Agriculture is a major industry in Australia, employing over 400,000 people and accounting for three per cent of gross domestic product. About 70-80 per cent of Australia’s agricultural production is exported overseas. Gross farm production was $34.6 billion in 2006-07 and is estimated to reach $39.5 billion in 2007-08. Exports of farm produce are expected to fall slightly over this period from $27.8 billion to $26.7 billion. The industry includes crops such as wheat and barley, various vegetables and fruits, livestock such as beef and lamb, dairy, fisheries, and wool.
One of the major issues facing Australia’s agriculture is recovering from the drought that ravaged the sector for several years. Good recent rains in many areas have provided some relief for farmers, and the drought has probably broken in many locations. The industry is expected to recover from the drought. Many producers in the crop and dairy sectors have been able to maintain a high level of equity in their farms over the period of the drought, although farms affected by crop failure in 2005-06 and 2006-07 are not doing as well.
Global prices for Australia’s agricultural produce are quite high and are expected to remain strong. Grain prices have risen due to higher demand for grain in many countries in order for them to meet their mandated biofuel production targets. Higher prices for other crops have tended to follow, including for cotton and soybeans.
Exports are quite strong too, supported by buoyant economic activity in many of Australia’s markets, such as China and south-east Asia. Demand for livestock, livestock products, and dairy products has risen strongly in these countries. Wool prices are also strong at the moment because of lower sheep numbers and smaller wool stocks.
The breaking of the drought, good equity levels, higher prices, and strong demand mean that farmers should be well placed to boost their crop areas, rebuild their herds, and resume their investment in new technologies and practices. This should lead to an increase in productivity.
Australia’s agricultural industry has long been affected by poor terms of trade, or the relative prices of exports to imports. This is currently turning around due to high demand and prices for produce. The industry will continue to be export oriented and Australian is currently seeking new markets overseas for its agriculture. The problem for Australian agriculture is that many countries impose tariffs on imports and, at the same time, provide subsidies to their primary producers, particularly South Korea and Japan.
Another concern for the agricultural sector in 2008 is the higher Australian dollar. This means that Australian agricultural exports become more expensive on the world markets compared to those products of other countries. On the upside is that the costs of farm inputs, a large proportion of which is imported into Australia, are cheaper. This includes capital equipment, fuel, and fertilizers.
Farming land comprises two-thirds of the Australian land mass. Environmental measures, while necessary for the future of the country, can be a worry for farmers, especially restrictions in land clearing and policies to increase the size of forested areas. An emissions trading scheme is due to be implemented by the federal government in 2010 in order to reduce greenhouse gases. Emissions trading will cause farm costs to increase, including fuel, fertilizer, electricity, and freight.
Water resources in an important issue in 2008, as the drought led to a decrease in irrigation water storage levels. This is mainly an issue in the Murray Darling Basin, which accounts for about forty per cent of Australia’s agricultural production. Levels will take some time to return to the long-term average.
The industry is having difficulty attracting labor. This is due to Australia’s 30 year low unemployment rate of around four per cent, the result of strong economic growth for more than a decade. There has also been a decline in enrollments in agricultural education courses, meaning a low supply of skilled labor.
Maintaining export markets could become more difficult. Tariff and non-tariff barriers are likely to continue in many countries. Non-tariff barriers include trade restrictions on genetically modified crops to Europe, and animal welfare issues like transporting live animals to Middle East and Asian countries.
Priorities for the Australian agricultural industry and for the federal and state governments in 2008 are several. Drought policy is an important area. The federal government’s drought assistance program includes interest rate subsidies and also exit grants. While these can be necessary in many cases, they can result in farmers failing to try and increase productivity and in accumulating high levels of debt.
Water market efficiency is another area being looked at by both the industry and the governments. They are working out an appropriate split between environmental uses and consumption, and also between competing consumptive uses. Policies currently being considered include the carrying over by producers of some or all of their unused water allocation to the following season, and reducing barriers to water trading between regions.
The federal and state governments are aware that adequate infrastructure is needed to ensure that the agricultural industry can make further productivity gains. If governments reduce or minimize regulatory barriers and promote greater competition, this will result in more investment infrastructure in industries supporting agriculture, such as transport, energy, and communications.
Governments are continuing to try and secure more export markets for the agricultural industry. One of the ways Australian governments do this is through the World Trade Organization. However, multi-trade negotiations have been slow due to the large number of countries and various complex issues facing these countries. Governments and the industry are working on a number of bilateral agreements, including free trade agreements.
Another priority is the need for public funding to support research and development in the industry, which has benefits to the industry but is too expensive or impractical for individual operators or groups of operators to pursue.
A further policy issue is the labor and skills shortage that is affecting the industry in 2008. More training is required both in terms of courses at tertiary education institutions as well as on-the-job training. More attractive remuneration packages are also being looked at. A succession planning program is being examined to try and attract and keep more young people in the industry.
Within the agricultural industry, the main crops produced are sugarcane, wheat, barley, sorghum, cottonseed, canola, oats, and lupins. Australia produces over 40 million tonnes of sugar a year and is the world’s eighth largest producer. More than 25 million tonnes of wheat is produced, making Australia the seventh largest producer in the world. Most of the sugarcane industry is in Queensland. The sector isn’t subsidized and has difficult competing in world markets against heavily subsidized American and European sugar and low cost Brazilian sugar.
Some of the main vegetables and fruits Australia currently produces are potatoes, carrots, tomatoes, oranges, apples, and bananas. Some of the fruit in particular is prone to disease and weather damage. The banana industry is recovering after ninety per cent of the crop was destroyed in a cyclone in 2006. Australia is one of a small number of countries to produce opium legally, for pharmaceuticals.
Beef is Australia’s largest single primary industry. It is dependent on export markets with about sixty per cent of produce currently exported, mainly to America and Japan. The industry is currently benefiting from the misfortune of mad cow disease in other countries. Lamb is an important industry too, and now includes live exports to the Middle East and Asia.
The dairy industry is continuing to grow in 2008, especially exports of dairy products. New export markets are expected to be opened, particularly in Asian and Middle East countries.
Australia’s fisheries production is worth over $2 billion a year, most of which is exported overseas. Main export earners are currently prawns, lobsters, tuna, and abalone.
The wool industry is now relatively less important than in years gone by, although it still produces nine per cent of the world total and half the world’s merino wool. The industry is suffering from lower demand for natural fibers, stockpiling, and lower prices.
Australia has a diverse agricultural industry in 2008. It is mainly export oriented. Various problems and issues confront the industry, which it is working through. Forecasts for the industry over the next five years suggest an increase in the value of farm production of 34 per cent and export growth of 52 per cent. But the industry will continue to be vulnerable to international factors, as well as disease and the weather.
