seafood outlook

SEAFOOD OUTLOOK TO 2009-10 quality not quantity the key for Australian producers

Dana Hanna, Peter Gooday, David Galeano and Paul Newton • Worldwide catches of fi sh are expected to tion is available, are biologically either underex- remain fairly static over the medium term, ploited or only moderately exploited. Around 47 whereas aquaculture production is projected per cent of major marine fi sh stocks are assessed to continue to rise. as being fully exploited, and 18 per cent as over- exploited. The remaining 10 per cent of stocks • Australia produced $2.2 billion of ed- are signifi cantly depleted or recovering. This ible seafood products in 2003-04, of which means that production from around three quar- around a third came from aquaculture. In the ters of global fi sh stocks cannot be expected to same year, Australian edible seafood exports expand or increase in any substantial manner in were valued at $1.3 billion and imports at the future (FAO 2004b). $905 million. Over the past thirty years, aquaculture produc- • An assumed easing of economic growth in tion has increased at an average annual rate of major export markets is likely to place down- 9.1 per cent a year (compared with 2.1 per cent a ward pressure on seafood prices. year for capture fi sheries). Aquaculture produc- tion in 2002 was around 40 million tonnes or 30 per cent of total fi sheries production (fi gure A). Trends in world seafood markets While world aquaculture production is expected Global fi sheries production in 2002 was at a to continue expanding in the future, the rate of record high, with around 133 million tonnes expansion is projected to slow to between 0.4 produced (FAO 2004a). World production of wild caught fi sheries products has remained relatively static since the early 1990s (fi gure A). World fisheries production Forecasts of an upper limit of around 100 million A tonnes made in the 1970s are being increasingly substantiated by the catches in recent years (FAO 120 2004b). 100 The number of fi sheries around the world for Aquaculture which the current level of harvest is less than the 80 maximum biological sustainable yield (termed 60 biologically underexploited) continues to fall as global fi shing pressure increases. It is estimated 40 Wild caught that in 2002 only 25 per cent of major marine 20 fi sh stocks, or species groups for which informa- Mt

• Dana Hanna • +61 2 6272 2133 • [email protected] 19931996 1999 2002 australiancommodities • vol. 12 no. 1 • march quarter 2005 143 seafood outlook per cent a year and 5.3 per cent a year (Brugere tion by the developed countries declined (Del- and Ridler 2004). The pace of growth in aquacul- gado et al. 2003). ture production will depend to a large extent on As a consequence of rising demand for fi sh- movements in world seafood prices and harvest eries products and slow growth in wild catch rates of wild fi sh stocks. supplies, the prices for fresh and frozen fi sh Global consumption of fi sh has doubled since entering world trade has been maintained in 1973, with most of the growth occurring in de- real terms in recent decades (fi gure B). This is veloping countries, many of which have expe- especially the case for demersal and pelagic rienced rapid population growth, rapid income fi sh species for which little aquaculture produc- growth, and rapid urbanisation. China’s share of tion is available. These constant real prices are global fi sh consumption increased from 11 per in contrast to the prices for most animal origin cent in 1973 to 26 per cent in 1997, while the foods, which have fallen signifi cantly in real share of India and south east Asia doubled to 11 terms over the same period. per cent. In the same period, total fi sh consump- However, world prices have been declining for many freshwater fi sh species, such as salmon, for which aquaculture operations have reached World import prices for fisheries industrial scale. Prices for farmed salmon have B products In real terms fallen in real terms as production from coun- Fresh/chilled fillets tries such as Chile and Norway have increased rapidly. Prices of canned fi nfi sh have also fallen 20 with the decline in popularity of the product in Freshwater developing countries. 15

10 Australian production and trade

Demersal 5 Production increasing but value falling

2002 Australia produced $2.2 billion worth of fi sh- US$/kg Pelagic eries products in 2003-04. Around 93 per cent of 196119711981 1991 2001 this production was edible products (seafood), while the remaining nonedible proportion was Frozen fillets largely pearl production worth approximately 10 Freshwater $150 million. A wide range of species are produced in 5 Demersal Australia. In 2003-04, fi nfi sh accounted for 38 per cent of the gross value of production, crus- 2002 Pelagic US$/kg taceans 38 per cent and molluscs 22 per cent. The most valuable species produced in terms of 196119711981 1991 2001 their contribution to total fi sheries gross value of Canned finfish production, were rock lobster, prawns, abalone Freshwater and tuna (fi gure C). These are also the major 15 exported products. While the volume of total Australian fi sheries 10 production since 1994-95 increased by 15 per cent, the real value (in 2003-04 dollars) of that Demersal 5 production fell by 4 per cent (fi gure D). Falling 2002 Pelagic average real Australian prices for seafood prod- US$/kg ucts over the past decade, and particularly since 196119711981 1991 2001 1999-2000 (fi gure E), have meant that although

144 australiancommodities • vol. 12 no. 1 • march quarter 2005 seafood outlook

Australian production of key species, In 2003-04 production of wild caught fi sh C 2003-04 species increased in New South Wales, South Other fish Australia and Western Australia. Most notably, catches of Australian salmon (New South Rock lobster Wales and Western Australia), pilchards (South Prawns Australia) and emperors (Western Australia) Tuna increased. Abalone In the Commonwealth fi sheries, the gillnet, Other hook and trap and Great Australian Bight fi sh- eries increased production of fi nfi sh species. For Pearls the gillnet, hook and trap fi shery, production of Oysters most species increased slightly in 2003-04. The Scallops Great Australian Bight fi shery also had increased 0200300100 400 500 600 catches of most species, especially king fl athead $ million and bight redfi sh. production levels have increased, the real value Australian export prices for key of Australia’s fi sheries production has not E species always kept pace. This was especially the case in 2002-03 and 2003-04 with the appreciation Abalone of the Australia dollar against the currencies of 60 major trading partners. Of the $2.2 billion worth of seafood prod- Rock lobster ucts produced in 2003-04, wild catch fi sheries 40 produced $1.5 billion. Following global trends Southern bluefin tuna in wild caught harvest, this sector of Australia’s 20 fi sheries production has been relatively stable Prawns over the past decade, with production fl uctuating 2003-04 Yellowfin tuna around 200 000 tonnes. However, wild caught A$/kg production has increased in the past two years, 1994 1997 2000 2003 mainly from fi nfi sh species other than tuna. -95 -98 -01 -04

Gross value of Australian fisheries While the volume of wild caught production D production has increased by only 7 per cent over the past decade, aquaculture production increased by 80 2.5 per cent. Aquaculture production fell slightly, however, in 2003-04 to 43 000 tonnes. In 2003- 2.0 Aquaculture 04, aquaculture accounted for 16 per cent of total production by volume and 34 per cent by 1.5 value, compared with 10 per cent and 21 per cent a decade earlier. 1.0 Major aquaculture species in Australia Wild caught include southern bluefi n tuna, Atlantic salmon, 0.5 oysters and prawns (fi gure F). These four species 2003-04 A$m accounted for 66 per cent of the value of total aquaculture production in 2003-04. Over 98 per 1994 1997 2000 2003 -95 -98 -01 -04 cent of wild caught southern bluefi n tuna is used australiancommodities • vol. 12 no. 1 • march quarter 2005 145 seafood outlook

Gross value of production of key Kong and the United States the next largest desti- F aquaculture species, 2003-04 nations. Other major markets include Chinese Taipei, China and Singapore (fi gure G). In 2003- 04 these six markets accounted for 92 per cent Other 13% Salmon 16% of Australia’s exports by value and 81 per cent $96 million $116 million by volume. Pearls 20% $150 million The total value of Australian fi sheries exports Tuna 33% $242 million fell by 10 per cent in 2003-04 to $1.65 billion. This fall was driven primarily by the 11 per cent fall in the value of edible exports by to $1.3 billion. The value of exports to a number Oysters 10% of Asian markets such as China, Chinese Taipei $72 million Prawns 8% and Japan have not recovered to pre-SARS $56 million levels. The volume of exports to these markets has fallen slightly and their value has fallen because of falling world prices and appreciation of the Australian dollar. for aquaculture growout operations. Aquaculture The Australian dollar continued to appre- farms contribute 35 per cent of Australian prawn ciate in 2003-04 relative to the US dollar (by production, 5 per cent of abalone and all Atlantic 22 per cent) and the Japanese yen (by 13 per salmon and oyster production. cent). As Australia is a small producer of fi sh and the export prices received by Australian Australian exports fell in 2003-04 producers are set in world markets, an appre- In volume terms, Australia is a small producer, ciating Australian dollar results in lower export ranked 53rd in the world. However, by value, prices in Australian dollar terms. This explains Australia is a more signifi cant seafood exporter, a large part of the fall in the unit value of many ranked 21st in the world (FAO 2004a). In 2003- of Australia’s fi sheries products in 2003-04. 04, Australia exported $1.7 billion of fi sheries However, some products, such as abalone and products. Around 80 per cent of this was edible scallops, have recovered over the past year, with seafood products. their export value increasing by 10 per cent and Japan continues to be Australia’s main export 22 per cent respectively. market for edible fi sheries products, with Hong Imports also fell in 2003-04 Australia imported $1.1 billion of fi sheries Major exporters of edible fisheries products in 2003-04, a fall of $95 million from G products 2002-03. Over 80 per cent of the gross value of imports was edible fi sheries products. The main products imported into Australia are frozen fi sh 600 fi llets (36 per cent of the gross value of seafood Japan imports), prawns (34 per cent) and canned fi sh (33 per cent) (fi gure H). 400 Australia imports relatively large volumes of Hong Kong low value fi sh and crustaceans, and exports rela- tively small volumes of high value fi sh and crus- 200 Chinese Taipei taceans. In product weight terms, fi sh imports in 2003-04 were over three times that of exports, 2003-04 United States $m but the average unit value of exported fi sh was almost fi ve times the value of imported fi sh 1994 1997 2000 2003 -95 -98 -01 -04 products.

146 australiancommodities • vol. 12 no. 1 • march quarter 2005 seafood outlook

Australian imports of edible fisheries Thailand and New Zealand dominate as H products, 2003-04 the major sources of edible fi sheries products imported in Australia (fi gures I, J), and together accounted for around 43 per cent of total edible Finfish whole 6% imports by value in 2003-04. The remainder Other 17% $55 million of edible imports originated from a number of $157 million Finfish fillets 22% $196 million countries including Viet Nam, China, India and South Africa. Australia sourced over 57 per cent of its imported canned fi sh and 16 per cent of canned crustaceans and molluscs from Thailand in 2003- 04. Thailand was also the second largest supplier Crustaceans and molluscs Finfish canned 20% of fresh, chilled and frozen prawns behind Viet fresh/chilled 32% $177 million $288 million Finfish sds 3% Nam. New Zealand was the source of almost 40 $30 million per cent of Australian imports of fresh, chilled or frozen fi sh products, 27 per cent of fresh, chilled or frozen molluscs and 33 per cent of canned Australian imports of finfish, by source, crustacean and mollusc imports. I 2003-04 The quantity of seafood imports increased by 60 per cent between 1994-95 and 2003-04. However, the real value of seafood imports Other 36% Thailand 24% $198 million $129 million increased by only 18 per cent. The increase in imports of fi nfi sh, and in particular canned fi nfi sh products, was responsible for the bulk of the increase in the quantity of seafood imports.

United States 5% $25 million New Zealand 23% Outlook for Australian production Viet Nam 6% $128 million and trade $31 million South Africa 6% Overall, it is expected that the volume of Austra- $34 million lian wild caught production will remain at around current levels over the medium term. Growth in Australian fi sheries production will therefore Australian imports of crustaceans and depend on the expansion of aquaculture opera- J molluscs, by source, 2003-04 tions. However, aquaculture production over the past four years has not expanded as rapidly as earlier anticipated. Factors contributing to Other 23% Thailand 26% this lack of growth have been the appreciating $81 million $92 million Australian dollar, falling world prices for farmed species, and increased costs of production in Australia. India 10% $36 million Low value imports of many species, most notably prawns, has led to increased compe- China 15% tition for Australian fi sheries products (wild New Zealand 11% $56 million caught and aquaculture) both in the domestic $40 million Viet Nam 15% and export markets. Product marketing and $55 million seafood labeling initiatives will continue to be signifi cant for Australian fi shers and farmers in australiancommodities • vol. 12 no. 1 • march quarter 2005 147 seafood outlook the differentiation of their product. In particular, for Australian seafood. As mentioned above, promoting the ‘clean, green’ nature of seafood ensuring that customers recognise the specifi c production in Australia will be increasingly im- quality attributes of Australian seafood is portant it today’s environment of higher environ- likely to be an important factor determining the mental and health standards. competitiveness of the product. With the profi le of Australian consumption There is a strong chance that imports into Aus- not matching wild caught production (Love and tralia’s other major export market, the United Langenkamp 2002), many wild caught producers States, will increase signifi cantly in the near (and some aquaculturists) fi nd it more profi table future. Production from US wild catch fi sh- to export than to sell on the domestic market. The eries have been declining since a peak in 1994. outlook for Australian exports is dependent on Rising population and increased consumption, the competitiveness of Australian seafood prod- combined with the assumption of static wild ucts and the level of demand in our major export caught production and aquaculture produc- markets. A number of factors infl uence the level tion growing at the same rates as achieved in of seafood demand, including economic growth, the 1990s, are expected to lead to an increased population growth, the prices of seafood and dependence on seafood imports in the United substitute products (such as meat) and consumer States (Love 2003). tastes and preferences. Australia has recently negotiated trade agree- The assumed appreciation of the Australian ments with New Zealand, Singapore, the United dollar against the US dollar from US$0.71 in States and Thailand. These agreements have led 2003-04 to US$0.74 in 2004-05 will tend to to a reduction in many key tariffs for seafood. reduce the relative competitiveness of Australian For example, many Thai seafood tariffs (ranging seafood in export markets. The Australian dollar between 5 and 30 per cent) are to be phased is assumed to depreciate slightly against the US out over a fi ve year period. On 1 January 2005, dollar to US$0.72 in 2005-06, and to continue Australia also announced its intention to enter to depreciate to US$0.65 by 2009-10. This into free trade agreements with ten ASEAN will improve the competitiveness of Australian nations, expected to be concluded in 2007. It exports in the medium term. is expected that successful negotiations and Stagnant wild caught production may lead resulting reduction in tariff barriers will lead to increased dependence on imports in some to an increased volume of exports to these key markets. However, the extent to which domestic markets over the longer term. aquaculture in these markets will substitute for wild caught products will also affect import Australian imports expected to remain low demand. value products Like exports, the demand for seafood imports Major markets for Australian exports into Australia is dependent on the same drivers, Compared with 2004, Australia’s major export such as economic growth and the availability of markets in Asia are expected to experience a substitutes. A key factor to note is the observa- slight easing in economic growth in 2005 (Penm tion that Australian seafood imports have tradi- 2004). For example, economic growth in Japan tionally supplied the market for edible fi sheries is assumed to fall from 4 per cent in 2004 to 1.3 products not caught in Australian waters, such per cent in 2005 and 2006, and to remain around as low value fi sh fi llets (Love and Langenkamp 1 per cent from 2007 to 2010. Economic growth 2002). Thus it is unlikely that even with an in Hong Kong is expected to fall and growth in increase in wild caught or aquaculture produc- the United States is assumed to fall from 4.4 per tion, imports would fall dramatically. The extent cent in 2004 to 3.3 per cent in 2006 and remain that aquaculture production in particular will at that level over the outlook period. be able to replace imports is dependent on the The slowdown in economic growth in these import price and costs of production of the high major markets could lead to a fall in demand value species such as prawns.

148 australiancommodities • vol. 12 no. 1 • march quarter 2005 seafood outlook 1 Medium term projections for Australia’s fi sheries products

2002 2003 2004 2005 2006 2007 2008 2009 -03 -04 -05 f -06 z -07 z -08 z -09 z -10 z Gross value of fisheries production $m $m $m $m $m $m $m $m Tuna a 317 276 206 223 227 234 242 243 – real b 332 283 206 218 216 217 220 215 Other fish 560 550 668 550 556 566 572 706 – real b 587 564 668 537 531 526 519 625 Prawns c 360 355 335 346 348 351 353 353 – real b 377 363 335 338 332 327 320 313 Rock lobster 460 406 383 366 359 399 407 408 – real b 483 415 383 358 342 371 369 362 Abalone 216 196 199 197 208 220 223 223 – real b 226 201 199 192 198 204 202 197 Scallops 33 24 20 24 24 25 27 28 – real b 34 24 20 24 23 23 25 25 Other 360 373 336 355 355 357 237 236 – real b 377 382 336 347 339 332 215 209 Total 2 305 2 180 2 148 2 061 2 078 2 151 2 061 2 197 – real b 2 417 2 232 2 148 2 014 1 981 2 001 1 871 1 946 Export value Tuna a 321 273 169 193 202 209 231 244 – real b 337 280 169 189 192 194 210 216 Other fish 164 137 147 157 169 174 179 184 – real b 172 140 147 154 161 162 163 163 Prawns Headless 12 5 6 8 12 14 15 16 – real b 13 5 6 8 11 13 14 14 Whole 193 151 154 161 176 184 194 205 – real b 202 155 154 158 168 171 176 181 Rock lobster Tails 113 103 101 97 100 102 105 107 – real b 118 105 101 95 96 95 96 94 Whole 344 318 322 306 297 321 334 342 – real b 360 326 322 299 283 299 303 303 Abalone Fresh, chilled or frozen 109 117 123 120 135 141 143 142 – real b 115 120 123 118 129 131 129 126 Prepared or preserved 107 120 127 113 114 123 125 125 – real b 112 123 127 111 109 114 114 111 Scallops 29 35 24 28 28 28 31 32 – real b 30 36 24 28 27 26 28 28 Other fisheries products 121 81 76 121 113 111 119 116 – real b 127 83 76 118 108 104 108 103 Total (excluding pearls) 1 512 1 342 1 249 1 306 1 346 1 408 1 476 1 513 – real b 1 586 1 374 1 249 1 276 1 284 1 310 1 340 1 340 Pearls 332 310 279 300 300 320 320 320 – real b 348 318 279 293 286 298 290 283 Total (including pearls) 1 844 1 652 1 528 1 606 1 646 1 728 1 796 1 833 – real b 1 934 1 692 1 528 1 570 1 570 1 608 1 630 1 623

a Exports of tuna landed in Australia. Excludes tuna transhipped at sea or captured under joint venture or bilateral agreements. b In 2004- 05 Australian dollars. c Includes headless and whole prawns only. f ABARE forecast. z ABARE projection. Sources: Australian Bureau of Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 149 seafood outlook

Following the destruction from the December is closely linked to a relatively static quota on 2004 tsunami to parts of the aquaculture and wild catch, production of southern bluefi n tuna fi shing fl eets of many Asian nations, in partic- is also expected to remain relatively static. The ular Thailand, it may be expected that imports of total value of tuna exports in the medium term canned fi sh and prawns from the affected regions therefore will be closely linked to movements in in the near future may fall. both the exchange rate and yen price of tuna.

Prawns Medium term projections The majority of Australia’s prawns are har- ABARE’s medium term projections for the vested as wild catch from the northern waters off gross value of production and the gross value Queensland and the Northern Territory. A small of exports (in both real and nominal terms) for but growing share of prawn production is farmed Australian fi sheries products (both edible and — the majority in Queensland. In 2003-04, 13 nonedible) are shown in table 1. Prospects for per cent of total prawn production in Australia tuna, prawns, rock lobster and abalone in 2004- was farmed. 05 are discussed below. Prawn production increased in 2003-04 from 26 000 tonnes in 2002-03 to 27 000 tonnes. The Tuna increase was largely the result of increases in The main high value tuna species caught in Aus- wild caught harvest from the northern prawn tralian waters are southern bluefi n tuna, bigeye fi shery and increases in both wild caught and tuna, yellowfi n tuna and albacore. Juvenile aquaculture production in Queensland. The southern bluefi n tuna caught off South Australia value of production, however, was stable at $355 are transferred to farms and fattened. Farming million, with average beach prices falling by 4 signifi cantly increases the volume of produc- per cent from 2002-03 to 2003-04. tion of this species, which regularly accounts for The fall in prices is a refl ection of the appre- 60–65 per cent of Australia’s tuna production by ciating Australian dollar and increased competi- weight. Wild caught production of other high tion on the domestic and international markets value species, particularly yellowfi n tuna but from low priced imports. In 2003-04 the volume also bigeye and albacore, is also signifi cant. of prawn imports from China (predominantly More than three quarters of Australian tuna P. vannamei) increased by over 600 per cent to production by weight is exported. Japan is the 3900 tonnes, China’s share of fresh, chilled or principal destination, receiving over 90 per frozen prawn imports increasing from 4 per cent cent of Australia’s total tuna exports by weight in 2002-03 to 21 per cent in 2003-04. Average and almost 99 per cent of southern bluefi n tuna import prices of these prawns were around $5 exports. a kilogram less than average Australian beach The gross value of tuna production is forecast prices (ABS 2004). to fall to around $206 million in 2004-05 from While the full impact on world aquacul- $276 million in 2003-04. The appreciation of the ture and wild caught production following the Australian dollar resulted in lower export prices December 2004 tsunami in the Indian Ocean for all tuna species. An increase in the supply of has not yet been determined, some impact farmed northern bluefi n tuna from the Mediter- on the world market can be expected. In 2002 ranean Sea is also placing downward pressure on Thailand and Indonesia were the second and the export prices of Australian farmed southern third largest producers of farmed prawns behind bluefi n tuna. However, supply of Mediterranean China (FAO 2004a). It is possible therefore that northern bluefi n tuna is not expected to increase a decrease in the level of production from these signifi cantly in the medium term. nations will lead to an increase in world prawn Production of wild caught tuna species in prices. However, the short production cycle of the medium term is expected to remain static. prawns means that unaffected aquaculture oper- As farmed production of southern bluefi n tuna ations can rapidly increase production and that

150 australiancommodities • vol. 12 no. 1 • march quarter 2005 seafood outlook once infrastructure is rebuilt in south east Asia, Like tuna, prawns and rock lobster, the abalone production can also be rapidly increased. industry is highly export oriented, and like those In the medium term it is expected that Austra- other industries, the appreciating Australian dollar lian wild caught production of prawns will and lower demand from many Asian economies remain relatively static. The rate of growth of have had a negative impact on prices and export the Australian farmed prawn industry will be volumes. Over the medium term, the Australian infl uenced by competition from imported prawn dollar is expected to depreciate slightly against product. Product labeling and differentiation of the US dollar. Combined with the expected Australian versus imported product will also be increase in production from aquaculture opera- important. The total value of prawn exports in tions, the value of abalone exports is expected to the medium term will largely be dependent on increase slightly to 2009-10. the movements in the Australian dollar.

Rock lobster References The bulk of Australian rock lobster is wild caught ABS (Australian Bureau of Statistics) 2004, off Western Australia, and to a lesser extent in International Trade, electronic data service, south east waters around New South Wales, cat. no. 5464.0, Canberra (and previous Victoria and Tasmania. Australian production issues). is forecast to fall by around 9 per cent from Brugere, C. and Ridler, N. 2004, Global Aqua- the second largest harvest on record in 2003- culture Outlook in the Next Decades: An 04 to 17 900 tonnes in 2004-05. It is expected Analysis of National Aquaculture Production that production will continue this decline in the Forecasts 2030, FAO Fisheries Circular no. subsequent two years with the lower recruitment 1001, Food and Agriculture Organisation of of juvenile rock lobster in Western Australia. the United Nations, Rome. Australian dollar beach prices of rock lobster Delgado, C., Wada, N., Rosegrand, M., Meijer, fell by around 23 per cent in 2003-04, due to S. and Ahmed, M. 2003, The Future of Fish: the appreciation of the Australian dollar and Issues and Trends to 2020, International Food increased competition on the world market from Policy Research Institute, Washington DC. Mexico, Cuba and South Africa. In the short FAO (Food and Agriculture Organisation of the to medium term, this competition and reduced United Nations) 2004a, 2002 Yearbook of demand is likely to place downward pressure Fishery Statistics: Fishery Commodities, vol. on prices. This coupled with falling production 95, Rome. is expected to lead to a fall in the gross value —— 2004b, The State of World Fisheries and of production to $383 million in 2004-05 from Aquaculture: 2002, Rome (www.fao.org/ $404 million in 2003-04. docrep/005/y7300e/y7300e00.htm). Love, G. 2003, ‘Australian exports of edible Abalone fi sheries products to principal markets,’ in Australian production of abalone is forecast to ABARE 2003, Australian Fisheries Statistics remain relatively stable from 2003-04 to 2004- 2002, Canberra, March, pp. 10–18. 05 at around 5800 tonnes, worth $200 million. —— and Langenkamp, D. 2002, Import Compet- Abalone is currently harvested mainly from itiveness of Australian Aquaculture, ABARE managed quota fi sheries. Aquaculture produc- Report to the Fisheries Resources Research tion of abalone is expected to increase signifi - Fund, Canberra, June. cantly over the next few years as production from Penm, J. 2004, ‘Economic overview: pros- farms in Victoria, South Australia, Tasmania and pects for world growth – affected by high oil Western Australia come on stream. However, it prices’, Australian Commodities, vol. 11, no. is expected that wild fi sheries will continue to 3, September quarter, pp. 377–87. provide the bulk of production in the medium term. australiancommodities • vol. 12 no. 1 • march quarter 2005 151 fisheries management

FISHERIES MANAGEMENT economic effi ciency and the concept of ‘maximum economic yield’

Tom Kompas • Given the problems with open access re- also requires that industry has an effective prop- sources, as well as the effectiveness of mod- erty right to the harvest, one that removes the ern fi shing technology, there are few fi sheries, incentive for a wasteful and ineffi cient ‘race to if any, that will not be both overexploited and fi sh’. For most fi sheries, a system of individual unprofi table unless they are managed effec- transferable quota (ITQ) is the best instrument to tively. For a fi shery to be economically effi - ensure this outcome. cient requires that management targets be set correctly, enforced effectively and delivered in a least cost and incentive compatible manner. Economic effi ciency in a fi shery From the economist’s point of view, the defi - • An effi cient outcome is important not only nition of economic effi ciency in a fi shery is because it protects fi sh stocks and guarantees straightforward. Concentrating on sustainable sustainability, but also because it assures that yields alone, economic effi ciency occurs when resources will be allocated to the fi shery cor- the sustainable catch or effort level for the rectly and in a way that maximises the returns fi shery as a whole maximises profi ts, or creates from fi shing. Ineffi cient fi sheries are plagued the largest difference between total revenues and by low profi ts and excessive boat capital the total costs of fi shing. This point is referred or fi shing capacity, with the all too familiar to as ‘maximum economic yield’ (MEY). For outcome of ‘too many boats chasing too few profi ts to be maximised it must also be the case fi sh’. that the fi shery applies a level of boat capital and other resources in combinations that minimise The traditional ‘command and control’ ap- the costs of harvest at the MEY catch level. The proaches to fi sheries management — ones that fi shery, in other words, cannot be overcapital- focus on input restrictions and total catch limits ized and vessels must use the right combinations — fail to provide the incentives for those who of such inputs as gear, engine power, fuel, hull fi sh to do so effi ciently and in a manner that gives size, and crew to minimise the cost of a given industry a long term stake in the future of the harvest. fi shery. These approaches often result in consid- There are several things to note about MEY erable effort creep and excessive and wasteful at the outset. First, for most practical discount competition, with both inappropriate levels rates and costs, MEY will imply that the equi- and combinations of inputs used to catch fi sh. librium stock of fi sh is larger than that associ- Maximising economic yield requires not only ated with ‘maximum sustainable yield’ (MSY), setting catch and effort levels appropriately, it as shown in the following section. In this sense the economic objective of MEY is more ‘conser- • Tom Kompas • +61 2 6272 2020 • [email protected] vationist’ than MSY and should in principle help

152 australiancommodities • vol. 12 no. 1 • march quarter 2005 fisheries management protect the fi shery from unforseen or negative Maximum economic yield environmental shocks that may diminish the fi sh A population. $ Second, the catch and effort levels associated Total cost with MEY will vary, as will profi ts, with a change High stocks in the price of fi sh or the cost of fi shing. This is as Low stocks it should be. If the price of fi sh increases it pays to exploit the fi shery more intensively, albeit at $R yields still less than MSY. If the cost of fi shing Total revenue rises, it is preferable to have larger stocks of fi sh $C and thus less effort and catch. Finally, as long as the cost of fi shing increases with days fi shed, as it generally will, MEY as $ a target will always be preferred to MSY and EMEY EMSY Effort of course to any catch or effort level that corre- Maximum economic yield (MEY) is the difference between the dollar sponds to stocks that are smaller than those asso- amounts of revenue and costs at the optimal effort level, or $R less $C. Note that MEY occurs at effort levels less than effort at maximum ciated with MSY. The reason is simple. Regard- sustainable yield and thus at stock levels that are larger than those less of what happens to prices and costs, targeting associated with MSY. catch and effort at MEY will always ensure that profi ts are maximised. Profi ts may be relatively nominal days fi shed. The total revenue curve is low when the price of fi sh is low and the cost drawn from a biological stock–recruitment rela- of fi shing is high, but profi ts will still be maxi- tionship, translated into effort units, showing the mised. With a biological target of MSY alone, relationship between effort and yield in dollar however, it is quite possible that profi ts will amounts. The larger is effort the smaller is stock be very small or even zero. The fi shery would size. Every point along this curve represents an thus be sustainable at MSY but not commercial, effort and yield combination that is sustainable, much less effi cient. A target where profi ts from with effort at MSY generating the largest total fi shing are zero cannot be a good target. revenue. The total cost curve is taken as the total cost of fi shing, assumed to be increasing and linear in effort, for convenience. Illustrating MEY MEY in fi gure A occurs at the effort level EMEY

The management structure, stock level and na- and corresponding value of catch $R that creates ture and extent of fi shing effort that generates the largest difference between the total revenue MEY depends on a combination of biological and total cost of fi shing, thus maximising profi ts, and economic factors. In particular, it depends given by the difference between $R and $C. The on the relationships between harvest, stocks and value of EMEY will change given a change in the recruitment and on the way in which fi shing price of fi sh, which shifts the total revenue curve behavior, revenue and costs relate to those up or down, or the cost of fi shing, which rotates factors. A simplifi ed representation of these the total cost curve. relationships is given in fi gure A, where it is Given prices and costs, fi gure A illustrates a assumed that there is no uncertainty about the point made above, namely that targeting MSY state of nature (more complete descriptions of will in this case generate very small profi ts. With bioeconomic models can be found in Grafton et a small increase in the cost of fi shing, these could al. 2004 and Hannesson 1993). easily go to zero — if so, this would replicate a Figure A illustrates a typical production- common property or open access equilibrium surplus model for the fi shery as a whole, even though a management regime was in place expressed in terms of the relevant economic and operating. relationships. The vertical axis is simply dollar Note as well that a profi t maximising move- amounts and the horizontal measures effort as ment away from effort at MSY toward effort at australiancommodities • vol. 12 no. 1 • march quarter 2005 153 fisheries management

