Ag needs investment boost

Sadly, both our share of the global market and our farm productivity are in decline.

AS a great trading nation, trade liberalisation is a very good thing for Australia.

Promoting free trade is a great Labor tradition dating back to Whitlam, and taken to previously inconceivable levels by Hawke and Keating.

Howard, Rudd, Gillard and Abbott have followed that tradition and that bipartisanship has helped to achieve reform during a period in which it has been so difficult in so many other areas of public policy.

Australia is a country with a relatively small population and therefore, one with limited domestic savings and levels of consumption.

We could never have hoped to be amongst the wealthiest nations on earth without both foreign exchange earnings and the capital in-flows we need to fund our productive capacity.

For all of our history, we’ve relied on the exports and the savings of others for much of our national wealth; from the time our economy “rode on the sheep’s back” through to the more recent mining boom.

Living standards have risen more rapidly in recent decades because successive governments have tackled the hard reforms.

For the one hundred years leading up to the 1970s, our national economic model was one most defined by:

  • strong export incomes arising from high commodity prices underpinned by a heathy terms of trade;
  • high levels of national income funded by a high tariff; and,
  • inflated consumer prices made affordable by arbitrarily set domestic wages.
  • This model broke down when our terms of trade turned against us as the value of the things we exported - mainly commoditised agriculture and mineral products – continued to decline, and the value of the products we imported continued to rise.

    Critical to the ongoing success of the new Australian model – an open and internationally competitive economy – will be our capacity to grow the value of the future foreign earnings we secure for our agriculture products and the extent to which we can lift productivity in our agriculture sector.

    Sadly, both our share of the global market and our farm productivity are in decline.

    The former reminds us why further trade liberalisation is so important and it’s why Labor remains so committed to it.

    But eliminating the barriers to trade in key markets that our competitors don’t face is only part of the solution.

    First, because producers of commodities will remain price-takers.

    Second, because in the short-run at least, Australian output will remain restricted by financial, infrastructure and natural resources constraints

    That’s why Australia’s focus must not be just on volume, as important as it will be.

    Rather, to fulfil our ambitions our key focus must be on value and margins.

    Government must take the lead in building on our clean and safe image by establishing a reputation as a provider of high value, high quality, and niche product. And of course, strengthening our capacity to protect and sustain that reputation.

    It will require us to attract more investment into the sector – money for infrastructure, money for research and development, money for extension and money for marketing and branding.

    On the productivity front, so much needs to be done. Particularly in the management of our natural resources – the productive capacity of our soils, the efficient use of limited water supplies, the most efficient farming practices.

    Again, all of this will require a big step up in investment.

    The 2012 ANZ report entitled Greener Pastures suggests that to reach our aspirations in agriculture, Australia will need $600 billion of capital investment, and another $400 billion will be needed to support demographic driven farm turnover out to 2050.

    To put this in context — the agriculture sector in Australia would need investment of just over $26 billion per annum on top of existing levels of investment (recently around $16 billion) in order to meet the investment levels needed to achieve the "dining boom" type production targets needed to satisfy both demand and the cost of acquiring land and farm assets between now and 2050.

    In other words just over two and a half times the most recent annual level of investment in agriculture. To put this further into context — aggregate investment in mining was $632 billion in the 10 years to June 2014 while investment in agriculture was just $141 billion.

    For agriculture to achieve its investment goal of $42 billion per annum for the next 38 years, it would need aggregate investment over the next ten years of $420 billion — three times the level of investment achieved in the ten years to June 2014.

    So where will the financial capital come from?

    There are many, including me, who lament the fact that a greater share of our superannuation savings does not make its way to Australia's agriculture and agri-business pursuits. And anything we can do to improve that outcome we should do.

    But given the size of the investment challenge, it could never be enough.

    According to the Foreign Investment Review Board (FIRB) around $167 billion of foreign investment was proposed for Australia in 2013/14. Of that, only $3.4 billion was invested in agriculture, forestry and fishing.

    That’s why I’m so frustrated both by the quality of public debate around foreign investment and the Government’s changes to the regulation of foreign investment

    The competition for global capital is intense and changes to FIRB thresholds and application fees, along with rules which discriminate between nation-states, simply make Australia a less attractive destination in which to invest.

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    FarmOnline
    Joel Fitzgibbon

    Joel Fitzgibbon

    is Shadow Minister for Agriculture, Fisheries & Forestry & Rural Affairs and the MP for Hunter
    Date: Newest first | Oldest first

    READER COMMENTS

    vicfarmer
    12/08/2015 8:39:49 AM

    Hey Joel, heads up, selling our land to foreigners doesn't necessarily introduce new capital to agriculture. Money comes in, money goes out, asset values rise, return on capital falls. Furthermore, scrutiny is required to ensure investment is for the right reasons. Foreign investment does not always equal productivity gains. If you want the job, prove you understand that successive governments have failed to facilitate an environment in which a farmer can prosper, think red/green tape, infrastructure, market interference... I could go on.
    Hilda Hereford
    11/08/2015 7:38:39 AM

    So Joel, Labor did not support the LDP And Liberal recommendations for the last Senate Inquiry because there was no political gain for Labor. So basically your party is not about governing and reforming past mistakes when the opportunity arises, but stopping reform because it is not in your parties interest, what a disgrace!! In case you hadn't noticed Joyce is doing bugger all irrespective of Senate recommendations anyway, what a joke we have for government in Australia!
    Geronimo
    10/08/2015 3:47:08 PM

    If there is no money in farming, who owns the $4.6 billion sitting idle and tax-free in FMDs?
    pepper
    10/08/2015 8:43:41 AM

    You farmers need to understand that the pollies need to fund their family holidays somehow......? business class at that! Look to the price takers....... And Jock if you don't flog the farm the taxpayer supported banks will give you forceful incentive to move on. The whole unsustainable economic madness of increasing production just collapses and the cycle starts again. Next time it won't be a GFC it will be a TFC?
    John NIven
    10/08/2015 8:00:43 AM

    If agriculture is profitable farmers will invest the surplus. Interesting article about investment in sheep industry. Numbers have gone from 160 million to about 60 million so prices have increased to a point of expansion in profitability and ultimately production. Borrowing to simply survive is ridiculous.
    Jock Munro
    10/08/2015 5:02:24 AM

    So there you have it from Joel! We just keep on flogging off our farms and business' to foreigners and everything will be okay!
    Out of the shadowShadow Agriculture Minister Joel Fitzgibbon aims to put ag policy under the microscope. Based in the NSW Hunter Valley, Joel also has a unique perspective on the tensions between primary production and mining development.

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