Simon Molloy
May 2016

From submarines to nuclear waste dumps to ‘green clean’ agriculture, the search for new industries to secure South Australia’s economic future continues apace.

In 2015 plans were announced by Sundrop Farms to build a new 20-hectare ‘super greenhouse’ outside Port Augusta. The new facility will be almost entirely solar powered (and desalinate seawater for its crops) – Sundrop’s website tagline is: decoupling food production from finite natural resources. The facility will produce around 15 million kilograms of fresh vegetables each year. That’s a lot of salads!

Perhaps there is real growth potential in this new type of ‘factory farming’. Or maybe ‘agricultural manufacturing’ is more descriptive. Certainly, this type of food production uses many of the inputs traditionally associated with manufacturing – electrical systems; electro-mechanical and electronic devices; water reticulation systems; metal and plastic fabrication; and computerised control systems.

In fact, these are many of the kinds of skills and outputs that the automotive component sector provides for the soon-to-disappear car assemblers. Could this be a real opportunity for industrial transformation?

Sundrop’s glasshouse technology is largely sourced from a specialist manufacturer in Holland but the materials and skills required to fabricate these types of products should be familiar to our automotive component sector.

Nevertheless, one greenhouse, even a super greenhouse, does not a new industry make. What is needed is scale. Enthusiasts of this approach to agriculture point out that, because of the near zero environmental impact, there is no reason we couldn’t have, say, 100 of these super greenhouses sprinkled along the coast.

This proposition seems plausible but, in addition to scale, industries need ecosystems of supporting businesses that provide the various inputs they need to operate. In the 1990s US economist, Michael Porter, wrote extensively about industry clusters which are defined as a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field.

Clusters are important because their specialisation and intensity promotes competitiveness by increasing productivity and innovation. But while these ecosystems do not appear overnight, a pre-existing ecosystem of suppliers looking for new customers could be a real head start.

Clusters can evolve from many different reasons and take different forms. One type is described as a ‘factor endowment cluster’ which means, translating from economist jargon, a particular place where the right inputs for an industry are abundant. South Australia has a LOT of sunlight, coastline and cheap, flat land and can harness the region’s capacity to generate knowledge and innovation in agricultural science.

But what about markets for all this food?  If there were 100 of these super glasshouses in the region, production would need to be focused on national and international export. Of course, China’s projected 800 million middle-class consumers, hungry for safe green high quality food products, looms large in any consideration of export markets.

If we take the view that there is no level of food output that South Australia could reasonably produce that would make a sizeable dent in the huge export markets to our north, we need to ask what else we need to access this market?

Obviously, we need to develop commercial relationships with buyers in destination markets, we need to build a reputation for clean and green production that is grounded in real practices and not just spin – this is a contested space internationally and we need to be able to materially differentiate ourselves. We need to get the workforce operating properly – something that has been problematic up until now. And we need to significantly improve our logistics and transport capability.

At 100 times the current projected output of the new Sundrop Farms facility, we would need to move almost 30,000 tonnes of food produce each week. That’s around 200 fully-loaded 747 freighters or almost 1200 containers each and every week.

This kind of freight task would require new rail infrastructure and probably a new international freight airport. Again, this level of production isn’t going to appear overnight – organic growth (no pun intended) could be expected to ramp up over time. But at some stage, large and very lumpy investments will need to be made in infrastructure. Without this type of investment, the private investment required to expand food production is unlikely to occur.

Somewhat as an aside, it is interesting to consider how this type of production enables the creation of economic value using renewable energy in a way that lessens the requirement for constant baseload electricity supply. Seawater can be desalinated on sunny days and used on cloudy ones. In effect, storing fresh water is storing electricity. This type of industrial use makes electricity demand less ‘peaky’ and increases the viability of renewable energy generally.

The State Government’s Northern Economic Plan identifies agriculture as an opportunity but perhaps a new perspective on the emerging links between advanced food production and manufacturing inputs could accelerate growth even further. New technologies create new types of industries and also new value chains often with non-obvious opportunities.

Thus, the need for high level coordination by government is inescapable. But governments don’t need to foot the whole bill for infrastructure. There is currently significant interest by global companies in investing in the Australian transport and logistics industry. While the idea of governments picking winners makes many nervous, private public partnerships can bring more and diverse skills and knowledge to the table when making bets about the future.