Ag: bigger than business

The reality is that agriculture is not a just a business, it is also a social imperative

“The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways” - John Fitzgerald Kennedy

THE dire situation recently faced by many farmers and graziers induced by yet another drought has reignited the debate about justification for government financial support to farmers.

On one hand there is the visible and emotive scenario of dying stock and desperate farmers that demand immediate aid. This call for financial support externalises the disruption of drought and market interruption and deems them beyond reasonable management.

“Agriculture is not a business like any other and the social value of the enterprise must be properly evaluated”

On the other hand there is the cold and objective rationalist position that argues: agriculture is a business like any other and hard times are a fact of life, and so if you can’t handle the pressure – get out.

The problem is not as simple as either argument, fundamentally because the business of agriculture is not a business like any other.

The debate about drought support belies a much bigger conundrum in Australian agricultural policy and Australian trade policy that goes to the core of the issue around farmer resilience that is borne out of global expectations on the provision of food, fibre and energy.

Globally we see divergence on balancing agricultural supply excess with farm viability. Some countries argue agriculture is not a business at all because it is a social imperative. Often these countries have a social or cultural memory of starvation, or at least devastation of their agricultural capacity.

On this basis they justify massive public money support to their farmers and in so doing massively distort world agricultural trade.

On the other hand we have Australian agricultural policy based on the notion that agriculture is a business like any other. As a result Australia has pushed, largely unsuccessfully, to rid the world of agricultural subsidies to try and achieve a global agricultural market free of impediment and subsidy.

The Australian trade agenda is deemed unsuccessful because every so called free trade agreement (FTA) Australia has negotiated has seen agricultural trade-offs that have resulted in the retention of significant distortion and/or restriction against Australian agricultural products. Even the most recent FTA with South Korea saw key Australian commodities excluded.

In every negotiation the Australian government has ultimately been forced to trade off agricultural access to the benefit of the broader economy.

The reality is that agriculture is not a just a business, it is also a social imperative. No amount of economic rationalisation has moved, or will move, the rest of the world on this issue.

It is a telling consideration that the chant of the crowd in the 2011 Egyptian uprising was: “Bread, freedom and social justice!” It was a bread shortage that was the ultimate catalyst for revolution. As long ago as the Romans it's been known that the provision of basic needs is the key to stable government and the social and political importance of the food business is evident long before people starve.

Unfortunately, as civil unrest escalates, often the provision of food can be further disrupted and political issues escalate to full blown humanitarian disasters and ultimately militant conflicts.

Simply, people need to be fed. Globally, including in Australia, society assumes people have a right to food.

In 2013 the Australian government launched a National Food Plan that declared it is a government imperative to ensure all people have access to safe affordable food.

The problem in Australia is that society, through government, seems to think it is solely the role of the farmer to feed the world. At the same time, society, through government, impinges on Australian farmers through regulation and direct intervention that severely diminishes their collective competitiveness.

The reality is that the primary role of the farmer is to feed his or her own family. If society wants agriculture to sustain the global population now and into the future it needs to ensure that there is enough reward in that pursuit for farmers to feed their families, in good times and bad.

The current drought discussion in Australia is important because it highlights the fundamental lack of economic and emotional resilience in the sector that exposes it so profoundly to disruptions in production by weather and disruptions in markets.

The challenge, it would seem, is that the Australian indicators of rising farm debt, declining terms of trade and dwindling farmer numbers allude to agriculture not being a particularly viable business, particularly if it is debt funded. This begs an important question, if the government is committed to the provision of safe affordable food for all, shouldn’t it also be affordable for those who produce it?

There is a lot of discussion about improving agricultural productivity to meet the global food challenge. Australia is out of step with the rest of the world in terms of commitment to support food producers in the face of global price expectations that do not provide for farm viability. The outcome is that Australian producers have been forced to carry this financial burden. The impact of Australia’s aberrant attitude to the importance of maintaining productive capacity through retaining the human capital in agriculture is now manifest in the current drought as farm businesses fail due to a lack of economic resilience.

Australia is relatively underpopulated with a perceived abundance of natural resources including arable land and water. Our near neighbours are comparatively overpopulated with significant shortages of necessary natural resources. Our national security will increasingly depend on our reputation as a fully utilised, efficient and reliable agricultural supplier that is recognised as being too valuable to disrupt.

Current agricultural policy and societal expectation as reflected though government is out of step with the needs of today’s agriculturists and increasingly out of step with the needs of those who depend on our produce.

In any business model the decision to invest must incorporate a risk reward assessment. Typically, low risk investment can be justified on relatively low returns. Conversely, higher risk ventures require higher returns to justify the same investment.

Australian agriculture has gradually been wound into a high risk low reward category that belies the value of the sector to society. The market, in part through intervention by other countries, has failed to accommodate the shift in the risk profile of Australian agriculture.

It is the role of government to intervene where markets fail and the federal government must derisk agriculture to ensure adequate Australian investment occurs in the sector and to attract and retain the kind of entrepreneurial capacity that is essential for a sustainable future.

