Why is Agriculture Different?

“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

Recently the dire situation faced by many farmers and graziers induced by yet another “drought” has reignited the debate around 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.


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 greatly distort world agricultural trade.

Each year the OECD compiles statistics about the level of subsidies paid to farmers in different nations, and the 2012 farm subsidy data has just been released. Once again, it shows that Australian farmers received the lowest level of taxpayer subsidies of any farmers in the world, but Australian taxpayers remain ignorant of this fact, and most probably believe Australian farmers are subsidised whingers. Mick Keogh. Australian Farm Institute

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 social imperative. No amount of economic rationalisation has moved, or will move, the rest of the world on this issue.

Three people died in these riots in Egypt because of a bread shortage.

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 old as the Romans it has 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?

prices paid and received
This graph provides the empirical evidence that costs (prices Paid) were rapidly closing the gap with prices received from 1981. Costs had actually kicked upwards in 1979. Finally by 1999, trend lines show the cost curve rising above the prices received curve. Courtesy Ben Rees

Compiled from ABARES Commodity Statistics 2012 and RBA

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 and retaining the human capital in agriculture is now manifest, as farm businesses fail due to a lack of economic resilience in the current drought.

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 through 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 Australian 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.



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