RURAL SECTOR by Patrick J. ByrneNews Weekly
White paper helps but avoids the big issues
, July 18, 2015
The new Agricultural Competitiveness white paper delivers some important policies to farmers and underscores the high-risk nature of farming in Australia. However, it focuses policy on the export market, when most farm product is sold into the domestic market.
It is sometimes said that if you had a million dollars, you would be better betting on the horse races than investing in farming.
The white paper points to the extreme volatility of farm production and farm incomes due to “the vagaries of weather and markets”.
It says that over the past 40 years, agricultural output has been two-and-a-half times more volatile than the average for all other sectors of the Australian economy, and about twice as volatile as most other major food producing nations.
To provide farmers greater income stability, given this high volatility, farmers will be able to opt back into income averaging 10 years after they have elected to opt out, in recognition of how business circumstance change over time.
Further, farmers will be able to double their Farm Management Deposits (FMDs) to $800,000. FMDs allow farmers to set funds aside in good years to cover low-income years. Typically, the nation’s farmers have been holding $3–4 billion in FMDs.
Irrigation helps to drought-proof farming regions and reduces the high risk of farming. The white paper says that although only 1 per cent of Australia’s farmland is irrigated, it is responsible for 28 per cent of farm production, measured by value.
The government has allocated $50 million under the National Water Initiative for water infrastructure planning and $450 million for building national water infrastructure. These allocations are a notable achievement in the current economic environment.
However, this funding won’t build many new dams and won’t replace the irrigation water being taken out of production by the Liberal-Labor backed Murray-Darling Basin Plan.
With 30–40 per cent of irrigation water being diverted to the environment under the plan, the Government would have to build new dams with the capacity of the massive Hume Reservoir (six Sydney Harbours, or 3,000 gigalitres) just to replace the irrigation water being taken out of production.
The white paper says that the Federal Government has spent about $15 billion on national water reform since the Howard government.
In fact, much of this has been used to take water away from farm production. This loss of irrigation water is having a devastating effect on food production in Australia’s major food bowl.
Limited infrastructure funding on the table
The white paper provides funding for limited road projects, but provides no progress on much needed inland rail developments.
Also, $13.8 million is provided for a two-year pilot program to scope cooperatives, collective bargaining and other innovative business models for farmers.
This comes after many such business models were dismantled under Federal National Competition Policy, which paid the states billions to deregulate, among many areas of the economy, 14 areas of agriculture. Dismantled were the single selling desks for sugar, wheat and barley, and the marketing arrangements for domestic milk supplies were abolished.
The white paper suggests joint-venture partnerships and foreign investment to expand farming, because the average broad-acre farm is now valued at $4 million, making it almost impossible for young people to buy into farming.
The Government is also offering a considerable boost to drought concessional loans, for improving biosecurity rural research and development, and accessing premium foreign markets.
However, the biggest problem with the white paper is that the policy focus is based on the assumption that the primary market for Australian agriculture is the export market.
Right from the start, the paper says that the value of farm output is $51 billion and exports are worth $41 billion – “65 per cent of production is exported” (page 3).
As News Weekly has pointed out in detail, these figures are calculated using what in maths is recognised as a statistical fallacy, comparing apples with oranges.
Domestic production is measured by value at the farm gate (for example, live cattle), while many exports are valued after processing (for example, processed beef, which is several times the value of live cattle at the farm gate).
This method of comparing the value of exports with domestic production dramatically inflates the value of exports and creates a fundamentally flawed foundation for agricultural policy making.
News Weekly (May 10, 2014, and May 5, 2001) has reported two authoritative studies showing that as measured at farm gate value, Australia exports 20–25 per cent of its farm product, and the remaining 75–80 per cent is sold into the domestic market. In 2000, even the Australian Bureau of Statistics agreed with the 20–25 per cent export figure.
Mistaken belief leads to erroneous policy
The mistaken belief that most farm product is exported has several detrimental consequences.
First, it means that governments look at the agricultural sector and say, “well farmers mainly export onto the highly volatile world market that is also corrupted by heavy subsidies and protectionist policies. That’s a big problem. But the Australian government has few economic policy tools that can help farmers manage these risks. It’s hardly worth the government limiting the power of supermarkets to set the price to farmers if most agricultural product is sold overseas not in Australia.”
The response to the Government should be, “by value, Aussie farmers sell mostly into the Australian market and the government has plenty of policy instruments to manage the high risk of farming.”
For example, the Government has the power to create single selling desks for major commodities, and to wind back the market share of the major supermarkets that increasingly use their market power to dictate prices to farmers.
Second, the inflated value of farm exports has led to the often made mis-claim that Australia, with a population of 23 million, feeds 60 million people because of its exports. This is repeated in the white paper (page 118).
The claim has lulled Australians into a false sense of food security and also raises important questions.
If in fact we only export a small proportion of our overall production, then how much more can Australia export without having to become a net food importer to feed its own growing population?
If the Government wants to, say, double food exports and maintain Australia’s food security, it will have to invest far more into agriculture than is offered in the white paper, but less than might be anticipated if Australia actually was exporting two-thirds of its farm production.
The white paper has made some progress in helping farmers. It is important for farmers to expand their export markets.
But the white paper’s inflated value of the export markets means that it has not dealt with the policies needed to deal with risks from volatile domestic production, domestic market impediments to farm profitability, and major strengthening of the bargaining power of farmers in the domestic market.
 M. McGovern, “On the Unimportance of Exports to Australian Agriculture”, Australasian Journal of Regional Studies, 5(2), 1999.
Guy West, “Decomposition of exports and GDP into direct and indirect industry contributions”, Australasian Journal of Regional Studies (Brisbane), vol. 8, no. 2, 2002, pp.143-164.
“The facts behind the rural revolt”, News Weekly, May 5, 2001.
“Sorting out the confusion over Australia's agricultural exports”, News Weekly, May 10, 2014.
 The Customs House Agreement, May 9, 2000, at the old Customs House, Brisbane.