EXPORTS: by Patrick J. ByrneNews Weekly
Restarting Australian agriculture: what needs to be done?
, November 24, 2012
While global demand for food may provide opportunities for agricultural exports, huge investment and fundamental changes in policy will be needed to restart Australia’s stalled rural industries.
This is the view of recent report by Port Jackson Partners for the ANZ Bank, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand.
The 72-page report, which was released in October, says that world population growth will see a 60 per cent increase in the demand for food output by 2050.
The scarcity of land and shortage of water in Asia provide Australia with the opportunity for developing new exports to the value of $710 billion to $1.3 trillion.
To achieve this, around $600 billion in additional capital will be needed to generate growth and profitability and a further $400 billion to assist ageing farmers make way for the next generation.
Significant funding may have to come from foreign sources, due to the lack of available capital in Australia and the lack of trust shown by Australian banks towards the rural sector.
The report says: “It is about developing connected and mutually reinforcing areas of high capability where extremely efficient supply chains exist side by side with top research and development (R&D) capability, innovative financing, clear strategic vision and productive farms with the requisite scale, organisation, funding and skills.”
It argues that such platforms have seen (a) Brazil sweep aside global competition to capture the market for soybean, (b) Malaysia and Indonesia dominate the production and marketing of palm oil, and (c) New Zealand create and grow a globally successful dairy industry.
This kind of success, based on clusters of highly competitive activities, has not emerged in Australian agriculture in any substantial way for some years.
Instead, there has been a “loss of momentum” in the Australian (and New Zealand) farm sectors, which cannot simply be blamed on the drought over the past decade.
The report observes: “Serious underlying issues were already emerging in Australian agriculture before the turn of the last century. Farm performance has varied enormously, with many making little or no profit, which has limited the ability of farmers to prepare for adverse situations.
“Since the 1990s, more than a quarter of broadacre farms made a loss every year, and half achieved a yearly cash income of no more than $43,000 on average.”
The report has many valuable insights on the deep problems of the Australian farm sector, and many of its solutions show a path out of the current malaise for agriculture.
However, the report has several drawbacks, two in particular.
First, it primarily focuses on developing Australia’s export markets. But if Australia is to capitalise on Asia’s burgeoning demand for food, it must first solve the huge problems in Australia’s domestic market.
Around the world, most strong farm sectors are generally built out of strong domestic markets, from which export markets then develop.
To this end, most other nations give their farmers preferential access to the domestic market, which provides farmers with their most reliable income.
Indeed, Greener Pastures partly acknowledges this principle when it cites the example of Brazil’s soybean industry becoming a major exporter, built on the back of soybean oil being “an important food oil … [that] is still consumed domestically in large quantities”.
While Australia is a major exporter of wheat, beef, wool, dairy products, sugar and cotton, these industries are subject to huge demand and price fluctuations. To spread their risk, many broadacre farmers have multiple lines of production, for example, they produce beef, grains and sheep.
Furthermore, horticulture industries are collectively the biggest sector in Australian agriculture.
Most of horticulture is sold into the domestic market where the dominant power of the two supermarkets and Australia’s open borders to imports result in only small or no margins for farmers.
Whereas Australia used to be a net exporter of horticultural products, now it is a net importer.
Second, deregulation of 14 areas of Australian agriculture under national competition policy has been a disaster.
In essence, it has deprived farmers of their former economic bargaining power, while the Australian Competition and Consumer Commission has allowed the two major supermarkets to capture about 80 per cent of our country’s grocery market and allowed major consolidations in the food-processing sector.
Farmers receive a mere 3 to 5 per cent return at the farm gate, while there is about a 20 per cent return at all other stages in the production process, such as transport, processing, storage and retailing.
Competition policy has not only stripped away many of the marketing arrangements that gave farmers bargaining power; it’s made it difficult, if not impossible, for many farmer groups to vertically integrate their rural industries, which would allow farmers to own the more profitable stages in the food production chain.
Doctrinaire competition and free trade policies have undermined the productive potential of Australian agriculture.
Greener Pastures needs serious study and attention by federal and state policy-makers. We remain hopeful but not optimistic.
Patrick J. Byrne is vice-president of the National Civic Council.
Port Jackson Partners for the ANZ, Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand (October 2012), the third report of the ANZ Insight series.