MEY implies a smaller value of harvest. This over, as long as the right instruments to facili- is often the case with overexploited fi sheries tate adjustment are in place — instruments that — maximising profi ts requires less effort and allow for trade in secure and specifi c property smaller catches. The reason of course is that rights, such as the right to a share of harvest — it decreases in effort, which also increases the stock follows that decreasing the size of an overex- of fi sh in the future, decrease the cost of fi shing ploited fi shery will make no one worse off and more than the corresponding fall in revenue. many better off by compensating those that leave Nothing has been said until now about boat the fi shery for their lost income, while providing numbers. Indeed, the graph basically assumes more profi t for those that remain in the fi shery. that all boats are the same and there is a rough That is the nature of an optimal position given correspondence between boats and nominal by MEY. days fi shed. In this context it is natural to assume Attempts to extend resource use and partic- that a move from MSY to MEY would imply a ularly employment well beyond MEY are com- decrease in boat numbers, with catch per unit of mon, and often disastrous. Experience in Can- boat increasing. It is also the nature of an optimal ada’s Atlantic fi sheries provides a striking ex- result that those that lose from a reduction in boat ample. Subsidies provided by the Canadian Gov- numbers can be more than compensated for by ernment — with a specifi c mandate to maximise the increased profi ts that MEY generates, at least employment levels in the industry — greatly in principle. In any case, it is easy to see that extended the amount of resources applied to effi ciency requires that at MEY the measure of these fi sheries. Indeed, even as early as 1970 it effort corresponds with a total boat capital in the was ‘estimated that Canada’s commercial catch fi shery that is just suffi cient to obtain the required in 1970 could be harvested by 40 per cent of the catch at minimum cost. Thousands of boats each boats, half as much gear and half the number of

fi shing a day could generate EMEY but clearly that fi shers’ (Atlantic Groundfi sh Fisheries 1997, pp. excess capacity would be ineffi cient. 14–15). This is wasteful in itself, but dwindling stocks and the eventual collapse of the Atlantic fi sheries Why MEY? — in large part caused by overfi shing — even It has already been shown that MEY generates further increased the government’s burden to maximum profi ts and that this outcome is guar- maintain incomes. In 1990, for example self- anteed regardless of the price of fi sh or the cost employed fi shers received $1.60 in unemploy- of fi shing. Also, MEY is ‘conservationist’ in the ment insurance benefi ts for every dollar earned sense that stocks will be larger than at MSY, and in the fi shery, and the ‘adjustment programs’ this in itself can confer enormous benefi ts to the associated with the collapse of the fi sheries fi shery and its ecosystem. It would also protect cost the Canadian taxpayers over C$3 billion in the fi shery against large negative shocks to the the 1990s alone (Atlantic Groundfi sh Fisheries fi sh population, since larger stock levels gener- 1997, pp. 14–22). ally imply greater resilience in the face of these shocks. But there is another, equally compelling, What is wrong with input controls? reason for pursuing MEY: resource allocation. For management of a fi shery to be effective in

Effort levels larger than EMEY would imply more the sense that catch and stocks are maintained at boats, days at sea, gear, crew, bait and all of the desired levels, there must be either direct or indi- other inputs used in fi shing — resources that rect control over catches. Management through could be used instead in alternative employment. output controls involves explicit catch targets This is what economists mean by effi ciency in and direct enforcement of those targets. Manage- general terms — for the economy as a whole. ment through input controls also involves some If too many resources are being expended in implied catch target. The fact that the catch fi shing, too few are being used elsewhere. More- target is sometimes only vaguely defi ned is one

154 australiancommodities • vol. 12 no. 1 • march quarter 2005 fisheries management of the reasons that input management regimes All of this can be nicely illustrated by a look at are often not successful. the Australian northern prawn fi shery, providing The real problem, however, is the inability a good example of how input controls and the of input controls to control effort in the fi rst resulting ‘race to catch’ can generate very inef- place. The moment control of a particular input fi cient outcomes. Over the past thirty years the becomes the policy instrument, operators have fi shery has been managed by a series of input an incentive to substitute other inputs in a way controls, including seasonal closures, a move that will change the relationship between effort from quad to twin nets, engine power and hull and catch. As well, technological advance and limits and, most recently, gear reductions and improvements in knowledge provide other back- restrictions. In all cases the limits to fi shing ground reasons for the relationship to change, power have been temporary at best. Indeed, A- constantly. unit (a rough measure of hull capacity and engine A manager relying on input controls is in power) limits in place in the 1990s resulted in constant competition with the imagination, a clear substitution toward unregulated inputs, energy and inventiveness of each operator in specifi cally gear. This substitution is illustrated the fi shery and the full technological backup of in fi gure B, where average headrope gear length a modern economy. Effort creep is inevitable. clearly increased throughout most the 1990s,

In terms of fi gure A, attempting to target EMEY while A-units fell. can only be successful in the very short run, The implication of this countermovement in with effort creep moving the fi shery to the right A-units and gear is twofold. First, restricting A- and thus dissipating profi ts, or decreasing the units in fact did not control effort, since boats distance between total costs and revenues. simply increased effort by using other inputs, More important to the general lack of success including gear, more intensively. Second, the of input management regimes are two charac- forced change in input combinations, inducing teristics of the incentives that they provide for boat owners to use different proportions of gear operators in the fi sheries. First, as mentioned, to A-units resulted in considerable loss in boat controls on one or more inputs provide an imme- effi ciency throughout the fi shery (Kompas and diate incentive for operators to substitute uncon- Che 2002). In the banana prawn section of this trolled inputs. Second, input control regimes fi shery, technical effi ciency for the fl eet as a provide no sense of ownership or stewardship of whole fell from 75 per cent in 1994 to 68 per the fi sheries resource. There are no guarantees cent in 2000 (Kompas, Che and Grafton 2004). in any input control management regime except For individual operators in the fi shery, the aggre- the right of access to the fi shery under certain gate response to input restrictions thus led to guidelines. Operators are encouraged by these rules to compete for catch within those guidelines, Input substitution in the northern and if one operator refuses to expand effort, B prawn fishery while others do, that operator will be worse Average A-units Average gear length off. Unfortunately, if all operators increase per boat effort, all are made worse off through a fall in 430 26 profi ts and the fi shery remains overexploited — the proverbial ‘tragedy of the commons’. 420 24 The management response in this environment is to continuously and repeatedly fi nd ways to cut effort (for example, gear reductions, area 410 22 and seasonal closures, vessel buyback schemes, etc.), ‘winding the fi shery down’ over time to a small number of boats or days fi shed, all making no. m zero (or near zero) profi ts. 1988 1991 1994 1997 2000 australiancommodities • vol. 12 no. 1 • march quarter 2005 155 fisheries management much lower profi ts than would otherwise have only four years for effort creep to overcome the been realised. initial fall in fi shing power in response to the Each of the changes made in the management imposed move from quad to twin gear in 1987. regime in the northern prawn fi shery — seasonal The recent removal of A-unit restrictions in favor and area closures, A-unit restrictions and most of gear reductions will logically imply, given recently gear reductions — was made in recog- the race to fi sh incentive, that boat owners will nition that the system it replaced had failed to now increase the size of their vessels and engine constrain effective effort and the inevitable power, spurring more and deeper compensatory effort creep suffi ciently to protect prawn stocks. cuts in gear (or some other input) in the future. Where effective effort was reduced by manage- Inevitably the fi shery ‘winds down’. ment change, the primary reduction was short Total days fi shed in 2002 were already 55 per lived. cent of the 1998 level and far below the fi shery This outcome, and one of the primary reasons peak in days in 1983. Recent estimates show that for it, is illustrated in fi gure C. Fishing power, MEY in the tiger prawn component of the fi sh- measured as the average catching ability of a eries is roughly 60 per cent and 30 per cent below boat in a day’s fi shing (compared with a 1970 actual days for 2000 and 2001, respectively, and base — the fi gures used are those denoted ‘basic about 28 per cent below actual days in the 2003 high’ by CSIRO, see Dichmont et al. 2003) has fi shery. In other words, even the recent short- risen rapidly and consistently over time. The ening of the season and further large reductions rise in fi shing power is the result of continuous in gear units have not been suffi cient to ensure improvements in technology, input combina- economic effi ciency or MEY (Rose and Kompas tions and knowledge. 2004). The acquisition of improved scientifi c knowl- edge of the fi shery, along with the observation of declining catches has made it increasingly clear Implementing MEY over the past few years that prawn stocks are not If targeting EMEY in fi gure A with input controls being conserved and catches and effort are not to obtain MEY is not effective or even desirable, being controlled. the alternative is to target catch at (for example)

Although the combination of recent policy the value $R. It is important to recognise, how- changes appears to have temporarily slowed the ever, that aggregate catch controls can be just as increase in fi shing power as well as contributing ineffective as input controls, resulting in ‘race to to a rapid fall in total days fi shed, experience fi sh’ behavior. Even if the total amount of catch suggests that this will only be temporary. It took is fi xed, there is still an incentive for boat owners to overinvest in fi shing capacity in order to obtain a larger share of the catch, again moving Fishing power and effective effort in the fi shery past EMEY. C the northern prawn fishery With effort creep an inevitable outcome of 160 input controls, in any circumstance, economists 600 thus argue for catch controls combined with an 140 500 ITQ system to obtain or implement MEY. ITQs 120 confer an individual, transferable, harvesting 400 100 right so that each vessel is guaranteed a share 80 of the catch. The immediate impact of this, of 300 Fishing power Effective 1970 60 course, is to remove any ‘race to fi sh’ incentive 200 days fished 40 (except where fi shing results in stock depletion 100 over the course of the season, implying that even 20 though there is a catch entitlement it will be index ’000 days less costly to catch ‘earlier’ in the season when 1972 1978 1984 1990 1996 2002 stocks are more abundant, or ahead of other

156 australiancommodities • vol. 12 no. 1 • march quarter 2005 fisheries management vessels. This problem is usually addressed by will thus be willing to pay more for quota, with setting seasonal closures correctly or through the resulting transfer of quota from high to low quota dated by period — for example, weekly marginal cost producers increasing economic — with a market for trade across periods.) effi ciency overall — essentially fi shing inputs Where there is no incentive to race to fi sh, are distributed to those who use them best. there is no reason for effort to increase beyond In other cases, quota trade allows vessels to

EMEY, and MEY can be effectively targeted. The compensate for catches that are larger or smaller regulator simply needs to set total allowable than planned or prior quota holdings. These effi - catch (TAC) correctly. ciency gains (or what amount to cost reductions) ITQs have been in place and have worked well can be substantial, even in fi sheries where the for decades in fi sheries throughout the world, TAC is not binding in aggregate. In the Austra- including New Zealand, Iceland, the United lian south east trawl fi shery, for example, where States, Australia and Canada (Hannesson 2004). TAC undoubtedly does not correspond to MEY These schemes have generally established, as (Gooday 2004), the cost savings from quota in the British Columbia halibut fi shery, signifi - trades are estimated to be 1.8–2.1 cents a kilo- cant gains, not just in cost savings but also in gram for every 1 per cent increase in the volume enhanced revenues (Grafton, Squires and Fox of quota traded (Kompas and Che 2005). 2000). Second, instead of investing in boat capacity Along with creating effective property rights to catch fi sh before others do, with a guaranteed to fi sh, ITQs confer a number of other related harvesting right, boat owners can instead concen- benefi ts. First, since these rights are tradable, trate on investments that lower the per unit costs market forces will generally distribute quota of fi shing. This is a major benefi t. With input among fi shers that value the right most highly. controls, technological change — new boats, a Vessels that have lower marginal costs of fi shing better engine, more effi cient gear, try nets, GPS, etc — is harmful in the sense that the resulting effort creep through increased fi shing power lowers fi shery profi ts and endangers stocks. In Box 1: Impact of uncertainty some cases, input restrictions are in fact designed to prevent the very adoption of such new tech- Setting effort creep aside, it should be noted that nologies, that under other circumstances may in a deterministic world (with no uncertainty) there would be no difference in outcomes be benefi cial or effi ciency enhancing, simply to between a catch or effort control, as long as the control effort. correspondence between input restrictions and With output controls and ITQs alternatively, effort levels is known exactly and is perfectly boat specifi c technological change is good, in enforceable. With uncertainty, and again that it lowers the costs of fi shing and increases setting effort creep aside, in cases where there profi ts, with no effect on stocks or the cost of is more variance in the stock–recruitment rela- fi shing of any other vessel in the fl eet that does tionship than in catch per unit of effort (CPUE), not yet adopt the new technology. effort controls will be preferred. If there is A third benefi t of ITQs is that a good number more variance in CPUE relative to the stock– of area and seasonal closures, common to input recruitment relationship, then output or catch controlled fi sheries, can be done away with. controls will dominate, generating less vari- ance in profi ts. For the tiger prawn component Spawning stocks must naturally be protected of the northern prawn fi shery, the latter is the and marine reserves can almost always be case — output controls are the preferred instru- justifi ed even on economic grounds (Grafton, ment (Kompas and Che 2004). A clear evalua- Kompas and Lindenmayer 2005), but area and tion of all of the specifi c, or detailed, alternative seasonal closures used to simply limit effort fi shery management instruments is contained are unnecessary under an ITQ system and often in Gooday (2004). economically harmful in any case. By elimi- nating these controls, vessels can fi sh when the australiancommodities • vol. 12 no. 1 • march quarter 2005 157 fisheries management weather permits and perhaps more importantly from fi shing). However, highgrading occurs in match the harvest throughout the year to market only some circumstances. Those circumstances conditions, generating the highest price for their are often predictable. As well, provided that catch. In general, unlike with input restrictions, highgrading can be estimated, the TAC can be output controls and ITQs allow fi shers to choose matched with desired mortality. Unless the rela- the right mix of inputs, and the time and manner tionship between fi shing costs and the price to fi sh — all of which is cost reducing and effi - differential between grades changes substan- cient. tially, the match will be valid over time. A fi nal benefi t of ITQs is that they allow for There can be no doubt that waste occurs autonomous adjustment of the fi shing fl eet, with through highgrading, but that is simply a cost operators voluntarily able to ‘cash out’ by selling of management to be assessed against the other their quota to more profi table vessels. Indeed, if costs of management, as well as the benefi ts — implemented correctly, an output control and and compared to the costs and benefi ts of other ITQ system that targets MEY will generate the management instruments. More importantly, largest possible (marketable) asset value for the level of highgrading enters the manage- those who have the right to fi sh, refl ected in a ment decision once only. Since the incentive to high price for each unit of quota. Fishers are thus highgrade is a function of the cost of fi shing and compensated for exiting the fi shery, without the the price differential between grades, it is not need for government intervention. This is in something that increases over time in a way that stark contrast to input controlled and overcapi- erodes the practical meaning of a catch quota, or talised fi sheries where fi shers lobby heavily for in the way in which effort creep subverts input government vessel-buyback schemes, which are controls (Rose and Kompas 2004). costly and often are only temporarily effective at When considering variations in stock abun- reducing capacity. dance, the traditional arguments against catch For catch controls and ITQs to be successful controls (and with it ITQs) are clear. With output there must be adequate monitoring and enforce- controls, managers face a problem in setting the ment. This too can be costly, although there is no TAC when abundance varies between seasons necessary reason for this cost to be a government and is unknown at the beginning of the season. responsibility. Under an ITQ system, fi shers are By setting the TAC too high the manager runs keen to protect their secure property rights and the risk that fi shing pressure on stocks will be it is not uncommon for monitoring to be at least excessive if a low abundance season occurs. partially funded by industry (Grafton et al. 2005). By setting the TAC more conservatively, the Even when government pays for monitoring and manager guarantees the loss of potential profi ts enforcement, this cost is likely to be comparable if the season is one of high abundance. Indeed, to the cost of monitoring and enforcing effort not only is the problem well recognised, it is controls, not to mention the cost of any resulting often cited as a primary reason for preferring effort creep that goes with input restrictions. input controls. Similar arguments can be made about prob- What is not so well recognised, however, is lems with highgrading and variations in stock that essentially the same problem affects the abundance. Highgrading will most likely occur setting of input controls. To set effort at the in long lived or fast growing species where the optimal level, the manager needs information price differential between high and low grade on abundance, catch per unit effort, the value fi sh is relatively large. With highgrading, a key of catch and the cost of effort. Setting input difference between input and output controls is controls too tightly leads to loss of potential in the relationship between the policy instrument profi ts in seasons of high abundance. Setting and the policy objective. For output controls, input controls too generously leads to excessive the possibility of highgrading means that the investment and effort and excessive catch. The policy instrument (TAC) may not always match long term consequences are pressure on future the policy objective (a given level of mortality stocks and dissipation of potential profi t.

158 australiancommodities • vol. 12 no. 1 • march quarter 2005 fisheries management

In principle, the type of information needed Under such a system, technological change to make an effi cient choice using input controls lowers the cost of fi shing, rather than endan- does not vary much from that needed to make the gering stocks through increased fi shing power. In choice using output controls. There is really no addition, by providing a secure and easily trans- argument for input controls on this basis. Careful ferable property right, ITQs result in increased assessments of stock abundance, including capital values to fi shing entitlements. Quota where needed, fi shery independent surveys and passes from high to low marginal cost producers, pre-season and in-season sampling, are manda- increasing effi ciency, and maximising fi shery tory under any management regime. If the cost profi t generates the largest possible asset value of obtaining this information does vary under for quota holders. Lowering the TAC when condi- different regimes, or with different management tions warrant also results in relatively seamless instruments, a case has to be made in terms of a and autonomous fi shery adjustment through the comparison of these costs, against all the other exchange of quota holdings, generally passed to costs and benefi ts of alternative management more effi cient vessels that can afford to pay rela- systems. tively more for each unit of quota. In some cases, ITQs can be more costly to administer and enforce than other schemes and Concluding remarks highgrading will always be a concern. However, Economic effi ciency in a fi shery, or pursuing the establishment of private property rights with MEY, is important. It not only helps protect the ITQs, and the desire to protect them, also gener- fi sh population, by ensuring that stock levels are ates incentives for self policing and conserva- larger than those associated with the traditional tion. The cost of an ITQ system must also be MSY target, it also guarantees that resources compared with the costs associated with alter- will be allocated to the fi shery correctly and in native management regimes. The cost of effort a manner that maximises profi t. Management creep under an input-restricted management regimes that attempt to extend the amount of regime (in addition to the cost of monitoring resources devoted to the fi shery beyond MEY and enforcement), for example, can be far more only generate a system with excess boat capital excessive than the cost of any comparable rights and lower returns from fi shing. based fi shery. In many cases — especially those where input restrictions fail to prevent effort creep — the fi shery simply ‘winds down’ to a state where References total fi shing days are severely limited and asset Atlantic Groundfi sh Fisheries, 1997, Report of values and profi ts are low, with industry repeat- the Auditor General of Canada to the House edly calling for government assistance or some of Commons, Minister of Public Works and sort of vessel buyback scheme to restore profi t- Government Services, Ottawa. ability. Dichmont, C., Bishop, J., Venables, B., Sterling, Implementing MEY requires that a system D., Penrose, J., Rawlinson, N. and Eayers, of effective property rights to harvest be estab- S. 2003, A New Approach to Fishing Power lished. Aggregate input or output controls alone Analysis and its Application in the Northern are not suffi cient to prevent a ‘race to fi sh’. Prawn Fishery, CSIRO Marine Research Given the inevitable problem with effort creep Report Prepared for the Australian Fish- in input controlled fi sheries, ITQs combined eries Management Authority and Fisheries with a TAC set by management to target MEY is Resources Research Fund, Canberra, August. the best option for most fi sheries. With a secure Gooday, P. 2004, Economic Aspects of Fish- property right to catch, there is no longer a ‘race eries Policy, ABARE Report Prepared for the to fi sh’ incentive, since catch is assured, and thus Australian Government Department of Agri- no tendency toward overcapitalisation in the culture, Fisheries and Forestry, Canberra. fi shery. australiancommodities • vol. 12 no. 1 • march quarter 2005 159 fisheries management

Grafton, R.Q., Squires, D. and Fox, K.J. 2000, Kompas, T. and Che, N. 2002, A Stochastic ‘Private property and economic effi ciency: a Production Frontier Analysis of the Austra- study of a common-pool resource’, Journal of lian Northern Prawn Fishery, ABARE Law and Economics, vol. 43, pp. 679–713. Report to Fisheries Resources Research Fund, ——, Adamowicz, W., Dupont, D., Nelson, Canberra. H., Hill, R.J. and Renzetti, S. 2004, The —— and —— 2004, A Bioeconomic Model of Economics of the Environment and Natural the Australian Northern Tiger Prawn Fishery: Resources, Blackwell, London. Management Options Under Uncertainty, ——, Kompas, T. and Lindenmayer, D. 2005, ABARE Report to the Fisheries Resources ‘Marine reserves with ecological uncertainty’, Research Fund, Canberra, August. Bulletin of Mathematical Biology, in press. —— and —— 2005, ‘Effi ciency gains and cost ——, Arnason, R., Bjørndal, T., Campbell, reduction from individual transferable quotas: D., Campbell, H.F., Clark, C.W., Connor, A stochastic cost frontier for the Australian R., Dupont, D., Hannesson, R., Hilborn, R., south east fi shery’, Journal of Productivity Kirkley, J., Kompas, T., Lane, D., Munro, G. Analysis, in press. R., Pascoe, S., Squires, D., Steinshamn, S.I., ——, —— and Grafton, R.Q. 2004, ‘Technical Turris, B.R. and Weninger, Q. 2005, ‘The effi ciency effects of input controls: evidence incentive-based approach to sustainable fi sh- from Australia’s banana prawn industry’, eries management’, Working Paper, APSEG, Applied Economics, vol. 36, pp. 1631–41. Australian National University, Canberra. Rose, R. and Kompas, T. 2004, Management Hannesson, R., 1993, Bioeconomic Analysis of Options for the Australian Northern Prawn Fisheries, Halsted Press, New York. Fishery: An Economic Assessment, ABARE —— 2004, The Privatization of the Oceans, Report to the Fisheries Resources Research MIT Press, Cambridge, Massachusetts. Fund, Canberra, August.

160 australiancommodities • vol. 12 no. 1 • march quarter 2005 climate change

CLIMATE CHANGE predicting the impacts on agriculture: a case study

Phil Kokic, Anna Heaney, Lili Pechey, Steve Crimp and Brian S. Fisher • Under conditions of longer term climate tion and water resources (Russell 1981; Hammer change, adaptation will be important for man- et al. 1987; IOCI 2001; McKeon et al. 2003). A aging climatic variability and extremes as well decline in rainfall over the past 50–100 years as changes in average conditions. While cli- has been noted for some regions of Australia matic conditions are already variable across (Manins et al. 2001, p. 40), particularly in south Australia and farmers have developed farm- west Western Australia and eastern Australia. ing systems that have adapted to this variabil- These declines result from a complex interaction ity, this does not necessarily mean that they between climate forcing that is both natural (for will be equipped to deal with the longer term example, solar variability, volcanic eruptions) impacts of climate change. and anthropogenic in origin (for example, fossil fuel use and land use change leading to increases • The purpose in this paper is to explore the in greenhouse gases) (IPCC 2001). impacts of longer term climate change on key The climate system continually experiences production variables in the Australian broad- ‘cyclical’ variations on a number of time scales. acre industry and gain some insight into the Variation in these forcings, in combination with nature and extent of pressure to adapt to cli- chaotic climatic processes, results in a complex mate change. global climate system in which cause and effect Agriculture is heavily reliant on the biophysical are not easily identifi ed (for example, IOCI characteristics of the natural resource base; 2001). soil quality and water availability infl uence Simulated fl ows for the Macquarie River a region’s suitability for agricultural produc- based on 1890–1947 input data, for example, tion and are among the primary determinants were much less than fl ows for the period 1948– of agricultural productivity. Longer term shifts 96. The shift from a drought dominated regime in climate may put adjustment and adaptation before 1948 to a fl ood dominated regime after pressure on Australian broadacre industries. 1948 was abrupt, having a signifi cant effect on Changes in climatic conditions, therefore, may the simulation of fl ows, shifting from about 25 translate into production risks associated with per cent less than the long term mean to about 25 farm management decisions that are based on per cent greater after 1948. This is supported by uncertain climatic outcomes. observed fl ows elsewhere in the Murray Darling In Australia, fl uctuations in rainfall, year to Basin. year, by decade, interdecade and generational The attribution (natural versus anthropogenic time scales, have had important effects on agri- in origin) of historical variations in Australia’s cultural production, rangeland resource condi- climate remains a challenging fi eld of investiga- tion. This means that serious uncertainty remains • Phil Kokic • +61 2 6272 2063 • [email protected] when creating projections of future climate australiancommodities • vol. 12 no. 1 • march quarter 2005 161 climate change conditions. This uncertainty presents a hurdle to change and changes in precipitation, tempera- making longer term or irreversible investments ture, evaporation, as well as other climate phen- in adapting to climate change. omena, both in Australia and overseas (see, Changes in climatic conditions can be short for example, IPCC 2001; Crimp et al. 2002). term — intra- or interannual — referred to in Overall, a general conclusion appears — changes this paper as climate variability; or longer term, in temperature and rainfall will result in changes covering decades — referred to here as climate in land and water regimes that will subsequently change. Climate change may have an impact affect agricultural productivity (Kurukulasuriya on a wide range of factors that infl uence agri- and Rosenthal 2003). cultural production, including average rainfall For Australia, CSIRO has evaluated scen- and temperature in different seasons. Changes arios that suggest a possible combination of in climatic variability, such as the frequency and small or larger decreases in mean annual rainfall, duration of drought, can also be signifi cant. The higher temperatures and evaporation (CSIRO purpose in this paper is to explore the impacts of 2001). For a continent as large and climatically longer term climate change on key production diverse as Australia, this is likely to mean there variables in the Australian broadacre industry will be a range of impacts that extend from and gain some insight into the nature and extent more frequent and intense rainfall bringing of pressure to adapt to climate change. more extreme fl oods to more extreme droughts. Agriculture has a long history of adapting to a Projections of a longer, more intense Australian changing environment, and agricultural systems monsoon could lead to greater water surpluses have been modifi ed whenever natural or socio- in an area where human use is low. In southern economic constraints required overcoming. mainland Australia, where winter rainfall is more Australian agricultural systems have evolved important and competition for water resources from those of northern hemisphere settlers in is already high, reductions in water supply is a response to local climatic and geographic condi- possibility. tions. Crop cultivars have been sourced world- While it is beyond the scope of this paper to wide and have been successfully modifi ed to review the possible climate change scenarios suit Australian conditions. More than 85 per and their potential impacts on temperature and cent of food production in Australia is reliant on rainfall in Australia, a further conclusion may be genetic resources that were sourced from outside drawn — substantial changes in regional climate Australia, with many perennial and horticultural may occur as a consequence of global warming crops, tropical fruits and vegetables sourced but the timing and direction of change remains from South America. diffi cult to predict and will vary depending on Translocation requires plant material and factors such as soil type, topography and land cultural practices to adapt to climatic condi- use. tions that often differ signifi cantly from those The potential impact of climate change on in the regions of origin. For example, wheat Australian agriculture has also been examined was brought to Australia on the First Fleet but extensively in the literature (see, for example, did not fl ourish until wheat breeders developed Howden and Jones 2001; Beare and Heaney cultivars that were drought and rust resistant and 2002; Crimp et al. 2002). For the purposes of more productive in Australian conditions (NMA this analysis, two climate change scenarios are 2002). explored to indicate the range of potential envi- ronments to which agricultural producers may, in time, need to adapt. Predicting the impacts of climate In this study, changes in pasture growth at change on agriculture ABS statistical division level provide the basis for estimating the impact on average wheat yields There is a large body of literature establishing and land values through its impact on pasture the potential links between longer term climate growth. Pasture growth values were derived

162 australiancommodities • vol. 12 no. 1 • march quarter 2005 climate change from an analysis performed at a national scale Results by Crimp et al. (2002) using the pasture produc- tion model GRASP (McKeon et al. 1982, 1990; Littleboy and McKeon 1997). The two scenarios Land values used in this assessment form a subset of those Land values represent the net present value of considered in the Crimp et al. (2002) report, the expected future stream of income generated namely a moderate increase in temperature from land based activities on the farms. They are and rainfall decline and a moderate increase in used in this paper to provide an approximation temperature and rainfall increase. The scenarios of the expected changes in agricultural produc- of temperature and rainfall change were derived tivity under the climate change scenarios and to from those produced by the CSIRO Atmospheric determine the potential pressure for adaptation or Research (CAR) in 2001 and represent the range structural adjustment. They provide a common of possible future change from nine international reference point across all agricultural activities, climate models. thus allowing industry and regional comparisons to be easily made. Land values also incorporate Two climate change scenarios income variability which is, in part, caused by In the current analysis, scenario 1 represents the climate variability (Nelson and Kokic 2004). lowest range of projected temperature increase combined with the lowest range of rainfall change. For all cases, the lowest rainfall change range refl ects a reduction in rainfall. By 2030 the What is a box plot? impact of climate change on simulated average A standard box plot, some- growth was negative across much of Australia 95th percentile times called a ‘box and wh- (10–50 per cent reduction), with eastern coastal isker plot’, displays the me- regions less severely affected (+10 to –10 per dian, mean, quartiles, and cent change simulated) than the interior (Crimp minimum and maximum upper quartile et al. 2002). observations of a data set. Scenario 2 represents the lowest range of They provide a convenient median projected temperature increase combined with way of illustrating the key mean the highest range of rainfall change. For all properties of a probability cases, the highest rainfall change range refl ects distribution for a sample of lower quartile an increase in rainfall. The implementation of data. Boxplots are particu- this climate change scenario produced favor- larly useful for comparing the location, spread and able simulated pasture production over most of skewness of probability 5th percentile the continent. In 2030 pasture production was distributions. enhanced by 10–30 per cent over most of the The illustration to the continent although large areas along the eastern right shows the key statis- and south eastern coastal fringe and Tasmania tics illustrated by the box plots used in this remain largely unchanged (Crimp et al. 2002). report. The box plots differ from the standard in that the ‘whiskers’ at the top and bottom of The base period the box plot represent the 5th and 95th percen- A statistical relationship was established tiles. Only 5 per cent of the data in the sample between pasture growth, land values and wheat lie below or above these values. Similarly, only yields in the ten year ‘base’ period for 1991-92 25 per cent of the sample data lies either side of the interquartile range. The median, shown to 2001-02 using ABARE’s farm survey data. as a solid line, indicates the middle value with These relationships together with the predicted half the data lying above and below. The mean, change in pasture growth were used to predict which is heavily infl uenced by occasional the change in land values and wheat yields to outliers is shown as a cross. 2030. australiancommodities • vol. 12 no. 1 • march quarter 2005 163 climate change

The upper two panels in fi gure A show box- western New South Wales where the opportuni- plots of the change in land values, by broadacre ties for diversifi cation are limited — a reduction industry. Farms in the cropping, mixed enterprises in land values of over 20 per cent is simulated and livestock (beef, sheep, beef–sheep) indus- under scenario 1. Landholders in both these tries are all predicted to experience a substantial regions are modeled to face considerable pressure decline in land values under scenario 1. to adjust their operations to remain economically Farms in the cropping industry are predicted viability. Given the impediments to adjustment to experience the greatest decline in land identifi ed by Davidson and Elliston (2005), the values while farms in the livestock industry are consequences for landholders in these regions predicted to experience the least. This is because would appear to be serious under scenario 1. the majority of Australian crop production is The distribution of the largest land value located in regions where there are likely to be changes shown in maps 1 also corresponds to signifi cant reductions in rainfall; whereas a large marginal cropping and grazing areas. Marginal proportion of the livestock production is located cropping in this context, refers to cropping that in regions where the reductions are not as great occurs opportunistically, owing to rainfall uncer- (maps 1, scenario 1). In addition, the variation in tainty. With the signifi cant reduction in pasture the predicted reductions is greater in the crop- growth in these regions under scenario 1, alter- ping industries than the mixed and livestock native production opportunities will be limited. industries. This, in turn, is expected to force landholders The impact of climate change under scenario 1 to adjust to maintain current income levels. at the regional level varies considerably (maps 1). Expansion of the area operated is one way for In particular, for agricultural areas already iden- producers to achieve this. In some areas alter- tifi ed as under stress by Davidson and Elliston native opportunities to broadacre farming may (2005) — that is, parts of Western Australia and become available.

Boxplots of percentage change in farm land values and wheat yields to 2030 A relative to the base period (1992-93 to 2001-02), by climate change scenario Land values, by industry, scenario 1 Land values, by industry, scenario 2 Percentage change Percentage change 30 30 20 20 10 10 0 0 –10 –10 –20 –20 –30 –30 All Crops Mixed Livestock All Crops Mixed Livestock industries industries Wheat yield, by region, scenario 1 Wheat yield, by region, scenario 2 Percentage change Percentage change 30 30 20 20 10 10

0 0 –10 –10 –20 –20 –30 –30 All Northern Southern Western All Northern Southern Western regions regions Red indicates the lower rainfall scenario and blue the higher rainfall scenario.

