Horizons #96 – Create the black to be in the green

22 January, 2024

by Professor Ross Kingwell, AEGIC Chief Economist

Grain-producing regions of Australia face climatic adversity, yet increasingly, farmers need to express their environmental credentials. The joint efforts of scientists, advisors and farmers are enabling farmers to run profitable businesses that facilitate environmental investments by farmers. By being in the black, farmers are investing in the green.

A recent investigation by Hughes et al. (2022) – Modelling the effects of climate change on the profitability of Australian farms, reveals the potential damage to farm profits across Australia from climate change over the last two decades (Figure 1). The investigations of these researchers reveal all the main grain-producing regions of Australia bear substantial losses of potential profit due to recent adverse trends in climate.

Figure 1: Percentage change in farm profits under recent climate (2001 to 2020) relative to historical climate (1950 to 2000). Source: Hughes et al. (2022)

This potential severity of climate change is rarely fully appreciated, as potential financial losses are not visible. Only actual losses are and fortunately those are often negligible due to the commendable efforts of agricultural scientists, technologists, engineers, advisers and farmers who have successfully ameliorated the impacts of adverse climate. So remarkable has been the success in lifting the productivity of Australian grain production that in the face of climatic adversity, most farm businesses have continued to prosper. A raft of innovations has boosted farm profits (Figure 2) despite the natural environment of farming becoming less conducive to agricultural production.


Figure 2: Broadacre average farm profit in Australia 200-04 to 2022-23 ($’000) Source: ABARES (2023)

Consequently, farmland prices have never been so high (Figure 3).  Because farm profits have in practice been sufficiently high to support high prices of farmland, many farmers have been able to upgrade machinery, pay off debt, invest in soil amelioration, trial innovations and afford tailored business advice that in combination have abated the negative impacts of altered climate.


Figure 3: Average farmland prices in Australia: 1995 to 2022. Source: Based on RuralBank (2023)

Farm activities include:

  • lessening farm emissions
  • improving soil quality
  • protecting waterways
  • drought-proofing farms
  • linking remnant patches
  • helping prevent dryland salinity
  • guarding against pest and disease incursions.

They are part of the ‘greening’ of agriculture and farm businesses finance most of these activities via their own internal funds. Becoming more active about protecting the environment is often known as greening. Accessing sufficient funds to commit to these activities constantly requires farm businesses to consistently operate profitably. In other words, farm businesses need to be in the black to deliver the green.

So, farm businesses and governments need to continue to invest in R&D-based innovations, cost-effective regulations, education, policy improvements, enlarged market access, and value-adding opportunities for farm products because in combination these actions help create more profitable farm businesses.

The outcome and advantage of farm businesses being profitable is that they are more able to innovate. They are better able to support their families and are more able to enrich the communities and natural environments in which they live. By helping create the black, farmers can deliver the green.

Read the back catalogue

Horizons: the AEGIC Economics and Market Insights blog

Expert grains industry analysis and commentary from AEGIC’s Economics and Market Insight Team on a range of big-picture topics that affect Australia’s export grains sector.

AEGIC is an initiative of the Western Australian State Government and Grains Australia.

More News