Commodity Prices Below Cost of Production

A news item on ABC Rural caught my attention recently reporting that the price for watermelons had fallen below the cost of production.  The story pointed out the obvious difficulties for producers. 

A more newsworthy story I felt would have been if the price of an agricultural commodity had risen above the cost of production.  Watermelon producers like other horticultural producers have been battling cheap imports from Asian countries.  These countries have the obvious advantage of cheap labour and generally far less regulation including environmental regulations such as withholding periods for herbicides. 

The strength of the Australian dollar has also been a significant issue for all primary producers.  In the case of horticultural producers, it makes imports cheaper and exports much more difficult. 

Primary producers in other parts of the world have assistance from their Governments in the form of tariffs, import quotas and direct payments to help their farmers cope with these competitive pressures.  No such good fortune exists for the Australian producer.  Not only is there no assistance from Governments in Australia, in many cases there is outright obstruction of primary producers. 

 

In my own industry, the cattle industry in the north of Australia, the industry has been brought to its knees by various Government policies including the ban on live exports to Indonesia.  -

Australia is a country with mountains of regulation.  With three layers of Government, industries such as agriculture face the prospect of drowning in all the regulation.  In some cases, companies benefit from regulations such as the Australian Stock Exchange where competition from other players is limited through Government regulation. 

Back to the topic of this post and farmers receiving below the cost of production for their output.  What can be done about this?  I certainly would not advocate for subsidies or import quotas like farmers receive in other countries. 

However, there are a host of policies that would make agricultural industries more competitive including:

-          Commitment to publicly funded research

-          Removing long-term assistance for other industries.

-          Reducing the excessive amount of Government regulation.

-          Encouraging investment in Australia by addressing sovereign risk issues rather than discouraging it. 

-          Addressing the excessive market power of the major supermarket chains. 

I could keep going on and on with policy suggestions, but what we need initially is Governments at all three levels to acknowledge that there is a problem and commit to doing something about it.