164 australiancommodities • vol. 12 no. 1 • march quarter 2005 climate change

Land values and farm survey wheat yields base period averages and percentage changes to 2030 under climate change scenarios 1 and 2

Base period averages (1992-93 to 2001-02) Land values Wheat yields less than 200 $/ha less than 1.5 t/ha 200–500 $/ha 1.5–2.0 t/ha 500–1000 $/ha 2.0–2.5 t/ha 1000–1250 $/ha 2.5–3.0 t/ha 1250–1500 $/ha greater than 3.0 t/ha 1500–3000 $/ha no data greater than 3000 no data

Change in land values Change in wheat yields greater than 30 per cent greater than 15 per cent 20–30 per cent 10–15 per cent 10–20 per cent 5–10 per cent 0–10 per cent 0–5 per cent –10–0 per cent –5–0 per cent –20 to –10 per cent –10 to –5 per cent –30 to –20 per cent –15 to –10 per cent –40 to –30 per cent –20 to –15 per cent less than –40 per cent less than –20 per cent no data no data

Scenario 1 Scenario 1

Scenario 2 Scenario 2

australiancommodities • vol. 12 no. 1 • march quarter 2005 165 climate change

Under scenario 2, a signifi cant part of South tion of grains, oilseeds and pulses produced in Australia and Western Australia potentially Australia. become more productive, as indicated by the In many regions the decline in wheat yields is dark blue areas in the land value map (maps 1). expected to be greater than any likely increase Southern Queensland and northern New South in economic productivity from the adoption of Wales are also predicted to improve consider- new techniques and technologies. Knopke et ably. Australia-wide, the effect of higher rainfall al. (2000) have shown that over the past two on land values is also predicted to be relatively decades the increase in economic productivity uniform across industries under this scenario in the grains industry was about 3.6 per cent. If (fi gure A). Additionally, all regions appear to this trend continues into the future, the increase benefi t to a greater or lesser extent. in economic activity is unlikely to outweigh the predicted decline in wheat yields under Wheat yields scenario 1. The yields in all wheat producing regions are Under scenario 2, the marginal areas are pre- predicted to decline under scenario 1 (maps 1). dicted to become more productive — for ex- The worst affected region is the Western Aus- ample, the dark blue regions in maps 1, as well as tralia wheat belt. The sandy soils of this grain the northern boundary of the Queensland crop- producing region mean that growers are more ping region. Opportunistic cropping is likely to dependent on the timing of rainfall. Any climate increase under this scenario. In mixed enterprises change that results in a reduction of rainfall in this may result in an expansion of cropping activ- this area is therefore likely to have a dispropor- ities. It may also result in a change in the mix of tionately greater impact than in other parts of crops grown. However, it should be noted that Australia. there is the potential for higher rainfall to result In the boxplots, the northern region refers in an increased incidence of disease and pest to the crop growing region of northern New incursions. This may constrain the expansion of South Wales and southern Queensland, where the area planted to crops, or perhaps even restrict crop production in both winter and summer is areas currently used for crop production. possible. The southern grains region refers to the remainder of New South Wales, Victoria and South Australia, and the western region refers Possible adaptations to the grain growing area of Western Australia. A key factor in determining the magnitude of Although widespread reductions in wheat yields longer term climate change impacts on agricul- are predicted under scenario 1, the northern ture is adaptation. Ideally, appropriate adapta- grain region is predicted to experience a less tions would allow agriculture to minimise losses severe reduction than the other two grain regions by reducing the negative impacts of longer term (fi gure A). climate change, and maximise profi ts through In currently marginal cropping areas such as capitalising on the benefi ts. There is much uncer- the inland margins of the wheat belt there may be tainty associated with the extent and timing of pressure on landholders to move more into live- climate change and, as a result, there is no single stock production under scenario 1. The signifi - recommended strategy for adaptation beyond cant reduction in yields in much of the wheat optimising rural Australia’s capacity to respond belt may result in a change in production mix. to a changing environment. Less crops may be produced and more livestock, Adaptation strategies can be generally classi- as well as a change in the mix of crops produced. fi ed into two categories — those that occur in the In addition, the reduction in rainfall is likely to short term, such as crop and livestock diversifi - result in a change in grain quality grades. These cation; and those that occur over the longer term, effects combined are likely to result in a substan- such as infrastructure investments and research tial change in the total quantity and composi- and development into new technologies.

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In much of the existing literature, short term Adaptation options that are effective and adaptations are generally associated with on- economically viable also need to be accept- farm responses to climate variability, rather able within the personal, social and institutional than longer term climate change (see Kuruku- context in which farm management decisions lasuriya and Rosentha 2003 for discussion). are made. Adoption of new farming practices has Diversifi cation of crop (and livestock) varieties sometimes been attributed to younger farmers, and management practices may have the poten- although youth has tended to be inseparable tial to maintain or improve productivity under from other characteristics such as higher levels conditions of increased temperature or moisture of formal education and lower aversion to risk stress. Plant breeding has been a major area of (Anderson and Thampapillai 1990). Farmers research in Australia, with both privately and operating at, or near, the edge of economic publicly funded breeding programs developing survival may be less willing to take on the risk of plant types and cultivars to suit a wide range adopting new technologies (Anderson 1993). of local conditions, including infertile soils, Over the longer term, a range of adaptation moisture stress, frost, extreme heat, pests and options both on- and off-farm, and the policy disease. As a result, crop producers have a range level will be necessary to reduce vulnerability of genetic material to choose from when seeking to the potential future impacts of climate to diversify varieties. change. These longer term adaptation strategies Other short term, adaptation strategies include include changing crop types and location (and altering the timing or intensity of agricultural may include leaving the industry), expanding production. Adjusting cropping sequences and water delivery networks, improving irrigation timing, as well as adjusting sowing, fertilising, management practices, and research to continue spraying and harvest times may help farmers the development of new technologies such as regulate the length of the growing season to new crop cultivars. The extent to which longer better suit changing environmental conditions. term on-farm adaptation strategies will be viable Increased use of soil and water conservation will depend on local factors such as soil type and measures such as improving vegetative cover, other environmental characteristics. minimum tillage practices, windbreaks and In agriculture, as opposed to other sectors shifting production away from marginal areas such as forestry, capital investments are made for may help reduce soil erosion and improve mois- relatively short periods of time. On-farm invest- ture and nutrient retention. ments, such as establishing perennial crops or Many of these on-farm adaptation measures purchasing farm equipment, may have economic may decrease vulnerabilities to limited changes life cycles of between fi ve and twenty-fi ve years. in climate over the longer term. While there is This short term time horizon makes rapid adap- limited need to undertake costly or irreversible tation simpler than it would be if the investments off-farm infrastructure investment, such as in were much larger and commitments were for new irrigation infrastructure, to address climate much longer periods of time. One important variability concerns, making short term adapta- exception, however, is the expansion or develop- tions is still potentially costly. Diversifi cation ment of irrigation infrastructure as an adaptation can be costly in terms of the income opportu- strategy. The planning and construction of stor- nities that farmers forgo and will necessarily ages and distribution systems have much longer involve some on-farm investment in capital time horizons than most of the adaptation strate- and capacity building. This investment must be gies previously mentioned. weighed against the uncertain future benefi ts Given the uncertainty about the regional of higher productivity. Household disposable impacts of climate changes, it is possible that income, wealth and access to credit infl uence the more emphasis will be devoted to improving fi nancial capacity of farmers to balance imme- water conservation and management practices diate costs against the uncertain future benefi ts rather than developing new irrigation areas. (Anderson and Thampapillai 1990). While in some regions, it may be possible to australiancommodities • vol. 12 no. 1 • march quarter 2005 167 climate change draw on surface or ground water resources, in the on-farm impacts of climate change given it is many others further pressure would be placed diffi cult to determine if observed climate changes on an already scarce resource. In dryland areas will persist. Investments aimed at adapting to where effective rainfall decreases as a result climate change are risky. Better predictive tools of climate change, improved water resource can reduce this risk and increase rural Australia’s management will be vital to maintaining crop capacity to change. productivity. This may include improved water- shed management, changing crop schedules to use effective rainfall more effi ciently, and on- or Concluding remarks off-farm water capture, storage and recycling Under conditions of longer term climate change, (Kundzewicz 2000). adaptation will be important for managing cli- Technological innovation may offer agricul- matic variability and extremes as well as changes tural producers solutions to declining produc- in average conditions. While agriculture under tivity as a result of climate change. These Australian climatic conditions is already vulner- innovations could be mechanical, such as able to climatic variability, farming systems that conservation tillage, or biological. Investment in have adapted to suit climate variability will not crop breeding and biotechnology may offer the necessarily be right for the longer term impacts prospect of developing cultivars for coping with of climate change. specifi c drought, heat, pest or disease problems Strategies to reduce vulnerability to longer much more rapidly than is currently possible. term change are likely to involve longer term From a policy perspective, it is clear that investments, such as improving water manage- there will be no one solution to address climate ment practices, which in some instances may concerns as the impacts of climate change on involve expanding dam and channel infrastruc- agriculture are uncertain and will vary in their ture to mitigate the impacts of dryer climatic timing, location and magnitude. Overall, a conditions or, in extreme cases, re-establishing general policy goal should be to increase the agriculture in more suitable locations; and the fl exibility of agricultural systems and halt trends research and development of new technologies that will constrain climate change adaptation. and new crop varieties that are more suited to An important component of this is ensuring that drier and/or warmer conditions. there is a clear and consistent set of policy goals. These long term and often irreversible invest- Possible confl icts occur as in some cases agricul- ments are vulnerable to the uncertain outcomes ture is a contributor to anthropogenic emissions of climate change. The unpredictability of the of a number of greenhouse gases and therefore location, timing and magnitude of the impacts of a potential contributor to climate change. Land climate change will impose risk as returns to the use changes that require vegetation clearing, for investment depend on which state of nature actu- example, raise the issue of agriculture being a ally eventuates. To account for uncertainty about carbon dioxide ‘source or sink’. returns to the investment, potential investors use Government will have an important role to play relatively high investment hurdle rates of return in research and development and continued public when evaluating these projects. (and private) investment in plant breeding will Further, uncertainty about future returns be an important aspect of maintaining a diverse means that there is an ‘option value’ associated gene pool from which to draw. There are still a with postponing new investment. The potential number of key knowledge gaps that need to be cost associated with making a poor and irrevers- addressed to facilitate effective adaptation strate- ible investment can be reduced by delaying an gies. Improvements in the reliability of climate investment decision and waiting for improved monitoring and forecasting may help reduce the information about likely project outcomes. This uncertainty associated with climate change. The means that the expected return from an invest- timely dissemination of climate forecasting data ment required to compensate investors may can strengthen the ability of producers to manage include not only the direct opportunity cost

168 australiancommodities • vol. 12 no. 1 • march quarter 2005 climate change of capital, but also the costs associated with Crimp, S.J., Flood, N.R., Carter, J.O., Conroy, committing to an irreversible investment and J.P. and McKeon, G.M. 2002, Evaluation of losing the option to wait for better information the Potential Impacts of Climate Change on on relative investment returns. Consequently, Native Pasture Production – Implications for the uncertainty associated with climate change Livestock Carrying Capacity, A report to the may slow down the rate of long term investment Australian Greenhouse Offi ce, Canberra. in adaptation strategies. Davidson, A. and Elliston, L. 2005, ‘Regulation In some instances, it may be necessary to and farm viability: a case study in north west scrap existing infrastructure in order to achieve New South Wales’, Australian Commodities, the necessary rate of adjustment. This is likely to vol. 12, no. 1, March quarter. occur where the impacts of climate change will Day, K.A., McKeon, G.M. and Carter, J.O. 1997, be on very long lived infrastructure whose value Evaluating the Risks of Pasture and Land is associated with its location (for example, grain Degregation in Native Pasture Queensland, storage facilities, roads, food processing facilities Final project report for Rural Industries and and irrigation schemes) (Quiggin and Horowitz Research Development Corporation, project 1999). This raises the issue of the length of the DAQ124A, Canberra. investment life cycle. In many instances, the rate Hammer, G.L., Woodruff, D.R. and Robinson of climate change will determine the optimal J.B. 1987, ‘Effects of climatic variability length of the investment horizon. If the pace of and possible climatic change on reliability change is relatively fast, there may be greater of wheat cropping – a modelling approach’, benefi t from adaptation options in broadacre Agricultural and Forestry Meteorology, vol. industry where the turnover of capital invest- 41, pp. 123–42 ment and operating costs is shorter, rather than Howden, M. and Jones, R., 2001, Costs and where long term investments are required. If the benefi ts of CO2 increase and climate change pace of climate change is slow, there is time to on the Australian wheat industry, Australian make the necessary adjustments over time. Greenhouse Offi ce, Canberra (www.green- house.gov.au). IOCI (Indian Ocean Climate Initiative) 2001, References Second Research Report – Towards an ABARE 2003, Australian Farm Survey Report, Understanding of Climate Variability in South Canberra Western Australia, Perth. Anderson, J.R. 1993, ‘The economics of new IPCC (Intergovernmental Panel on Climate technology adaptation and adoption’, Review Change ) 2001, Climate Change 2001: The of Marketing and Agricultural Economics, Scientifi c Basis, Contribution of Working vol. 61, no. 2, pp. 301–9. Group I to the Third Assessment Report (eds Anderson, J.R. and Thampapillai, J. 1990, ‘Soil Houghton, J.T., Ding, Y., Griggs, D.J., Noguer, conservation in developing countries – project M., van der Linden, P.J., Dai, X., Maskell, K. and policy intervention’, Policy and Research and Johnson, C.A.), Cambridge University Series, no 8, World Bank, Washington DC. Press, United Kingdom and New York. Beare, S. and Heaney, A. 2002, Climate change Knopke, P., O’Donnell, V. and Shepherd, A. and water resources in the Murray Darling 2000, Productivity Growth in the Australian Basin, Australia: impacts and possible adap- Grains Industry, ABARE Research Report tation, ABARE paper presented at the 2002 2000.1, Canberra. World Congress of Environmental and Re- Kurukulasuriya, P. and Rosenthal, S. 2003, Climate source Economists, Monterey, California, Change and Agriculture: A Review of Impacts 24–27 June. and Adaptations, Climate Change Series, Paper CSIRO 2001, Climate Change Projections for no. 91, World Bank Environment Department, Australia, Climate Impact Group, CSIRO Washington DC (www.cciarn.uoguelph.ca). Atmospheric Research, Melbourne. australiancommodities • vol. 12 no. 1 • march quarter 2005 169 climate change

Kundzewicz, Z. 2000, ‘Coping with hydrolog- in northern Australian savannas’, Journal of ical extremes’, Water International, vol. 25 Biogeography, vol. 17, pp. 255–72. no. 1, pp. 66–75. ——, Hall W.B., Henry B.E. and Stone G.S. Littleboy, M. and McKeon, G.M. 1997, ‘Sub- 2003, Pasture Degradation and Recovery routine GRASP: Grass Production Model’, in Australia’s Rangelands: Learning from Documentation of the Marcoola Version History, Natural Resource Science Centre, of Subroutine GRASP, Appendix 2, Evalu- Queensland Department of Natural Resources ating the Risks of Pasture and Land Degra- and Mines, Natural Resource Information dation in Native Pasture in Queensland, Publishing, Brisbane. Final Project Report for Rural Industries and Nelson, R. and Kokic, P. 2004, Forecasting Research Development Corporation, project the Regional Impact of Climate Variability DAQ124A. on Australian Crop Farm Incomes, ABARE Manins, P., Allan, R., Beer, T., Fraser, P., eReport 04.23, Canberra. Holper, P., Suppiah, R. and Walsh, K. 2001, NMA (National Museum of Australia) 2002, Atmosphere, Australia State of the Environ- ‘Tangled destinies’, Canberra (www.nma. ment Report 2001 (Theme Report), CSIRO gov.au). Publishing on behalf of the Department of the Quiggin, J. and Horowitz, J. 1999, ‘The impact Environment and Heritage, Canberra. of global warming on agriculture: a Ricardian McKeon, G.M., Rickert, K.G., Ash, A.J., Cook- analysis: comment’, American Economic sley, D.G. and Scattini, W.J. 1982, ‘Pasture Review, vol. 89, no. 4, pp. 1044–5. production model’, Proceedings of the Russel, J.S. 1981, ‘Geographic variation in Australian Society of Animal Production, vol. seasonal rainfall in Australia – an analysis of 14, pp. 202–4. the 80 year period 1895-1974’, Journal of the ——, Day, KA., Howden, S.M., Mott, J.J., Australian Institute of Agricultural Science, Orr, D.M., Scattini, W.J. and Weston, E.J. no. 47, pp. 59–66. 1990, ‘Management of pastoral production

170 australiancommodities • vol. 12 no. 1 • march quarter 2005 structural adjustment

STRUCTURAL ADJUSTMENT a vulnerability index for Australian broadacre agriculture

Rohan Nelson, Phil Kokic, Lisa Elliston and Jo-Anne King • An indicator of the vulnerability of farm Applying this general knowledge to predict households to structural adjustment has been and facilitate structural adjustment requires a constructed using ABARE farm surveys data. capability to measure the vulnerability of farm households to external pressures. • Mapping the index has identifi ed regions of This analysis uses the rural livelihood frame- Australia where farm households are likely to work of Ellis (2000) to create a simple and easily be most vulnerable to external infl uences that constructed indicator of the vulnerability to may force structural adjustment. structural adjustment of Australian farm house- • The vulnerability index can assist in ensur- holds that are dependent on broadacre agricul- ing that government policies enhance the self ture. Its goal is to show how existing informa- reliant resilience of farm households in re- tion provided by Australian farmers through gions at risk. ABARE’s annual farm surveys can be used to identify regions most vulnerable to structural Structural adjustment is an ongoing focus of adjustment pressure. Australian agricultural and natural resource management policy (Fisher 2004). The term is used to express the ongoing shift in the distri- Vulnerability to structural adjustment bution of activities and resources within and The vulnerability of Australian farm households between individuals and fi rms in an attempt to structural adjustment can be defi ned as their to improve effi ciency, contribute to economic relative exposure to external events, and their growth and raise living standards (Productivity internal capability to cope with external events Commission 1999). The development of an as they occur (Ellis 2000). According to Ellis, the appropriate policy environment that facilitates ability of farm households to cope with external self reliant adaptation within rural communities trends such as declining terms of trade and under structural adjustment pressure requires an climate variability depends on the diversity of understanding of both the external drivers and assets owned, controlled, claimed and accessed outcomes of change. by households in their livelihood strategies. The external drivers of structural adjustment This gives rise to the concept of resilience, in Australian agriculture are well known and defi ned as the ability of farm households to include declining terms of trade, technology recover their livelihoods following stress or induced productivity changes, and produc- shocks. Greater diversity enables substitution tivity changes associated with changes in the between activities and assets in response to natural resource base including climate change. structural adjustment pressures, particularly if income sources less affected by structural adjust- • Lisa Elliston • +61 2 6272 2091 • [email protected] ment are available. As Ellis (2000) states: ‘The australiancommodities • vol. 12 no. 1 • march quarter 2005 171 structural adjustment most vulnerable households are those that are regional development, and policies that affect the both highly prone to adverse external events and cost and availability of rural credit (Anderson lacking in the assets or social support systems 2003). that could carry them through periods of adver- The different dimensions of the vulnerability sity’. of farm households to structural adjustment can Self reliance has been a key pillar of Austra- be defi ned using the rural livelihoods framework lian agricultural policy for over a decade of Ellis (2000). Livelihood strategies comprise (Drought Policy Review Task Force 1990). This activities that are continuously invented, adapted means that policy is directed toward enhancing and adopted in response to changing access to the resilience of farm households to self manage assets, as infl uenced by a range of processes. change, rather than to mitigating the impacts According to Ellis the fi ve types of capital of change. The impacts of structural adjust- accessed by farm households to produce fl ows ment can, in part, be mitigated through policy of outputs include: options such as income and price stabilisation • Human capital – factors that infl uence the schemes, production and income insurance, and productivity of labor, such as skills, health income support to reduce the impact of external and management capacity including educa- events. However, if sustained, these policies can tion; diminish incentives to self manage risk, reducing • Social capital – claims on others by virtue of the resilience of farm households to external social relationships; pressures and perpetuating reliance on govern- • Natural capital – land, water and biological ment support. resources; In contrast, international competitiveness and • Physical capital – produced by economic long term farm viability require policies that activity including infrastructure, equipment facilitate change to the predictable pressures and technology; and of competition, enhancing the self reliant resil- • Financial capital – savings and credit. ience of farm households to external shocks. The The framework recognises that access to these resilience of farm households can be enhanced fi ve types of capital is affected by a range of through policies that increase the diversity of processes that are outside the individual’s control assets and activities available to form liveli- (fi gure A). These latter infl uences include the hood strategies (Ellis 2000). Policies of this kind external drivers of structural adjustment, such include investment in production, transport and as policy implementation and change, market marketing infrastructure, education and training, trends and shocks as well as climate variation

A A framework for analysing rural livelihoods

Livelihood Access modified In the context Resulting Composed With effects platform by of in of on (capital)

Human Social relationships Natural resource based activities Social Trends Livelihood Livelihood security Natural Institutions strategies Environmental Shocks sustainability Physical Organisations Non natural resource based activities Financial

Ellis (2000)

172 australiancommodities • vol. 12 no. 1 • march quarter 2005 structural adjustment and change. These are often unpredictable, but interpreting the information can apply their own can have a profound effect on the use of assets to weighting to each component. generate livelihoods. The rural livelihoods framework was used to Other infl uences on the ability of a farm select key indicators of the level of the fi ve types household to access resources include social of capital on which rural livelihoods depend. relationships, institutions and organisations. Farm surveys data collected between 1992-93 Social relationships refer to the position of indi- and 2001-02 were used to construct each indi- viduals within society, which is infl uenced by cator (table 1). factors such as gender, ethnicity, age and reli- The education level of both the farm operator gion. Institutions such as laws and less formal and their spouse was used to measure human rules that help to make human interaction more capital. Lower levels of education were assumed predictable can also modify access to assets such to be associated with a higher vulnerability as natural resources. Government agencies are index. one of many types of organisation that can infl u- The number of partners running the farm busi- ence access to resources, along with nongovern- ness, internet use and membership of a Landcare ment organisations and industry associations. or similar group were used to create an indicator of social capital. Fewer partners as well as a lack of internet use or a lack of Landcare member- Constructing the index ship were assumed to be associated with a higher A number of different dimensions need to be vulnerability index. taken into consideration in order to construct a The extent of on-farm land degradation pro- robust measure of vulnerability. Carney (1998, blem and the frequency of extreme pasture cited in Ellis 2000) developed a cobweb frame- growth conditions were used to construct an work that can be used to capture the multiple indicator of natural capital. It was assumed dimensions of the livelihood asset base that that the vulnerability score increased with the determine vulnerability (fi gure B). Each of the proportion of degraded land and the proportion fi ve dimensions — human, social, natural, phys- of extremely low pasture growth days. ical and fi nancial capital — can be individually The indicator of physical capacity was repre- ranked before being aggregated to an overall sented by the area operated on the farm and the measure of vulnerability. One advantage of this diversity of enterprises contributing to on-farm approach is that it transparently presents the indi- income. Smaller operating areas and fewer vidual dimensions of vulnerability so that those sources of income were assumed to be associ- ated with higher levels of vulnerability. Financial capital was represented by three Measuring the multiple dimensions of measures of income: average on-farm income, B vulnerability variability in income and the availability of off- farm income sources. Higher levels of vulner- Human 5 ability were assumed to be associated with lower 4 than average on-farm and off-farm incomes and higher levels of income variability. 3 These variables were selected following tests 2 Financial Social to ensure that no one indicator was highly corre- 1 lated with any other indicator and that each of 0 the twelve indicators represented a different aspect of overall vulnerability. Using the geographic location of each survey farm, each of the variables contributing to the measure of vulnerability was mapped to Physical Natural a surface of grid points across Australia (see Carney (1998) australiancommodities • vol. 12 no. 1 • march quarter 2005 173 structural adjustment 1 Farm survey variables used to construct vulnerability index

Capital Indicator Description Human Operator education ( ) Level of education, ranked from one (no schooling) to six Spouse education ( ) (completed a university or other tertiary qualifi cation) Social Partnerships ( ) Number of partners running the business including the operator Internet use ( ) Used the internet (yes/no) Landcare membership ( ) Member of a Landcare or similar group (yes/no) Natural Degradation ( ) Proportion of farm area signifi cantly degraded (%) PGI extreme ( ) Average proportion of days that the pasture growth index is less than 0.05 over a ten year period Physical Diversity of income sources ( ) Diversity measure of onfarm receipts from wool, beef, wheat, other winter crops and summer crops Area operated ( ) Area of farm operated (ha) Financial Average income ( ) Mean farm cash income ($ Income risk ( ) Interquartile range of farm cash income divided by mean farm cash income over a ten year period Off-farm income ( ) Average ratio of off-farm income to total on- and off-farm income

( ) Arrows show the relationship between each variable and vulnerability.

Cowling et al. 1993 for more detail on the kernel different number of indicators used to represent smoothing technique). The smoothed data for each type of capital. However, each component more than 4000 grid points were then ranked of the vulnerability index is presented in this from highest to lowest such that values with a paper to allow readers to make their own judg- high rank logically imply greater vulnerability. ments about the relative importance of each indi- For example, low values of average farm income cator. received a high ranking in terms of vulnerability, whereas low values of income risk received a low ranking. Mapping vulnerability The main purpose of the ranking procedure Mapping the fi nal vulnerability index highlights was to derive a robust overall index where ex- the regions of Australia where broadacre farm treme values of any one of the input variables households are likely to be most vulnerable to did not overly infl uence the index in any region external infl uences such as structural adjustment to such an extent that its contribution greatly (map 1). The red shaded areas show broadacre exceeded that of any other. The rank values were farming communities with a vulnerability index then standardised to values between zero and in the highest 10 per cent overall. The orange one to account for the fact that the datasets had a shaded areas identify regions with the next variable number of grid points of equal rank. highest 10–25 per cent. In order to construct one single measure of Many of the communities in eastern Australia vulnerability, each of the twelve component with a vulnerability index in the highest 10 per indicators needed to be assigned a weight. In the cent occur in a band between the western margin absence of information on the relative impor- of cropping areas in the wheat–sheep zone and tance of any one component over any other, each the more extensive grazing areas to the west. In type of capital — human, social, natural, phys- South Australia, New South Wales and southern ical and fi nancial — was given an equal weight Queensland, these farm households operate in the fi nal vulnerability index to account for the smaller than average properties relative to the

174 australiancommodities • vol. 12 no. 1 • march quarter 2005 structural adjustment

Vulnerability across Australian water and soil quality, and salinity, the predomi- 1 agricultural regions nant reporting of degradation across the eastern states of Australia related to problems with most vulnerable – top10% weeds, including woody weed encroachment. most vulnerable next 10 –25% Low levels of spouse education are contributing least vulnerable to the relatively high vulnerability score in north no data west New South Wales and in parts of central Queensland. Another band of communities with a vulner- ability index in the highest 10 per cent stretches along eastern New South Wales and into south east Queensland. Many of these areas contain beef or sheep producers operating small proper- ties characterised by few business partners and a number of land degradation problems. Farm households in these regions are typically earning lower than average on-farm incomes and are facing continual pressure from rising land values caused by urban encroachment. Beef dominated farming communities around the major population centres of Rockhampton rest of the pastoral zone and are mostly depen- and Cairns also have a vulnerability index in the dent on sheep for their livelihoods, with some highest 10 per cent. Factors contributing to the opportunistic cropping along the eastern edge vulnerability of these regions include a lack of of these regions. Declining real wool prices and diverse sources of farm income, which in turn low productivity growth on wool specialist farms contributes to higher variability in income over relative to cropping and beef specialists have time, some problems with land degradation, rela- contributed to the low average incomes across tively low levels of eduction, and in some cases many of the broadacre farms in the region. A a lack of membership in Landcare or similar similar but less widespread trend can be seen in groups. sheep dominated areas beyond the northern and eastern limits of cropping in the wheat belt of Western Australia. All of these areas tend also Dimensions of vulnerability to have enterprises whose scale is below the The twelve dimensions of the vulnerability average for the whole of the pastoral zone. index are presented in maps 2 and 3, sorted The relationship between areas with a high by type of capital. To the west of the cropping vulnerability index and the sheep industry is areas in eastern Australia, a high value of the prominent. For example, even the relatively vulnerability index is contributed to by low small sheep dominated area of the New England human capital, particularly spouse education. Tablelands is clearly distinguishable from the Low education of both operator and spouse also north west slopes and plains to the west, and contributes to a high vulnerability index for the higher rainfall beef dominated areas to the north eastern communities of New South Wales and west. Queensland, and in the north east wheat belt of The presence of signifi cant on-farm degrada- Western Australia. tion problems and fewer business partners are With some contribution from a low diversity also contributing to the high degree of vulnera- of income sources, low human and social capital bility of farming communities across parts of the are also the main contributor to high values of eastern states (maps 2 and 3). While farmers in the vulnerability index for an area around Cairns isolated regions reported problems with erosion, in far north Queensland. australiancommodities • vol. 12 no. 1 • march quarter 2005 175 structural adjustment

2 Factors contributing to the vulnerability of broadacre regions

most vulnerable – top10% most vulnerable next 10 –25% least vulnerable no data

Operator education Spouse education

Partnerships Internet use

Landcare membership Degradation

176 australiancommodities • vol. 12 no. 1 • march quarter 2005 structural adjustment

3 Factors contributing to the vulnerability of broadacre regions

most vulnerable – top10% most vulnerable next 10 –25% least vulnerable no data

Extreme pasture growth Diversity of income

Area operated Average income

Income risk Off-farm income

australiancommodities • vol. 12 no. 1 • march quarter 2005 177 structural adjustment

A low number of partnerships are one of the index in central west New South Wales and parts most signifi cant contributors to a high value of of central west Queensland. the vulnerability index in areas dominated by A low reliance on off-farm income sources the sheep industry in eastern Australia and in contributes to a high value of the vulnerability the north east wheat belt of Western Australia. index in the central highlands of Queensland Many of the eastern areas of New South Wales inland from Rockhampton, and inland from and Queensland with a high vulnerability index Geraldton in Western Australia. also have some of the lowest numbers of partner- ships. In eastern Australia especially, moderately low Landcare membership and internet use also Implications for agricultural policies contributes to high values of the vulnerability The resilience of farm households has been high- index, as measured. lighted by Fisher (2004) as an important concept The relationship between areas with a high in Australian agricultural policy, but until now value of the vulnerability index and areas in has been poorly defi ned. The rural livelihoods which pasture growth is often extremely low is framework developed by Ellis (2000) provides poor. In contrast, the area of reported degrada- some insights into the different types of capital tion is one of the most important contributors to that can increase the resilience of farm house- a high value of the vulnerability index in eastern holds to a range of factors creating structural ad- Australia and right across the wheat–sheep zone justment pressures. Each regional community of Western Australia. is likely to face different pressures depending Physical capital measured as area operated on the industries that they are reliant on and to and the diversity of on-farm income generating respond differently to these pressures depending activities contribute strongly to a high value on their endowments of human, social, natural, of the vulnerability index along eastern New physical and fi nancial capital. South Wales and Queensland, and in far north The most contentious aspect of developing a Queensland respectively. Area operated also single index of vulnerability is the selection and makes an intermediate contribution to a high weighting of each indicator of capital. Presenting vulnerability index in central New South Wales, each component map enables the reader to come southern Queensland and the north east wheat to his or her own interpretation independently belt of Western Australia. A low diversity of on- although further research into variable selection farm income generating activities also contrib- and weighting methods is warranted. utes to a high value of the vulnerability index in An intermediate fi nding of this research is central western New South Wales. that farming in a harsh environment does not Physical indicators such as area operated tend necessarily lead to a high score on the vulnera- to categorise regions according to rainfall. Even bility index. Grazing based operations in central the measure of diversity of on-farm activities Australia with a high frequency of extreme tends to identify regions in northern Australia pasture growth conditions do not tend to rate restricted by climate to beef production. Neither highly on the vulnerability index. This indicates physical indicator contributed strongly to iden- that appropriate farming systems can effectively tifying regions with similar climate that have manage the risks associated with a highly vari- different vulnerability to external pressures that able, low rainfall climate so long as they have may force structural adjustment. adequate scale. It also means that biophysical Low average farm incomes contribute to a indicators of vulnerability such as rainfall and high value of the vulnerability index in central soil type are poor indicators of the vulnerability west New South Wales and southern Queens- of farm households. land, and to a lesser extent along eastern New The most important fi nding of this research South Wales. is that many Australian farm households depen- High income variability is an intermediate dent on broadacre agriculture lack elements of contributor to the high value of the vulnerability the human, social, natural, physical and fi nancial

