Australia has built up a large suite of trade agreements over the past decade or so, recently including the Japan, South Korea and Chinese free trade agreements. The chief cornerstone of these deals, sealed with much aplomb, has been food. Spruiked with an impressive sales pitch, it is claimed that Australian agricultural can feed 60 million people with the finest quality produce in the world. Agriculture is championed as second only to minerals as Australia’s driving export.
The problem, however, is that the grandeur of Australia’s overseas salesmanship is conjuring up images of an agricultural industry that is increasingly at odds with the reality back home. Of course, owing to good regulation and even better natural assets, Australian produce is of a premium quality, especially compared to regional competitors. Yet the technological and commercial sophistication of Australian agriculture is lagging behind the poster-boy image that is championed abroad. While it will be the penultimate driver of Australia’s prosperity into the century ahead, the prevailing view of agriculture is stuck in the past.
The Abbott Government’s Agricultural Competiveness White Paper, released in July, offered up a few worthy reforms. However, it also illustrated one of the chief problems facing Australia’s agricultural prosperity: perception. The White Paper opens with these sentences: “Agriculture is at the heart of the Australian identity. Our history and economy was ‘built on the sheep’s back’.” These remarks nicely encapsulate the simplistic, romanticised perception many Australians have of agriculture. To conservatives agriculture is viewed as more of a cultural centrepiece, with the historic trappings of the stockman and the ‘quaintness’ or rural towns. To the left, environmentalists view farmers as a nuisance and agriculture as an anachronism.
Both these viewpoints are wrong. Agriculture is a highly lucrative, innovation-rich industry that is critical to Australia’s standard of living as well as its national power.
Nevertheless, agriculture is possibly the least commercialised export industry Australia has, despite it being our second largest. Beef and dairy are the big exceptions - they are thoroughly commercialised, owing to the large multinationals that drive the sector. Yet, these two products are but a fraction of the cornucopia Australia offers the world. Unlocking the full potential of Australia’s agricultural industry is key to diversifying Australia’s export base, reducing our sovereign risk, increasing our domestic prosperity, and deepening our regional partnerships. To do this, Australian agriculture needs to undergo a vast reimagining, principally hinged on deeper commercialisation.
The White Paper trumpets a key aim of the government as being “to keep families on the farm as the cornerstone of agriculture” which is of course a touching sentiment but ignores the fact that small-scale family ownership is one of the principal things stifling diversification, innovation and risk-mitigation throughout the industry. Staggeringly, 70% of Australian farms only produce a quarter of the industry’s total output; this is principally because the majority of Australian farms are still family owned and classified as small or mid-sized businesses. This disparity of scale is unheard of in other commodity industries. Who has ever heard of a ‘small-business’ iron ore mine? Commercialisation can unlock the potential of these smaller farms in three key ways:
Capital: When a farm is owned by a larger business, opposed to a family, there will invariably be a greater pool of assets that can be invested into that single farm. It’s common for family farmers, even quite wealthy ones, to be asset rich but cash poor. When a farm is o wned by a firm it can have access to investment and loans owner-operators can’t obtain. Furthermore, labour, capital and logistical tools can be spread across the enterprise meaning more can be produced out of every man, machine and dollar.
Diversification & Innovation: Family farmers typically have most of their wealth tied up in assets that are difficult to liquefy, so they are cautious to spend what money they do have on unfamiliar technologies or alternative farming practices. This cautiousness means the uptake in cutting edge technology or alternative methods grinds up against a cultural adversity to risk and a reluctance to change how a family might have farmed for generations. This same mindset can also run counter-cultural to the diversification of farms. Despite the rich fertility of Australian agricultural regions, it’s not hard to find entire areas dominated by a single produce, despite suitability for multiple uses. Convincing a fourth-generation dairy farmer that maybe they’d be better off setting aside a paddock to grow saffron may be scuttled by the simple retort of “…but I’m a dairy farmer”. Commercialisation overcomes this, because the competition-driven psych of a modern, floated-firm will seek out a higher return from a plot of land despite any sentimental predispositions.
Risk-Mitigation: The White Paper reaffirms the Government’s commitment to drought relief for farmers. However, the Australian Financial Review’s Economics Editor Alan Mitchell has challenged this commitment, arguing that by propping up small family-owned farms with drought relief, the government is essentially inoculating these businesses from the market forces that would otherwise encourage revitalisation throughout the industry. The best form of drought relief is firm-driven diversification: when one part of the business is in drought it can be triaged by revenue flowing in from areas that are still producing. By becoming a franchisee or partner in a larger enterprise farmers can find greater financial security, and, if leveraged correctly, greater say in the orchestration of their industry.
The deeper commercialisation of Australian agriculture might not seem immediately important to Australian foreign policy, but the reality is that a reinvigoration of agriculture can provide Australia with greater wealth as well as greater regional influence and power. By expanding and diversifying what we sell to our regional neighbours we integrate our economic needs with theirs resulting in a foundation of mutual interest that helps to expedite diplomacy and deter rash unilateral behaviour. Diversification of Australian exports by bolstering agriculture can deepen existing trade relationships and establish new ones; so too would this process open more areas of the Australian economy to foreign investment. For foreign policy wonks food and farms might not seem that sexy, but by thinking creatively about how Australian agricultural trade can drive national strategy and diplomacy we can see that agriculture is not just sexy, it’s mission critical.
William Stoltz is the Australian Foreign Policy Fellow at Young Australians in International Affairs.
Image credit: Ian Sanderson (Flickr: Creative Commons)