23 – What is the grains industry’s value proposition for local households?

22 November, 2018

Our recent blogs referred to Indonesian households and how urbanisation is affecting Indonesia’s demand for grain and what that might mean for Australian grain exports. But what about households in Australia; how do they benefit from Australia’s largely export-focused grains industry? What’s the grains industry’s value proposition for Australia’s urban households?

Australia is one of the world’s most urbanised countries. Almost 90% of our population is urban, and most live within 50km of the coast. So, it’s hardly surprising that most urban dwellers are not closely connected to or knowledgeable about grain farming. Even within grain farming itself, larger farms and greater use of labour-saving technologies mean there are fewer people directly engaged in grain farming.  Few people can now afford to enter grain farming, unless they are independently wealthy or inheritors a farm business.

Understandably people often focus first on where they live and work and want improvements in their neighbourhood, town or city. In addition, most voting power now resides in urban electorates, mostly in the major cities. Hence, when a grain-growing region or the grains industry seeks government co-investment or support, questions are raised with sub-texts like: ‘Why are we supporting rich landowners or wealthy farmers?’ or ‘Where are the votes and jobs in this?’

These sorts of questions deserve answers. How do urban households benefit from Australia’s grains industry?

Firstly, urban households benefit in the most obvious way. They are fed. They have ready access to affordable grain-based products. ‘Give us this day our daily bread’ is answered daily by Australia’s grains industry. In fact, Australia’s grains industry produces grain so cheaply and reliably that we are able to competitively export it, $14.5 billion worth in 2016/17 to be exact.

Secondly, because we have sufficient volumes for export it means households are not subject to marked volatility in the supply or prices of grain-based products. There is almost always sufficient production or stocks of grain to satisfy local grain demand. Hence, amid drought, grain that would otherwise be exported can be made available to feed animals thereby ensuring milk, meat and bread remain affordable and are not subject to price spikes that would occur if grain supplies were inadequate.

Thirdly, it’s worth pointing out that there is an economic distinction between local and export sales. Take off your grain hat for a moment and think of apples.

Suppose you are in the business of growing apples and you happen to mostly grow the Pink Lady variety. Being a newer and more popular variety your sales on the local market will most likely be at the expense of sales of older, less popular varieties like Granny Smith, or at expense of some other item in consumers’ food budgets. In short, in the local market, revenues from apple sales, and local food expenditures, will hardly change due to your production being sold locally.

However, if you sold your Pink Lady apples in overseas markets then export revenue would be brought into your business whilst revenues in the local market would continue to be relatively unchanged. The additional export revenues would create multiplier effects throughout the entire economy, rural and urban, and even urban households would indirectly benefit from those multiplier effects. The same applies to grain exports. These export revenues would flow into grain businesses and then via a range of multiplier impacts, eventually would generate benefits for urban households.

When you have millions of dollars of export earnings flowing into an economy, as is the case for Australia where its grains industry generated $14.5 billion of export revenues in 2016/17, then these revenues will boost the living standards of all households, not just farmers.

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