178 australiancommodities • vol. 12 no. 1 • march quarter 2005 structural adjustment capital necessary to readily adapt to structural Carney, D. 1998. ‘Implementing the sustain- adjustment pressures. This is particularly true in able rural livelihoods approach’, in D. Carney areas of inland South Australia, New South Wales (ed.) Sustainable Rural Livelihoods: What and Queensland that rely on the sheep industry Contribution Can We Make?, Department for for their livelihoods. A similar trend is emerging International Development, London. in areas dominated by the sheep industry in the Cowling, A., Chambers, R., Lindsay, R. and north east wheat belt of Western Australia. Parameswaran, B, 1993, Mapping Survey There are a number of areas for further Data, Proceedings of the International Con- research. One is to develop a region specifi c ference on Establishment Surveys, 27–30 measure of farm size rather than using the June, 1993, Buffalo, New York. current absolute measure. A second is to explore Drought Policy Review Task Force 1990, the sensitivity of the overall index to alternative National Drought Policy – Final Report, vol. measures of human, social and natural capital. A 1, Commonwealth of Australia, Canberra. third area for further research involves designing Ellis, F. 2000, Rural Livelihoods and Diversity the weights associated with each type of capital in Developing Countries, Oxford University to help target specifi c policy objectives such as Press, England. improved land stewardship or to facilitate adjust- Fisher, B.S. 2004, Outlook for agriculture, ment through enhanced educational opportuni- Presentation at the National Outlook Confer- ties. ence, National Convention Centre, Canberra, March. Productivity Commission 1999, Structural Ad- References justment – Exploring the Policy Issues, Work- Anderson, J.R. 2003, ‘Risk in rural development: shop Proceedings, AusInfo, Canberra. challenges for managers and policy makers’, Agricultural Systems, vol. 75 pp. 161–97.

australiancommodities • vol. 12 no. 1 • march quarter 2005 179 farm performance

FARM FINANCIAL PERFORMANCE broadacre cropping incomes fall but incomes for beef farms strengthen

Peter Martin, Jo-Anne King, Phantipa Puangsumalee, Catherine Tulloh and Rhonda Treadwell • Lower winter rainfall across much of Aus- The fi nancial performance of Australian farms tralia’s wheat and winter grain producing has steadily improved in the past two years as regions in 2004 reduced overall crop produc- drought, that was most severe and widespread tion and, in combination with lower interna- in 2002-03, has receded (maps 1). Through tional grain prices, has sharply reduced the both the period of the drought and the period of forecast incomes of grain farms in most states recovery, prices for livestock and grains have in 2004-05. remained high in historical terms, assisting farms manage cash fl ow through this period • Incomes for broadacre livestock produc- of reduced production. High beef cattle prices ers are forecast to increase in 2004-05 de- over the past three years have been particularly spite lower wool prices. Higher prices for beef important in improving farm incomes as more cattle combined with increased cattle turnoff Australian farms carry beef cattle than engage in and continuing strong sheep and lamb prices any other farming enterprise. are driving incomes higher for livestock farms. Strong demand for rural land has resulted in • Increases in international dairy prices, rising farm capital values offsetting the impact of higher milk production and lower feed prices increases in working capital debt resulting from are expected to result in incomes for dairy reduced cash fl ow and the reduction in livestock farms also increasing in 2004-05. and crop inventories on farm equity. At the end of the 2003-04 fi nancial year the average equity • High demand for agricultural land in the ratio estimated for Australian broadacre farms past four years has resulted in signifi cant in- was higher than it has been in any year since the creases in farm values, boosting farm equity. 1980s. Servicing debt through this period has also been assisted by Australia’s historically low Farm incomes increase interest rates. Changes in the payment options for grains In this paper, the current fi nancial performance delivered to pools operated by the major grain of Australia’s broadacre and dairy farms is outlets, AWB Limited and ABB Grains, have also presented. ABARE’s farm survey data are had a substantial impact since 2000-01 on the used to gain insights into the performance of cash fl ow for grain producing farms, providing Australian farms in the period since 2002-03, the opportunity to move grain receipts between including farmers’ access to drought assistance fi nancial years. These changes, in combination payments and farm management deposits, and with the use of farm management deposits, have to analyse projected farm fi nancial perfor- contributed substantially to reducing the vari- mance in 2004-05. ability in cash fl ow of grain farms in the past

• Peter Martin • +61 2 6272 2363 • [email protected] four years.

180 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance 1 Seasonal conditions

However, drought in the 2002–04 period had Projections of farm performance refl ect pro- a more severe impact on irrigated agriculture ducers’ plans and expectations as at November than did previous droughts. Low availability of 2004. In some areas of Australia, seasonal condi- irrigation water continues to have an impact on tions may have improved by more than antici- some industries in 2004-05, particularly the rice pated in November, while in others, seasonal industry where the area planted to rice has been conditions may have deteriorated. severely reduced. Estimates for 2004-05 will be progressively updated in future data releases by ABARE as new information is incorporated. Financial performance of Australian farms Farm receipts Below average winter rainfall in most major Each year ABARE surveys a large number of grain producing regions of Australia resulted in producers in the broadacre and dairy sectors winter crop production in 2004-05 being below of Australian agriculture through the Austra- the average for the previous fi ve years in all states lian agricultural and grazing industries survey except Western Australia. Only in northern New and the Australian dairy industry survey. These South Wales is there estimated to be a substantial surveys provide detailed fi nancial and physical increase in grain production in 2004-05. information on farm business and the socioeco- Prospects for 2004-05 summer crops appear nomic circumstances of their operators. good. Improved seasonal conditions through Information provided by farmers in the surveys summer relative to 2003-04 and the availability in November and December 2004 in combina- of more irrigation water in northern New South tion with preliminary data collected earlier in Wales and southern Queensland are estimated to the year has been used to project farm fi nancial have resulted in a substantial increase in the area performance estimates for the 2004-05 fi nancial planted to sorghum, cotton and other summer year. The information collected provides a basis crops, and yield prospects for summer crops are for analysing the current fi nancial position of good. broadacre and dairy industries and the expected However, prices received by farmers for grains changes in the short term. are forecast to be lower in 2004-05 because of australiancommodities • vol. 12 no. 1 • march quarter 2005 181 farm performance increased world grain production. Prices for all around 5 per cent in 2004-05 compared with the major grains, oilseeds, pulses and cotton are fore- previous year. cast to fall relative to prices received in 2003-04. Milk receipts are also projected to increase in Overall, receipts from crops are projected to fall 2004-05. Higher international prices for dairy by around a quarter for broadacre farms in 2004- products are forecast to lead to an increase in 05 relative to 2003-04. farm gate milk prices in 2004-05. After declining At the national level, wool production is in 2003-04, dairy cow numbers are forecast to projected to rise in 2004-05 and more wool is rise during 2004-05. Improved seasonal condi- expected to be brought forward for sale from on- tions, reduced grain and fodder prices and in- farm stocks. However, weaker demand is fore- creased water availability in the major dairy cast to result in lower wool prices and a reduc- areas are forecast to lead to an increase in milk tion in farm receipts for wool. production. A gradual rebuilding of cattle herds and sheep fl ocks from the 2002-03 drought is projected to Farm costs occur in all states, with an increase in the number Broadacre and dairy farm expenditure was high of lambs marked and calves branded in 2004-05. in 2003-04, with increased expenditure incurred Nevertheless, net turnoff of sheep, lambs and in planting and harvesting a record winter crop, beef cattle is projected to increase in 2004-05 in record livestock purchase expenditure and con- response to the strong incentives of historically tinued high expenditure on livestock feeding in high sale prices. many regions. At the national level, increases in receipts for Overall, broadacre farm costs are forecast livestock are not forecast to be suffi cient to offset to fall by around 4 per cent in 2004-05, mainly lower receipts from crops and wool, resulting in because of reduced expenditure on livestock overall receipts for broadacre farms falling by purchases and fodder as well as reduced crop

Major fi nancial performance indicators Farm cash income = total cash receipts – total cash costs Total revenues Payments made by the farm business for received by the farm materials and services and for permanent business during the and casual hired labor (excluding owner fi nancial year manager, partner and family labor)

Farm business profi t = farm cash income + changes in – depreciation – imputed trading stock labor costs

Profi t at full equity = farm business profi t + rent + interest and + depreciation (Return produced by all fi nance lease on leased terms the resources used in the payments farm business)

Rate of return = profi t at full equity total opening capital x 100 (Return to all capital used)

Off-farm income = wages off-farm + other business income + investment + social welfare (Owner manager payments and spouse only)

182 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance harvesting and marketing costs, because of Farm cash income and farm business profi t the much smaller grain crop, combined with a reduction in repairs and maintenance expendi- In 2003-04, farm cash income for the broadacre ture. Expenditure on repairs and maintenance is industries as a group increased from the drought partly discretionary and is often reduced when reduced income in 2002-03 to slightly above the farm receipts fall. long term average (fi gure A) in real terms. Near The reduction in total costs is despite a fore- record winter crop receipts and high livestock cast increase in the index of prices paid by receipts more than offset increases in total farm farmers of around 3 per cent that has resulted cash costs (table 1). mainly from higher prices for fuel and fertilisers Farm cash income for broadacre farms is and despite falls in the price of other inputs such projected to fall by around 11 per cent in 2004- as feed grains and hay. 05 to just below the long term average, in real However, lower feed grain and fodder prices terms, and to be similar to the farm cash income together with improved seasonal conditions, in 1999-2000, as reductions in farm cash receipts reducing the requirement to purchase feed, are exceed reductions in farm cash costs (fi gure A). projected to have a substantial impact on the dairy Farm cash income is a measure of the industry, where expenditure on purchased feed cash funds available for farm investment and is projected to fall by over 10 per cent in 2004-05 consumption after paying all costs incurred in despite an increase in dairy cow numbers. production, including interest payments, but

Financial performance Average per farm 1 All broadacre industries

2002-03 2003-04 p 2004-05 s Total cash receipts $ 257 589 280 680 (28) 266 600 Total cash costs $ 205 792 213 650 (41) 205 000 Farm cash income $ 51 797 67 040 (18) 61 500 Farms with negative farm cash income % 33 27 (9) 27 Farm business profi t $ –27 405 6 980 (96) 700 Farms with negative farm business profi t % 71 62 (3) 59 Profi t at full equity – excl. capital appreciation $ –6 589 31 930 (21) 24 000 – incl. capital appreciation $ 143 787 234 880 (9) na Farm capital at 30 June a $ 2 244 521 2 502 980 (6) na Net capital additions $ 39 240 41 990 (37) na Farm debt at 30 June b $ 223 898 218 410 (5) 198 900 Equity at 30 June bc $ 1 893 511 2 147 820 (7) na Equity ratio bd % 89 91 (1) na Harvest loans at 30 June e $ 6 093 6 460 (14) na Farm liquid assets at 30 June b $ 133 540 142 580 (12) na Farm management deposits (FMDs) at 30 June b $ 22 377 25 730 (11) na Share of farms with FMDs at 30 June b $ 17 23 (8) na Rate of return f – excl. capital appreciation % –0.3 1.5 (20) 1.0 – incl. capital appreciation % 7.5 11.1 (8) na Off-farm income of owner manager and spouse b $ 29 023 27 030 (10) na a Excludes leased plant and equipment. b Average per responding farm. c Farm capital minus farm debt. d Equity expressed as a percentage of farm capital. e Harvest loans are not included in farm debt. f Rate of return to farm capital at 1 July. p Preliminary estimates. s Provisional estimates. na Not Available. Note: Figure in parentheses are standard errors, expressed as percentages of the estimates. australiancommodities • vol. 12 no. 1 • march quarter 2005 183 farm performance

All broadacre industries A longer term measure of profi tability that A takes account of capital depreciation and changes in inventories of livestock, fodder, grain, wool 100 etc is farm business profi t. 80 Farm cash income Farm business profi t for the broadacre indus- 60 tries is also expected to fall in 2004-05, by a 40 similar amount to the reduction in farm cash income (table 1). While increases are projected in 20 2004-05 inventories of livestock on farms, these increases $’000 are expected to be similar to 2003-04, but wool –20 and grain stocks on farm are expected to fall. –40 Increased livestock numbers will enhance farms’ Farm business profit –60 ability to generate cash fl ow beyond 2004-05. 1977 1983 1990 1997 2004 -78 -84 -91 -98 -05 Rates of return Rates of return to total farm capital are expected to rise in most states in 2004-05 after having excluding capital payments and payments to been relatively low in both 2003-04 and 2002-03 family workers. It is a short term measure of for many industries (tables 2, 3). farm performance because it takes no account of However, strong demand for rural land in the depreciation or changes in farm inventories. past three years has resulted in increased land

Financial performance, by state Average per farm 2 Broadacre and dairy industries

Farm cash income Farm business profi t a Rate of return b 2002 2003 2004 2002 2003 2004 2002 2003 2004 -03 -04 p -05 s -03 -04 p -05 s -03 -04 p -05 s $ $ $ $ $ $ % % % All broadacre industries New South Wales 33 250 33 160 52 400 –48 050 –23 510 –6 400 –1.7 0.2 0.6 Victoria 45 465 49 320 47 100 –22 514 2 700 3 400 –0.6 1.1 1.1 Queensland 32 063 39 410 55 700 –67 895 –23 250 – 200 –1.8 0.1 0.9 Western Australia 89 519 177 500 119 500 16 059 101 900 21 600 2.0 5.0 1.9 South Australia 111 448 138 430 67 400 26 837 65 540 –8 900 2.3 3.6 0.6 Tasmania 45 455 48 480 57 000 10 271 –1 240 11 100 1.7 0.9 1.5 Northern Territory 133 304 539 870 211 600 377 489 179 470 262 300 5.8 2.9 3.8 Australia 51 797 67 040 61 500 –27 405 6 980 700 –0.3 1.5 1.0 Dairy industry New South Wales 35 207 59 930 72 100 –35 575 –10 840 – 400 –0.7 0.3 1.0 Victoria 31 718 56 340 74 300 –49 333 –14 690 3 900 –1.2 0.9 1.9 Queensland 7 769 57 020 58 400 –61 840 –18 930 –19 800 –3.4 –0.4 –0.1 Western Australia 63 595 74 100 87 400 16 466 –17 580 5 900 1.7 0.6 1.1 South Australia 45 646 84 050 104 900 –6 895 –3 010 22 300 1.8 1.5 2.2 Tasmania 98 452 65 680 101 100 35 919 –15 520 25 200 3.7 1.2 3.1 Australia 34 727 59 440 75 400 –40 027 –14 210 2 500 –0.7 0.7 1.6 a Defi ned as farm cash income plus buildup in trading stocks, less depreciation and the imputed value of operator partner and family labor. b Defi ned as profi t at full equity, excluding capital appreciation, as a percentage of total opening capital. Profi t at full equity is defi ned as farm business profi t plus rent, interest and lease payments less depreciation on leased items. p Preliminary. s Provisional estimates.

184 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance values in most farming regions, raising the total and Victoria, opted to receive a substantial pro- capital value of farms. portion of the receipts from the 2003-04 crop in Rates of return presented in this article are 2004-05. As a consequence, average farm cash calculated by dividing farm business profi t ad- incomes for broadacre farms in these states in justed to a full equity basis by opening total farm 2004-05 are projected to be higher than would capital. That is, farm business profi ts have been be expected based on the reductions to crop pro- adjusted by adding on interest and leasing costs duction and prices. removing the effects on profi t of the fi nancing Farm cash income for Queensland broadacre arrangements in place. Two rates or return are farms in 2004-05 is being affected by continued estimated: the rate of return excluding capital low winter grain production and a forecast in- appreciation and the rate of return including crease in summer crop production. Overall, farm capital appreciation. cash income for Queensland broadacre farms is Rising farm capital values in recent years have forecast to increase in 2004-05 because of higher reduced rates of return excluding capital appre- receipts from beef cattle. ciation but have led to historically high rates of While overall cattle numbers are expected to return including capital appreciation (table 3). increase in response to increased breeding rates, turnoff of male cattle is expected to remain high. The increase in beef cattle numbers will also Performance, by state result in a substantial increase in farm business Broadacre farm cash income in 2004-05 is fore- profi t as trading stocks are rebuilt. cast to rise in New South Wales, Queensland and Tasmania, but to fall in other states relative to the farm cash income recorded in 2003-04 Performance, by industry (table 2). However, farm business profi t is fore- Summary information on fi nancial performance cast to improve signifi cantly for all states except in Australian broadacre and dairy industries is Western Australia and South Australia in 2004- given in table 3 and fi gure B. 05, as a consequence of increases in the number of beef cattle and sheep on farms as herds and Wheat and other crops industry fl ocks are rebuilt. Farm cash income for the wheat and other crops On average, the fi nancial performance of industry rebounded strongly in 2003-04 from farms in New South Wales, Victoria and Tas- the drought reduced 2002-03 income. High mania is projected to be stronger in 2004-05 than grain prices during 2003-04 combined with a in 2003-04, with higher average profi ts, lower 40 per cent increase in grain production led to average debt and a smaller percentage of farms farm cash income at the national level returning with negative farm business profi t. to near predrought levels. In New South Wales, increased winter crop However, farm cash income is expected to fall production in northern and central regions is sharply in 2004-05. A reduction of almost 20 per projected to lead to an increase in average farm cent in winter grain production combined with cash income, despite lower grain prices and lower grain prices is forecast to result in a 25 per reductions in beef cattle turnoff. However, the cent fall in crop receipts. The impact of reduced southern cropping areas winter crop production grain production on farm receipts has been cush- was lower, and lower winter crop production in ioned in some states by payments received from Victoria, South Australia and Western Australia the record 2003-04 harvest carried forward into is projected to result in a fall in farm cash income 2004-05. in these states. Overall, cash costs for wheat and other crops Record winter crop production in Western industry farms are projected to fall by 4 per Australia in 2003-04 led to very high farm cash cent, despite increased expenditure on fuel and incomes. Many grain producers in Western Aus- fertiliser, because of the lower cost of marketing tralia and, to a lesser extent in South Australia a much reduced crop and as farms reduce some australiancommodities • vol. 12 no. 1 • march quarter 2005 185 farm performance of their discretionary spending on repairs and area plated to winter grains in southern states. maintenance. Increased winter crop production in combina- Business profi ts for wheat and other crops tion with high lamb and beef prices resulted in industry farms in 2004-05 are projected to be average farm cash income increasing by almost similar to those of the late 1990s but well below a third. those of 2001-02 and 2003-04. Lower winter crop production in 2004-05 and reduced grain prices are expected to result Mixed livestock–crops industry in crop receipts falling by around 14 per cent. Farm cash income for the mixed livestock– However, this reduction will be partly offset by crops industry rose in 2003-04 as producers increased receipts from the sale of lambs, sheep with reduced livestock numbers expanded the and, particularly, beef cattle. Despite an increase

Financial performance, by industry Average per farm 3 All broadacre farms

Farm cash income Farm business profi t p 2002-03 2003-04 p 2004-05 s 2002-03 2003-04 p 2004-05 s $ $ $ $ $ $ Wheat and other crops 105 810 168 740 85 100 1 290 90 980 –9 500 Mixed livestock crops 65 720 87 680 82 300 –14 940 18 550 11 700 Beef industry 28 140 30 040 48 600 –46 580 –22 990 13 400 – farms with less than 300 beef cattle 3 304 5 910 16 200 –56 022 –36 990 –27 600 – farms with more than 300 beef cattle 66 110 69 420 106 400 –35 379 100 62 000 Sheep 33 980 24 680 40 900 –31 490 –24 210 –19 300 – farms with less than 3000 sheep 11 510 6 260 13 400 –45 710 –39 240 –38 200 – farms with more than 3000 sheep 75 990 69 980 86 400 –8 280 15 850 8 700 Sheep–beef 22 390 26 550 55 300 –44 690 –26 020 –8 400 All broadacre industries 51 800 67 040 61 500 –27 410 6 980 700 Dairy 34 730 59 440 75 400 –40 030 –14 210 2 500

Rate of return – excluding Rate of return – including capital appreciation a capital appreciation 2002-03 2003-04 p 2004-05 s 2002-03 2003-04 p % % % % % Wheat and other crops 1.5 5.5 1.1 6.8 13.8 Mixed livestock crops 0.5 2.4 1.7 8.5 13.5 Beef industry –1.7 –0.5 1.2 7.4 8.1 – farms with less than 300 beef cattle –6.6 –3.9 –2.4 –1.7 8.6 – farms with more than 300 beef cattle –0.2 0.7 2.1 10.2 7.9 Sheep –1.1 –0.6 –0.2 8.6 9.8 – farms with less than 3000 sheep –3.7 –3.2 –3.0 6.4 10.1 – farms with more than 3000 sheep 0.8 1.5 1.3 10.5 13.7 Sheep–beef –1.3 0.2 0.6 5.0 11.1 All broadacre industries –0.3 1.5 1.0 7.5 11.1 Dairy –0.7 0.7 1.6 7.2 9.3 a Defi ned as profi t at full equity, excluding capital appreciation, as a percentage of total opening capital. Profi t at full equity is defi ned as farm business profi t plus rent, interest and lease payments less depreciation on leased items. p Preliminary. s Provisional estimate.

186 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance in wool production and an increase in the sale of turnoff was reduced, subduing increases in farm wool from on-farm stocks, lower overall receipts cash income. are projected for wool.

Sheep industry Farm cash income Sheep industry farm cash income fell slightly in 2003-04 on the back of reduced wool receipts, B but was still above income levels of the mid Grains to late 1990s (fi gure B). Expenditure on sheep Wheat and other crops purchases was historically high, because of high prices and increased sheep purchases. An 150 increase in the number of lambs marked resulted in a small increase in sheep numbers, a rise in 100 livestock inventories and an improvement in farm business profi t. In 2004-05, farm cash income is forecast 50 to rise despite a projected fall in receipts from Mixed livestock–crops wool. Receipts from the sale of lambs and sheep, 2004-05 together with increased receipts from beef $’000 cattle and a reduction in expenditure on sheep 1977 1983 1990 1997 2004 -78 -84 -91 -98 -05 purchases and fodder are projected to more than offset lower wool receipts and result in farm Sheep cash income rising to be just below the long term Sheep average (fi gure B). 200 Falls in sheep numbers since the early 1990s Sheep–beef and growth in international demand have resulted in rising real lamb and mutton prices over this 150 period and sheep industry producers have become increasingly more reliant on income from lamb 100 and sheep sales. For example, receipts from sheep and lambs have risen from 14 per cent of average 50 farm receipts in 1990-91 to over 40 per cent in 2004-05 2004-05. $’000 1977 1983 1990 1997 2004 Sheep–beef industry -78 -84 -91 -98 -05 Drought in 2002-03 had a relatively more severe Beef impact on this industry, because of the location of a high proportion of farms in this industry in regions of New South Wales and Queensland 80 most severely affected by drought in 2002-03. The reduction in sheep numbers, particularly on 60 Queensland farms was very large. In the period since 2002-03, many Queensland producers 40 have not rebuilt sheep numbers and have mainly increased beef cattle numbers, effectively mov- 20 ing from the sheep–beef industry to the beef 2004-05 industry. $’000 In other states, both sheep and beef cattle 1977 1983 1990 1997 2004 numbers in this industry increased in 2003-04 as -78 -84 -91 -98 -05 australiancommodities • vol. 12 no. 1 • march quarter 2005 187 farm performance

Both sheep and beef cattle turnoff is pro- Higher livestock turnoff in combination with jected to increase in this industry in 2004-05, higher beef cattle prices and strong sheep and together with a steady increase in beef cattle lamb prices are expected to result in increased and sheep numbers kept on farms as a result of total cash receipts despite a small reduction in higher natural increase. Turnoff of beef cattle wool receipts. is expected to increase by almost 10 per cent. Livestock purchase costs were histori- cally high in this industry in 2003-04 and are projected to remain high in 2004-05, resulting in an increase in total cash costs. Broadacre industries Overall, farm cash income is forecast to in- crease in 2004-05 to above the long term average, The broadacre sector of Australian agriculture is defi ned to include fi ve industry types: in real terms, and with increases in sheep and beef cattle numbers, farm business profi t is expected Wheat and other crops industry to return to the level of the late 1990s. The wheat and other crops industry represents the more specialist producers of cereal grains, Beef industry coarse grains, pulses and oilseeds. Beef cattle turnoff fell on beef industry farms in 2003-04 as farms began to rebuild herds and, Mixed livestock–crops industry despite much higher beef cattle sale prices, the The mixed livestock–crops industry covers increase in farm receipts was relatively small. At farms engaged in the production of sheep the same time, farm cash costs increased, despite and/or beef cattle in conjunction with substan- a 50 per cent reduction in expenditure on fodder tial activity in broadacre crops such as wheat, coarse grains, oilseeds and pulses. relative to 2002-03, as expenditure on purchases of beef cattle rose to record levels. Overall, with Sheep industry only a small increase in receipts and an increase The sheep industry represents the more special- of almost as much in costs there was only a slight ised producers of sheep and wool. However, the increase resulted in farm cash income in 2003- number of properties classifi ed to the industry, 04 relative to 2002-03, but increases in cattle along with the industry’s contribution to wool numbers resulted in a much larger improvement production, has declined substantially since in farm business profi t. the early 1990s as producers have diversifi ed In 2004-05, beef cattle turnoff is forecast to enterprises. Currently, sheep industry farms increase by around 4 per cent and in combina- account for only around a third of Australia’s tion with higher beef cattle prices and lower cash wool production. The majority of both wool and sheep meat production occurs on mixed costs result in farm cash income rising to above enterprise farms, particularly on mixed live- the long term average, in real terms, to be similar stock–crops industry farms. to incomes in the late 1990s. Continued increases in cattle numbers are Beef industry projected to result in an even larger increase in The beef industry covers properties engaged farm business profi t to be comparable in 2004- mainly in running beef cattle and accounts for 05 with some of the higher income predrought around 60 per cent of Australia’s beef produc- years such as 2000-01. tion. The beef industry contains a large number The beef industry is the most widespread agri- of small farms. cultural industry in Australia and contains farms with a very wide range of herd sizes. Because a Sheep–beef industry The sheep–beef industry covers properties very large proportion of beef industry farms have engaged in running sheep and beef cattle. As relatively small herds, this results in the average for the sheep and beef industry, this industry performance of the industry being heavily infl u- also contains a large number of small farms. enced by the generally poorer performance of small farms.

188 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance

Table 3 contains farm performance results Dairy industry for the beef industry divided into two groups C — farms with less than 300 beef cattle and those Farm cash income with more than 300. The fi nancial performance 100 of larger herd size farms is more comparable 80 with that of other industries that do not contain 60 so many small farms. Farm performance esti- 40 mates are also provided for small and large fl ock 20 size sheep industry farms in table 3, because the 2004-05 sheep industry also contains many relatively $’000 small farms. –20 Farm business profit Increases in land values in northern pastoral –40 areas of Australia have been particularly large –60 in recent years because of strong demand from 1977 1983 1990 1997 2004 producers. These increases have resulted in high -78 -84 -91 -98 -05 rates of return including capital appreciation for larger herd size farms, particularly in 2002-03 despite this having been a drought year (table 3). farm including increased expenditure on fuel, fertiliser and other crop and pasture expenses. Dairy industry Average farm cash income for the dairy industry increased in 2003-04 from the historical low Farm investment recorded in 2002-03 but still remained below the long term average, in real terms (fi gure C). The Land transactions improvement in farm cash income was mainly The period between 2001 and 2004 was char- driven by reductions in cash costs. Receipts acterised by a large number of land transactions from milk declined due to a combination of on rural holdings. Within the broadacre sector of lower milk prices and a further reduction in both Australian agriculture, the proportion of farms dairy cow numbers and milk yields. However, acquiring additional land has remained histori- improvement to grazing conditions, improved cally high since 1998 (fi gure D). irrigation water availability and lower feed grain Average land values for broadacre farms and fodder prices resulted in lower feed costs, increased by over 50 per cent, in real terms, more than offsetting lower receipts and raising between June 2001 and June 2004 (fi gure E). farm cash income. The largest percentage increases in real land In 2004-05, receipts from milk are projected values have been in pastoral northern Australia to increase, with higher milk prices and a and near urban and coastal fringes of southern small increase in milk production. With further Australia (fi gure F). improvement in seasonal conditions and lower Increases in land values have resulted from feed grain prices, increases in cash costs are a number of factors, including higher farm in- projected to be small and average farm cash comes. Following a sharp downward correction income for the dairy industry nationally is fore- to land values in 1991, primarily in response cast to increase to be just above the long term to reduced commodity prices, average land average (table 3 and fi gure C). values increased only slightly in real terms in Dairy farms expenditure on purchased feed the decade between 1991 and 2001. However, has fallen by around a third in the past two years over the same period, real farm cash incomes from an average of $95 000 per farm in 2002-03 increased signifi cantly (fi gure A) particularly to $62 000 in 2004-05. Part of this reduction in in the wheat–sheep zone and pastoral areas of expenditure on purchased feed has been offset northern Australia. Increased demand for rural by increased spending on feed production on- land has also been fueled by historically low australiancommodities • vol. 12 no. 1 • march quarter 2005 189 farm performance

Proportion of broadacre farms the period prior to land acquisition (Martin et al. D expanding 2002). Farmers disposing of land are older and operate farms generating lower rates of return, but do not necessarily operate smaller farms. 8 The high level of land transactions over this prolonged period would suggest a substantial 6 amount of structural adjustment has been occur- ring in Australian agriculture. However, while a 4 substantial amount of farm amalgamation may have occurred, there has also probably been a 2 high level of new entrants to farming in regions of higher amenity value acquiring small farms % with low income potential (Barr 2002). Histori- 1979 1985 1991 1997 2003 cally, periods of high land trading activity and -80 -86 -92 -98 -04 high prices have also provided the conditions interest rates, the prime lending rate averaging Land prices for broadacre farms 8.5 per cent between 2001 and 2004, slightly F Using average land values in 1977-78 (in 2003--04 dollars) higher than half the rate applying in the early as the base (=100) 1990s. In addition, the general increase in resi- dential property values in Australia in the period 400 since 1997 has resulted in increased demand for Pastoral zone rural land from urban Australians seeking rural 300 lifestyle and investment. High rainfall According to results from ABARE’s broad- 200 zone acre surveys, the proportion of broadacre farms acquiring additional land has been over 5 per 100 cent in each of the past fi ve fi nancial years Wheat sheep zone (fi gure D). Farmers acquiring additional land index are, on average, younger and operate farms that 1979 1985 1991 1997 2003 generate better than average rates of return in -80 -86 -92 -98 -04

Land prices, broadacre farms for farm operators to purchase land at too high a E price relative to its longer term earning potential, leading to debt servicing and adjustment pres- sures in subsequent years. 300

250 Farm business debt Increased investment in land has been accompa- 200 nied by increased investment in plant, machinery, motor vehicles, equipment and improvements 150 on farms. In part, this increased investment has been fi nanced from farm profi ts, but has also 100 been fi nanced by increased borrowing. 2003-04 $/ha Farm debt has risen steadily since 1991, broadly in line with the increase in the receipts of farms 1979 1985 1991 1997 2003 -80 -86 -92 -98 -04 borrowing (fi gure G). Average receipts for farms

