Weighing up choices

It is frequently assumed that our agricultural produce is easy to sell, with no shortage of buyers

ONE of the frustrations of life is not being able to have everything we would like. Everyone faces choices and trade-offs.

Women who aspire to both a career and parenthood know this especially well, but even governments understand (or ought to) that it’s not possible to fund parental leave, education, disability support, unemployment benefits and lower taxes without multiple trade-offs.

It is no different in agriculture. A trade-off is required between mining and farming, for example. Many people would like farm land to be left undisturbed to feed or clothe the world. Equally, many would like Australia to enjoy energy security and not rely on oil imports from unstable parts of the world.

While it is not always one or the other (farming can co-exist with CSG extraction, for example, but not open cut mining), nobody ever gets everything they want.

Another example is the relationship between foreign investment and access to export markets. Choices and trade-offs are starting to become important.

Most people are aware that agricultural exports contribute substantially to our prosperity, although perhaps not as many realise the value of coal exports far exceeds agricultural exports or that gas exports may soon eclipse both of them.

Many also oppose allowing foreign investment in Australia, especially in farm land. They fear foreign ownership will have negative consequences for the whole country, although I confess I don’t quite understand what they might be.

It is frequently assumed that our agricultural produce is easy to sell, with no shortage of eager buyers. In fact we are competing in the global marketplace against countries such as Canada, Chile, Brazil, Argentina, USA, New Zealand, Russia and the EU. While our produce always sells eventually, the price is heavily influenced by which market it is allowed into.

If we can sell into Japan, Korea, USA, the EU or China, for example, the price is nearly always significantly higher than if we sell it into Bangladesh or Egypt.

The big mover among these is China, which has a huge and growing middle class seeking higher quality food and not inclined to trust local sources. There is a problem though, in that whereas China has free trade agreements with Chile, New Zealand, Peru and Thailand, it does not have a free trade agreement with Australia.

Moreover, as I hear it, it is not likely to agree to one if Australia starts blocking Chinese companies from investing in Australian agriculture. I also anticipate China’s thinking will not be unique.

So there we have a classic choice and trade-off quandary. Should we allow Chinese investment in Australian agriculture, notwithstanding widespread misgivings about foreigners owning land, in order to maximise our export performance?

Or should be accept lower export returns as the price of preventing Chinese investment in agriculture?

There are people on either side of the argument who feel quite passionate about it. But those who favour unrestricted foreign investment are at least well aware of the concerns of their opponents, and maintain they are either unfounded or can be adequately managed.

The same cannot be said for those who oppose foreign ownership. They simply do not acknowledge that there is a choice to be made that involves trade-offs. Many even think we can prevent Chinese investment in farm land, keep out Chinese made products in favour of locally made products, while selling our agricultural produce to China without restrictions.

I am firmly in favour of maximising our national prosperity on the grounds that it helps more people and reduces poverty. Turning away foreign investment, refusing to buy cheaper products because they are made overseas, or limiting our export performance, will reduce our prosperity.

Whether we do any of these depends on the choices and trade-offs we make.

  • David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at reclaimfreedom@gmail.com
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    David Leyonhjelm

    David Leyonhjelm

    has worked in agribusiness for 30 years and is a Senator for NSW representing the Liberal Democrats.
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    READER COMMENTS

    trainspotter
    22/08/2013 8:34:33 AM

    i didn't realize that agribuisness was being held back by our government restricting foriegn investment. Let the Chinese buy our grain and our farms. I am all for it.
    looking after home
    22/08/2013 10:25:42 AM

    That is the joke for the day - as it is every major food commodity except rice is controlled beyond the farm gate by foreign interests who sell our product and make the profits off shore. We have been complicit in our own downfall by thinking that foreign ownership is good for us - they will not be paying off our national debt.
    cv
    22/08/2013 1:55:40 PM

    Two points. 1. CSG has nothing to do with energy security, this gas is contracted for export. Plus gas can't replace oil and petroleum. 2. Look back in time, the people that are wealthy are the land holders, they typically hired poor serfs to work the land and kept the profits. By selling off our land we are moving back to a feudal system. Why do we need to sell it, why not use long term leases?
    gen
    22/08/2013 2:15:47 PM

    Sir, do you own your house or an investment property? Well why not sell it and rent? Its the same principle. The profits of any business go to the owners of the business. Look at the mining sector, 75% of the profits go overseas. Yes we have some well paid engineers and mine workers, but that only benefits a few. Aust should've set up a sovereign wealth fund with the mining spoils. The reason other countries sovereign wealth funds are buying ag assets is because they are a finite resource. There is also no obligation for a foreign owner to sell the products locally, they can ship it home.
    daw
    22/08/2013 6:44:33 PM

    The general mantra that foreign investment is good for us & almost a must is a bit of a furphy. Foreign investment in developing something new or expansion is one thing but just buying into existing development so as to make a profit does our economy more harm than good in the longer term.
    What's an Agronomist?
    23/08/2013 7:14:21 AM

    cv: Your first comment betrays a lack of understanding about the substitutability of energy sources. Gas is certainly a substitute for liquid vehicle fuels, either directly (gas vehicles), or indirectly (gas-to-liquid conversion, or substituting for coal in power generation, allowing coal-to-liquid fuel production). Just because some CSG production is contracted for export doesn't mean it all is, or all new production will be. And even if all Aus CSG is exported, that new production will increase global energy supply & decrease oil prices.
    qlander
    23/08/2013 8:44:02 AM

    China is a one party state and all the wishfull thinking in the world won't change that. China puts up a front of private equity companies, but they are still subject to the will of the State. Engagement with China is necessary, but it must be done with extreme caution never forgetting what they are. Q. How do you get into bed with someone ten times your size? A. Very very carefully!
    qlander
    23/08/2013 8:49:10 AM

    China should only be allowed joint venture partnerships with a maximum 40% equity. Total Chinese investment in our economy should be capped at 5-10%.
    Dickytiger
    23/08/2013 9:56:10 AM

    If China won't agree to a free trade agreement unless we let them invest in Australian farms, we should pass a law and make them do it. That will teach them
    Nev
    23/08/2013 10:26:10 AM

    The problem with FI broadly is that while you get an economic boost, and economic rationalists love that, there are long term consequences for the economy and food security and employment, economic rationalists never look that far into the future. In any case it's easier than addressing the underlying issues of lack of profitability in the ag sector, which really is the crux of the matter.
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    Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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