Improving Productivity

At a recent ABARES conference in Canberra it was noted that the rate of productivity growth in Australian agriculture had been declining.  This would affect the ability of Australian farmers to be competitive in export markets particularly with the strong Australian dollar. 

Productivity improvements are essential for Australian agriculture as input costs always rise faster than the prices farmers receive for their output.  The response of one city based Fairfax columnist to this decline in productivity was that the blow torch should be applied to the sector by both Federal and State Governments.  Rationalisation in the sector should be accelerated in the author’s opinion so that productivity can be enhanced by those producers that remain capturing economies of scale.  Drought relief would be done away with so that only the most efficient producers survive any dry period. 

What the author seems to forget is that the industry has had a blow torch of extreme ferocity applied to it over the past five or so years.  All farmers have suffered as a result of the stronger Australian dollar with most individual sectors having their own unique problems. 

Dairy farmers have had to battle milk discounting, horticulturalists with cheap imports, farmers in the Murray Darling Basin have the prospect of major water reform hanging over them.  In my own sector, the Federal Government has brought the industry to its knees through its ban on exports to Indonesia. 

The reality is that rationalisation has been occurring in the sector for about 100 years.  We do not need the Government making it any harder for primary producers than they are already doing.  Rationalisation will continue to occur at a steady pace.  This allows those exiting the industry to do so with dignity and allows service industries around the sector to adjust also. 

The author also fails note the huge assistance paid to farmers in other countries who compete with Australian agricultural exports in international markets.  In addition to this, large subsidies are paid to other sectors of the economy such as the automotive industry.  Other sectors are the beneficiary of Government regulations such as the financial services sector which benefits from the mandated contribution to superannuation for all Australians. 

So what can be done to reverse the productivity decline?  Some are noted in the Fairfax article including encouraging foreign investment and recommitting to public investment in agricultural research.  Some other key areas are missed including easing the regulatory burden place on farm businesses and reducing the level of sovereign risk faced by the sector.