Red Tape

“Reducing red-tape” is a favourite election time commitment.  Usually soon after an election, reducing re tape becomes all too hard and the normal course of events is resumed.  That certainly seems to be the case with the State Government in Western Australia following the last election with promises to reduce red tape quickly forgotten.  At least the Federal Government has attempted to address the issue in some form with an annual day for repealing unnecessary regulation. 

An important question to address is why we end up with all this inappropriate regulation in the first place.  Bureaucrats have a tendency to regulate first and ask questions later – their first response is to regulate before considering what alternatives there might be.  The default position is regulation. 

A fundamental tenet of human behaviour is that rewarding good behaviour is a much more effective way of achieving a desired outcome than punishing bad behaviour.  In other words, the carrot is much more effective than the stick – a fact that appears lost on the bureaucracy. 

Now my own industry in Western Australia, cattle grazing in the rangelands, faces a significant increase in the regulatory burden imposed on pastoral businesses.  The Department of Lands in Western Australia has put forward its plans for legislative reforms in the rangelands.  The “reforms” proposed include: 

• ·         Requirement to Comply with Land Management Laws.
• ·         Rangelands Condition Management and Monitoring. 
• ·         Lease Management Plan. 

On the face of it, these changes may seem reasonable but a closer consideration would suggest otherwise.  Pastoralists already have to comply with a myriad of Land Management Laws.  Introducing an entire suite of additional laws is unnecessary and will result in additional compliance costs.  Many pastoralists already monitor their piece of the rangelands, again meaning significant additional compliance costs. 

The Lease Management Plan component of the “reform” process appears to be the most onerous with reference being made to “….a number of regulatory mechanisms..”.  The “regulatory mechanisms” will be additional to those already in place.  The requirement for pastoralists to go beyond what is required in other sectors is unfair and will be inimical to the development of industry in the Rangelands. 

Businesses in Western Australia already face an intolerable regulatory burden.  Ultimately it is up to our elected representatives, our politicians, to stop these sorts of insidious regulations being put in place.  Once installed it is extremely difficult to repeal. 

FURTHER READING

Department of Lands (2015).  Legislative Reform in the Rangelands.  Fact Sheet – November 2015.  http://www.lands.wa.gov.au/Publications/Documents/Rangelands_Reform_fact_sheet.pdf

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.

Barnaby's Blueprint

Barnaby Joyce is keen to leave his mark on Australian agriculture and so has initiated his review of competitiveness of the sector.  While there can be doubts as to the wisdom of another review, there is no doubting that Mr Joyce has a passion for Australian agriculture and a strong vision for what the sector can become. 

The scope of the white paper and the background information does give an insight into the thinking of the Minister and the Government more widely.  This is a clear focus on improving returns at the farm gate and achieving fair returns through the value chain.  The fact that improving returns to farmers is a key objective of the process is encouraging. 

The other terms of reference are also important.  The need to improve skills and training is explicitly acknowledged.  The need to improve the regulatory environment for primary producers is also considered.  Market access, the capital requirements of the sector and the contribution of agriculture to regional economies are also important topics which will be considered.  The involvement of the Prime Minister is also encouraging and shows the industry is being taken seriously at the highest level. 

The process announced by the Minister has been criticised by many as being just another review.  The previous Government developed their own “Food Plan” last year.  Let’s face it no-one was ever going to take seriously a plan for agriculture from the previous Government who were content to shut down the northern cattle industry to satisfy a noisy minority. 

A key element of the vision from Barnaby Joyce is development of agriculture in northern Australia.  The north of Australia does indeed have great potential to expand and contribute significantly to the goal of doubling agricultural output.  Generally the rhetoric from politicians is never matched by actions when it comes to developing the north.  It remains to be seen whether this flurry of activity will be any different. 

The Government does not need to wait for the results of the review to take action.  There are a number of key areas where action can be undertaken immediately such as continuing to secure free trade agreements, investing in infrastructure and reducing red tape. 

There is little doubt that Australian agriculture can expand significantly and can meet the objective of doubling production by 2050.  The role of all three levels of Government is to create an environment which encourages this growth.  This means there is plenty of fodder for future blog posts.  

What #hadagutful means to me

Watching my industry colleagues rally in Fremantle gives me a sense of pride that so many support our industry while at the same time gives me a feeling of guilt that I am not there in support.  Being more than 2000 kilometres away and with 20,000 cattle to look after, it made it a bit difficult to get there. 