Agriculture is not a business like any other and the social value of the enterprise must be properly evaluated in terms of eco-services, trade and geopolitical stability. Even the most rudimentary, and more essentially, honest evaluation demonstrates the value of Australian agriculture to the average taxpayer is grossly underestimated and there is a sound case for increased financial support of the sector.

FarmOnline
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READER COMMENTS

Denby
5/04/2014 7:52:58 AM

Agriculture as we know it is in decline for the same fundamental reasons than Shell sold its Geelong refinery and service stations: the age of cheap oil is over. When a global oil company (Shell) borrows money to pay dividends you know the party is over. I agree there is a social imperative to maintaining food supply but the current globalised model of farming is about maximising profits not providing nutritious food. Globalised trade disassociates farming from eating. Until we downscale and localise food production, farmers will be squeezed by forces beyond their control or our control.
Taxpayer
5/04/2014 9:19:08 AM

Farming is no different to any other business. It must make a profit to be viable. That there are highly profitable farmers and highly unprofitable ones sometimes as nieghbours highlights the fact that management is a core ingredient for success. Farmers therefore do not deserve special treatment and if they continue to push this 'special case' argument then perhaps the taxpayer should encourage the govt to nationalise the nations farms and afford those farmers social payments so they can still enjoy their lifestyle. So pucker up like the rest of the economy. Farmers are not special.
Logic
5/04/2014 7:18:40 PM

I don't agree that farmers are special but nether should they be expected to absorb the costs of so called moral decisions of animal rights or environmental movements. The restrictions of a highly regulated labour market also is a higher cost than any other competitor. Something has to give, we cannot have it both ways.
LTF
6/04/2014 5:51:51 AM

The common mistake made by our urban critics is to talk about farmers rather than farming. By doing this we fail to address a failing key Australian industry. If we look at the farming industry statistics, we see that 20 years ago we had about 45,000 grain growers. Today we have about 10,000. So about 35,000 less families are being supported directly by farming. Why? Many reasons. But as JFK said "farmers must buy at retail and sell at wholesale". In that retail price are all the regulations and "Award rate subsidies" to labor but none to the labor of farming. Take off the blinkers and look.
GFA
6/04/2014 6:00:39 AM

Well written Peter M. I agree violently with your point about our failure to recognize that no FTA we ever entered into or any other of our negotiations have ever altered other Nation's subsidy approach to their own farming sectors. We have even reduced our farm produce access and farmers terms of (global) trade to markets via FTA's in favor of non farm products. Sheer blindness or ignorance or both. Surely at some stage our Govt's will see because we are on the verge of having no locally owned farming industry otherwise. Then there is local regulation and awards killing every business.
leon tanner
6/04/2014 6:14:34 AM

Farming in Australia has been a major success story for our nation. It grew from nothing in the early 1800's to a point in the 1980's/90's, where we had over 100,000 farming families operating cropping and livestock farms. This growth was largely via private citizens risking their own capital, and seeking their own markets, and building their own infrastructure and renting Govt railways and ports at commercial rates. All along, these farmers paid full, regulated costs for inputs and services to prop up labor while taking only low global prices for produce. Today we have only 10,000 farmers!!!
Western QD
6/04/2014 7:32:06 AM

Taxpayer, Farmers are getting 30 year old prices for there produce ,if we get paid in line with inflation then you will pay in the supermarkets. We need to be paid for our produce and Government can keep there pathetic drought packages they come up with. And the Governments problem will be to subsidies the city people so you can afford to buy your food. Then Government will not have to ask city people whether they can or can not support rural Australia again. You also get pledged billions for over passes or tunnels, parks, public transport at your finger tips so you can enjoy your lifestyle
Qlander
6/04/2014 12:34:55 PM

Politics grew out of the first village councils (the first governments) formed to ensure a portion of good harvests were put aside to allow for bad harvests. Farming has never, and will never be completely free of politics.
wtf
6/04/2014 3:11:20 PM

National security as raised in this article is very important, is the reason no coalition member is mentioning the words state owned farm investment the risk they will take it if we dont let them buy it? as I see it the US is not an ally, it is a wolf in sheeps clothing, as shown by north Korea, if you have nuclear power no one messes with U, I would rather that backing than the one we supposably have now.
Rob Atkinson
6/04/2014 8:47:20 PM

Well written Pete. Your practical experience and business acumen are very respected. Most other countries have agricultural subsidies because they know they cannot have food security without subsidies. Family farming enterprises need to be preserved. Farmers debts have grown because farmers have been subsidising the cost of food and fibre in Australia. $1 litre milk is the perfect example. Cheap milk and broken farmers. 80% of farm debt is carried by 20% of farmers. These 20% produce 80% of farm production. Economic rationalists like many in the Liberal Party will see the demise of agriculture
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Burrs under my saddlePete Mailler is a farmer on the Queensland/NSW border. His perspective and opinions are borne from seeing more than one side of many problems in his various farm leadership roles and in wanting to ensure a future for his children in agriculture.

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