December 16th 2017

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Articles from this issue:

COVER STORY The meaning of Christmas

CANBERRA OBSERVED Parliamentary stampede tramples freedoms

EUTHANASIA Palliative care remains the true solution

FOREIGN AFFAIRS The more Zimbabwe changes, the more it stays the same

AGENDA FOR AUSTRALIA Putting the 'fair' back in the fair go for farmers

OPINION The new Reformation: How Christians found themselves on the 'wrong' side of history

PHILOSOPHY AND SOCIETY Why Marxists will not engage with opponents

ECONOMICS Kim Beazley rides in as a white knight for the TPP

INDUSTRIAL RELATIONS Mergers could give unions a striking profile

MUSIC Sounds like ...: A vain search for meaning

CINEMA Casablanca: Contender for the 'perfect film'

BOOK REVIEW Australia behind the scenes in WWII

BOOK REVIEW Political sparks at the 'Friendly' Games

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Putting the 'fair' back in the fair go for farmers

by Jeremy Barth

News Weekly, December 16, 2017

Countries should always seek to focus on industries where they enjoy natural competitive advantages and high productivity. In Australia, however, one industry that fits these criteria – agriculture – is in serious decline.

Agriculture has declined from accoun­ting for 10 per cent of the value of the economy measured by gross domestic product (GDP) in 1975, to only 2.2 per cent in 2016. Worse still, fully 83 per cent of Australians today see agriculture and farming as having little or no relevance to their lives.

Agriculture is losing its natural competitive advantage.

Despite Australia’s population growing by 75 per cent since 1975, from 13.9 to 24.3 million people, major policy failures have resulted in several agricultural sectors barely keeping pace with population growth, let alone being ready to feed an Asian middle class anticipated to grow to 3.2 billion people in 2030, up from 504 million people in 2009.

Since 1975:

  • The beef herd has shrunk by 6 million from its 1975 peak.
  • The sheep flock (mainly wool flock) has dropped by 100 million sheep since its 1989–90 peak.
  • Sugarcane and dairy output have not kept pace with population growth since 1975 and, despite major investments, production has declined in both sectors since their deregulation in the 2000s.
  • Forestry has increased with population, but faces stiff competition from imports.
  • Seafood production is falling, and imports are undermining pig meat production.

Only the production of wheat and coarse grains has grown above the increase in Australia’s population in 1975, but not by enough to meet the anticipated growth of the Asian middle class. There has also been a move away from quality to quantity in grains production.

These outcomes have been driven by the extreme pro-competition and pro-free trade policies favoured by both the Liberal and Labor parties since the 1980s.

The biggest impacts have come from:

  • Deregulation of 14 agricultural areas under National Competition Policy; including the abolition of sectoral marketing arrangements at federal and state levels for wheat, dairy, barley, sugar, oats, sorghum, maize, and oil seeds (canola/rape seed, safflower, sunflower, linseed).
  • Detachment of water entitlements from property titles, and making water a tradable commodity; followed by the large federal and state buybacks of irrigation water for environmental purposes as part of the $10 billion Murray-Darling Basin Plan.
  • Removal of almost all government assistance to farmers. This policy in particular reduced the effective rate of government assistance to agriculture from around 28 per cent of output in the early 1970s to around 5 per cent in the 2000s.

This policy also ignores the substantial subsidies to farmers in other parts of the world that allow them to maintain their lifestyles, while continuing to export competitively at low prices.

Figure 1: Effective rates of assistance, 1970-2009

This suite of competition and trade policies is entirely focused on increasing competition on the supply side (farmers, producers) of the market, while nothing is done about the competitiveness of the buyer side, which is heavily concentrated. This concentration occurs domestically, through Australia’s supermarket duopoly (Wesfarmers-Coles and Woolworths); and internationally, by way of large international commodity traders and national “single desk” buyer groups.

Consequently, these policies have encouraged Australian farmers to engage in individualised, “beggar thy neighbour” competition with each other, instead of selling into the single-desk marketing arrangements which formerly provided farmers with bargaining clout when selling in domestic and overseas markets.

The effect, as illustrated in Figure 2, has been a decrease in farm production, and an alarming increase in rural debt as farmers struggle to finance operations from decreasing returns. Not to mention that they are also paying substantially higher water prices to speculators and traders, due to restrictions on water available for irrigation.

Figure 2: Rural debt and net value
farm production, 1969-2015

In this environment, the weakest seller sets the price. With prices being set at such a low level, Australian farmers in major sectors have had no encouragement to invest to expand production to meet either domestic or growing international demand.

Unsurprisingly, this discouragement of investment in agriculture has also had a knock-on effect on the manufacturing sector, of which nearly 40 per cent is related to food processing.

This decline in agriculture and agriculture-related manufacturing is leading to the depopulation of rural and regional Australia, and the increasing concentration of Australia’s population in its capital cities and large regional towns.

Fair farming policy

To redress this situation, and deliver a fairer domestic and international trading environment for Australian farmers, News Weekly proposes the development of a national Fair to Farmers Policy (F2FP).

The key initiatives of F2FP are:

  • To establish statistically robust measurements of farm production to replace the Australian Bureau of Agricultural and Resource Economics and Sciences’ (ABARES) current measure, which tracks the “value-added”, that is, processed/transformed value, rather than the prices paid to farmers.
  • To introduce incentives for farmers to form consortia to own and operate single selling desks for their crops. This would effectively counter the buying power of the more concentrated “buying side” of agricultural trading (domestically and internationally).
  • To undertake an infrastructure audit of each of the major commodity supply chains to ensure the adequacy of transport and processing and storage facilities across regions to ensure high-quality produce is able to get to local and export markets in a timely and cost-effective fashion. The development bank suggested in the November 18 edition of News Weekly would fund the overhaul and expansion of this supply chain infrastructure.
  • To revise the foreign asset ownership rules to exclude the following parties from buying prime agricultural lands: (i) foreign governments; (ii)corporations substantially owned or controlled by foreign governments; (iii)sovereign wealth funds; and (iv)private corporations with substantial shareholdings held by foreign governments, corporations substantially owned or controlled by foreign governments, and/or sovereign wealth funds.
  • To restore subsidy payments to Australian farmers (“producer support”) to the same level as those enjoyed by farmers in the United States, both a major trading partner and agricultural output competitor.

F2FP plays to one of Australia’s long-standing areas of competitive advantage: high volume, exportable agriculture. Restoring competitiveness in agriculture also sets the scene for revival and expansion in food-related processing and manufacturing.

Reviving both industries will encourage growth in jobs that are not easily exported overseas or replaced by technology, and reverse the depopulation of rural and regional Australia, and ultimately rebuild its economic and social cohesion.

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