While the rally was going on and I was firing off tweets, it gave me time to reflect on the issues at stake and exactly what #hadagutful means.  The expression #hadagutful captures the feelings of most producers extremely well and its frustrations in these areas:

·         That an industry can be shut down overnight. 

·         That two years later the industry is still suffering from the fall-out of that decision. 

·         That all the efforts to improve animal welfare are ignored. 

·         That alternatives to live export which are glibly expressed by industry opponents are accepted by many in the media and by politicians.

·         That all the care of animals before and during live export is ignored. 

·         That cattle production in the rangelands of Australia is one of the most environmentally benign forms of food production. 

Judging by the support from other farmers not directly reliant on live export and from a number of people who are not farmers themselves, the response indicates a wider resonance with rural Australia.  Farmers are generally sick of being treated like second class citizens.  They are sick of being at the mercy of supermarkets and their discounting wars. 

The old saying "the darkest hour is the hour before dawn" may be appropriate.  The big turn out at the rally and the even bigger turn-out on social media shows that farmers are no longer content to be the political pawns of various politicians. 

I certainly don’t feel like I am owed a living or want a hand-out from the Government like some large companies in Australia.  All I want is to receive a fair go, something we have not received from any level of Government.  Primary producers in Australia can do their bit to feed the world if only we are allowed to.  

Community Perceptions of Agriculture

Community perceptions of agriculture have never been more important as consumers try and understand more about where their food comes from.  Consumers want to buy products that say something about them.  They want to know that products have not damaged the environment, that animal welfare is paramount. 

The contrast of community perceptions of Australian agricultural sector with other sectors of the economy is certainly intriguing.  Research conducted by Readers Digest suggests that farmers are highly regarded in terms of trustworthiness. 

Indeed consumers can have complete contempt for an organisation but still utilise its services.  A relevant example to the agricultural sector is the perception of the supermarket industry.  In Australia and around the world, the major supermarket chains are held in contempt by consumers (give references) but still widely used by the same consumers.  I personally have not been in a supermarket that has no people in it despite all the negative perceptions. 

A consideration of the professions at the bottom of the most trusted list shows that they do not seem to be adversely affected by negative perceptions.  Very few people choose to sell their house without the services of a real estate agent.  People still consume plenty of stories from media outlets despite negative perceptions of journalists. 

The Four Corners episode on the Indonesian cattle industry resulted in substantial publicity subsequent to the program and a Walkley award for the journalist, Sarah Ferguson.  An episode on the manufacture of clothing and mistreatment of workers in Bangladesh generated much less publicity and will no doubt not result in another Walkley award for the journalist involved. 

The conclusion that you can draw from all this discussion is that community perceptions of agriculture are important but perceptions of other sectors are much less important.  What the sector should do about community perceptions is probably worthy of another blog post.  

Superannuation Industry

It is somewhat ironic that the Federal Government of Paul Keating which undertook the Hilmer review of Competition Policy also introduced the policy of compulsory superannuation. 

The Hilmer reforms drove policy reforms through a number of sectors including agricultural industries with reforms to statutory marketing authorities.  A new Regulatory regime was introduced with substantial reforms to the Trade Practices Act.  While the Hilmer reforms are generally regarded as a success in increasing competition throughout the economy and therefore contributing to higher economic growth, a number of industries managed to escape the reforms. 

The Hilmer report was released in 1993, not long after the commencement of compulsory superannuation for all Australians in July 1992.  The introduction of superannuation is rightly regarded as one of the great achievements of the Hawke/Keating Government. 

Despite the success of compulsory super, it has created a massive gravy train, secured by Government mandate to financial industry professionals.  It is great industry to be in where this money just rolls in every month for the industry to invest and skim the cream off the top.  And what is more the Government has legislated an increase in the level of super from 9 percent to 12 percent by 2020. 

The fees generated for now massive pool of superannuation funds is about $30 billion annually and growing steadily.  Market competition has obviously failed to generate the competitive marketplace necessary to reduce these fees so the Government must step in. 

It must be a great business to be in where the money literally rolls in the door every month and you get to clip the ticket on all of it.  If ever there were an industry that had lost its social licence (whatever that is) then this would be it.

Northern Australia

It is great to see comments and policy announcements from the coalition about developing the north.  The policy announcements recognise the enormous potential in northern Australia in a range of industries.  

