Productivity growth in Australian agriculture is a problem. Globally it has slowed, but in Australia it has slowed even more.
In the context of a growing world population, demand for dietary protein and issues of environmental sustainability, a lack of productivity growth is significant. If production is to increase, that can only occur through additional inputs (i.e. expanded farming areas, more fertilisers, equipment, labour, etc) or by increasing productivity (i.e. a higher ratio of production to inputs).
For Australian farmers there is an additional consideration – productivity growth is what keeps them internationally competitive. At the very least they should be increasing their productivity at the same rate as other exporting countries.
According to the government’s agricultural forecasting agency ABARE, without constant productivity growth our farmers would now be earning half of what they earned in 1950. It also says productivity growth in broadacre farming has slowed right down since the early 1990s.
Innovation is the main contributor to productivity. Some of this is obvious, such as the replacement of horses with tractors, but things such as minimum tillage, improved seed varieties, better fertilisers, selective crop chemicals, GPS-guided equipment and variable rate technology are more incremental.
The rate of adoption of innovation also is important. This is influenced by various advisers (both private and public sector) but is mainly dependent on perceived need. Thus, adoption is lower when farmers think things are fine, such as when prices are high or they are protected from competitive forces or adverse events such as droughts. The increasing average age of farmers is a factor as well.
But innovation needs advances in technology before anything can be adopted. Many people say productivity growth will not recover until there are significant new technological breakthroughs.
The answer, according to some, is more publicly funded R&D, who point to a decline in public funding preceding the decline in productivity. Not many of those expressing such a view are impartial though – most rely on public funding themselves or would be happy for someone else to pay for research and save them the cost.
An alternative view is that the private sector would invest far more in R&D but doesn’t because of the risk that it will not be permitted to commercialise its innovations. When it comes to farming, especially food production, the community tends to view new technology with suspicion and sometimes outright opposition.
Probably the best example of this is genetically modified (GM) crops. Despite 15 years of event-free cultivation and no scientific grounds for apprehension, regulatory barriers remain high and political, with bureaucratic and media disapproval significant. Moreover, the relatively few companies that continue to invest in the technology are vilified. Monsanto, for example, probably has the worst public image of any major corporation in the developed world.
Other technologies facing an uncertain future are livestock cloning, which could do for cattle and sheep production what modern herbicides did for cropping, and nanotechnology, which is already being confronted with fierce opposition despite its early stage of development. Food irradiation, with few exceptions, is now a lost cause.
Australia is typically more of an importer of new technology than a developer, although we have a history of adapting and improving it. Some farmers are also keen to take up new technology. Grain growers in Western Australia, for example, were among the first in the world to embrace minimum tillage and were eagerly awaiting genetically modified canola (which had been developed locally) before it was banned by the previous state government.
Ideally, these farmers would lead the rest of the industry, either by setting an example or becoming more successful and buying out their neighbours. But Australia has a decidedly lukewarm attitude towards genetically modified crops, with cotton and canola the only ones permitted. Two states, South Australia and Tasmania, maintain complete bans.
The price paid for this is declining international competitiveness. Productivity growth in countries such as Brazil, Argentina, India and China, and also parts of the US and Canada, is higher than in Australia. One of the main contributors is that those countries have embraced new technology in the form of genetically modified crops, primarily canola, maize, cotton and soybeans.
Globally, yields for wheat and rice, which are not genetically modified, are in decline. Maize, canola, soybean and cotton yields are either steady or rising.
Whether agriculture returns to its productive growth path and can feed a relatively prosperous population of nine billion people by 2050 will depend more on how well society accepts new technology than whether the technology is invented in the first place.
It is our own fault that productivity growth is in decline, and it will be own fault if it does not recover.
Copyright © 2011 Business Spectator Pty Ltd.
