Xi Jinping era altering past dynamics.
Nonetheless, the recent thaw in relations has been achieved at a relatively low cost for Australia, focusing on diplomatic language and adherence to international trade laws. In contrast, for the US, stabilisation remains a high-cost and challenging endeavour.
Despite complexities, neither country can easily sever their deep economic ties without significant repercussions. This necessity transcends current national security concerns and trade tensions. Opposition Leader Peter Dutton acknowledges the importance of reinforcing trade while planning for future cooperation, particularly in decarbonisation and climate change initiatives.
A recent ANU report confirms that neither Australia nor China can feasibly meet their net zero and decarbonisation goals without close collaboration. Thus, Albanese's meeting with Premier Li is crucial, underscoring national interests over attending other international forums. The focus now is on developing a post-stabilisation roadmap for Australia-China relations.
2023: A Challenging Year for Asset Management
2023 was a tough year for asset management, marked by rising interest rates and economic uncertainty. The turmoil affected many, echoing the difficulties described by the late Queen in her 1992 speech. For investors, 2023 was indeed an annus horribilis.
The spike in interest rates to combat inflation created a valuation mismatch between buyers and sellers. Sellers were reluctant to make deals, hoping for better prices in the future, leading to a standstill in dealmaking across various asset classes. This stalemate resulted in increased "dry powder" — uncommitted funds waiting for investment opportunities. Over the past decade, dry powder has grown by 12% annually, and 2023 saw an acceleration of this trend.
Private equity held over 65% of this uncommitted capital, followed by private debt and infrastructure. The disconnect between market valuations and investor expectations was a significant obstacle. However, as 2024 progresses, there are signs of improvement.
Early 2024 trends are promising. The focus on infrastructure, especially in the energy transition, led to a strong fundraising start with $US34.5 billion closed in Q1, surpassing the first three quarters of 2023. Fundraising and deal values have seen upticks, despite a lower number of deals closed.
Market surveys indicate that higher base rates and a stable economic outlook are boosting investor confidence. Private equity is showing signs of recovery with larger deals coming through. Real estate is also faring better, with growing deal values despite slightly fewer transactions.
While the backlog from 2023 is clearing, patience is still required. The early trends of 2024 suggest a positive turn, potentially moving away from 2023’s annus horribilis.
Katrina King is General Manager, Capital Solutions, for QIC.
Victorian Government Proposes 2 Million New Homes by 2051
New Housing Targets
The Victorian Government has announced ambitious housing targets, aiming to build 2 million new homes by 2051 to accommodate the state's growing population.
Premier Jacinta Allan highlighted that this initiative addresses the rising demand for housing while tackling affordability issues. The targets are based on access to jobs, transport, and essential services. "We need to take a long-term view for the changes coming to our city and state," Allan said.
Focus on Inner-City Growth
To alleviate pressure on Melbourne's outer suburbs, higher housing targets have been set for inner-city areas. Melbourne is expected to see a 122% increase in housing, adding 134,000 new dwellings, while Maribyrnong will grow by 114%.
Melton, just west of Melbourne, has a proposed target of 132,000 new homes, reflecting a 190% increase. The Mitchell Shire, covering suburbs like Beveridge and Wallan, is set for the largest growth, with a 300% increase, equating to 68,000 new homes by 2051.
Regional and Rural Boost
Regional and rural areas are also included in the plan. Greater Geelong will see 139,800 new homes, more than doubling its current stock. Allan hopes this will support regional economies and address worker accommodations shortages.
"We need to ensure young families can afford homes in regional centres and that regional businesses find adequate housing for their workers," Allan added.
Consultation and Finalisation
The government will consult local councils to refine and finalise these targets by later this year, ensuring they match local needs and capabilities.
This bold housing strategy is poised to reshape Victoria's housing landscape, prioritising sustainable growth aligned with job locations, transport, and community needs.
Posted 16 June 2024.
Tags: Housing, Construction, Housing Policy, State Government, Victoria
Federal Government Approves Offshore Wind Farm South of Sydney
The federal government has approved an offshore wind farm zone along the Illawarra coast, south of Sydney.
Climate Change and Energy Minister Chris Bowen is set to confirm the plan on Saturday morning. This wind farm is projected to deliver up to 2.9 gigawatts of power, enough for 1.8 million homes, though it's a reduction from the initial 4.2 gigawatts plan.
The wind farm will be located 20km offshore, an increase from the initially proposed 10km. The decision has understandably sparked debate. Last October, thousands of local residents protested against the proposal at Flagstaff Point. However, many welcomed the news on Saturday.
Jennifer Rayner, head of policy and advocacy at the Climate Council, praised the initiative. She emphasised how the Illawarra, known for its manufacturing history, will continue to thrive with the advent of clean, affordable energy.
"Offshore wind will be a crucial part of Australia’s clean energy grid, providing reliable renewable energy around the clock," Dr Rayner remarked. "This is critical as we transition from ageing, unreliable coal-fired generators."
She urged federal and state governments to collaborate and remove obstacles hindering onshore wind projects already favoured by communities and investors.
