NATIONAL AFFAIRS: by Patrick J. ByrneNews Weekly
Trade and Australia's farm dependent economy
, April 9, 2005
While Australia continues to pursue free trade in world agriculture, there are warnings that the current World Trade Organisation proposals on agricultural reform may see farm subsidies increase, not decrease.
Warning of what was on the table, Dr Brian Fisher, from the Australian Bureau of Agricultural and Resource Economics (ABARE), said that under the new proposals the US could increase subsidies for wheat, feed grain, rice, cotton and oilseeds.
Currently, the World Trade Organisation (WTO) has underway an agricultural round of trade rule negotiations, ostensibly aimed at reforming farm subsidies, particularly in developed countries.
Former Deputy Director of the Department of Trade, Colin Teese, was Australia's chief negotiator in the 1970s and '80s at the General Agreement on Tariff and Trade (GATT), now the WTO. He has pointed out, "EU, Japan and US officials have for the past forty years said that they intend to implement rules to cut farm subsidies and other trade barriers.
"But it's never seriously happened. Changes have been token, often closing off some subsidies while opening up new areas for subsidies.
"This is because from the outset in 1947, the GATT agreed to have agriculture treated differently from other industries. Farmers have no market power to affect the price of their inputs (like farm equipment, seeds, chemicals and fertilizers), which are largely supplied by huge corporations. Nor do farmers have the market power to affect the price of their product at the farm gate, like one farmer selling his beef or wheat onto the Australian or world market.
"Farmers are price takers on both inputs and outputs. No other industry is devoid of such market power.
"Consequently, while the big economies of the EU, Japan and the US preach the 'free trade' mantra in WTO talks, in the end, to ensure they are relatively self-sufficient in food production, they make sure the WTO rules are open enough for them to provide substantial subsidies to their farmers, as well as import restrictions on food imports."
Australia and New Zealand alone have pursued policies opposite to all WTO members. Over the past 20 years, not only have they cut subsidies to insignificant levels, they have deregulated their farm industries leaving farmers to compete on the domestic market at corrupt world prices, and exposed with no market power when buying farm inputs or selling their products to large corporations.
These policies have caused economic stress and social dislocation in Australian rural and regional areas.
This raises the question, what is the value of agriculture to the Australian economy?
Recently, the Australian Farm Institute, in conjunction with the Horticulture Australia, produced a significant report, Australia's Farm Dependent Economy: Analysis of the Role of Agriculture in the Australian Economy.
The report found that agriculture adds 3.2% to the Australian economy, but when the industries dependent upon agriculture are also considered, they make up 12.2% of the economy, worth $72.4 billion annually, and employing 17.2% of the Australian workforce. This makes agriculture and dependent industries bigger than either the manufacturing, or mining, or construction or property and business services sectors of the economy.
In line with how the US and other countries define the value of agriculture to the economy, the report said the Farm Dependent Economy (FDE) included the agricultural input sector (suppliers of machinery, chemicals, fertilisers, seeds etc), the agricultural sector itself, and the farm output sector (all those industries that process food and fibre into a huge array of foods, textiles, timber and other products).
The report found that in the Australian agricultural sector, for every million dollars generated at farm gate, there were 22 jobs on the farm, and another 65 jobs in the farm input and output sectors.
The study examined the value of the US and Canadian FDEs to their respective economies, allowing reasonable comparisons with Australia.
In 1996, the US agricultural sector contributed only 0.9% to GDP, but the total contribution of the US farm dependent economy is 13.1% of GDP, and employs 16.9% of the American workforce.
Compared to Australia, the US gains more economic benefit from exports of high-value products. These are farm products that have undergone substantial processing and handling, therefore high value adding, than the sort of bulk exports of Australian farmers. Our main exports, like wheat and live cattle, undergo little value adding in Australia.
In Canada, the agricultural sector accounts for 1.4% of GDP, but the broader farm dependent economy makes up 8.4% of GDP, and 13% of the workforce. Like Australia, Canada does not carry out as much down-stream processing of agricultural product - hence the lower contribution of the farm output sector than in the US.
The report said that in general, Australia lags behind other countries for exporting processed agricultural products.
While US exports of high value added, processed food grew 21% over the period 1994-98, Australia's grew just 1.8%
Over the same period, the exports of large volume, unprocessed, low value products like grains and livestock grew 40%.
The report concluded: "Given the marked difference between the prices of processed and unprocessed agricultural products, the agricultural sector may be losing valuable export earnings by not processing more of its products prior to export."