Support for Agriculture

The Organization for Economic Development (OECD) has been monitoring agricultural policies in its member countries for many years.  The key results of their analysis are no surprise to famers in Australia.  Direct support to Australian farmers is low to the point of being non-existent, in sharp contrast to other countries where support can amount to in excess of 50 per cent of farmer’s income (Figure 1). 

Figure 1 – Producer Support Estimates by country, 2013 (Per cent of gross farm receipts)

Source:  OECD.  European Union is the 27 member states.  



In addition to the very low level of assistance, the majority of what is classified as “support” by the OECD is not what most Australian farmers would mean by support.  

While direct support from Government to Australian farmers is undoubtedly low as shown by the OECD and other reports, the negative effect of Government policy means that support is effectively negative.  In 2011, the Federal Government stopped the live export of cattle to Indonesia – a decision which has cost the industry hundreds of millions of dollars and still has negative consequences today.  To compensate for this decision, the Federal Government offered affected producers compensation of $25,000. 

The $25,000 compensation offered as compensation needs to be viewed in the context of most producers incurring losses in the millions of dollars.  Nevertheless the OECD counted the $25,000 as support to agriculture in Australia and ignored the negative consequences. 

There are a whole myriad of policies which are negatively impact on the competitiveness of Australian farmers including: 

• ·         Increasing charges at State and Local Government services with often few services provided for the fees collected. 
• ·         Poor provision of internet services often at high cost. 
• ·         Underinvestment in key infrastructure assets by all levels of Government over a number of years. 
• ·         A forest of red-tape which affects every aspect of farm businesses. 

It is much more difficult to measure the negative affect of Government policies on a sector so don’t expect any different methodology from the OECC or anyone else in the near future.  In the meantime, farmers in Australia just have to suck it up and get on with it. 

FURTHER READING

OECD (2014), Agricultural Policy Monitoring and Evaluation 2014: OECD Countries, OECD Publishing, Paris.
DOI: http://dx.doi.org/10.1787/agr_pol-2014-en

The Future of Food Production

A recent article in The Economist pointed out that the world needs to produce more food in the next 40 years than they did in the previous 10,000 years put together.  Such soaring rhetoric suggests this will be a difficult task given the other constraints that exist in modern agriculture.  These often cited obstacles include a reduction in available arable land, increasing demand for biofuels, aging farmers in developed countries, a rapidly changing climate – the list is seemingly endless. 

Concerns about the world not being able to feed itself have been around since English economist Thomas Malthus postulated in 1798 that the world faced a famine due to expanding population.  At the time of writing his theory, world population was less than one billion.  With world population now exceeding seven billion and food production continuing to increase, a global famine is still nowhere in sight.  Indeed in real (inflation adjusted) terms, food prices continue to decline. 

There is no doubt that hunger exists in the world but it is rarely due to a lack of food production.  The presence of people going without in affluent countries is testament to that. 

Despite the discrediting of Malthus theory many times over, it still generates plenty of support.  The reality is that the world’s farmers will have little problem feeding the world’s expanding population provided Governments have appropriate policy settings.  The sort of policy settings that will facilitate adequate food production include: 

• ·         Eliminating wasteful subsidies which encourages inefficient production.
• ·         Building infrastructure to facilitate distribution of production. 
• ·         Reducing barriers to trade around the world. 
• ·         Targeting aid to boost local production capabilities rather than dumping surplus production from developed countries. 
• ·         Investing in research and development especially where there is a “public good” element to the research such as biological controls of pests and diseases. 
• ·         Encourage investment in the sector across national boundaries. 

The Economist article mentions that technology adoption can significantly increase yields on farms citing examples of “big data” in cropping operations and robotics on dairy farms.  Technologies such as these in addition to a whole host of other productivity improvements should ensure the world continues to avoid a Malthusian catastrophe. 

FURTHER READING

Investing in Agriculture.  Barbarians at the farm gate.  The Economist, January 3^rd 2015.