Cover Story: The facts behind the rural revolt
by Patrick J. Byrne
News Weekly, May 5, 2001
The Federal National Party leadership has been in a state of denial over vitally important research that shows it and other key institutions have grossly underestimated the value of the domestic market to our farmers.
It shows that two decades of free-market policies eroded farmers' access to the vital domestic market, this being a major cause of the decline of agriculture, the collapse of the National Party's vote and the rise of independents and One Nation.
Pat Byrne reports.
There are those in the National Party who have argued strongly that deregulation and free-market policies have been behind the demise of agricultural industries and regional communities. No matter how convincing their case, they have ended up hitting a brick wall with the National Party leadership.
As one National Party member put it, "In the end, we are told by the party leaders, 'It's the export market that matters. We export 80 per cent of our agricultural product and if deregulation helps farmers become more efficient for the export market, then deregulation is necessary, albeit a necessary evil'."
In other words, as only 20 per cent of farm product is sold into the domestic market, opening up that market to competing imports and doing away with domestic support schemes won't seriously penalise Australian farmers. If anything, the resulting competition makes them more efficient, enhancing their ability to export more.
This has been a long cherished argument of the National Party, the Coalition, the Department of Foreign Affairs and Trade (DFAT), the National Farmers' Federation (NFF), the Australian Bureau of Agricultural and Resource Economics (ABARE), the Department of Agriculture, Fisheries and Forestry (AFFA), Federal Treasury and the think-tanks that advocate globalism and the free market.
That argument is now in tatters. The popular wisdom that we export 80 per cent and consume only 20 per cent in the domestic market has been shown to be fundamentally wrong in an historically important paper, On the Unimportance of Exports to Australian Agriculture, by Mark McGovern of the Queensland University of Technology School of Marketing and International Business, published in The Australasian Journal of Regional Studies (Vol. 5, No. 2, 1999). He is an economist whose expertise is in input-output analysis.
The McGovern paper showed that for 1993-94 (the latest years for which Australian Bureau of Statistics figures were available), $16 billion worth of food and fibre products (raw and manufactured) were sold onto the export market and $55 billion worth was consumed domestically. Only about 22 per cent was sold onto the export market.
In fact, McGovern showed that of our 53 rural industries, only seven exported more than half their output, and only 12 exported more than one-quarter of their product.
McGovern's conclusions were almost the exact opposite of what has been the conventional wisdom for two decades. They dramatically reveal the effects of free-market deregulation policies on agriculture and related manufacturing.
The emasculated anti-dumping authority has allowed increasing amounts of highly subsidised imports to be dumped into Australia's domestic market. For example, when dumped Italian tomatoes sell for $1.00 in supermarkets, Australian tomato growers and canneries suffer.
This means that farmers now have to compete, on their own domestic market, with imports from the advanced economies where average farm subsidies make up 40 per cent of a farmer's net income. In comparison, Australian farmers receive only 6 per cent of their net income from farm subsidies.
In other words, for most food and fibre products, other countries cannot produce and sell them into Australia cheaper than we can produce the same products domestically, unless those imports are heavily subsidised.
Moreover, Australian farmers are being forced to compete on the world market against the heavily subsidised products of the OECD nations.
Of course, ABARE, the NFF and DFAT advise our governments, political parties and rural organisations of the need to increase exports to improve the lot of farmers.
But if farmers and manufacturers lose just 10 per cent of the $55 billion domestic market (i.e. $5.5 billion) to imports as a result of deregulation, to compensate they would have to boost their $16 billion export market by a massive 35 per cent. This is impossible in a world where agricultural subsidies are rising, not falling.
The implications of McGovern's research were considered so important that the Queensland National Party established the Agricultural Production Destination Committee to investigate the veracity of McGovern's figures.
This led to a meeting in Brisbane in May 2000 between McGovern, representatives of the Australian Bureau of Statistics (ABS), National Party figures and some academics. This meeting reached what was called the "Customs House Agreement".
According to the minutes of the meeting, the ABS representatives "agreed the real proportion of agricultural exports as indicated by Dr McGovern's research ... [was] self-evident and well-known for some time." It was further agreed, "that the ABARE and NFF (80%) export figure has no basis in fact". This was recorded as being the accepted view of the meeting.
After a year-long investigation, the Agricultural Production Destination Committee broadly endorsed the McGovern findings in its report to the Queensland National Party Central Council in November last year.
Despite this, the National Party Federal leadership has been in a state of denial over the research.
When confronted with McGovern's figures, the typical response of National Party leaders is to say that their advisors claim that the McGovern statistics are wrong, or that exports have increased dramatically since 1993-94.
Yet the annual OECD report, Agricultural Policy in OECD Countries: Monitoring and Evaluation 2000, makes the McGovern figures on agricultural exports look optimistic. The report says that Australia's raw and processed food and fibre exports remained the same at about 13.3 per cent of all exports from 1992-94 up to 1998, down from 20.4 per cent in 1986-88 (page 18).
McGovern had shown agricultural exports also declining as a percentage of total exports, down to 22.5 per cent in 1993-94.
When News Weekly recently spoke to McGovern, he said that there was nothing particularly sophisticated about his methodology for calculating the value of Australia's agricultural exports. "It is the standard input-output analysis techniques used across the developed world for assessing the value of agricultural exports."
He also said that Australia could become a net importer of food and fibre products in 40 years' time, if current trends continued. Further, ABARE's own figures back to the 1950s showed that real net farm household income for Australian farmers could hit zero in 16 years' time, if current trends were allowed to continue.
Hence, any political party wanting to restore agriculture and to capture the country vote, will have to start by rebuilding the anti-dumping authority and strengthening quarantine in order to guarantee Australian farmers fair access to the vital domestic market, and by seriously questioning the advice coming from the bureaucracy.
The mistakes of the past 20 years may be embarrassing for the National Party. The policy reversal such an admission entails will be difficult to front up to the National's Coalition partner.
But the consequences will be far worse. Failure to face reality will guarantee at best the National Party being exiled into the political wilderness, and at worst the party's electoral annihilation.