RURAL AFFAIRS by Mark McGovernNews Weekly
Abject market appeasement the government's only policy
, August 30, 2014
Russia’s targeting of $A400 million of Australian food exports and the government’s muddled response are just the latest setback for a sector struggling under failed policy approaches.
Dr Mark McGovern
Agriculture is Australia’s only “strongly competitive industry”, according to recent reports from consulting firm McKinsey and the Business Council of Australia (BCA).
Yet, the industry is today characterised by high levels of debt, low farm income, depleted reserves, increasing levels of insolvency and rising poverty. Why the mismatch?
Productivity is high in agriculture. Indeed, productivity performance has been outstanding. Yet profits and incomes have been miserable for years. To top it off, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARE) reports current Queensland farm incomes as the lowest for 37 years (which is when their figures began).
We’re measuring the wrong things
Measures of both competitiveness and productivity can increase when an industry is in decline.
Today, agriculture is not where we hoped it would be. Existing policies and thinking have not delivered gains for agriculture in real terms (as evident in the graph) or Australia (as rising net overseas obligations demonstrate). Continuing them is folly.
Yet, despite Foreign Minister Julie Bishop stating that “the Australian government will do everything in its power to minimise the impact on Australian farmers” of the $400 million disruption from Russia, Agriculture Minister Barnaby Joyce “would hope that we’re able to manage it without direct assistance”.
Ongoing “do nothing (but hope)” emptiness is destructive. Why is abject market appeasement still the first preference in Canberra — but not elsewhere?
The real structural reform needed is in industry, governmental and BCA thinking.
Scale and competitiveness policies that have failed to deliver need to be discarded, not re-veneered.
Real solutions require substantial considerations of income, investment and profitability under uncertainty. Finance matters as do market and supply-chain realities.
Policy-makers have avoided these things for too long, at great cost to agriculture, other affected industries and Australia.
Ironically, today, the despised low-productivity small farmer with household off-farm employment may be more solvent than the aggregator or the competitive.
A rocky path of questionable returns. McGovern, M. (2013). Repositioning Rural Australia
Choices in Agricultural Policy: Rationalise or Reconstruct? Merredin WA, Muntadgin Profit Farmers.
Mark McGovern is senior lecturer, QUT Business School, Economics and Finance at Queensland University of Technology. His long-term research interest is in industry development in open economies. He is an active member of the Rural Finance Roundtable Working Group.
This article first appeared in the online journal, The Conversation (August 13, 2014).