There are numerous industries that could prosper in the north - agricultural pursuits, mining, tourism, medical services to high end consumers in Asia and no doubt other industries that we have not thought of yet.  This will create benefits to the entire nation in addition to the people who live there.  This will create benefits to the entire nation, in addition to the people who live there. 

It is a choice whether Australia captures the opportunities available for northern Australia.  The opportunities will not materialise for the nation, rather it will take effort to capture them. 

 In the past Government policies and actions about northern Australia have never matched the rhetoric.   It has been all too easy to talk about the opportunities and not take the hard decisions necessary to capture the opportunities.  Indeed many Government policies in the past have negative consequences for industry development in the north – the suspension of the live cattle trade to Indonesia being a prime example. 

The decisions required of Government will be difficult especially given the state of Federal Government finances currently.  The investment required to capture the opportunities available to northern Australia will be substantial due to the large geographical area involved.  A major requirement of Governments will be investment in infrastructure which is likely to be extremely costly. 

Despite that there is some low hanging fruit that an incoming Government could pick.  Reinvigorating existing industries will obviously require less initial investment and give an almost immediate return.  My own industry, the northern cattle industry could be reenergised by improving trade relations with Indonesia. 

I hope that the latest round of political rhetoric translates into action on the ground as soon as possible.  

Cattle in Indonesia or people in Bangladesh?

What is more important - cattle in Indonesia or people in Bangladesh?

My industry - the cattle sector in the north of Australia - has been rocked by animal welfare abuses in export markets, notably Indonesia and Egypt.  These incidents were truly shocking to all those involved in the sector.  The response of the industry to these incidents was swift and involved investing more into animal welfare in these markets.  

To participants in the industry like me the response of the Australian Government to the problems seemed to be completely disproportionate to the magnitude of the issue.  To completely close the trade overnight crippled a successful industry in addition to offending an important trading partner and close neighbour.  

The contrast between the response to animal welfare problems in Asia and human rights abuses could not be more stark.  Recently a factory in Bangladesh collapsed killing more than 1000 people making it the worst industrial accident since the Bhopal disaster in India nearly 30 years ago. The factory collapse was the result of shoddy building standards and overcrowding in the building. 

The factory in Bangladesh produced cheap clothing enjoyed by consumers in affluent countries including Australia.  Judging by the reaction to animal welfare abuses, you would have expected a bigger reaction to this disaster and demands to rectify the situation.  After all human lives were involved and not just the lives of  farm animals.  The expected reaction would have involved a boycott of similar products made in Bangladesh or at the very least, the boycott of the companies involved, some of which were well known international brands.  And it is not as if the factory collapse was an isolated incident.  It was merely the latest in one of a string of incidents.  

To say the reaction in Australia and around the world to these incidents is muted would be the understatement of the decade. They barely create a ripple in the Australian media and no calls for blacklists from Green Party politicians.  

Of course any such boycott would not have been welcome in a desperately poor country such as Bangladesh.  The workers in such factories are no doubt grateful for whatever meagre wages they are paid.  Instead the industries involved should do a similar thing to the Australian livestock industry - work with the local companies to improve their standards. Isolating countries such as Bangladesh or even industries within the country is likely to be counter productive.  

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.  

Hilmer Report 20 Years On

It seems that 20 year anniversaries are often widely celebrated.  One 20 year anniversary this year which will probably not receive much attention this year is the Hilmer report into competition policy in Australia. 

The Hilmer report had the agricultural sector firmly in its sights and in particular statutory marketing authorities.  Since the release of the Hilmer report, most of the marketing arrangements viewed as anti-competitive have been removed.  The only on remaining to my knowledge is the regulation of potato marketing in Western Australia. 

While the reduction of regulation in industries such as dairy and eggs had commenced before the release of the Hilmer report, competition policy increased the momentum for change.  For a number of producers in these industries, the move to deregulation was extremely difficult with large numbers exiting these industries in the years that followed it. 

Reduction in regulation in other agricultural industries has also occurred for other reasons.  An example is the removal of the single desk marketing arrangements for wheat marketing which occurred after the Iraq wheat scandal. 

In other sectors of the economy, competition policy has produced mixed results.  There have been a number of success stories, an example being the telecommunications sector where increased competition has benefited consumers. 

A number of other industries have emerged virtually unchanged despite the blow torch being applied in the Hilmer report and in subsequent inquiries.  It remains a mystery why Governments around Australia can find the political courage to deregulate agricultural industries but refuse to take action on industries such as taxis and pharmacies. 