190 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance

Farm business debt and farm receipts underwritten, including harvest loan and dairy structural adjustment advances. Inclusion of G Broadacre farms harvest loans in estimates of farm business Receipts – farms with debt debt results in substantial falls in farm debt for 300 grain producing farms in drought years as crop 250 production is reduced, masking the increases in working capital debt that usually occurs. 200 Conversely, debt increases in years of high crop Farm business debt – production when cash fl ow is also high. Harvest 150 farms with debt loans and dairy structural adjustment payments are reported separately in many tables. 100 Receipts – farms with no debt Increased farm capital values that have been $’000 the consequence of rising prices for rural land in recent years have offset the impact of increases 1979 1985 1991 1997 2003 -80 -86 -92 -98 -04 in farm debt on farm equity, resulting in farm equity ratios being historically high. Broadacre farm equity at 30 June 2004 is estimated to have not having debt have been both lower historically, been 91 per cent, an average equity ratio last refl ecting lesser capacity to service debt, and have recorded in the late 1980s. The proportion of increased by relatively less over time, probably broadacre farms with equity ratios below 70 per refl ecting a lower level of new investment and cent improved from 8 per cent in June 2003 to productivity growth among these farms. 6 per cent in June 2004. However, the propor- Farm business debt increased sharply in 2002- tion of dairy farms and wheat and other crops 03 for broadacre farms, partly owing to drought industry farms with equity below 70 per cent causing reduced cash fl ow, increasing the re- increased from 14 per cent in 2003 to 17 per cent quirement to borrow to raise working capital, and in 2004. partly to continued strong investment in the broad- Assets available to farm businesses to meet acre sector. With the increase to farm incomes in short term funding needs, including bank de- 2003-04, average debt is estimated to have fallen posits, farm management deposits and other and is expected to fall further in 2004-05. investments readily convertible to cash, remain In this paper, farm business debt estimates historically high, despite having been signifi - have been provided exclusive of debt that is cantly drawn down to boost low cash fl ows in 2002-03. As a consequence, the trend in net farm debt — that is farm business debt less liquid Farm business debt assets — has remained relatively fl at since 1992- H Broadacre farms with debt 93 (fi gure H). Investment returns 300 Returns on investment in agricultural industries Farm business debt 250 are often low when reported across a whole industry. However, low average returns are partly 200 a consequence of the generally high proportion of small farms in many industries, particularly 150 the beef and sheep industries. The presence of Net farm business debt these small farms masks the much higher returns 100 from better performing and larger farms that 2003-04 $’000 generate the majority of each industry’s output. The average returns from these better performing 1988 1991 1994 1997 2000 2003 -89 -92 -95 -98 -01 -04 and larger farm businesses are frequently compa- australiancommodities • vol. 12 no. 1 • march quarter 2005 191 farm performance rable with investment returns elsewhere in the to classes according to the total capital invested Australian economy (Carroll 2003). in the farm. Investment returns are shown for Table 4 provides average rates of return for three fi nancial years as well as the average return broadacre and dairy farms ranked and classifi ed over the period. In addition, the average perfor-

Rates of returns for broadacre and dairy farms, by total farm capital 4 Average per farm

Smallest third a Middle third b 2001 2002 2003 Aver- Top 2001 2002 2003 Aver- Top -02 -03 -04 p age 25% d -02 -03 -04 p age 25% d All broadacre farms Total capital value at 30 June $m 0.6 0.7 0.8 0.7 0.7 1.3 1.5 1.7 1.5 1.5 Farm cash income $’000 30 10 13 18 42 74 34 58 55 143 Farm business profi t $’000 –10 –39 –27 –25 1 16 –33 –2 –6 75 Rate of return e – excluding capital appr. % –0.5 –5.5 –3.4 –3.1 0.9 2.6 –1.2 0.9 0.7 5.9 – including capital appr. % 3.2 2.1 9.3 4.9 11.6 7.4 6.7 11.4 8.5 13.5 Wheat and other crops Farm cash income $’000 60 9 32 34 110 141 56 131 109 266 Rate of return e – excluding capital appr. % 3.8 –5.3 0.3 –0.4 7.5 6.8 0.0 5.4 4.1 12.6 – including capital appr. % 10.4 –0.1 9.1 6.5 10.1 10.1 5.3 16.2 10.5 22.9 Mixed livestock crops Farm cash income $’000 48 22 36 35 99 47 51 85 61 202 Rate of return e – excluding capital appr. % 2.2 –3.7 0.5 –0.4 7.8 1.2 0.2 2.9 1.4 8.7 – including capital appr. % 4.8 7.6 16.1 9.5 14.6 5.3 9.5 16.6 10.5 17.4 Sheep Farm cash income $’000 23 10 5 13 57 55 34 39 42 93 Rate of return e – excluding capital appr. % –1.0 –6.9 –5.3 –4.4 2.8 0.9 –0.7 0.0 0.1 5.0 – including capital appr. % 2.1 2.9 5.5 3.5 15.1 8.8 10.2 9.7 9.6 11.4 Beef Farm cash income $’000 4 4 1 3 10 33 3 14 17 42 Rate of return e – excluding capital appr. % –4.8 –6.3 –5.1 –5.4 –2.8 –1.3 –4.4 –2.1 –2.6 –0.1 – including capital appr. % –1.5 –0.6 10.0 2.6 9.4 2.6 1.6 8.0 4.1 4.5 Sheep–beef Farm cash income $’000 6 11 6 8 30 41 16 7 21 78 Rate of return e – excluding capital appr. % –4.4 –5.5 –5.6 –5.2 1.3 –0.6 –2.3 –2.4 –1.8 0.3 – including capital appr. % –1.9 –1.8 6.2 0.8 14.0 3.5 1.4 11.4 5.4 15.7 Dairy Farm cash income $’000 64 13 41 39 83 102 36 42 60 143 Rate of return e – excluding capital appr. % 3.0 –4.7 –1.1 –0.9 8.8 5.8 –0.6 –0.4 1.6 8.5 – including capital appr. % 8.2 3.0 9.9 7.0 13.6 12.4 11.2 7.3 10.3 15.2 a Less than 0.9 million at 1 July 2001, less than 0.9 million at 1 July 2002 and less than 1.0 million at 1 July 2003. b 0.9 million to 1.7 million at 1 July 2001, 0.9 million to 1.9 million at 1 July 2002 and 1.0 million to 2.0 million at 1 July 2003. d Ranked at regional level by rate of return to capital excluding capital appreciation. e Calculated as farm business profi t plus interest and leasing expenses paid as a percentage of the total value of capital at 1 July. p Preliminary.

192 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance mance of the top 25 per cent of farms ranked by drought year of 2002-03. Rates of return fl uc- their rate of return over the period is shown. This tuate substantially over the period in all indus- period includes the very high farm income year tries. All capital classes recorded substantial for most industries, 2001-02, together with the capital appreciation over the period. In large part, poorer rates of return for small farms are a consequence of their physical size continued and resource endowment limiting them to the 4 Average per farm generation of low farm cash incomes frequently from relatively high priced land because of their Largest third c proximity to regional centres (amenity based land 2001 2002 2003 Aver- Top values). The location of many of these smaller -02 -03 -04 p age 25% d farms may result in relatively high capital gains All broadacre farms periodically, but relatively few generate rates of Capital $m 3.5 4.3 4.8 4.2 4.5 return (excluding capital appreciation) compa- rable with the returns of larger farms. Income $’000 216 105 143 155 374 Profi t $’000 133 –18 58 58 289 Generally, larger farms generate higher re- Rate of return e ceipts and have lower costs relative to the amount – excl. ca % 5.2 0.7 2.5 2.8 7.4 of capital invested. Consequently, rates of return – incl. ca % 9.9 8.6 10.9 9.8 18.2 are higher. Higher receipts and lower costs per Wheat and other crops unit of capital used also appear to explain why Income $’000 303 202 312 273 518 cropping farms within a particular capital class Rate of return e generally generate higher rates of return than – excl. ca % 8.1 2.5 6.3 5.6 14.5 – incl. ca % 11.9 7.9 13.1 11.0 21.5 livestock farms with a comparable level of invest- ment. Mixed livestock crops Income $’000 236 115 156 169 435 These results are consistent with higher esti- Rate of return e mates of annual productivity growth for larger – excl. ca % 5.9 1.2 2.8 3.3 9.2 farms and cropping farms. Estimates of produc- – incl. ca % 11.2 8.4 12.4 10.7 23.0 tivity growth in the broadacre and dairy indus- Sheep tries, including Knopke et al. (1995) and ABARE Income $’000 108 68 55 77 225 (2004) have found higher rates of productivity Rate of return e for grain producing farms than for livestock – excl. ca % 2.1 0.1 1.0 1.0 5.6 – incl. ca % 4.6 9.1 12.1 8.6 18.4 farms. These studies also indicate that larger farms capture most of the productivity growth in Beef Income $’000 214 88 102 135 421 broadacre industries. Rate of return e Almost two thirds of all new investment in the – excl. ca % 4.0 –0.1 0.9 1.6 6.0 broadacre industries over the period 1999-2000 – incl. ca % 9.1 10.3 7.7 9.0 15.2 to 2002-03 was by the top 25 per cent of farms Sheep–beef ranked by rate of return. Rates of new investment Income $’000 144 42 61 82 211 on poorly performing and small farms are too Rate of return e small to generate signifi cant productivity gains. – excl. ca % 3.0 –0.2 1.3 1.4 4.8 – incl. ca % 9.8 7.8 12.0 9.9 19.1 The smallest third of farms are capturing very little productivity increase. Dairy Income $’000 180 53 94 109 218 An important means of capturing produc- Rate of return e tivity increase is the adoption of more effi cient – excl. ca % 6.1 0.0 1.6 2.6 7.6 methods of farming. These practices often re- – incl. ca % 10.2 5.5 10.3 8.7 14.9 quire increasing the scale of farming enterprises c More than 1.7 million at 1 July 2001, more than 1.9 million at 1 July to capture their advantages. This is diffi cult for 2002 and more than 2.0 million at 1 July 2003. d Ranked at regional small farms that have lesser capacity to generate level by rate of return to capital excluding capital appreciation. e Refer to footnotes to the left. p Preliminary. a fi nancial surplus and that are often located australiancommodities • vol. 12 no. 1 • march quarter 2005 193 farm performance in areas where high land values render land except that farm assets are excluded from eligi- purchase a poor business option. bility tests) as well as business assistance. Busi- A range of other characteristics has been ness assistance is offered in the form of 50 per found to be associated with better performing cent interest subsidies on new and existing loans farms. These characteristics are broadly indica- up to a maximum of $100 000 in any twelve tive of a more intense focus on farm business month period, with a cumulative maximum of improvement and include: the farms that are $300 000 over the previous fi ve years. generally operated by owner managers who are ABARE survey data for 2002-03 and 2003- more likely to be members of production groups 04 for farms in areas declared for exceptional and Landcare groups (Mues et al. 1998; Riley et circumstances assistance at 30 June 2004 (map al. 2002) owner managers seek information for 2) have been used to document the amount of decision making more widely and more from various forms of drought assistance received professional advisors; owner managers report by farm businesses and farm households, the less aversion to risk (Riley et al. 2002); use impact of this assistance on the farm and farm more risk management tools including forward household’s fi nancial position and some of the sales and futures (ABARE 2004); use methods physical change in farm enterprises. of sale of farm products that ensure that they Assistance provided through the exceptional receive clear market and price signals, enabling circumstances program targets two types of them to modify their production system (for farms: those that have debt, in the case of busi- example over the hooks sale of livestock); and, ness assistance, and those that have low income in some analyses (ABARE 1998) but not all, use and low liquid assets, in the case of the excep- better natural resource management practices. tional circumstances relief payment. Access to assistance is provided for all farmers who meet Drought assistance these criteria regardless of differences in the ex- Government policy in Australia embodies the tent to which individual farmers may have pre- principle that farmers should be responsible pared for drought through production and fi n- for the management of their farm business and ancial management strategies such as farm man- associated risks such as drought. Accordingly, agement deposits. farmers have been encouraged and assisted Farms with low or no debt, using conservative to improve farm fi nancial and land use plan- management and with relatively high levels of ning including risk management, particularly liquid assets receive much less assistance (tables through the Australian Government’s Agri- 5 and 6). On average farms in EC declared areas culture Advancing Australia (AAA) program. This program also includes a mechanism to build cash reserves for use during drought and Exceptional circumstances declared or other downturns through the Farm Manage- 2 interim declared areas at 30 June 2004 ment Deposit scheme introduced in 1999-2000. In addition, federal, state and territory govern- ments responded to the 2002-03 drought with a range of measures targeting farm business and the welfare needs of farming families. Commonwealth assistance during recent drought events has been mainly based on the declaration of ‘exceptional circumstances’ (EC) on a region by region basis. Farmers in EC declared areas are eligible to apply for welfare assistance (termed Exceptional Circumstances Relief Payment and equivalent to Newstart welfare available to all Australians

194 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance that had no debt during the period 2002-03 to interest subsidy received a total of $23 100 in 2003-04 received a total of $1300 in business business assistance and $16 400 in assistance to assistance and $2300 in assistance to the farm the farm owner manager’s household. owner manager’s household for the period. In The data presented appears to indicate that in- contrast, farms with debt receiving the business creases in farm management deposits resulted

Business assistance to farms in areas declared for exceptional circumstances a 5 Broadacre and dairy farms Average per farm for farms in sample in both 2002-03 and 2003-04

Farms with debt Farms receiving but not in receipt of Farms with interest subsidy b interest subsidy b no debt 2002-03 2003-04 2002-03 2003-04 2002-03 2003-04 Physical Area of land operated 30 June ha 4 200 (18) 4 200 3 000 (22) 3 000 1 900 (38) 1 900 Wheat yield sown t/ha 0.7 (27) 1.6 0.8 (9) 1.9 0.7 (15) 1.5 Sheep at 1 July no. 1 500 (20) 1 200 1 400 (11) 1 200 1 000 (29) 800 Beef cattle at 1 July no. 137 (14) 119 192 (41) 172 169 (135) 148 Change in livestock numbers during year – sheep % –23 (24) 2 –15 (17) 6 –14 (71) 5 – beef % –18 (41) 11 –7 (62) 3 –11 (80) 13 Farm business Interest subsidy $ 4 900 (32) 11 700 0 0 0 0 Other government business assistance c $ 4 700 (17) 1 800 1 700 (18) 1 600 200 (109) 1 100 Farm cash income $ 26 600 (63) 50 300 26 800 (47) 48 800 50 300 (46) 44 800 Share of farms with negative farm cash income % 53 (22) 28 43 (8) 29 24 (30) 10 Farm business profi t $ –84 400 (21) –7 100 –64 800 (37) –8 200 –19 700 (64) 4 000 Farm debt at 1 July $ 358 600 (12) 407 700 201 600 (8) 236 900 0 0 Farm debt at 30 June $ 407 700 (12) 427 500 236 900 (8) 247 500 0 0 Change in debt % 14 (12) 5 18 (8) 4 Net assets at 30 June $ 1 629 700 (9) 1 661 700 1 792 600 (12) 1 812 900 1 553 500 (52) 1 624 800 Equity ratio at 30 June % 79 (3) 79 88 (2) 87 100 (0) 100 Bank deposits shares in public companies, etc at 30 June $ 48 100 (24) 61 700 81 000 (14) 104 300 162 300 (43) 181 500 Farm management deposits at 30 June $ 12 300 (65) 5 300 21 600 (19) 17 700 5 800 (113) 15 500 Farm management deposits at 1 July $ 5 300 (49) 8 000 17 700 (43) 25 100 15 500 (91) 6 900 Nonfarm income of farm owner manager and spouse ECRP d $ 5 700 (26) 10 700 1 200 (22) 3 100 1 000 (47) 1 300 Total off-farm income $ 21 900 (14) 27 000 27 600 (9) 29 900 25 500 (37) 22 500 Farms not expecting to be profi table over the majority of the next 5 years e % 8 14 20 Sample Contributing no. 92 269 53 a Areas declared as at 30 June 2004. b In either 2002-03 or 2003-04. c Includes freight subsidies, water subsidies and state based assistance such as the Victorian Farm Business Support Grant etc. d Exceptional Circumstances Relief Payment. e Self assessment by farm owner manager. australiancommodities • vol. 12 no. 1 • march quarter 2005 195 farm performance where substantial government assistance was because many deemed livestock purchase to be provided. However, while some farms may too expensive an option and expanding cropping have increased their farm management deposit provided a more immediate increase in cash holdings because of their access to government fl ow. assistance payments, it appears that the majority As part of the 2004 ABARE surveys, owner of broadacre and dairy farms increased their managers were asked if they believed their farm deposits as a consequence of the sale of livestock. was likely to be profi table over most of the next Many of these farms subsequently reduced their fi ve years. This question was intended to provide deposits in 2003-04, although relatively few an indication of farm viability. The majority of indicated that funds were specifi cally applied to farms identifi ed by their owner managers as being the purchase of livestock. This may have been unlikely to be profi table in the medium term were

Household assistance to farms in areas declared for exceptional circumstances a 6 Broadacre and dairy farms Average per farm for farms in sample in both 2002-03 and 2003-04

Farms receiving Farms not receiving exceptional circum- exceptional circum- stances relief payment b stances relief payment b 2002-03 2003-04 2002-03 2003-04 Physical Area of land operated 30 June ha 3 200 (27) 3 200 2 900 (13) 2 900 Wheat yield sown t/ha 0.5 (25) 1.5 0.9 (8) 1.9 Sheep numbers at 1 July no 1 100 (20) 900 1 500 (10) 1 200 Beef cattle numbers at 1 July no 109 (22) 94 214 (18) 193 Change in livestock numbers during year – sheep % –19 (36) 7 –15 (20) 5 – beef cattle numbers % –17 (66) 1 –7 (54) 6 Farm business Interest subsidy $ 1 300 (36) 3 100 200 (93) 600 Other government business assistance c $ 4 100 (16) 2 500 800 (22) 1 100 Farm cash income $ 0 (999) 37 100 44 700 (17) 53 400 Share of farms with negative farm cash income % 50 (15) 19 36 (11) 29 Farm business profi t $ –91 900 (13) –21 200 –44 900 (18) 900 Farm debt at 1 July $ 212 500 (10) 238 400 179 500 (10) 208 500 Farm debt at 30 June $ 238 400 (10) 251 600 208 500 (10) 217 000 Change in debt % 12 (10) 6 16 (10) 4 Net assets at 30 June $ 1 348 000 (10) 1 362 300 1 908 700 (10) 1 946 100 Equity ratio at 30 June % 84 (2) 84 90 (1) 89 Bank deposits, shares and other liquid assets at 30 June $ 38 100 (15) 49 800 114 600 (12) 140 500 Farm management deposits at 30 June $ 4 500 (50) 5 400 23 900 (15) 20 300 Farm management deposits at 1 July $ 5 400 (50) 7 600 20 300 (32) 26 500 Nonfarm income of farm owner manager and spouse ECRP d $ 5 500 (13) 11 900 0 0 Total off-farm income $ 17 500 (12) 24 000 30 700 (10) 30 000 Farms not expecting to be profi table over the majority of the next 5 years e % 18 13 Sample contributing no 138 276 a Areas declared as at 30 June 2004. b In either 2002-03 or 2003-04. c Includes freight subsidies, water subsidies and state based assistance such as the Victorian Farm Business Support Grant etc. d Exceptional Circumstances Relief Payment. e Self assessment by farm owner manager.

196 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance found to either have not received business assis- Farm management deposits and number tance from the EC program or to have received I of account holders Quarterly, ended June 2004 mainly household assistance. In contrast, other government business assistance (non-EC assis- 2500 40 tance) was more widely dispersed. Number of accounts 2000 Use of farm management deposits 30 Farm management deposits were introduced 1500 by the Australian Government as a cash and 20 Value held 1000 risk management tool for Australia’s primary producers. Farm management deposits allow 10 500 farmers to set aside pre-tax primary production income so they can balance their income between ’000 $m good and bad times. Tax benefi ts normally accrue June June June June June June if the deposits are held for a minimum of twelve 1999 2000 2001 2002 2003 2004 months, but from December 2002 farmers in exceptional circumstances declared areas have been able to withdraw deposits within twelve ABARE farm surveys indicate that around 25 months and still be eligible for tax benefi ts. Farm per cent of broadacre farms held farm manage- management deposits help to manage exposure ment deposits at 30 June 2004 and around 15 per to adverse economic events and seasonal fl uc- cent of dairy farms. The proportion of broadacre tuations. farms with deposits has grown from 15 per cent Aggregate statistics on the use of farm man- to 25 per cent in the past two fi nancial years, but agement deposits published by the Department the average holding per farm has grown much of Agriculture, Fisheries and Forestry, indicate more slowly. At 30 June 2004, the majority of that deposits grew steadily until June 2002 when deposits were relatively small, with around 40 a huge infl ux of deposits at the close of the 2001- per cent of the farms having farm management 02 fi nancial year boosted deposits by almost $1 deposit holdings of less than $50 000. Neverthe- billion from the previous June to just over 2 less, around 17 per cent of farms have deposits billion dollars (fi gure I). of more than $200 000. Incomes for many farms in 2001-02 were at The Farm Management Deposit scheme acts record levels, but widespread drought during indirectly as a mechanism to smooth farm busi- 2002-03, sharply reduced incomes. Neverthe- ness income through the deposits made by indi- less, deposits increased to $2.5 billion by June vidual partners in the farm fi rm. Quarterly statis- 2003 in 42 877 farm management deposit ac- tics of deposits over the course of the schemes counts. ABARE survey information suggests operation suggest that tax issues have been a that just over 70 per cent of deposits held dur-ing more dominant consideration than smoothing the this period were likely to have been from farms cash fl ow of farm businesses. Despite the normal in EC declared areas. This period was character- requirement that deposits must be held for twelve ised by a substantial level of both withdrawals months before withdrawal to attract taxation and deposits, with the provision of early access to benefi ts, over 80 per cent of the net additions to deposits in EC areas contributing to this increase. farm management deposits occur between March Deposits further increased, but by just $0.1 bil- and June each year. For the remainder of the year lion in 2003-04 to $2.6 billion by June 2004 and holdings remain relatively constant. the number of accounts increased to 43 309. Because most farms have more than one Farms with farm management deposits individual with a share in the farm’s income, According to ABARE’s broadacre farm survey the number of farms with deposits is substan- data, farms with farm management deposits tially less than the number of deposit holders. are larger in terms of their enterprise scale and australiancommodities • vol. 12 no. 1 • march quarter 2005 197 farm performance more profi table than farms that do not hold farm Farms withdrawing farm management de- management deposits. posits in 2003-04 had lower farm incomes and On average, farms holding farm management relatively high farm management deposits, on deposits have higher farm cash income, higher average (table 7). In order to gain some insight net assets and higher rates of return. However, into the uses of funds withdrawn from farm they also have higher debt levels and, in 2002- management deposits, farmers participating in 03 and 2003-04, received more government 2004 ABARE surveys were asked to specify how assistance payments than farms without farm they used money withdrawn from farm manage- management deposits. Farms with such deposits ment deposit accounts in 2003-04. Farmers were also have lower off farm income, consistent with able to record several responses if funds were the criteria that only producers with less than used for more than one purpose. $50 000 of off-farm income are eligible for farm Funds were applied to a range of farm busi- management deposits. Interestingly, a higher ness and household uses, with the most common proportion of younger farmers (less than 40 years of age) hold such deposits, but on average their holdings are small compared to those of Characteristics of farms, by change in older farmers. 7 farm management deposits, 2003-04 For some farms without such deposits, poorer Average per farm fi nancial performance is a consequence of ad- verse production conditions in recent years. Farm However, generally farms without farm manage- management deposits ment deposits are smaller in terms of their Rising Falling overall scale and likely to generate only small Farm management deposits cash surpluses after replacing essential capital – at 1 July $’000 61 (11) 114 (9) and meeting family living expenses. Their – at 30 June $’000 125 (8) 83 (12) capacity to accumulate signifi cant deposits over Government assistance an extended period of years is limited. payments $’000 1 (44) 3 (25) Total cash receipts $’000 462 (10) 397 (8) Withdrawals of farm management deposits less total cash costs $’000 279 (13) 290 (8) Farm cash income $’000 183 (10) 107 (16) During 2003-04, the percentage of farms that held farm management deposits remained the Farms with negative farm cash income % 9 (36) 22 (16) same in the pastoral zone. However, in the high Farm business profi t $’000 112 (16) 34 (45) rainfall and wheat–sheep zones the percentage of Net capital additions $’000 39 (49) 127 (34) farms with farm management deposits increased Off-farm income of from 19 per cent to 21 per cent and from 19 per owner manager and cent to 26 per cent respectively. Despite this spouse $’000 14 (34) 19 (19) increase, the high rainfall zone continues to Rate of return have the lowest percentage of farms with such – excl. capital appr. % 5.0 (13) 2.3 (25) – incl. capital appr. % 17.7 (12) 9.7 (13) deposits, refl ecting the generally smaller size of farms in this zone and higher off-farm incomes. Age of owner manager yrs 45 (5) 48 (5) In the pastoral and wheat–sheep zones, 30 per Farm capital cent and 26 per cent of farms respectively hold at 1 July $’000 2 721 (10) 2 785 (6) Farm debt farm management deposits. at 30 June $’000 258 (20) 280 (15) While the number of broadacre and dairy Liquid assets $’000 128 (17) 136 (20) farms with farm management deposits increased Equity ratio during 2003-04, among the farms that already at 30 June % 92 (1) 91 (1) had deposits at the beginning of 2003-04, almost Number of farms ’000 7 13 twice as many farms reduced their deposits as Note: Figures in parentheses are standard errors expressed as a farms that increased their deposits (table 7). percentage of the estimates provided.

198 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm performance uses being to make interest or loan repayments, for stock. A signifi cant proportion also used the followed by general farm operating expenses, money for holidays or personal expenses. then household expenses and feed for livestock (table 8). There was signifi cant variation in use across References agricultural zones. In the pastoral zone, 44 per ABARE 1998, Australian Grains Industry 1998, cent of farms reported using the withdrawn Report of the Australian Agricultural and funds to purchase feed for livestock. Also, a Grazing Industries Survey of Grain Producing third used funds for household expenses. In part, Farms, Canberra. these responses refl ect the prolonging of drought —— 2004a, Australian Beef: Productivity, Aus- in many pastoral areas until 2004. tralian Beef 04.2, Canberra, November. The majority of farmers withdrawing their —— 2004b, Australian Beef Industry: Produc- funds were in the wheat–sheep zone. Here far- tion and Sale of Beef Cattle, Australian Beef mers mainly used the money for general, unspec- 04.3, Canberra, December. ifi ed operating expenses or to repay interest or Barr, N. 2002, Going on the land and getting loans. Only 6 per cent of farms used the money off: farm incomes and farm adjustment, Paper to purchase feed for livestock. presented at the Preconference workshop Farms in the high rainfall zone, where farms ‘Rural Livelihoods and Adjustment’, Austra- are generally smaller frequently spent withdrawn lian Agricultural and Resource Economics money on food and household expenses or feed Society, Canberra, February. Carroll, M. 2003, Creating wealth in Agricul- ture, Paper presented at the Outlook 2003 Use of funds withdrawn from farm Conference, Canberra, March. 8 management deposits, 2003-04 Connell, P., Hooper, S. and Helali, S. 2002, Broadacre and dairy farms Australian Prime Lamb Industry 2002, Report Farms withdrawing of the Australian Agricultural and Grazing deposits Industries Survey of Prime Lamb Producers, %ABARE Research Report 02.3, Canberra. Loan/interest repayments 23.4 (20) Knopke, P., Strappazzon, L. and Mullen, J. 1995, General operating expenses 21.4 (19) ‘Productivity growth: total factor productivity Purchase food and other on Australian broadacre farms’, Australian household items 18.2 (19) Commodities, vol. 2, no. 4, pp. 486–97. Purchase feed for stock 16.5 (14) Martin, P., Hooper, S., Riley, D., Tok, J. and Purchase seed, fertiliser or chemicals 15.0 (38) Holidays or other personal expenses 13.0 (39) Helali, S. 2002, ‘Farm performance 2001- Off-farm investment 13.0 (33) 02’, Australian Commodities, vol. 9, no. 1, Fund farm improvements 10.2 (51) March quarter, pp. 209–25. Purchase livestock 9.8 (51) Mues, C., Chapman, L. and Van Hilst, R. 1998, Purchase land 7.0 (35) Promoting Improved Land Management Purchase equipment 6.5 (39) Partnership change/retirement 3.0 (69) Practices on Australian Farms: A Survey of School fees and expenses 2.8 (71) Landcare and Land Management Related Employees wages 2.7 (52) Programs, ABARE Research Report 98.4, Superannuation 2.5 (59) Canberra. Taxation Payments 2.1 (41) Riley, D., Gleeson, T., Martin, P., Hooper, S. and Purchase water 0.9 (81) Agistment 0.4 (67) Shafron, W. 2002, Australian Beef Industry 2002, Report of the Australian Agricul- Note: Funds may be used for more than one purpose so categories add to more than 100 per cent. Figures in parentheses are standard errors tural and Grazing Industries Survey of Beef expressed as a percentage of the estimate provided. Producers, Research Report 02.4, Canberra.

australiancommodities • vol. 12 no. 1 • march quarter 2005 199 farm viability

REGULATION AND FARM VIABILITY a case study in north west New South Wales

Alistair Davidson and Lisa Elliston • Australia’s agricultural input markets are imposing a range of restrictions on farm prac- showing signs of becoming increasingly sub- tices. Furthermore, the commission found that ject to regulatory control. the landholders most severely affected by the regulations have often suffered serious personal • It is likely that this trend is having a nega- problems in the face of the resultant marginal tive impact on farm viability through increased viability, or even loss, of their property. farm costs and restricted management op- Although vegetation regulation is a dominant tions. issue, there is anecdotal evidence to suggest • The regulatory approach to improving that increasingly regulated agricultural input environmental outcomes is inadequate and markets are affecting the viability of agricultural amendments are required to ensure more ef- producers in some regions more than others. As fi cient, equitable and fl exible outcomes. such, this trend is likely to lead to accelerated structural change in the regions that are less able Some recent indicators of Australia’s agricultural to cope with the coincidence of multiple pres- input markets becoming increasingly subject to sures for adjustment. regulatory control include changes to regula- This study uses a recently constructed ‘vulner- tions over key farm inputs such as land (vege- ability index’ to identify broadacre agricultural tation), labor, fertiliser, seeds, chemicals and regions in Australia that are likely to include genetic technology. These have occurred largely farm households whose viability is at risk. A in response to increasing community demands case study approach was adopted to identify the for environmental services and health and safety key issues facing farmers in two ‘at risk’ regions, standards. To achieve an effi cient regulatory or against a backdrop of recent regulatory changes. other policy framework it is important to under- Based on a series of semistructured interviews stand how these controls affect farm productivity with farmers in each region, it was possible to and, as a consequence, farm returns. Of the regu- consider the medium term outlook for the broad- lations over farm inputs, it has been the restric- acre agriculture industries and associated rural tions placed over land use management practices communities. The regions studied were in the through native vegetation regulation that have north west of New South Wales, an area likely been the subject of recent policy debate. to experience signifi cant structural adjustment A report recently released by the Productivity pressures in the future. Commission (2004) found that native vegeta- tion and biodiversity regulations have adversely affected the returns of many landholders by Vulnerability to adjustment pressures A recently constructed vulnerability index (see

• Lisa Elliston • +61 2 6272 2091 • [email protected] the article by Nelson et al. in this issue of Austra-

