Horizons #43 – Slip sliding away ― a wake-up call?

22 April, 2020

COVID-19 Note –

In most countries, Australia included, the focus of many conversations and actions is how best to manage the spread of COVID-19 infections. However, rather than add to the media maelstrom surrounding COVID-19, AEGIC wants its stakeholders and blog readers to lift their gaze beyond the immediate. We want our blogs to focus on longer term issues that will fashion grain market opportunities and affect the nature and future profitability of Australia’s grains industry.

by Professor Ross Kingwell – AEGIC Chief Economist

In October 2019 the USDA released its latest update of agricultural productivity performance for over 175 countries. See https://www.ers.usda.gov/data-products/international-agricultural-productivity/summary-findings/. The report is sobering reading for Australia.

I have extracted some data from the USDA dataset in order to compare Australia with its grain exporting competitors (Table 1).

Table 1. Total factor productivity annual average growth and country rankings in different periods

Up until 2001, Australia’s agricultural productivity ranking among major cereal grain exporters was among the top three. However, since then Australia has fallen to last place; with its annual rate of agricultural productivity declining in absolute and relative terms. Australia’s agricultural productivity has halved whilst its competitors like Russia, Ukraine and Kazakhstan (i.e. the Black Sea countries) have substantially lifted their productivity growth.

What is a commendable feature of the international output growth now observed (Fig. 1) is that it is mostly due to growth in total factor productivity. The global growth in agricultural output now being recorded of around 2.5 percent per annum is almost entirely due to productivity gain. This means that production growth is not occurring through intensification where higher rates of inputs are being applied to each land unit. Neither are vast areas of new lands being brought into crop production nor large areas of additional irrigation areas being brought into play. Rather, we are seeing the efforts of scientists, engineers, technologists, advisers and farmers culminating in more output being produced from a suite of inputs. In short, efficiency gains are underpinning output growth.

Efficiency gains allow more people to be more cheaply fed. Productivity gain helps preserve natural habitat from being brought into agricultural production, it better preserves water resources, and it lessens the use of other resources required to produce each unit of agricultural output.

Figure 1: Sources of global agricultural output gain in various periods

Australia’s challenge is that its grain export competitors are increasingly efficient in grain production. Countries like Ukraine, Russia and Argentina are not bringing large swathes of additional land into crop production but rather are becoming technically more proficient at producing grain from a bundle of farm inputs (e.g. machinery, land and labour).

Now that the drought has broken in eastern Australia, Australia is once again well-placed to lift its productivity. Re-kindling its investment in profit-making agricultural research, innovation and productivity-enhancing infrastructure will help lift the productivity of Australian grain production and deliver economic benefits at a time when growth is sorely needed.

Key message: Australia has slipped down the international agricultural productivity rankings and is being surpassed by a range of grain export competitors. These competitors are improving the efficiency of their agricultural production. Australia needs to re-kindle its investment in profit-making agricultural research, innovation and productivity-enhancing infrastructure. The breaking of the drought in eastern Australia makes that more possible.

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