In some industries competition has lessened with the obvious being supermarkets where the two players dominate.  A key component of the Hilmer reforms were changes to the Trade Practices Act and the creation of the Australian Competition and Consumer Commission in part to address anti-competitive practices.  Despite these changes we have a situation where Woolworths and Coles continue to increase their market share.  While it could be argued that consumers have benefited from lower prices, the longer term benefits are less certain.  The increase in home brands by the major supermarket brands will ultimately lessen competition. 

The provision of cheap milk may benefit consumers in the short term, but the longer term effects are less certain.  It could result in less fresh milk being available to consumers as farmers exit the industry and greater reliance on UHT milk. 

The changes introduced from the Hilmer report are essentially irreversible.  It would be very difficult if not impossible to reintroduce statutory marketing authorities that previously existed.  What should happen now is that competition should be extended to other areas of the economy.  

Opportunities in Asia

The recent Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) conference in Canberra highlighted some of the difficulties that Australian producers will have in capturing opportunities in Asia.  The forum noted that Australian farmers face a range of challenges in the next few years including a high Australian dollar and increased competition from countries in South America and Eastern Europe. 

The analysis was in sharp contrast to the much of the commentary over the past few years with focus being on an impending food crisis and what a struggle it will be to feed a world population of nine billion people by 2050.  There have been various predictions of huge increases in food prices as demand soars in Asia with limited additional land available to meet the demand for more food. 

Instead of forecasting soaring food prices, ABARES are predicting a much more modest increase in prices out to 2050.  In fact, the medium term price outlook is subdued despite the increased demand from Asia. 

The ABARES analysis confirms what most producers, who are generally sceptical by nature, have believed for a long time.  That is that there will be no “free kicks” from increased demand in the Asian region.  Any opportunities that arise from growing populations and incomes in Asia will require hard work on the part of Australian producers and marketers.

Productivity improvements will underpin the ability of Australian producers to capture opportunities that arise in coming years.  Improvements in productivity are the way that farmers have coped in the past with falls in output prices and rising input costs and will no doubt continue to be in the future. 

The Government must play its role in encouraging productivity improvements.  A key area is in fostering investment in the sector by creating a healthy investment environment which addresses sovereign risk issues. 

The Government must also play its role by ending subsidies to unproductive industries, improving trade relationships with our Asian neighbours and improving infrastructure.  Other important areas for Government are ongoing investment in research and development and reducing the regulatory burden placed on business. 

Australian farmers have proved themselves to be innovative in the past and can meet the challenges that the Asian century will bring.  The Government changes required to meet these challenges are not onerous and will likely benefit the wider economy in addition to the agricultural sector. 

Global Food Forum

A recent advertisement for a global food forum caught my attention recently.  The conference is being organised by The Australian newspaper with an impressive line-up of speakers including the Chief Executive Officer of News Limited, Kim Williams and the former Governor-General Michael Jeffery.  The heads of a few food manufacturing companies are on the speaker list together with the odd politician, journalists and bankers. 

The notable omission from the speaker list is of course those involved directly in food production – a farmer or two.  It is difficult to imagine any other industry where those directly involved in the subject concerned are not involved in the conference.  Can you imagine a medical conference without doctors on the speaking list or a legal conference without a lawyer being involved?  Perhaps a media conference without a newspaper editor or executive on the speaker list, or a mining conference without a miner? 

Only a few of the speakers appear to have a background in agricultural science or agricultural economics which is also surprising. 

So why is it that farmers do not get a seat at the table for a conference talking about food production and opportunities for Australian food production?  There are a host of reasons for this including: 

·         Farmers are not good at blowing their own trumpets and telling their story to the wider community. 

·         Farming is incorrectly perceived as a low technology profession. 

·         The lack of political clout that farmers wield and thus attention paid to the sector by Governments. 

·         That Australia has always produced a large amount of primary produce relative to its population size and will continue to do so. 

It is good to see such a conference taking place in Australia and that it involves a number of high-profile individuals speaking about the food industry.  It is just a shame that the integral role farmers play in food production is not considered to be that important. 

FURTHER READING

Lyndsey Smith (2013)  The Most Powerful People in Food:  Not Farmers.  http://www.realagriculture.com/2013/02/the-most-powerful-people-in-food-not-farmers/

 

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. 