200 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm viability

Vulnerability across Australian Percentage of farmers reporting 1 agricultural regions 2 significant weed degradation problems most vulnerable – top10% Broadacre and dairy most vulnerable next 10 –25% least vulnerable no data

over 60 per cent 40–60 per cent 20–40 per cent 0–20 per cent no significant degradation no data lian Commodities) identifi ed parts of north west value of the vulnerability index in north west New South Wales as potentially facing the New South Wales. The predominant degradation greatest pressures for structural adjustment, problem reported by farmers in this region was particularly the long run declining terms of trade the presence of weeds, including woody weeds. faced by broadacre farmers (map 1). Other areas More than 60 per cent of all farmers in parts of under pressure include eastern New South Wales north west New South Wales reported signifi - and south east Queensland as well as parts of cant weed related land degradation at the time of central Queensland. the 2001-02 ABARE survey of natural resource The index was built around Ellis’s (2000) rural management in the broadacre and grazing indus- livelihood framework and used data collected as tries (map 2). part of ABARE’s annual survey of the broadacre To gain an understanding of the issues driving cropping and grazing industries. Components of the apparent vulnerability of farm households the index, including the level of farmer educa- across parts of north west New South Wales, a tion, internet use, Landcare membership, the case study approach was taken in two shires: the presence of land degradation and the diversity Walgett shire, located just outside the area iden- of income sources were incorporated to measure tifi ed as most vulnerable and the Cobar shire, (either directly or indirectly) the relative expo- centred in the most vulnerable area. These shires sure of farm households to external events both rely on broadacre agriculture but have and their internal capability to cope with these different natural resource endowments and vary external events as they occur. in their ability to cope with regulatory changes A number of factors were found to contribute to key agricultural inputs and practices. to the relatively high level of vulnerability of farm households in north west New South Wales. These included low average farm incomes and Walgett shire little diversity in farm income sources relative to The Walgett shire is located in north west New other broadacre farmers elsewhere in Australia. South Wales (map 3). It covers an area of 22 300 The presence of on-farm degradation problems square kilometres and, at the time of the 2001 was also an important contributor to the high ABS housing and population census, 8310 people australiancommodities • vol. 12 no. 1 • march quarter 2005 201 farm viability were located in the shire (ABS 2002a). The popu- Changes in agricultural production in the lation of the shire has been relatively stable, with 1 Walgett shire a population of between 7200 and 8500 since the mid-1970s (ABS 2005). Throughout this entire 1987 1994 2001 period the agriculture sector has dominated the Total agricultural regional economy, employing around a quarter area ’000 ha 2 052.4 1 981.3 2 042.0 to a third of the regional workforce. Cereal area ’000 ha 160.8 128.5 333.1 At the time of the last agricultural census in Sheep ’000 1 365.0 1 064.4 732.2 2001, around 2 million hectares were used for Beef cattle ’000 48.6 85.4 107.9 agricultural activities and there were around 330 agricultural producers in the region. Consistent with the national trend toward fewer but larger farms, the total farm area has been stable in the 700 000 (table 1). The changes in the Walgett Walgett shire over the past fi fteen years, although shire refl ect broader national trends over the the number of producers has declined 15 per cent same period (fi gure A). The move out of sheep and wool produc- tion and into cropping activities and beef cattle Map of case study regions production is consistent with the movement of 3 relative commodity prices over the period. As the price of crops and beef cattle increased rela- tive to the price of wool, on average, farmers Walgett reduced their sheep numbers and increased cattle numbers and the area planted to crops (Beare, Cobar Chapman and Heaney 1999). Improvements in cropping technology and the development of some irrigated agriculture have also contributed to the signifi cant expansion of cropping activi- ties in the region. The changes in enterprise mix are also consistent with the relative productivity growth between these industries. Knopke, O’Donnell and Shepherd (2000) estimated that cropping

Trends in Australian broadacre from more than 390 in 1987 (ABS 2003). A activities The Walgett shire has been characterised by Crop an increase in the intensity of land use. When area converted to a consistent dry sheep equivalent 160 Number 20 of sheep basis, broadacre cropping and grazing activities in total have increased by around a third since 120 15 1987 as farmers have sought to maintain prof- itability. This has occurred through changes in 80 10 the enterprise mix of broadacre farms across the region. The area of cereal crops and the number 40 5 of beef cattle in the region more than doubled Number of beef cattle between 1987 and 2001, while the number million million ha of sheep fell substantially from a peak of 1.7 1977 1982 1987 1992 1997 2002 million in 1991 to the current level of around -78 -83 -88 -93 -98 -03

202 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm viability

Australian broadacre productivity As a result, farmers interviewed in the region B growth expected to pursue the implementation of new technologies and improvements to the effi ciency Crops of their management systems. 200 The recently introduced Native Vegetation Act 2003 in New South Wales is likely to be 150 one of the most signifi cant constraints to further Beef productivity growth in the region. Under New 100 South Wales native vegetation legislation, native Sheep vegetation is defi ned as including indigenous 50 trees, understorey plants and groundcover, including native grasses (NVA Part 2, s 6(1)). index One of the objectives of the legislation is to 1977 1981 1986 1991 1996 2001 ‘prevent broadscale clearing unless it improves -78 -82 -87 -92 -97 -02 or maintains environmental outcomes’ (NVA Part 1, s 3(b)). Controlling the clearing of trees and grasses specialists achieved average annual productivity through regulation will have a direct impact on growth of around 3.6 per cent a year between many of the management activities undertaken 1977-78 and 1998-99. Beef specialists, on by farmers to improve productivity and offset average, achieved annual productivity growth of their declining terms of trade. For many of the around 2.1 per cent, while over the same period landholders interviewed in the Walgett shire, the sheep specialists obtained average produc- improving productivity by expanding their crop tivity growth of just 0.6 per cent (fi gure B). area was being hampered by an inability to clear native groundcover, commonly known as roly Medium term outlook poly. When asked about their plans for the future, ‘[The] main constraint is the fact that we farmers interviewed in the region indicated that can’t manage vegetation in a proper sustain- they wanted to continue with similar strategies able way.’ to maintain productivity growth and profi tability Many farmers engaged in both cropping and that they had employed previously. livestock activities wished to return land that had ‘We would expand in the next ten years if been continuously cropped to native pastures we had the opportunity. More or less the that could be grazed in order to maintain average same enterprise mix would continue.’ long term yields. To help maintain cash fl ow ‘In ten years time [the] ideal situation is to they also wished to develop previously grazed have 3000 more acres, [it is the] optimum land for cropping purposes; however, the current for our amount of equipment.’ [ABS data native vegetation regulations restrict the ability indicate that the average size of farms in the of farmers to use long cycle rotations of up to Walgett shire at the time of the last agricul- several decades or more to maximise the long tural census in 2001 was 6100 hectares.] term productive capability of their land. A number of farmers indicated that they ‘We also think rotations are vital. Native would expand their operations if given the op- vegetation [regulation] has hampered us, portunity to acquire additional neighboring and this is vital to us. We have old [crop- land. While some farmers indicated an interest ping] land that we would dearly love to in making further changes to their enterprise return to native pastures.’ mix, the increased regulation of native vegeta- In an attempt to maintain productivity growth tion is limiting the ability of farmers to move in the face of these vegetation management out of livestock and into cropping activities. constraints it is likely that farmers in the region australiancommodities • vol. 12 no. 1 • march quarter 2005 203 farm viability will increase their use of agricultural inputs such ‘We’d really struggle to run a sheep fl ock as fertilisers and chemicals. Furthermore, it is without it.’ likely that some farmers will increase the use A ban on mulesing is likely to reduce the of their existing cropping land through reduced productivity and increase the farm costs of fallow periods and reduced rotations out of crop- wool producers. Farmers with the opportunity ping. to switch out of sheep and into other activities ‘[We] would like to return the front paddocks indicated they would do so if a ban on mulesing to native pasture and grazing but, because of went ahead. the [native vegetation] rules, [we] will prob- ‘If it becomes an issue we’ll just sell the ably have to switch over to adding fertiliser sheep.’ instead.’ However, the current native vegetation regu- Other farmers may choose to ignore the regu- lations are likely to restrict the ability of farmers lations and continue to clear land to maintain in the region from switching out of sheep if they profi tability whenever they perceive that the have not previously used their land for crop- benefi ts exceed the costs of clearing and regula- ping activities. Even mixed sheep and cropping tory noncompliance. enterprises may fi nd it diffi cult under the new In addition to native vegetation regulations, arrangements to increase their cropping activi- occupational health and safety issues featured ties in order to maintain profi tability if they prominently during interviews with farmers in move out of sheep altogether. the Walgett shire. ‘Native vegetation and occupational health and safety are two of the biggest hassles Cobar shire around. All others pale into insignifi cance.’ The Cobar shire is located in north west New The time devoted to occupational health and South Wales to the south west of the Walgett shire safety compliance was seen by a number of (map 3). It is double the size of the Walgett shire, farmers as having a direct impact on the farm covering an area of 45 600 square kilometres, business operation. Compliance with regulatory but with a smaller population. At the time of the standards was seen to be increasing farm costs 2001 ABS population and housing census 5160 as well as infl uencing the decision of some to people were located in the shire (ABS 2002b). employ permanent labor. The population of the shire has been relatively stable, with a population between 4600 and al- ‘There are also other things that affect the most 5700 during the past thirty years (ABS business, like OH&S … we spend an enor- 2005). mous amount of time on those things.’ Historically, the Cobar shire has been less ‘[I] would have two men on here perma- dependent on the agriculture sector. In the late nently, but OH&S regulations — insurance 1970s and early 1980s almost 20 per cent of the and that — [are] so high [and] mean that workforce was employed in the agriculture sector there aren’t.’ (ABS 2005). This had declined to around 13 per The current debate over the practice of cent at the time of the 2001 housing and popula- mulesing was causing some concern about the tion census. Mining has also been an important future for farmers in the region with sheep. source of employment in the region. In 2001 more than 21 per cent of the workforce in the ‘I’m worried that it might be banned. Stock region was employed in the mining industry. losses would be huge in a wet year [if] we At the time of the last agricultural census in couldn’t mules.’ 2001, around 3.3 million hectares were used for ‘I don’t enjoy mulesing, it’s not pretty, but I agricultural activities and there were around 180 hate dealing with fl yblown sheep. The most hu- agricultural producers in the region. The total mane thing to do at that point is shoot them.’ farm area has been relatively stable in the Cobar

204 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm viability shire over the past fi fteen years, and unlike the ‘[Goats] saved all the people in the western Walgett shire and the national trend more gener- division big time.’ ally, the number of agricultural producers has ‘[In this area] most people will be getting a remained relatively constant (ABS 2003). living out of feral goats.’ Poorer soils, lower average rainfall and prob- lems with encroaching woody vegetation mean ‘Goats are a large part of income now that the productive capacity of land in the Cobar — nearly 40 per cent for the last couple of shire is lower than that of the Walgett shire. years because wool income is down.’ There is only a limited opportunity for cropping and with current livestock commodity prices Medium term outlook there is little demand to develop further land for Farmers in the Cobar region have found it more grazing purposes. The area planted to crops has diffi cult to maintain their profi tability through typically been in the range 20 000–30 000 hect- productivity gains and changes in enterprise ares depending on seasonal conditions, although mix compared with farmers in the Walgett shire. in 2001 the ABS recorded an area cropped of just There is also likely to be limited potential for the over 60 000 hectares (table 2). further development of the agricultural sector in Within the constraints of land capability, the Cobar shire over the medium term. however, there have been some changes to the Despite Australia being the largest exporter of enterprise mix of broadacre farms across the goat meat in the world in recent years, trade in region. The number of beef cattle in the region goat meat is a very small market compared with almost tripled between 1987 and 2001, while the traditional sheep and beef markets. Feral goat number of sheep declined from a peak of almost harvesting is a low cost operation and signifi cant 1 million in 1991 to just 400 000 by the time of expansion of the industry beyond current levels the 2001 agricultural census (ABS 2003). is likely to entail signifi cant capital investment The move out of sheep and wool production that would alter its relative profi tability. In the and into beef cattle production in the Cobar shire medium term, the likelihood of goat produc- is consistent with the changing enterprise mix tion growing in importance beyond that of an in the Walgett shire, and at the national scale as opportunistic supplement to farm incomes in the well. Declining real wool prices and the failure Cobar shire is not evident under the existing cost of the wool industry to make productivity gains structures. comparable with those attained in the cropping When asked about their plans for the future, and beef cattle industries have contributed to this some farmers in the region expressed concern adjustment. for the future of their industry. A number of farmers in the region were found ‘There is not a great deal of scope for too to be supplementing their farm incomes through much diversifi cation of enterprise mix.’ the mustering and sale of feral goats, particularly in times of drought. ‘[In ten years time we] need to produce double what we produce now to stay on top of increasing costs.’ Others expected to see the continued decline Changes in agricultural production in of sheep in the region. 2 the Cobar shire ‘More cattle and goats. Less sheep.’ 1987 1994 2001 The recently introduced New South Wales Total agricultural native vegetation regulations are also an issue in area ’000 ha 3 239.7 3 373.6 3 320.4 the Cobar shire. Farmers in the shire face both Cereal area ’000 ha 25.3 20.3 61.3 regrowth and thickening of native woody vege- Sheep ’000 753.6 630.8 411.3 tation in open woodlands that reduce the produc- Beef cattle ’000 12.4 25.7 34.2 tive capacity of their grazing land. australiancommodities • vol. 12 no. 1 • march quarter 2005 205 farm viability

‘Woody weeds on the red country have ‘[We could] feedlot sheep more to get probably halved stocking rates.’ productivity gains. Could consider not mulesing and fatten wethers instead.’ ‘Encroachment and thickening over the last fi ve to six years has meant that we have locked up a four to fi ve thousand acre paddock. [It is] too diffi cult to stock.’ Implications for broadacre In many instances the regulations are not a agriculture binding constraint at the moment because it is not economic to manage vegetation encroach- The historical data indicate that broadacre far- ment and thickening given existing technolo- mers in north west New South Wales have made gies and current commodity prices. However, ongoing changes to their enterprise mix and if it became economically viable for farmers to farming methods in an effort to capture produc- clear this vegetation on their property then the tivity gains and maintain their profi tability. regulations could have a signifi cant impact. The However, the recently conducted interviews current regulations are not suffi ciently fl exible indicate that the ability of farmers to continue to accommodate the very long management making these changes over the medium term cycles (spanning decades) that typify production is being made diffi cult by the increasing level systems in semiarid regions. of regulation. Changes to regulations affecting Despite the fact that thickening vegetation vegetation and workplace safety, as well as is contributing to a decline in stock rates, a any restrictions that might be placed on sheep number of farmers interviewed in the shire were husbandry practices, affect farm cash incomes aware of the role that woody vegetation played and therefore farm household viability. in ‘holding the country together’ and did not The recently introduced New South Wales want to return to the days of the ‘legendary’ dust native vegetation regulations are of particular storms. However, high levels of farm debt may concern because they affect three signifi cant result in some farmers in the region increasing components of farm livelihood strategies. stocking rates to reduce the level of vegetation Farmers in north west New South Wales are with negative impacts on the environment. particularly reliant on clearing regrowth and remnant vegetation — both trees and ground ‘[People with] low equity will have to have cover — to increase their productivity. Placing higher stocking rates, less involvement in constraints on these and other management natural resource management and will bash strategies is likely to reduce their productivity it to try and get results.’ growth and therefore affect farm cash incomes. With a much larger proportion of farmers in Furthermore, vegetation regulations are likely to the region dependent on sheep for their liveli- affect their ability to further diversify their enter- hood and with few opportunities to diversify prise mix and may lead to increased landscape into other broadacre activities, the possibility of degradation in those instances where clearing a ban on mulesing was a concern for the medium regrowth is permitted. term outlook for the region. A ban on mulesing If broadacre productivity growth is restricted is likely to require altered farm management in these regions because of the cumulative effects practices and increase farm costs. of these increased regulatory controls then farm ‘If prohibited, it will mean altered manage- incomes can be expected to decline in real terms ment of the fl ock. [We] may have to crutch over the medium term. There are also wider twice a year. Mustering the sheep causes consequences, particularly for rural communities stress.’ that are highly reliant on broadacre farming for their economic survival. Furthermore, a number ‘[I’d] rather mules once than [use] chemi- of the existing regulations are likely to result in cals all the time.’ an increase in both the intensity of land use and

206 australiancommodities • vol. 12 no. 1 • march quarter 2005 farm viability the incidence of regulatory noncompliance in not fl exible enough to deal with any future shifts some areas. Both of these responses are likely in these community expectations. There is also to counter efforts to improve environmental and a limited opportunity for society to establish the safety outcomes. level of environmental services that it is willing to pay for. Amendments to improve existing policies are therefore warranted to ensure more Conclusion effi cient, equitable and fl exible outcomes. This research has established a clear link be- tween the vulnerability of farm households in north west New South Wales and the increased References regulation of farm inputs and practices. It is ABS (Australian Bureau of Statistics) 2002a, likely that growing regulatory control of agri- Basic Community Profi le – Walgett Shire, cultural inputs will have a negative impact on 2001 Population and Housing Census, farm viability through increased farm costs and 135107900, Canberra. restricted management practices in the future. —— 2002b, Basic Community Profi le – Cobar If society’s demands for environmental and Shire, 2001 Population and Housing Census, animal welfare objectives continue to trend up- 135151750, Canberra. wards under existing farm cost structures, then —— 2003, AgStats on GSP, selected data, cat. there is likely to be accelerated structural adjust- no. 7117.0.30.001, Canberra. ment within the rural communities that are least —— 2005, Housing and Population Census, able to cope with these emerging adjustment Selected unpublished data from 1976, 1981, pressures. Although farmers are likely to benefi t 1986, 1991, 1996, 2001, Canberra. to some extent from these policy initiatives Beare, S., Chapman, L. Heaney, A. 1999, (private benefi ts), the evidence would suggest ‘Broadacre agriculture: changes in land use that these are small relative to the benefi ts ac- and returns in Australia in the 1990s’, Austra- cruing to society as a whole (social benefi ts) and lian Commodities, vol. 6, no. 3, September that a disproportionate share of the costs of these quarter, pp. 522–30. policies are being borne by rural communities. Ellis, F. 2000, Rural Livelihoods and Diversity There is growing concern about the inadequa- in Developing Countries, Oxford University cies of a regulatory approach to improving envi- Press, England. ronmental outcomes. A better understanding of Knopke, P., O’Donnell, V. and Shepherd, A. how environmental benefi ts and services can be 2000, Productivity Growth in the Australian delivered within a viable farming system is also Grains Industry, ABARE Research Report required. Where current or proposed regulations 2000.1, Canberra. work at cross purposes there may be unintended Nelson, R., Kokic, P., Martin, P., Elliston, L. and consequences. For example, any regulation that King, J. 2005, ‘Structural adjustment: vuner- reduces farm margins may lead to more inten- ability index for Australian broadacre agricul- sive management with a reduced focus on main- ture’, Australian Commodities, vol. 12, no. 1, taining environmental assets. March quarter. The current regulatory approach does not al- Productivity Commission 2004, Impacts of low for tradeoffs between the ongoing viability Native Vegetation and Biodiversity Regula- of farm households and society’s desire for envi- tions, Report no. 29, Melbourne. ronmental and welfare improvements. It is also

australiancommodities • vol. 12 no. 1 • march quarter 2005 207 trade reform

WTO TRADE NEGOTIATIONS principles and politics affecting agriculture

Ivan Roberts, Roneel Nair and Andrew Jacenko • It is very important that a good result is oping countries to effectively take account of achieved in the Doha Round as it will provide their development needs, including food secu- rules for world trade including for agriculture rity and rural development. for more than a decade. Genuine and substan- The early parts of the negotiations were tial reforms are required to meet the agreed characterised by the various participants taking WTO mandate. This will involve large reduc- strongly held positions, many of which were at tions to tariff barriers and distorting domestic variance. Efforts were made to fi nd common support and elimination of export subsidies. ground, but there was a major setback with a failure to reach agreement in the round in general • Agricultural trade liberalisation and the in- at the WTO Ministerial Meeting in Cancun, terests of developing countries have central Mexico, in September 2003. This was followed billing in the current round. The principles on by renewed efforts to get the negotiations back which gains from trade arise are fully consis- on track, with the development of, and agree- tent with the objectives of the round. However, ment on a negotiating framework in July 2004 there are political obstacles that must be over- (WTO 2004). Negotiations on the basis of this come if reform is to be achieved. Special and new framework are proceeding. differential treatment cannot be used to justify An examination of the periods taken to reach increases in protection, which go against the agreement in the various multilateral negotia- principles of the WTO. tions under the WTO and formerly the General

Introduction Time taken to reach agreement in Agriculture negotiations within the World Trade A trade negotiation rounds Organisation Doha Round have so far had a Doha chequered career. The objectives for agriculture in the round include ‘substantial improvements Uruguay in market access; reductions of, with a view Tokyo to phasing out, all forms of export subsidies; Kennedy and substantial reductions in trade-distorting Dillon domestic support’ (WTO 2001). It was also Geneva agreed that special and differential treatment for Torquay developing countries be an integral part of all elements of the negotiations and enable devel- Annecy Geneva

• Ivan Roberts • +61 2 6272 2239 • [email protected] 1945 1955 1965 1975 1985 1995 2005

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Agreement on Tariffs and Trade (GATT) shows on profi table outcomes, which in turn are deter- that as time has passed it has taken longer to mined by market prices, production conditions reach agreement (fi gure A). and the perception of risk. Some reasons for this could be that the The operation of comparative advantage will membership has increased greatly, from a mere lead to effi cient outcomes that advance global 23 countries in the original GATT agreement in incomes and incomes in most places where there 1947 to 148 in January 2005 — it is likely to are high levels of competition and market prices take longer to reach agreement between a larger that are a clear refl ection of supply and demand number of parties. Also, it is likely that over the forces. However, the benefi ts of trading in line history of the GATT/WTO, the areas on which with a country’s comparative advantage become agreement could most easily be reached would eroded where market prices do not fully refl ect have been substantially agreed fi rst, leaving the the values that communities place on prod- most diffi cult areas until later. ucts, such as would occur when market prices Agriculture has been among the most heavily and supplies are infl uenced by monopolies or protected and diffi cult areas on which to reach when there are unpriced values involved, such agreement, along with clothing and textiles, and as occurs with environmental side effects from motor vehicles and parts. So, as time has passed, production processes. In such instances, the these diffi cult areas for agreement have increas- most effi cient ways of overcoming the adverse ingly become prominent in the negotiations. In effects are usually through direct measures such addition, new, increasingly technical issues such as antitrust laws and policies that enable envi- as intellectual property, investment and services ronmental values to be refl ected in production are being incorporated into the negotiations. decisions. It would seem from the historical record of Comparative advantage is both powerful these multilateral negotiations that agreement and resilient. It is dynamic and continuously in the Doha Round could take some time. Why changing. It changes as countries’ stores of should this be the case when the underlying natural resources, infrastructure and the capaci- rationale for the negotiations — to open up ties of their people change. It can be developed markets and reduce market distortions, thereby and modifi ed along with new ways of doing increasing economic well being of WTO things and as peoples’ capabilities are enhanced members — appears to be widely desirable? through education and investment in both private In this paper, the principles involved and their and public facilities. Countries where people are application in practice are examined, with a fl exible, able to develop and apply new tech- view to better understanding how further prog- niques, and where they are able to respond to ress might be made in the negotiations. changes in demand, are generally most capable of developing successful and dynamic econo- mies. This is in contrast to countries that attempt Comparative advantage: to preserve the status quo by persisting with The guiding principle for trade policy protectionist policies. liberalisation and reform Application of the principle of compara- Trade occurs between countries because it tive advantage through fi rms and consumers enables them to satisfy their wants in a lower responding to market prices in their decisions is cost manner by exchanging items that they can conducive to specialisation that is consistent with supply at lowest comparative cost with items the most effi cient use of available resources. As that others can provide at a comparatively lower well as directing resources into their most profi t- cost. This is known as the Theory of Compar- able uses it results in greater economies of scale ative Advantage, fi rst formalised by David with associated cost savings. It is a fundamental Ricardo in the early 19th Century. Comparative principle when applied under most condi- advantage enables producers to make choices on tions, enabling countries to better realise their what to produce and how much to produce based economic potential. Conversely, if countries australiancommodities • vol. 12 no. 1 • march quarter 2005 209 trade reform pursue measures aimed at meeting their commu- disers, the European Union and the United nity’s demand for products and services in States, to restructure much of their support to which they do not have a comparative advan- forms of domestic support that were exempted tage, through protected or supported domestic from cuts or limits. Overall levels of support in production at higher costs than from external developed countries have changed little since sources, they will generally not be achieving the early 1980s. In fact, the levels have not their economic potential. fallen since 1995 when the Uruguay Round cuts commenced, as shown in fi gure B. A major effort was made in the Uruguay Round The reality: to reduce the levels of tariffs. However, the fairly Widespread agricultural protection and large cuts that were agreed — an average of 36 support per cent, with minimum cuts for individual items While it is very well to theorise about the advan- of 15 per cent for developed countries and two tages for countries that arise from the exercise thirds of those amounts for developing coun- of comparative advantage that is achieved from tries — were to what are termed ‘bound tariffs’, markets that are as open and undistorted as not to actual applied tariffs. Bound tariffs are possible, the reality is that most countries have maximum rates that WTO members agree not to protectionist and/or supportive policies for their exceed, and in many instances, they markedly agricultural sectors. exceed actual applied tariffs. The methods by which such protection and/ Consequently, agreed reductions in bound or support are provided vary widely, partly de- rates, in most instances, merely reduced the gap pending on the degree of a country’s economic between the bound tariffs and the applied levels development. For example, developed countries and have had little impact on actual levels of that have large amounts of taxpayers’ funds from agricultural tariff protection. which to draw, tend to provide higher levels of Levels of agricultural support in the various domestic and export subsidies to agricultural OECD countries and recent average levels of producers than developing countries. applied and bound tariffs are shown in fi gures Although there has been a trend toward direct C and D. Note that the bound tariffs in fi gure subsidisation of farmers in developed countries, D markedly exceed applied levels, particularly highly market distorting price support that is in most developing countries, meaning that it underpinned by tariffs and other border measures would require substantial cuts to bound rates to such as tariff quotas and, in some countries, have any impact on actual levels of protection export subsidies, remains the main means of and internal market prices. providing agricultural assistance in developed countries, especially in Europe and north east Asia and also, for some commodities, the United Total OECD producer support estimates States. Developing countries tend to provide B most of their agricultural protection through tariffs that mean that the burden of providing support to producers falls on consumers. 35 Attempts have been made in the GATT and currently the WTO to reduce the level of tariffs, export subsidies and market distorting domestic 30 support for agricultural products. The greatest degree of success has so far been achieved with 25 reducing export subsidies through the WTO Agreement on Agriculture that was negotiated in the Uruguay Round. However, this was only % possible by enabling the major export subsi- 1995 1997 1999 2001 2003

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Producer support estimates, 2003-04 One of the most prominent sets of reasons C for agricultural protectionism arises from public policy choices made on agriculture as countries 70 industrialise and develop. Anderson and Hayami 60 (1986) noted that with economic development, agriculture becomes relatively smaller in the 50 economy. The manufacturing and service indus- 40 tries expand, drawing people away from agri- 30 culture. Pressure is placed on the competitive- ness of agricultural activities, and although the 20 agricultural industry responds by amalgamating 10 farms and mechanising, agricultural production % expands more slowly than the economy overall. Aust China Eastern European India NAFTA OECD Northern North The economic pressures on agriculture gen- /NZ Europe Union Europe Asia erate demands for support and protection by Eastern Europe – Czech Republic, Hungary, Slovak Republic • Euro- those remaining who have strong interests in pean Union – EU-15 • NAFTA – Canada, Mexico, United States • North Asia – Japan, Republic of Korea • Northern Europe – Iceland, preserving their traditional livelihoods, and Norway, Switzerland. who, historically, have shown an ability to exert effective political infl uence. At the same time, incomes in the community in general rise Why is agricultural protection so as a result of the process of development. So, widespread? although costs arise from supporting agricul- ture, the community at large considers that it is Given the economic benefi ts of higher global increasingly able to meet those costs. incomes and greater economic well being in These changes are facilitated as the numbers most countries that arise from the exercise of of farmers fall while numbers in nonagricultural comparative advantage through open, undis- activities rise, resulting in dilution of the costs torted markets, it might reasonably be asked why to individual consumers and/or taxpayers. The agricultural protection is so widespread. The small, but well organised and highly motivated reasons are many and differ between countries. group of farmers demanding support usually Some of the more important ones are canvassed prevails politically over the larger but less moti- in this section. vated consumer and taxpayer groups. These developments are often also exacerbated by depopulation of rural areas that is more rapid Agricultural applied and bound tariffs, than electoral boundary changes that result in D 2004 disproportionately greater political representa- tion and infl uence by rural constituencies. 60 Applied As well as observing these factors that rein- Bound force agricultural protectionism, Anderson and 50 Hayami noted that countries with a low compar- 40 ative advantage in agriculture such as Japan, Chinese Taipei and the Republic of Korea had 30 a much higher propensity to protect agriculture 20 than countries with a comparative advantage in agriculture including the United States, Australia 10 and New Zealand. % The developments seen to contribute to agri- cultural protection can be observed across a wide Developed Developing Africa Middle East Latin countries Asia America cross-section of industrialised and industrialising australiancommodities • vol. 12 no. 1 • march quarter 2005 211 trade reform countries. However, they do not explain high Regional development is also often advanced levels of agricultural tariffs in many low income as a reason for industry protection. In some countries where development has been slow. For instances, an established population is regarded example, tariff levels in Africa, where agricul- as important for defence or strategic reasons and ture and mining still dominate many economies, industry protection is a way of providing regional are generally high (see fi gure D). One reason for employment. Also, where there are initially rela- such high tariffs is dependence on border taxes tively large populations producing agricultural to raise public funds. Tax collection on trade at products in particular regions, governments border entry points in those countries is adminis- can be inclined to provide support for agricul- tratively simple and low cost, whereas facilities tural product processing activities with a view to raise public revenue through other avenues to broadening the employment base in those are scarce or nonexistent. regions. Sometimes also, agricultural activities Food security is another reason often ad- that are established in particular regions become vanced for agricultural protection policies. less profi table and governments may choose to Countries can fear being dependent on outsiders provide assistance both to sustain the producers for securing supplies of something as important and indirectly to sustain communities that service to their people as food. Such fears may refl ect those producers and process their products. historical concerns about being blockaded Generally, regional support policies require or subject to embargos, or they may refl ect a ongoing government support, and the cost of this concern that external competition could prevent ongoing support is lower national output. the establishment and maintenance of suffi cient In recent years there has been a trend toward production capacity to ensure food supplies at using the concept of the ‘multifunctionality’ of all times in areas that might not be readily acces- agriculture as a reason for continuing to protect sible. agriculture. Under this concept, agriculture is While these concerns can be real, there are considered to have qualities of value to soci- often alternative ways in which food supplies can eties that are well beyond the provision of food be made more secure through trade and storage and fi bre as refl ected in prices for agricultural strategies than through often high cost protected products. Those qualities include such things domestic production. Drawing supplies from a as the value of rural landscapes, the cultural world market allows access to a wider array of importance of maintaining a farming way of products at usually lower cost and with greater life and agriculturally based rural communities security of supply than can be produced by and various environmental benefi ts attributed to protected domestic industries. Furthermore, the farming. effectiveness of securing national food supplies These arguments have been most widely used through protection can itself depend on the secu- in western Europe, where much is made of the rity of essential inputs. Japan, for example, has importance of the European system of farming. an offi cial policy of maintaining a predetermined In Japan the concept has been taken even further, level of food self suffi ciency, but its production with links being drawn between agricultural of food is highly dependent on secure supplies protection and the prevention of fl ooding of of oil imports that are essential inputs for fuel, major communities. fertilisers and chemicals. Such arguments depend on the limitations of The ‘infant industry’ argument is sometimes using priced values alone as indicative of soci- used to justify agricultural protection. In some etal values, with the implication that unpriced instances, activities may not reach a suffi cient values are strongly positive and warrant govern- size to become competitive without some ment support policies. They tend to downplay initial assistance. However, governments have negative unpriced values such as pollution from often been poor at picking activities that, once highly supported intensive agriculture and loss supported, become competitive without ongoing of native habitats as a result of agricultural support. development.