No Competition for the Australian Stock Exchange

While seemingly unrelated to the activities of a pastoralist in Northern Australia, the article did capture my attention.  It is yet another example of efficient lobbying of the Government gets the desired outcome for a particular company.  In this case the ASX will not face the sort of competitive pressures that the rest of us in business face on a daily basis. 

It never ceases to amaze me that Governments of all political persuasions are happy for certain industries to face the blow torch of competition but other more favoured industries do not.  In the agricultural sector the winds of competition blew through many years ago with the dismantling of statutory marketing authorities and removal of other competitive restrictions such as the export monopoly on wheat held by the former Australian Wheat Board. 

There remains a few favoured companies and industries where politicians appear too afraid to expose them to full competition.  ASX is one such company which retains this piece of legislative impediment to competition to help it generate profits for its shareholders.  Sectors such as the car industry continue to be beneficiaries of Government largesse in many different ways. 

In other sectors without the good fortune of Government protection we have to battle on as best we can. 

Getting Agriculture on the Political Agenda

With two election campaigns underway in Western Australia, one for a state election in March 2013 and the Federal election scheduled for September 2013, it promises to be a long year of promises.  For the farm sector, this often means rhetoric from both sides of politics usually relating to capturing opportunities that will arise in the Asian century. 

Various farm lobby groups including the National Farmers Federation have called for agriculture to be put higher on the national agenda.  Most farmers I have spoken to would agree with this sentiment but what does it actually mean and what policy outcomes will result? 

Many in the rural sector feel completely disenfranchised at the moment.  Issues such as the live export ban, the ramifications of which are still being felt by those in the industry, and the milk discounting saga have many feeling disillusioned as well as under pressure financially. 

Here in Western Australia, the State Government (through a National Party minister) put up pastoral lease rents by up to 700 per cent and with our local Government continuing to put rates up and providing no services, we have copped it from all angles. 

Politicians are quick to throw around phrases like “Australia becoming the food bowl of Asia” but are much slower to put in position policies that may assist the sector.  Indeed many of the policies put in place recently will make it harder for Australia to become the food bowl of Asia – consider the mistrust of Australia by Indonesia as a result of the live export ban. 

Getting Agriculture back on the political agenda really means that rural Australia will not be forgotten by our political leaders.  When decisions are taken the consequences of these decisions are fully considered and not taken to appease minority groups.  In addition, the ramifications of actions need to be thought through.  Cheap milk from supermarkets may be good for consumers in the short term, but the long term consequences will be fewer dairy farmers and more expensive milk. 

There are many policy decisions that could be taken by all three levels of Government that would increase confidence in the sector and demonstrate that agriculture is back on the political agenda.  These include:

·         Better engagement with trading partners including Indonesia

·         Commitment to publicly funded agricultural research

·         Restriction on the market power of the supermarket duopoly

·         Reduction in Government charges. 

·         Reduction in Government regulation. 

·         Commitment to training. 

The list could go on and on, however, the reality is that it will be difficult to achieve a higher profile for agriculture given the minimal voting power of farmers.  To achieve the higher profile we need effective lobbying from representative groups including the National Farmers Federation, supported by strong membership of the various organisations.  In addition, there needs to be actions at the grass roots from individual primary producers. 

In the end all most farmers want is a “fair go” from Government at all levels – we are not getting that at present.

Peter Reith's Solution for Australian Agriculture

Attention has been focused on the plight of Australia’s dairy farmers in the wake of the decision by Coles and Woolworths to cut the price of their home brand milk to $1/litre.  In addition to the poor returns for their output, dairy farmers like all primary producers in Australia have suffered from higher input costs including fuel, electricity, labour and fertiliser. 

Peter Reith recently weighed into the debate about the viability of the dairy industry and proposed a six point plan to reduce costs.  Given much of Australian agriculture is facing similar problems to dairy farmers, it may be appropriate to use Mr Reith’s blueprint for other sectors.  Below, I consider if the Reith plan could be extended to other farm sectors. 

 

1.        Cut municipal rates; councils have been increasing expenditure above inflation.  This needs to stop. 

This is certainly applicable to most farmers.  In our case, shire rates increased by 9% last year following similar increases in previous years.  This was an outrageous increase given the Shire provides no services to us. 

2.       Abolish payroll tax on all dairy processing plants. 

Abolishing payroll tax on manufacturing plants including meat and dairy processing would indirectly benefit the farm sector.  Taxing employment has always seemed like one of the most insidious forms of taxation. 