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At the international level, there has been a ‘transitional gains trap’. Tullock examined why widespread practice of providing preferential many government programs do not seem to help market access to selected countries that effec- farmers more than temporarily and concluded tively amounts to an extension of the agricul- that the support was capitalised into fi xed farm tural protection in the importing country to the assets, primarily land. Over time, when farms country receiving the preferences. There is a were sold, the price refl ected expectations of two range of reasons for giving such preferences. For streams of income, one from the market and one example, many of the countries obtaining pref- from the government support. If support were erential access to the European Union are former withdrawn, however, the value of the farm and colonies. Also, countries can use the granting of the wealth of the purchaser would fall. trade preferences as a means of cementing wider Governments are reluctant to be seen to be relationships with other countries. In some responsible for adversely affecting the wealth of instances, preference provision is considered to constituents, and those affected by the removal be a means of providing aid through trade. of support would exert as much political pres- The economic effects of the preferences de- sure as possible to prevent it. Consequently there pend on their nature and extent. Most prefer- is a strong propensity for support to become ences involve lower tariffs or no tariffs at all institutionalised, and in some societies it is even placed on imports, or up to specifi ed quantities rationalised as necessary and desirable. of imports from the preference receiving coun- tries, whereas others face the full tariffs. The benefi ts to those receiving the preferences arise Present stances on agricultural from two main sources. The preferences and reforms associated commercial arrangements can enable support induced higher prices in the preference There are large economic, political, social and providing countries to be extended to preference structural differences among the 148 members receivers. Also, the preferences can increase involved in the WTO negotiations. Generally, export volumes. countries are categorised as either developed or Preferences can have several important and developing countries. There are major differ- costly side effects. They encourage high cost ences between the demands and needs of the two production in countries that would otherwise groups and a balance between the two needs to be less competitive on world markets and divert be reached to achieve a successful outcome. trading opportunities away from more effi cient producing countries. They can also contribute Developed countries to high prices to consumers in the preference This group of countries encompasses the econ- receiving countries and can foster narrowly omies of the European Union, other Western based economies with little innovation or dyna- Europe, north America, Japan, Australia and mism that depend on continuation of the prefer- New Zealand. Apart from Australia and New ences. Overall, they reduce global incomes (Topp Zealand (fi gure B) and for some American and 2001). Politically, provision of preferences can Canadian commodities where comparative be used by protectionist countries to ‘buy’ the advantage in agriculture is relatively high, levels support of the preference receiving countries of agricultural protection and support in these in resisting trade liberalisation in multilateral countries are high. negotiations. Where high levels of protection and support While the above are just some of the reasons have applied, the largest countries in this group why agricultural protection and support is have been, and remain, reluctant to reduce provided, it can be observed that, once estab- barriers against imports. In the Uruguay Round, lished, agricultural protection is very diffi cult to the cuts that they accepted for bound tariffs made phase down or eliminate. A primary reason for only minor differences to their degree of open- this is what was termed by Tullock (1975), the ness to imports, while some marginal increases australiancommodities • vol. 12 no. 1 • march quarter 2005 213 trade reform in access were agreed under tariff quotas. For the fully met its reduction commitments, largely by European Union, changes in support arrange- substituting WTO exempt forms of domestic ments since 1992 away from price support subsidies for direct export subsidies, but remains toward a combination of lower price support the world’s largest export subsidiser. and direct government payments, has built in a Perhaps the strongest indication of progress substantial amount of surplus ‘water’ between on agriculture so far in the Doha Round is the bound tariffs and the actual degree to which inclusion in the July 2004 framework agreement tariffs support internal prices for some major (WTO 2004) of a clause for ‘parallel elimination commodities. This means that it would require of all forms of export subsidies and disciplines substantial further reductions in bound tariffs on all export measures with equivalent effect by for items undergoing reforms, to have much a credible end date.’ As well as covering elimina- effect on market access under the Doha Round tion of direct export subsidies, this refers to other (Podbury and Roberts 2003). measures that could be used in effect as export The United States is a major demander of subsidies, including subsidised export credits more open markets for agricultural products and distorting practices by exporting statutory generally. Its own tariffs for many agricultural trading entities. The use of food aid that displaces products are low, and overall they average only commercial trade will also be addressed. about one fi fth of agricultural tariffs globally The degree of success so far in reducing (US Department of Agriculture 2001). However, overt export subsidies has come about through there are some notable exceptions, especially a restructuring of support toward forms of for sugar and dairy products, which as well as domestic payments that were agreed in the having high general tariffs are subject to tariff Uruguay Round to be exempt from cuts or limi- quota restrictions. Imports of beef are also sub- tations. Such restructuring has been widespread ject to tariff quotas. in the European Union and the United States. Japan maintains a strong protectionist stance In the case of the European Union it has been across the board for agricultural products and mainly into exempt production limiting arrange- argues strongly for maintenance of protection ments where some major crops, namely cereals, on grounds of food security and the multifunc- oilseeds and protein crops have been subjected tionality of agriculture. The predominant means to area reduction programs, and where payments of support is through measures that maintain for ruminant animals have been made on fi xed internal prices for most commodities at multiples numbers of animals. Those payments have been of world market price levels. Those measures are used to compensate for reduced support prices, implemented through high tariffs and also for thereby reducing the extent to which previous some commodities, state trading arrangements price support depressed domestic consumption, that result in producers receiving higher prices while the area reduction programs also help than those paid by consumers. constrain production distortions. The main change in agricultural support by Such changes have helped the union to manage the major developed countries since the early its subsidised exports within their agreed limits. 1990s has been a preparedness to reduce overt In its 2003 midterm policy review, the European export subsidies that had previously contrib- Union decided to amalgamate such payments uted to depressed world market prices. In the and future similarly structured payments for Uruguay Round, these countries undertook to dairy into single farm payments that would reduce the volumes of subsidised exports by 21 be made on fi xed bases. Such a change might per cent and the values of export subsidies by 36 enable exemption of such payments under per cent, from 1986–90 bases. present arrangements for decoupled payments The United States has since discontinued that are not supposed to be related in any way to its previous substantial export subsidisation of production or prices. wheat, but maintains signifi cant export subsidies Since 1996, the United States has restructured for skim milk powder. The European Union has its substantial support for its farm program crops

214 australiancommodities • vol. 12 no. 1 • march quarter 2005 trade reform that includes wheat, feed grains, rice, cotton and food importing countries, countries receiving most recently oilseeds. It replaced previous fl oor preferential access to others’ markets, and least price arrangements that were supplemented by developed countries (LDCs). price related defi ciency payments, which were Many of the agricultural exporting developing provided in conjunction with acreage reduc- countries have united with low support devel- tion programs by a combination of payments. oped agricultural exporters — Australia, New These included clearly distorting minimum Zealand and Canada — to form the Cairns Group price support payments termed loan defi ciency that strongly advocates agricultural trade liberal- payments or marketing loans, and production isation. fl exibility contract payments that met condi- This group accounts for more than a third of tions for exemption from WTO cuts or limita- global agricultural exports (Gifford 2004) and tions on grounds of them being decoupled from has been an effective force in the Uruguay Round production and prices. At the same time, previ- and subsequent negotiations. Some developing ously existing acreage reduction programs were members of this group are also members of a discontinued. group of developing countries termed the G-20 In its 2002 farm bill the US Government insti- that is dedicated to furthering the interests of tutionalised countercyclical payments linked to developing countries in the Doha Round. prices, and enabled farmers to update payment The membership of the Cairns Group and the bases on direct payments. Such changes throw G-20, and also the countries categorised as least doubt on the extent to which US program crop developed, is indicated in box 1. payments can be considered decoupled or less distorting than previous arrangements. In summary, the major developed countries have displayed a preparedness to open their mar- kets further to only a minor degree. They have shown a willingness to change forms of subsi- Box 1: Country groupings dies, but have not been prepared to reduce levels of support. Where price support has been largely Cairns Group or partly replaced by direct payments, such as in Australia, Argentina, Bolivia, Brazil, Canada, the European Union, it creates additional water Chile, Colombia, Costa Rica, Guatemala Indo- in tariffs requiring even larger reductions in nesia, Malaysia, New Zealand, Paraguay, Phil- bound tariffs in order to reduce actual support ippines, South Africa, Thailand, Uruguay levels. G-20 Argentina, Bolivia, Brazil, Chile, China, Cuba, Developing countries Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Philippines, South Africa, Tanzania, Thailand, Venezuela, Developing countries and multilateral Zimbabwe reforms Developing countries constitute the majority Least developed of WTO membership. Considering developing Angola, Bangladesh, Benin, Burkina Faso, countries as a single collective entity can be Burundi, Cambodia, Central African Republic, misleading because of the wide variety of coun- Chad, Democratic Republic of the Congo, tries in this group, both in their levels of develop- Djibouti, Gambia, Guinea, Guinea Bissau, Haiti, Lesotho, Madagascar, Malawi, Maldives, ment and the nature and extent of their agricul- Mali, Mauritania, Mozambique, Myanmar, tural trade. Nepal, Niger, Rwanda, Senegal, Sierra Leone, Several groups of developing countries with Solomon Islands, Tanzania, Togo, Uganda, common interests can be identifi ed, some of Zambia which are agricultural exporting countries, net australiancommodities • vol. 12 no. 1 • march quarter 2005 215 trade reform

Special and differential treatment Developing countries have increasingly been seeking extra rights for protection and support The Uruguay Round outcome allowed develop- under special and differential treatment. In the ing countries to undertake smaller reductions in Doha Round, some large developing countries tariffs and domestic support and longer imple- are proposing the ability to actually increase mentation periods compared with developed domestic protection. Given the emphasis on devel- countries under what is termed special and dif- opment in the Ministerial Declaration (WTO ferential treatment. The least developed coun- 2001), some countries are seeking nonreciprocal tries could choose not to implement reduction expanded access to developed country markets; commitments. generalised special safeguards for developing Concern has been expressed by some econo- countries against rapid increases in imports or mists about the effects of support reductions sharp reduction in prices; the nomination of on some developing countries. Stiglitz (1999) culturally sensitive and staple (basic food secu- argued that conditions in some developing coun- rity) products that would either be exempt or tries were not conducive to achieving economic treated differently; and an ability for developing benefi ts from reducing protection. He feared that countries to raise bound tariffs for food security displaced resources might not be reallocated into crops, where the current bindings are low. more effi cient activities, but be refl ected in higher That is, some countries are advocating protec- unemployment. This could be the case where tion as a means of achieving the objective of poorly developed institutions, infrastructure and development — something that runs contrary to education would hinder both investment and the theoretical underpinning of the benefi ts from labor adjustment. Such conditions might apply trade and the market liberalisation objectives of in LDCs that are already exempt from WTO cuts the GATT/WTO system. Some developing coun- and limitations, but they might also apply to a tries are also insisting that they will not reduce degree in some other developing countries. tariffs unless developed countries both markedly However, there are also many developing reduce domestic support and further open their countries with dynamic economies in which markets. adjustment from low productivity sectors to more effi cient and competitive activities would Issues with preferences and net food be important for their development. Prominent importers examples are China and India where transfers of An issue of concern to liberalising multilateral resources from low productivity agriculture to trade policy for agriculture arises because not all other more effi cient sectors could be a key deter- countries are likely to gain. Countries that could minant of future economic growth. be adversely affected include those that have had Currently, about 50 per cent of China’s working preferential access to mainly developed country population is employed in agriculture, which markets where price support levels have been accounts for only 15 per cent of gross domestic high, and net food importing countries. product. For India, the respective proportions are Where countries have been granted pref- 58 per cent and 20 per cent. A transfer of people erential access for particular products and and resources from agriculture to other activi- receive prices well above world market levels ties could be expected under such conditions to for their preferential sales, reforms that lower contribute markedly to economic growth. Yet internal prices in the preference giving country there are issues about the pace at which these can reduce the value of the preferences. In the countries can socially accommodate rapid adjust- process of reforming agricultural support, some ment when such huge numbers of people could major developed countries, especially the Euro- be affected. In particular, there is concern about pean Union, are progressively reducing internal capacity to manage large infl uxes of people to supported prices and providing larger direct urban areas, given limited resources available to subsidy payments to producers. One conse- develop the necessary infrastructure. quence is that preference receiving countries

216 australiancommodities • vol. 12 no. 1 • march quarter 2005 trade reform may receive the lower EU internal price for their multilateral reforms infl uence world prices and preferential exports. agricultural reforms. Also, it can be problematic Historically, preferential access has been used to quantify the effects of multilateral reforms, largely to provide aid to the preference receiving especially where many of the reforms comprise countries, and the erosion of the benefi ts as changes to bound tariffs that are not refl ected in a result of reform is in some respects an unin- applied tariffs, and where most domestic reforms tended byproduct. In economic terms, provision have been to change forms of assistance rather of preferences on selected products is a blunt than levels of support. and ineffi cient instrument for providing aid, as aid can often be more effective if channeled into general economic development or infrastructure Concluding comments: (Levantis, Jotzo and Tulpulé 2003). So, if aid is Necessary conditions for a successful restructured away from trade preferences and round into more effective alternative measures, eco- It should hardly be surprising that in order for nomic gains for the preference receivers can be countries to obtain the economic benefi ts from obtained. However, there is a natural concern by trade liberalisation, markets must in fact actually preference receiving countries that the declining become more open and less distorted. Unless benefi ts from their preferences will not be com- this happens the round will be a failure. pensated for by other forms of assistance. If For developed countries, this means lower that concern results in opposition to multilateral actual barriers to trade, preferably through tariff trade reform, it has the potential to jeopardise a cuts that reduce actual levels of protection. The successful outcome for agriculture in the Doha best outcome would be suffi ciently large bound Round. tariff cuts that result in suffi ciently large addi- There is also concern that agricultural re- tional trade fl ows to enable the elimination of forms that reduce the extent to which protection tariff quotas that are being used to prise markets depresses world market prices, increases the cost open further. However, it is likely, as was the of imported food in net food importing coun- case with the Uruguay Round, that expansion of tries. That cost may result in economic losses to tariff quota volumes along with marked cuts to those countries. However, that is not necessarily bound tariff rates will continue to be needed if the case because higher agricultural prices can market access is to be increased substantially. increase their own agricultural production and The issue of changes to the forms in which some may even become net exporters. Addition- developed countries provide subsidies to agri- ally, if reforms also occur for nonagricultural culture is a vexed one from the standpoint of products, gains may arise in other areas of their achieving further reductions in market distor- economies. tions. Further reduction or elimination of export Some people have advocated compensation subsidies that are clearly very market distorting to net food importing developing countries for is necessary. economic losses arising from multilateral trade On changes toward so-called decoupled reforms. In this context, two considerations arrangements, there is much disagreement and could be important. One is whether multilat- scepticism within the WTO membership about eral reforms have, in fact, disadvantaged these the extent to which this will result in lesser countries. Another is whether compensation is market distortions and greater benefi ts from warranted where reforms reduce distortions that trade. If the large developed countries persist in have previously depressed world market prices limiting their reforms mainly to changing mech- and as a consequence provided benefi ts to net anisms for providing subsidies in an attempt to food importing countries. obtain larger exemptions from domestic support Whether or not multilateral reforms have disciplines, it is diffi cult to see ready acceptance disadvantaged these countries, it is important and reciprocity by other members. to understand that many factors in addition to australiancommodities • vol. 12 no. 1 • march quarter 2005 217 trade reform

The Doha Round objectives emphasise the 4 in Agricultural Policy Reform and the WTO: importance of the round in advancing economic Where Are We Heading (eds. G. Anania, M. development in developing countries. However, Bohman, C. Carter and A. McCalla), Edward there is a risk that the special and differential Elgar, Cheltenham, England. treatment concept that is universally acknowl- Levantis, T., Jotzo, F. and Tulpulé, V. 2003, edged by the WTO membership could be used Ending of EU Sugar Trade Preferences: not only for lesser commitments by developing Potential Consequences for Fiji, ABARE countries but even to justify increased protec- Current Issues 03.2, Canberra. tion. Podbury, T. and Roberts, I. 2003, Opening Agri- A case can be made for slower adjustment cultural Markets through Tariff Cuts in the over longer periods for developing countries. WTO, ABARE eReport 03.2, RIRDC publi- However, that case cannot be extended to justi- cation 03/011, Canberra. fying increases in protection that would run Stiglitz, J. 1999, Two principles for the next contrary to the fundamental principles on which round, or how to bring developing countries the benefi ts from trade are based. In this context, in from the cold, Paper presented at the WTO– more than 40 per cent of agricultural exports by World Bank Conference on Developing Coun- developing countries are now to other developing tries and the Millennium Round, Geneva, 20– countries (Andreson and Martin 2000). So, while 21 September. developing countries will clearly benefi t from Topp. V. 2001, Trade References: Are They more open and less distorted markets in devel- Helpful in Advancing Economic Develop- oped countries, many of the gains that they stand ment in Poor Countries? ABARE Report, to make for their economies will be from their Canberra. own market liberalising reforms. Tullock, G. 1975, ‘The transitional gains trap’, Bell Journal of Economics, vol. 6, no. 2, pp. 2, 671–8. References US Department of Agriculture 2001, Food and Anderson, K. and Hayami, Y. 1986, The Political Agriculture Policy: Taking Stock for the New Economy of Agricultural Protection, Allen Century, Washington DC. and Unwin, Sydney. WTO (World Trade Organisation) 2001, Minis- —— and Martin, W. 2005, Agricultural Trade terial Declaration, Ministerial Conference, Reform and the Doha Development Agenda, Fourth Session, Doha, WT/MIN(01)/DEC/ Development Research Group, World Bank, W/1, 9–14 November, Doha. Washington DC. ——, 2004, Doha Work Programme: Draft Gifford, M. 2004, ‘The unlikely coalition: agri- General Council Decision of 31 July 2004, culture and agricultural policies of the Cairns General Council, 27 and 31 July 2004, WT/ Group, ten years after the Uruguay Round’, ch. GC/W/535, 31 July, Geneva.

218 australiancommodities • vol. 12 no. 1 • march quarter 2005 emerging markets

EMERGING MARKETS the role and changing environment of agricultural trade reform

Andrew Dickson, Shirshore Hagi Hirad and Benjamin Buetre • With the cycle of international agricultural Developing countries in the Doha trade reform negotiations slowing apprecia- Round bly — the next round of negotiations is not likely to be concluded before 2015 to 2020 The current round of World Trade Organisation — it is clear that a successful conclusion to the (WTO) multilateral trade negotiations — the current Doha Round of multilateral trade ne- Doha Development Round — aims to foster the gotiations is of paramount importance to the development and growth of developing coun- future of millions of people worldwide. tries by establishing a balanced and fair set of trade rules and by increasing trade opportuni- • Some important elements of the chang- ties, particularly for developing countries, by ing environment of international agricultural improving access to markets. The Doha Minis- trade reform are identifi ed here, with specifi c terial Declaration signed in November 2001 reference to the emerging markets of China commits WTO members ‘to make positive and India. efforts to ensure that developing countries secure • By virtue of their sheer size, India and a share in the growth of world trade commensu- China both have the potential to signifi cantly rate with the needs of their economic develop- infl uence world agricultural markets. Equally ment’. they have the potential to lift millions of the Critically, the Doha Ministerial Declaration world’s poor out of poverty, not only in their recognises the importance of trade for develop- own countries but also elsewhere. Both India ment and poverty alleviation: trade as the so- and China (but particularly India) have also called ‘engine for growth’. The Doha Ministerial assumed a leadership role among developing Declaration also recognises the need to enable country members of the WTO. developing countries, and especially the least developed countries, to benefi t from the multilat- • Whether and how the Doha Development eral trading system, as well as the need to estab- Agenda delivers concrete outcomes for these lish a fair and market oriented trading system countries is likely to strongly infl uence the posi- in order to correct and prevent restrictions and tions they assume during negotiations. This in distortions in world agricultural markets. turn is likely to be critical to the success of the That trade is an engine for economic growth Doha Round itself. But the prospects of China is well recognised in international and develop- and India do not hinge solely on success in ment economics. However, the interconnections trade reform. A range of building blocks need between trade liberalisation, economic growth to be put in place to ensure opportunities, both and poverty alleviation are not automatic, nor domestically and internationally, can be taken up in a positive manner. • Andrew Dickson • +61 2 6272 2173 • [email protected] australiancommodities • vol. 12 no. 1 • march quarter 2005 219 emerging markets straightforward. National market conditions ingly large, there is a danger of becoming inured refl ecting domestic policies, leadership and/or to their signifi cance. For this reason some key unique national circumstances are also critical statistics are repeated here. to ensuring that opportunities for growth can be ■ According to the United Nations Develop- taken up in a positive way. ment Program (UNDP 2004) approximately 1.1 billion people worldwide live on less than US$1 a day: 432 million in south Asia; 323 million in Global poverty: the foundation stone sub-Saharan Africa; and 261 million in east Asia of the Doha Development Agenda and the Pacifi c. Another 1.6 billion people are estimated to live on US$1–2 a day. Developing countries currently account for ■ More than 830 million people are estimated about three quarters of the total membership of to be undernourished: 312 million in south Asia; the WTO. As a result of this, the current round of 212 million in east Asia; and 185 million in sub- negotiations — the Doha Development Round Saharan Africa. In this context, undernourished — is focused on issues of particular relevance is defi ned to mean consumption of less than to developing countries. That the needs and 1960 calories a day (one cup of rice is equivalent interests of developing country members of the to 216 calories). WTO would be central to the current round was ■ According to the Food and Agriculture agreed in the Doha Ministerial Declaration of 14 Organisation, hunger and malnutrition result in November 2001 (see box 1; a full copy of the the death of more than 5 million children every declaration is available on the WTO web site year, resulting in lost productivity and national – www.wto.org). income in developing countries (FAO 2004). The moral and economic imperatives under- ■ The direct costs of hunger worldwide are pinning the Doha Development Agenda are well estimated to be roughly US$30 billion a year known, but given that the fi gures are so stagger- and include, among other things, the estimated

Box 1: Extracts from the Doha Ministerial Declaration

(paragraph 2) ‘International trade can play a (paragraph 3) ‘We recognize the particular vul- major role in the promotion of economic develop- nerability of the least-developed countries and ment and the alleviation of poverty. We recognize the special structural diffi culties they face in the the need for all our peoples to benefi t from the global economy. We are committed to addressing increased opportunities and welfare gains that the marginalization of least-developed countries the multilateral trading system generates. The in international trade and to improving their effec- majority of WTO Members are developing coun- tive participation in the multilateral trading system. tries. We seek to place their needs and interests We recall the commitments made by Ministers at the heart of the Work Programme adopted in at our meetings in Marrakesh, Singapore and this Declaration. Recalling the Preamble to the Geneva, and by the international community at Marrakesh Agreement, we shall continue to make the Third UN Conference on Least-Developed positive efforts designed to ensure that devel- Countries in Brussels, to help least-developed oping countries, and especially the least-devel- countries secure benefi cial and meaningful inte- oped among them, secure a share in the growth of gration into the multilateral trading system and world trade commensurate with the needs of their the global economy. We are determined that the economic development. In this context, enhanced WTO will play its part in building effectively on market access, balanced rules, and well targeted, these commitments under the Work Program we sustainably fi nanced technical assistance and are establishing.’ capacity-building programmes have important roles to play.’ Source: WTO (2001)

220 australiancommodities • vol. 12 no. 1 • march quarter 2005 emerging markets medical costs of treating problem pregnan- cent of gross domestic product (Connell et al. cies and deliveries of anaemic, underweight 2004). Buetre et al. also note that agricultural mothers and the severe and frequent illnesses of incomes tend to be lower than urban incomes children whose lives are threatened by malaria, in developing countries, and that poverty rates pneumonia, diarrhoea or measles because their are higher in rural areas. One implication of bodies and immune systems have been weak- this is that increased incomes for participants ened by hunger. in agriculture could help alleviate poverty in a ■ The indirect costs of hunger worldwide are relatively direct manner, and that one route to estimated to be between US$500 billion and $1 increased incomes for developing countries is trillion, and include the estimated cost of lost trade liberalisation. productivity and income caused by premature Trade barriers, particularly in agriculture, death, disability, absenteeism and lower educa- are major impediments to developing countries’ tional and occupational opportunities (FAO abilities to exploit their comparative advan- 2004). tage and increase rural incomes. Trade barriers ■ In the past ten years, China’s growing economy on agricultural products tend to be greater has reportedly lifted 150 million people out of than barriers for other goods. In addition, the poverty (UNDP 2004). domestic support and export subsidy policies ■ As reported by Stoeckel (2004) in a report of developed countries tend to further depress prepared for the Australian Rural Industries world prices for agricultural commodities. This Research and Development Corporation, the not only disadvantages developing countries that World Bank has estimated that a successful export agricultural products but tends to depress round of trade liberalisation would potentially returns to farmers in all developing countries. lift 320 million people out of poverty and lift As discussed in Roberts et al. (2002), most world income by US$2.8 trillion by 2015, of of the distortions to international agricultural which US$1.5 trillion would accrue to devel- trade and markets have arisen from protection oping countries. by developed countries (see also Tyers and ■ In examining the impact of a reduction in Anderson 1992). These include a combination of tariff rates on agricultural trade alone (a 20 per barriers to imports, market distorting domestic cent reduction in applied tariffs by developing support and export subsidies — the so-called countries and a 30 per cent reduction by devel- ‘three pillars’ of the current round of multilateral oped countries), Roberts, Buetre and Jotzo negotiations. (2002) estimated that national incomes for There is no question that these measures hurt developing countries would increase by around the economies of many developing countries US$5 billion a year by 2010 and US$7 billion a through restricting their access to markets and year for developed countries. by subjecting their farmers to competition from subsidised products. Improving access to devel- oped country markets, reducing trade distorting Trade liberalisation and poverty domestic support and eliminating export subsi- alleviation dies will unambiguously improve trade oppor- tunities, and hence incomes, for developing The issue of agricultural trade liberalisation countries. Furthermore, if the costs and benefi ts and the potential effects on developing coun- of reducing government intervention in interna- tries’ output, incomes and trade was examined tional agricultural trade were assessed on a full in detail by Buetre et al. (2004). They noted that economywide basis, it is likely that the benefi ts agriculture is the largest employer and a major to consumers in developed countries (such as sector (in terms of national income) in most in the United States and the European Union) developing countries. In the case of India the would in fact outweigh the ‘costs’ incurred by agriculture sector accounts for around 60 per producers, not to mention the benefi ts that would cent of the workforce and approximately 23 per australiancommodities • vol. 12 no. 1 • march quarter 2005 221 emerging markets also accrue to other agricultural exporting coun- continually required to support exporters; and tries such as Australia. shortages of foreign exchange were common. Of course the actual impact on any particular China’s trade reforms culminated in their ac- country will differ depending on their indi- cession to the WTO in 2001, signalling a greater vidual circumstances. Comparative advantage preparedness to accept imports and embrace is important, as are the essential building blocks the opportunities provided by export markets. for growth such as essential infrastructure, legal The opportunities created for China through and social institutional arrangements, well increased trade liberalisation and globalisation, defi ned and enforced property rights, standards particularly in manufacturing but also in agri- of governance and political leadership, the scope culture, have been critical to China achieving of existing trade relationships (including pref- sustained economic growth at annual rates not erential trade access arrangements) and differ- lower than 7 per cent since 1990. As noted by ences in existing protection measures. Opalinska-Mania and Roberts, this provided As noted in the UNDP (2003, p. 30) report, signifi cant benefi ts in raising living standards, ‘No country has developed simply by opening modernising industry and moving China’s trade itself to foreign trade and investment’. It is pattern closer to its comparative advantage. important to combine the opportunities offered Coelli and Prasada Rao (2003) estimated total by global markets with strategies to develop factor productivity (TFP) growth in agriculture (or reform) domestic institutions and develop for 93 countries for the period 1980–2000. Their business environments conducive to investment estimate of the average growth in TFP for China and entrepreneurship. This point is echoed in over this period was 6.0 per cent a year, the Buetre et al. (2004) who note that there are a highest estimate recorded across all 93 countries. number of additional factors that can improve Importantly a signifi cant part of this improve- incomes in developing countries, other than ment in productivity (4.4 percentage points from trade liberalisation, including education, health the total of 6.0 per cent) stemmed from what standards, infrastructure, institutional arrange- Coelli and Prasada Rao refer to as ‘catchup’, or ments for good governance, commerce and the Chinese industry benefi ting from access to tech- provision of public goods. nologies, information or business practices that Some of these points can be highlighted by their peers had already enjoyed but which were comparing and contrasting the recent experience not readily available in China. China’s ability of countries such as China, India, Viet Nam and to catch up in this manner directly refl ects their Haiti. increased openness to trade and foreign invest- ment. China Building on this, China has effectively lever- As discussed in Opalinska-Mania and Roberts aged the information and technology set of their (2004), China’s emergence from what was effec- peers and improved even further, expanding tively a closed hegemony has been occurring for their TFP frontier by an average of 1.5 per cent a more than two decades with the gradual introduc- year. In comparison, the average growth rates in tion of reforms that permitted market incentives TFP for Australia and the United States over the to have a greater infl uence on what farmers were period 1980–2000 were estimated to be 2.6 per producing and selling. Those reforms refl ected cent a year, which involved no catchup at all. The a change in China’s attitude toward the role of average growth rate in TFP for India was esti- trade and a recognition of the shortcomings of mated to be 1.4 per cent over the same period. the old system. Fundamentally, the old approach Looking forward, China’s economic perfor- entrenched the ineffi cient use of available mance is now integrally linked to its interna- resources and resulted in trading activities often tional trade performance and its emerging role being ineffi cient; enterprises lacked exposure as a country fully integrated into the global to competition and responded relatively slowly economy. In this environment, China’s willing- to changing circumstances; governments were ness to embrace an international trade reform