3.       Reduce energy prices by abolishing the carbon tax and remove impediments to other initiatives like gas, including coal seam methane. 

I will sidestep the issue of coal seam gas, but certainly agriculture is an energy intensive business and will therefore benefit from lower prices.  The carbon tax has certainly negatively impacted on the meat and dairy processors and thus affected farmers in these sectors. 

4.       Reform labour market policies introduced by Labor for the benefit of unions. 

In our case we have problems getting labour so reforming labour market policies have not affected us too much. 

5.       Slash government waste, cut wasteful expenditure, and stop the boats to cut costs. 

No-one could argue with this point.  In addition to reducing wasteful expenditure, Governments should also reduce the regulatory burden they place on business. 

6.       Slash the petrol tax to lower business costs.  Improvements to transport should be a much higher priority ……

Again lowering taxes will obviously assist business in a period when input costs for farm businesses have increased significantly.  Investment in transport infrastructure and other infrastructure such as ports and rail will also assist export focused sectors such as agriculture. 

 The response to Peter Reith’s plan has not exactly been ebullient.  On www.milkmaidmarian.com dairy farmer Marian Macdonald thought the plan, at first, was a spoof.  It is notable that Mr Reith does not mention the elephant in the room – the supermarket duopoly. 

What affect would the Reith plan have overall on the agricultural industry?  The results would be minimal in the short term – the problems of the dairy industry and my own industry, the northern cattle industry, have specific problems not addressed by Mr Reith. 

Should the Reith plan be implemented?  Absolutely – the medium and long term benefits from his ideas would be substantial across all agricultural industries. 

Will the Reith plan be implemented?  Probably not – Governments of both political persuasions have shown little appetite for meaningful reform in areas such as Government spending. 

FURTHER READING

Reith, P (2013).  Stop milking our dairy farmers.  http://www.abc.net.au/unleashed/4464198.html

 

Social Licence

We have heard a lot about the term social licence in the last few years.  In particular it has been applied to my industry – the northern cattle industry – with claims the industry had lost its social licence over the cruelty claims of treatment of Australian cattle in Indonesian abattoirs. 
The cost of the loss of this social licence to the northern cattle industry was first the closure of the industry followed by the imposition of additional regulation.  This was in the form of an auditable supply chain tracing mechanism.  An Australian animal exported to Indonesia can now be traced from its place of birth in Australia to its point of processing.  Fallout has also been ongoing with Indonesia reducing imports from Australia and a massive loss of confidence in the industry. 

At the time when the issue of a social licence was raised, many of us in the northern cattle industry were annoyed – why should it apply to us and not every other industry?  That question has never really been resolved but most in the cattle industry have come to accept that things are not always fair. 

What about applying the concept to other industries?  The mining industry always cops its fair share of flack and is always under pressure to maintain its social licence.  The mining industry argues that it contributes substantially to Government revenues through royalties and taxation as well as contributing in other ways such as funding local community projects. 

The supermarket industry in Australia is an industry where the concept could be applied.  The supermarkets announced a policy where homebrand milk be retailed for $1 per litre.  In a previously regulated industry, milk price was last at a $1/litre sometime in the mid-1980’s.  While the low price is good for consumers, the biggest losers are the nation’s dairy farmers with the low retail price reflected in the farmgate milk price.  Dairy companies also lost a substantial amount of equity in their brands which will ultimately affect their profitability and ability to invest in the supply chain. 

There is meant to be protection from this kind of activity through Trade Practices Legislation administered by the Australian Competition and Consumer Commission.  The ACCC is either unwilling or unable to intervene in this instance.

Where does the issue of a social licence come into this discussion?  Shouldn’t supermarkets provide goods at the lowest possible costs to their customers?  I believe that supermarkets have a broader responsibility than just screwing down their suppliers to the lowest possible price.  The end result will be a reduction in milk production as dairy farmers leave the industry.  Coles and Woolworths are only interested in a percentage point of market share from each other. 

What would the loss of social licence mean for supermarkets?  Loss of social licence could mean additional legislation or regulation to prevent this form of predatory pricing.  Additional regulation could also force supermarkets to be more transparent in their pricing policies.  It could also mean additional regulation to prevent supermarkets from entering new markets such as retailing or pharmaceuticals.  Limits could also be placed on the market share that the two major supermarkets have of the total grocery market.