222 australiancommodities • vol. 12 no. 1 • march quarter 2005 emerging markets agenda in a positive, albeit managed, way is structure development, better telecommunica- understandable. tion services and industrial development. India Given this situation, it is not surprising that India (as is the case with many developing coun- In contrast, while India is the world’s largest tries) has expressed concern about the potential democracy, its agriculture has a long history short term adjustment costs associated with of ‘command and control’ policies — approxi- increased trade liberalisation and appear less mately forty years of policy intervention have inclined to embrace a wide ranging liberalisation left Indian agriculture in a parlous state. As agenda within the Doha Round without a range pointed out by Acharya and Chaudhri (2001, of special safeguard provisions. p. 3) ‘Indian agriculture, on the eve of the third millennium, is in urgent need of a strategy and Viet Nam policy shift … [mainly because of] our unfl at- China’s success appears to be mirrored in the tering record in putting together less than effec- recent experience of its smaller southern neigh- tive solvents of nutritional poverty’. bor, Viet Nam. Viet Nam is described as a country Achieving food security has been one of the that has taken a gradual approach to economic main focuses of Indian agricultural policy since reform (UNDP 2003). Yet, while it has pursued independence in 1947. As discussed in Connell a form of centralised mercantilism — engaging et al. (2004), the major policy measures currently in state trading and using import monopolies, in place in India were largely introduced in the quantitative trade restrictions and high tariffs mid-1960s and include farm input subsidies, on agricultural and manufacturing imports — it minimum price support, public food distribu- has rapidly integrated with the world economy, tion and trade protection. More recently, it has achieving GDP growth rates of more than 8 per become increasingly apparent that forty years cent since the 1980s. By doing so, Viet Nam of national and household food security poli- has attracted considerable foreign investment, cies have cost India dearly, not only directly (the expanded trade and sharply reduced domestic food subsidy is estimated to be US$5.9 billion in poverty (UNDP 2003, p. 28). 2004-05) but also indirectly through lower levels of investment in infrastructure and lower rates of Haiti productivity improvement (see the discussion of In contrast, the economy of Haiti has stagnated TFP estimates earlier). and all its social indicators are deteriorating Refl ecting these factors, signifi cant economic (UNDP 2003, p. 28). Despite being a member of change is now under way in India. However, with the WTO and despite having pursued a compre- such a high degree of reliance on the agriculture hensive program of trade liberalisation in the sector for employment (around 60 per cent of mid 1990s, little progress has been made in inte- the Indian workforce is employed in the agricul- grating with the global economy. In the case of ture sector), reforms to agriculture are likely to Haiti, essential building blocks for growth, such proceed slowly. The dynamics of the relation- as good governance and government leader- ship between the central and state governments ship, have not been developed (or at least have are also likely to moderate the pace of change. deteriorated rapidly) and have compromised its As discussed in Connell et al. the three states success. of Uttar Pradesh, Bihar and Maharastra make up around a third of the country’s population. With ‘Special and differential’ treatment their strong agriculture base, the governments of As discussed in Roberts et al. (2002), the provi- Uttar Pradesh and Bihar strongly advocate anti- sion of special and differential treatment (S&D) poverty programs, rural subsidies and more rural to account for the particular circumstances of development schemes. In contrast, the govern- developing countries is now well established ment of Maharastra, with its stronger industrial and accepted by the WTO membership. In the base, argues for more programs favoring infra- current round of negotiations, developing coun- australiancommodities • vol. 12 no. 1 • march quarter 2005 223 emerging markets tries are being asked to make lesser cuts to tariffs oping countries and not be designed to avoid any and domestic support than developed countries obligations at all. and the least developed countries will not be It is also worth noting that many trade required to make such commitments at all. distorting protection policies are being pursued It is important, however, that S&D provisions by developing countries, slowing both their own target the development needs and at risk groups development and that of their trading partners, in developing countries, and not simply be including other developing countries. While a designed to avoid any obligations at all. Hence, large proportion of developing country exports as noted by Roberts et al. an important step in go to developed countries, a signifi cant propor- designing S&D conditions is to identify the main tion of developing country exports also go to underlying problems that developing countries other developing countries. For example, over face. Clearly, developed countries’ protective 51 per cent of exports from developing coun- measures harm developing countries’ economies. tries in Asia and the Middle East are destined for However, many of the fundamental problems are other developing countries. Similarly, over 30 wider than that and include internal economic per cent of exports from developing countries in structures and institutions in developing coun- Latin America and Africa are destined for devel- tries that often impede the effi cient functioning oping country markets. of markets such as poor government regulations With incomes growing much faster among or governance, rigidities in labor markets or a developing countries, trade opportunities with lack of access to capital (Stiglitz 1999). these countries will be critical to future export For countries to take advantage of trade growth prospects, particularly for the devel- liberalisation to advance their economic well oping countries themselves. If S&D treatment being, Stiglitz notes that markets need to be is used to preclude reform in the most protected working well so that resources can fl ow readily sectors among developing countries, the broader from less productive to more productive activi- liberalisation agenda is likely to be compro- ties. If countries pursue trade liberalisation mised. Perhaps more importantly, developing without appropriate market infrastructures being countries themselves, and the poor within these in place, they risk incurring adjustment costs countries, will be the most obvious losers. (associated with reducing levels of domestic support and competing internationally) without The opportunity to alleviate poverty is time necessarily enjoying the benefi ts of a resource critical reallocation. For example, managing the move- To the casual observer it would seem the Doha ment of labor from agriculture to other sectors Development Round lacks the enthusiasm or of the economy is clearly an issue that China has imperative of the Uruguay Round, at least on the been grappling with for some time. part of the major developed country members In the case of China, labor intensive manu- of the United States and the European Union. facturing (as well as some labor intensive agri- There are no lakes of milk or mountains of butter culture) has provided, and continues to provide, looming large over the current negotiations, and a productive destination for displaced labor. as noted by Stoeckel (2004, p. 1), ‘some believe However, it is not obvious that this is the case that without the tragic events of September 11, in India where poorly functioning markets and 2001, there would be no Doha Round of trade a lack of capital infrastructure hamper restruc- talks launched at all’. turing efforts. Reparatory domestic policy Regardless of whether the major devel- reform, in addition to any trade reforms, are oped countries are genuinely up to the task of also required to address entrenched problems reforming international agricultural trade, it affecting market effi ciency and industry produc- is evident that the cycle of agricultural trade tivity in India. reform negotiations, held under the auspices of Having said that, S&D provisions still need to the WTO, is slowing appreciably. target the specifi c development needs of devel-

224 australiancommodities • vol. 12 no. 1 • march quarter 2005 emerging markets

As discussed in Roberts, Andrews and Nair opportunities being presented by international (2005), not only has the period between each trade liberalisation and globalisation. round of negotiations increased, but the time For India, however, much more needs to be taken to conclude each round of negotiations done than simple trade reform to establish the has also increased, refl ecting both an increase in essential building blocks for growth that they the number of WTO members and an increase need to maximise the opportunities inherent in in the technical complexity of the negotiations. their comparative advantage. However, achieving The Uruguay round of negotiations commenced broad consensus on a reform agenda that will in 1986 and was concluded in 1994. The current inevitably include both winners and losers in round of negotiations commenced in early the world’s largest democracy may well prove to 2000 and is due to be completed in December be even more diffi cult than drawing the current 2005 at the earliest. If this trend continues as it round of WTO negotiations to a successful is expected to, the next round of negotiations conclusion. is unlikely to commence before 2010 and may not conclude before 2015 to 2020. Hence, the outcomes of the current round — enhanced References market access, balanced rules, reduced levels of Acharya, S.S. and Chaudhri, D.P. 2001, domestic support, etc — will prevail for many ‘Emerging issues in Indian Agriculture’, years to come. in Acharya, S.S. and Chaudhri, D.P. (eds), However, bringing the current round to a Indian Agricultural Policy at the Crossroads, successful conclusion will require an enormous Rawat Publications, Jaipur and New Delhi, effort. International agricultural trade negotia- pp. 3–13. tors are planning to meet in Geneva for one week Buetre, B., Nair, R., Nhu Che and Podbury, T. every month throughout 2005 in the leadup to 2004, Agricultural trade liberalisation: effects the sixth Ministerial meeting of the WTO in on developing countries’ output, incomes Hong Kong in December. This will likely need and trade, ABARE Conference Paper 04.6 to be matched by the research effort of analysts presented at the 7th Annual Conference on and researchers worldwide who support national Global Economic Analysis, Trade, Poverty negotiators and who, together with negotiators and the Environment, Washington DC, 17–19 still hold out hope that the Doha Development June. Round can be completed in time. Coelli, T.J. and Prasada Rao, D.S. 2003, Total Factor Productivity Growth in Agriculture: A Malmquist Index Analysis of 93 Coun- Conclusions tries, 1980–2000, Working Paper Series no. Developed and developing countries alike 02/2003, Centre for Effi ciency and Produc- have an opportunity to gain signifi cantly from tivity Analysis, School of Economics, Univer- the Doha Round, but only if negotiators are sity of Queensland, St Lucia. successful in delivering real and positive Connell, P., Hagi Hirad, S. and Jahan, N. 2004, reforms. The outcomes of the current round will ‘Indian agriculture: trends, trade and policy also be critical to the economic prospects of all reforms’, Australian Commodities, vol. 11, WTO members, but especially developing coun- no. 4, pp. 611–30. tries, for many years to come and so a successful FAO (Food and Agriculture Organisation of the conclusion to the current round is especially United Nations) 2004, The State of Food Inse- important. curity in the World 2004, Viale delle Terme di China appears to be well on the way to emerg- Caracalla, 00100 Rome (www.fao.org/). ing as a sophisticated and dynamic economy Opalinska-Mania, M. and Roberts, I. 2004, fully integrated into the global economy with a ‘Agriculture in China: production, policy and tremendous opportunity to take advantage of the trade developments’, Australian Commodi-

australiancommodities • vol. 12 no. 1 • march quarter 2005 225 emerging markets

ties, vol. 11, no. 3, September quarter, pp. Report Prepared for the Rural Industries 453–67. Research and Development Corporation, Roberts, I., Buetre, B. and Jotzo, F. 2002, Agri- Canberra. cultural Trade Reform in the WTO: Special Tyers, T. and Anderson, K. 1992, Disarray in Treatment for Developing Countries, ABARE World Food Markets: A Quantitative Assess- Report, Canberra. ment, Cambridge University Press, England. Roberts, I., Nair, R. and Jacenko, A. 2005, ‘Prin- UNDP (United Nations Development Program) ciples and politics in WTO agricultural trade 2003, Making Global Trade Work for People, negotiations’, Australian Commodities, vol. Earthscan Publications, New York. 12, no. 1, March quarter. —— 2004, Human Development Report 2004, Stiglitz, J. 1999, Two principles for the next New York (and previous issues) (hdr.undp. round, or how to bring developing coun- org) tries in from the cold, Paper presented to the WTO (World Trade Organisation) 2001, Doha WTO–World Bank Conference on Devel- Ministerial Declaration, WT/MIN(01)/DEC1, oping Countries and the Millennium Round, WTO Secretariat, Geneva, 20 November. Geneva, 20–21 September. Stoeckel, A. 2004, Termites in the Basement: To Free up Trade, Fix the WTO’s Foundations,

226 australiancommodities • vol. 12 no. 1 • march quarter 2005 australiancommodities

statistical tables Australia’s GDP, imports

Major contributors to Australian Contribution to GDP, Australia, 2003-04 GDP, imports and exports $789 billion ABARE researchers are often asked about the Building construction 6% Manufacturing 11% contributions of different sectors to the Austra- Agriculture, forestry lian economy — its gross domestic product — and fishing 3% and what countries are the principal markets for Mining 4% Australia’s exports and sources of its imports. The set of graphs presented on the next few pages is aimed at answering many of these ques- tions.

Services 76%

Share of Australian imports, by source

1988 2003-04 $48 billion $131 billion Japan 10% 12% China 21% 18% 3% 12% Korea, Republic of 3% ASEAN 4% 7% India 1% 16% 47% 45% Other OECD 1% Other

Abbreviations kg kilogram ha hectare t tonne bbl barrel kt kilotonne mbd million barrels a day Mt megatonne lb pound L litre oz ounce ML megalitre ct carat GL gigalitre fob free on board m3 cubic metre c cent mtu metric ton unit (10 kg) gr.eq. greasy equivalent dltu dry long ton unit SDR Special Drawing Right PJ petajoules 0 nil or a negligible amount TJ terajoules

Rounding Small discrepancies in total are generally caused by the rounding of components

228 australiancommodities • vol. 11 no. 4 • december quarter 2004 export statisticsmarkets

Markets for Australian exports 1989-90 2003-04 Total $44b $108.9b 27% 27% 18% 27% 9%

3% 8% 9% 6% 14% 12% 11% 16% 1% 9% 4%

Manufacturing $17.2b $29.9b 14% 5% 23% 17% 4% 29%

6% 5%

17% 28% 12% 17% 4% 4% 21% Agriculture $14.4b $26.1b 10% 11% 17% 4% 23% 8% 6%

5% 19% 12% 12% 18% 8% 10% 22% 15% Minerals $15.6b $32.3b 16% 30% 27% 24% 9% 2% 6% 3% 10% 12% 1% 13% 20% 27%

Energy $8.0b $20.7b 13% 9% 3% 44% 40% 6% 9%

14% 20%

15% 1% 7% 6% 13%

United States Europe China Japan New Zealand India Korea, Republic of Other OECD Singapore Middle East United Kingdom ASEAN Other Asia Other australiancommodities • vol. 12 no. 1 • march quarter 2005 229 agriculture export markets

Principal markets for Australian agricultural exports

Wheat Sorghum

Indonesia Japan Egypt

Japan NewZealand Iraq 1989-90 Papua 2003-04 Korea, Rep of 1989-90 New Guinea 2003-04 China Chinese Taipei Malaysia kt 500 1000 1500 2000 2500 kt 50 100 150 200

Cotton Wine

China Canada

Indonesia Germany

Japan New Zealand 1989-90 2003-04 Korea, Rep of 1989-90 United Kingdom 2003-04 Thailand United States

kt 25 50 75 100 125 kt 500 1000 1500 2000 2500

Wool Sheep meat China European Union Chinese Taipei Eastern Japan Europe Papua 1989-90 European New Guinea Union 2003-04 Japan 1989-90 South Africa Korea, Rep of 2003-04 United States United States kt 50 100 150 200 250 300 kt 1020 30 40 50

Beef and veal Dairy Japan United States Malaysia Philippines Chinese Taipei Japan 1989-90 Singapore 2003-04 1989-90 Saudi Arabia Korea, Rep of 2003-04 Thailand United States kt 100 200 300 kt 20 40 60 80 100

230 australiancommodities • vol. 12 no. 1 • march quarter 2005 minerals and energy export statisticsmarkets

Principal markets for Austalian mineral and energy exports

Thermal coal Metallurgical coal Japan Japan India

Korea, Rep of Korea, Rep of Netherlands Chinese Taipei 1989-90 United Kingdom 1989-90 2003-04 Chinese Taipei 2003-04 China China Brazil United States France A$m 500 1000 1500 2000 2500 A$m 500 1000 1500 2000 2500

Oil and gas Gold Japan India United Kingdom Singapore Korea, Rep of Korea, Rep of 1989-90 Singapore 1989-90 2003-04 2003-04 Thailand China Japan

United States Hong Kong A$m 500 1000 1500 2000 2500 3000 A$m 500 1000 1500 2000 2500

Iron ore Aluminium Japan Japan Chinese Taipei China Korea, Rep of Korea, Rep of Hong Kong Chinese Taipei 1989-90 Thailand 1989-90 United 2003-04 Malaysia 2003-04 Kingdom United States France Singapore Germany Other A$m 500 1000 1500 2000 A$m 500 1000 1500

Zinc Lead Hong Kong Korea, Rep of United Arab Chinese Taipei Emirate Malaysia Thailand United States Chinese Taipei 1989-90 South Africa 1989-90 Saudi Arabia 2003-04 Hong Kong 2003-04 United States India China Malaysia Indonesia Indonesia A$m 50 100 150 A$m10 20 30 40 australiancommodities • vol. 12 no. 1 • march quarter 2005 231 statistics – prices 1 Indexes of prices received by farmers

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 s 2005-06 f Crops sector Grains Winter crops Barley 107.9 125.1 130.8 159.9 122.3 109.3 111.4 Canola 80.1 79.6 99.7 100.9 89.8 89.9 99.6 Lupins 74.3 104.9 127.7 150.8 115.0 120.7 132.8 Oats 77.5 96.5 128.2 160.3 121.8 76.4 78.0 Wheat 98.7 117.4 132.3 134.4 120.5 101.9 95.9 Summer crops Sorghum 72.6 85.1 102.2 120.9 110.9 105.3 107.0 Total grains a 94.5 108.7 123.7 133.7 114.2 101.6 98.8 Cotton 97.4 106.1 92.7 98.0 77.9 81.0 83.8 Sugar 72.2 70.4 88.5 79.8 70.0 83.7 77.7 Hay 100.0 110.7 104.2 155.0 125.0 128.0 130.9 Fruit 100.0 102.0 117.8 111.9 116.3 119.1 121.8 Vegetables 100.4 107.5 104.3 121.5 120.3 123.2 126.0 Total crops sector 94.9 104.7 113.6 118.3 110.6 99.6 98.6 Livestock sector Livestock for slaughter Cattle 119.3 144.2 167.7 145.0 166.9 188.7 164.0 Lambs b 94.8 104.1 167.2 173.6 190.5 186.5 178.7 Sheep 69.5 117.9 204.7 194.3 230.8 232.0 208.3 Live sheep for export 95.3 111.4 156.1 179.3 178.0 172.9 157.3 Pigs 110.2 113.7 123.6 109.7 106.2 124.6 120.3 Poultry 90.2 90.1 93.0 94.2 96.3 98.6 100.0 Total 108.4 126.0 151.5 138.4 152.3 166.7 150.0 Livestock products Wool 81.4 98.3 113.9 154.2 129.0 120.8 119.1 Milk 87.9 97.0 110.5 90.7 89.5 99.0 107.0 Eggs 84.0 79.1 82.8 92.4 83.9 85.9 87.9 Total 84.5 95.6 109.0 114.4 104.0 105.9 109.7 Store and breeding stock 105.0 126.0 151.5 138.4 138.0 154.5 133.8 Total livestock sector 97.9 113.0 133.4 127.9 132.1 140.6 131.9 Total prices received 96.3 108.5 122.5 122.3 120.3 118.0 113.5

a Total for the group includes commodities not separately listed. b Lamb saleyard indicator weight 18–20 kilograms. s ABARE estimate. f ABARE forecast. na Not available. Note: 1 ABARE revised the method for calculating these indexes in October 1999. The indexes for commodity groups are calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. Indexes for most individual commodities are based on annual gross unit value of production. 2 Prices used in these calculations exclude GST. Source: ABARE.

232 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – prices 2 Indexes of prices paid by farmers, and terms of trade

1999-00 2000-01 2001-02 2002-03 2003-04 s 2004-05 s 2005-06 f

Farmers’ terms of trade a 93.0 98.4 108.8 103.0 100.1 96.1 91.2 Materials and services Seed, fodder and livestock Fodder and feedstuffs 90.0 93.6 99.2 131.2 115.5 109.0 111.2 Seed, seedlings and plants 102.7 105.2 115.8 125.0 117.4 112.3 112.1 Store and breeding stock 105.0 126.0 151.5 138.4 138.0 154.5 133.8 Total 95.5 102.0 112.1 129.3 121.5 119.2 117.1 Chemicals 101.6 103.3 105.6 108.0 110.0 111.9 113.9 Electricity 100.2 99.9 100.4 100.5 100.0 102.4 104.7 Fertiliser 99.8 106.4 104.3 106.9 111.2 114.0 116.8 Fuel 116.9 138.6 131.2 138.5 135.8 147.1 142.7 Total 102.0 109.6 112.6 121.2 119.4 121.0 121.4 Labor 107.1 110.1 113.3 117.9 121.6 124.5 127.4 Marketing 105.0 109.3 112.4 115.9 118.7 121.5 124.3 Overheads Insurance 105.1 109.8 118.6 124.5 128.8 133.4 138.0 Interest paid 98.8 111.2 104.2 110.7 118.1 125.1 129.4 Rates and taxes 107.1 112.4 115.5 119.1 121.9 124.8 127.7 Other overheads 104.1 108.7 111.9 115.4 118.1 121.0 123.8 Total 102.5 111.3 109.9 113.5 120.5 125.7 129.4 Capital items 106.1 111.9 115.2 118.3 121.3 124.3 127.3 Total prices paid 103.6 110.3 112.6 118.7 120.1 122.8 124.6 Excluding capital items 103.2 109.9 112.2 118.6 119.8 122.4 124.0 Excluding capital and overheads 103.3 109.6 112.7 119.7 119.6 121.7 122.8 Excluding seed, fodder and store and breeding stock 105.1 111.8 112.5 116.1 119.7 123.5 126.1

a Ratio of index of prices received by farmers and index of prices paid by farmers. s ABARE estimate. f ABARE forecast. Note: 1 ABARE revised the method for calculating these indexes in October 1999. The indexes for commodity groups are calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. 2 Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 233 statistics – costs and returns 3 Farm costs and returns

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f

Costs Materials and services Chemicals $m 1 633 1 760 1 604 1 649 1 690 1 724 Fertiliser $m 1 920 2 105 1 836 1 826 1 852 1 871 Fuel $m 1 643 1 583 1 543 1 625 1 765 1 800 Marketing $m 3 226 3 440 2 433 3 468 3 441 3 492 Repairs and maintenance $m 2 390 2 856 2 485 2 565 2 629 2 642 Seed and fodder $m 3 156 3 662 4 870 4 246 4 075 4 136 Other $m 3 295 3 575 3 380 3 485 3 572 3 608 Total $m 17 263 18 981 18 151 18 864 19 024 19 273 Labor $m 3 360 3 580 3 376 3 491 3 575 3 657 Overheads Interest paid $m 2 250 2 095 2 281 2 448 2 546 2 584 Rent and third party insurance $m 389 404 412 422 432 441 Total $m 5 999 6 079 6 069 6 361 6 553 6 682 Total cash costs $m 23 262 25 060 24 220 25 225 25 576 25 955 Depreciation a $m 3 645 3 751 3 810 4 011 4 171 4 205 Total farm costs $m 26 907 28 811 28 030 29 236 29 748 30 160 Returns Gross value of farm production $m 34 359 39 327 32 225 35 629 35 490 35 230 Increase in farmersÕ assets held by marketing organisations b $m 1 225 – 556 – 962 450 375 450 Gross farm cash income c $m 33 134 39 883 33 187 35 179 35 115 34 780 Net returns and production Net value of farm production d $m 7 451 10 516 4 195 6 393 5 742 5 070 Real net value of farm production e $m 8 123 11 146 4 313 6 421 5 742 4 956 Net farm cash income g $m 9 871 14 823 8 967 9 954 9 539 8 825 Real net farm cash income e $m 10 761 15 710 9 219 9 998 9 539 8 627 Gross value added h $m 25 059 25 943 19 369 24 882 23 332 24 087 a Based on estimated movements in capital expenditure and prices of capital inputs. b Value of payments still to be made to farmers for their output. c Gross value of farm production less increase in farmers’ assets held by marketing organisations. d Gross value of farm production less total farm costs. e In 2004-05 Australian dollars. g Gross farm cash income less total cash costs. h Chain volume measures at basic prices. Reference year is 2002-03. s ABARE estimate. f ABARE forecast. Note: Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE. 4 Australian unit export returns

Annual indexes a 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 f Farm 90.5 108.7 118.1 116.2 107.6 105.2 103.3 Energy minerals 110.4 141.0 140.8 135.2 120.2 163.7 194.4 Metals and other minerals 98.0 115.6 110.3 106.0 105.1 120.1 124.3 Total mineral resources 102.7 125.5 122.3 117.4 111.1 137.0 151.7 Total commodities 99.7 120.7 121.5 117.5 110.4 127.2 137.2 2003-04 2004-05 2005-06

Quarterly indexes b June Sep. Dec. Mar. June Sep. p Dec. s Mar. f June f Farm 110.0 101.3 100.9 112.0 106.6 101.4 106.0 105.0 100.9 Energy minerals 146.5 163.1 166.7 157.0 207.8 210.9 210.8 213.7 189.2 Metals and other minerals 126.6 131.5 126.4 125.9 136.1 137.2 135.1 133.6 132.5 Total mineral resources 134.6 144.2 142.4 138.4 164.3 166.5 165.3 165.5 155.1 Total commodities 125.0 129.1 127.7 127.7 143.4 144.1 144.5 144.3 136.2 a In Australian dollars. Base: 1989-90 = 100. b In Australian dollars. Base: 1994-95 = 100. p Preliminary. s ABARE estimate. f ABARE forecast. Source: ABARE.

234 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – exports 5 Contribution to exports by sector Balance of payments basis

Proportion of Proportion of exports merchandise exports of goods and services

1999-2000 Rural a Other merchandise 27% 21% Mineral resources 35% Other Services merchandise 23% 28% Mineral resources 45% Rural a 21%

2000-01 Rural a Other merchandise 27% 22% Mineral resources 35% Other Services merchandise 22% 25% Mineral resources 47% Rural a 21%

2001-02 Rural a Other merchandise 28% 22% Mineral resources 36% Other merchandise Services 25% 21% Mineral resources 46% Rural a 20%

2002-03 Rural a Other merchandise 26% 21% Mineral resources 37% Other Services merchandise 22% 27% Mineral resources 47% Rural a 20%

2003-04 Rural a Other merchandise 26% 20% Mineral resources 36% Other merchandise Services 26% 24% Mineral resources 48% Rural a 20% a Includes farm, forest and fisheries products. Source: Australian Bureau of Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 235 statistics – exports 6 Annual exports summary Balance of payments basis

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f $m $m $m $m $m $m At current prices Rural Cereal grains and products 5 937 6 481 4 487 5 094 5 634 5 256 Sugar and honey 1 330 1 610 1 363 1 034 1 424 1 317 Meat and meat preparations 5 796 6 246 5 655 5 758 6 572 5 831 Wool and sheepskins 3 897 3 687 3 545 2 778 2 519 2 709 Other rural a 15 693 16 471 14 914 14 146 14 996 16 552 Total 32 653 34 495 29 964 28 811 31 144 31 664 Mineral resources Coal, coke and briquettes 10 844 13 430 11 987 11 001 17 272 26 018 Other mineral fuels 13 464 10 940 11 049 8 766 11 553 12 294 Metalliferous ores and other minerals bs 15 839 15 286 15 312 15 407 18 906 23 217 Gold 5 229 5 300 5 718 5 839 5 724 5 952 Other metals cs 11 638 10 991 10 942 11 327 12 838 12 680 Total s 57 013 55 947 55 008 52 340 66 293 80 161 Total commodities sector s 89 666 90 441 84 971 81 150 97 436 111 825 Other merchandise s 30 550 30 509 30 829 28 288 na na Total merchandise s 120 216 120 950 115 800 109 438 na na Services 33 547 32 250 32 493 33 958 na na Total goods and services 153 763 153 200 148 293 143 396 na na Chain volume measures d Rural Cereal grains and products 6 484 6 596 4 487 6 089 7 494 7 001 Sugar and honey 1 133 1 283 1 364 1 227 1 265 1 263 Meat and meat preparations 5 836 5 591 5 656 5 420 5 928 5 980 Wool and sheepskins 5 077 4 426 3 545 3 600 3 570 3 840 Other rural a 15 222 16 471 14 915 14 886 14 464 14 932 Total 33 752 34 367 29 967 31 222 32 722 33 017 Mineral resources Coal, coke and briquettes 11 175 11 451 11 988 12 650 13 181 13 904 Other mineral fuels 12 005 11 801 11 050 9 564 10 333 12 838 Metalliferous ores and other minerals bs 13 853 14 370 15 311 15 840 18 872 19 846 Gold 5 884 5 470 5 718 6 084 5 549 6 004 Other metals cs 10 093 10 641 10 944 10 719 10 040 10 612 Total s 53 011 53 733 55 011 54 856 57 975 63 203 Total commodities sector s 86 763 88 100 84 977 86 078 90 697 96 220 Other merchandise s 29 031 28 018 30 823 31 153 na na Total merchandise s 115 794 116 118 115 800 117 231 na na Services 35 468 33 141 32 492 33 368 na na Total goods and services 151 061 149 230 148 293 150 598 na na

a Includes other farm, forest and fisheries products. Includes exports of wine and of paper and paperboard, which are not included in this balance of payments item by the ABS. b Includes diamonds, which are not included in this balance of payments item by the ABS. c Includes ABARE estimates for steel and nickel which were confidentialised by the ABS. d For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 2002- 03. s ABARE estimate. f ABARE forecast. na Not available. Sources: ABS, Balance of Payments, Australia, cat. no. 5302.0, Canberra; ABARE.

236 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – exports 7 Quarterly exports summary Balance of payments basis

2003-04 2004-05 2005-06

June Sep. Dec. Mar. June Sep. p Dec. s Mar. f June f $m $m $m $m $m $m $m $m $m At current prices Rural Cereal grains and products 1 754 1 617 1 237 1 424 1 356 1 188 1 235 1 403 1 430 Sugar and honey 179 547 451 225 200 537 402 200 178 Meat and meat preparations 1 710 1 707 1 391 1 737 1 737 1 458 1 458 1 458 1 458 Wool and sheepskins 795 696 694 567 562 607 782 674 645 Other rural a 3 899 3 858 3 663 3 470 4 005 3 997 4 203 3 992 4 360 Total 8 337 8 425 7 436 7 423 7 860 7 787 8 079 7 728 8 071 Mineral resources Coal, coke and briquettes 3 432 3 753 3 852 3 531 6 136 6 357 6 592 7 114 5 956 Other mineral fuels 1 967 2 747 2 839 2 934 3 033 2 867 3 153 3 164 3 110 Metalliferous ores and other minerals bs 4 333 4 500 4 477 4 539 5 391 5 514 5 624 5 999 6 079 Gold 1 404 1 402 1 580 1 349 1 393 1 423 1 397 1 526 1 606 Other metals cs 3 116 3 242 3 156 3 241 3 199 3 150 3 144 3 154 3 232 Total s 14 252 15 644 15 903 15 595 19 151 19 311 19 910 20 957 19 982 Total commodities sector s 22 589 24 069 23 339 23 017 27 011 27 098 27 989 28 685 28 053 Other merchandise s 7 489 7 069 na na na na na na na Total merchandise 30 078 31 138 na na na na na na na Services 7 737 8 709 na na na na na na na Total goods and services 37 815 39 847 na na na na na na na Chain volume measures d Rural Cereal grains and products 2 064 1 960 1 797 1 719 2 019 1 647 1 619 1 857 1 879 Sugar and honey 200 526 383 183 173 517 387 185 175 Meat and meat preparations 1 502 1 468 1 528 1 466 1 466 1 497 1 488 1 465 1 530 Wool and sheepskins 1 079 975 906 850 838 938 938 887 1 077 Other rural a 4 057 3 636 3 440 3 449 3 940 3 313 3 848 3 937 3 835 Total 8 902 8 565 8 054 7 667 8 435 7 912 8 280 8 330 8 495 Mineral resources Coal, coke and briquettes 3 347 3 260 3 306 3 261 3 353 3 346 3 392 3 564 3 603 Other mineral fuels 1 998 2 429 2 427 2 615 2 862 3 168 3 205 3 264 3 201 Metalliferous ores and other minerals bs 4 077 4 513 4 712 4 818 4 829 4 776 4 848 5 102 5 119 Gold 1 430 1 411 1 381 1 357 1 401 1 449 1 485 1 524 1 546 Other metals cs 2 524 2 430 2 454 2 567 2 590 2 601 2 665 2 627 2 720 Total s 13 376 14 043 14 281 14 617 15 034 15 339 15 595 16 081 16 188 Total commodities sector s 22 278 22 608 22 335 22 284 23 470 23 251 23 875 24 411 24 683 Other merchandise s 8 146 7 476 na na na na na na na Total merchandise 30 424 30 084 na na na na na na na Services 7 563 8 393 na na na na na na na Total goods and services 37 987 38 477 na na na na na na na a Includes other farm, forest and fisheries products. Includes exports of wine and of paper and paperboard, which are not included in this balance of payments item by the ABS. b Includes diamonds, which are not included in this balance of payments item by the ABS. c Includes ABARE estimates for steel and nickel which were confidentialised by the ABS. d For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 2002- 03. p Preliminary. s ABARE estimate. f ABARE forecast. na Not available. Sources: ABS, Balance of Payments, Australia, cat. no. 5302.0, Canberra; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 237 statistics – sectors

8 Industry gross value added a

Unit 1999-00 2000-01 2001-02 2002-03 2003-04 Agriculture, forestry and fishing Agriculture $m 24 033 25 059 25 943 19 369 24 882 Forestry and fishing $m 1 712 1 797 1 791 1 794 1 921 Total $m 25 782 26 893 27 773 21 163 26 802 Mining Mining (excludes services to mining) $m 29 943 31 895 31 757 31 269 30 205 Services to mining $m 2 345 2 769 2 800 3 003 2 826 Total $m 32 267 34 669 34 562 34 271 33 029 Manufacturing Food, beverage and tobacco $m 15 280 15 953 15 813 15 892 15 835 Textile, clothing, footwear and leather $m 3 521 3 250 2 837 2 550 2 605 Wood and paper products $m 5 065 4 940 5 225 5 333 5 519 Printing, publishing and recorded media $m 8 636 9 100 9 238 9 170 9 361 Petroleum, coal, chemical, etc. $m 12 726 13 023 13 426 14 579 14 271 Non–metallic mineral products $m 3 536 3 627 3 902 4 189 4 334 Metal products $m 10 031 9 985 10 591 10 653 10 856 Machinery and equipment $m 14 578 15 307 15 631 16 495 16 798 Other manufacturing $m 2 856 2 970 3 395 3 599 3 796 Total $m 76 008 77 991 80 022 82 462 83 376 Building and construction $m 40 788 35 143 39 312 45 667 48 680 Electricity, gas and water supply $m 16 652 16 910 16 806 16 961 17 117 Taxes less subsidies on products $m 60 997 59 709 63 738 67 137 69 450 Statistical discrepancy $m 0 1 0 1 –1 106 Gross domestic product $m 692 890 707 140 734 575 758 147 788 629

a Chain volume measures, reference year is 2002-03. Source: ABS, National Income, Expenditure and Product, cat. no. 5206.0, Canberra.

238 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – production, employment 9 Volume of Australian production indexes

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Farm Grains and oilseeds 118.0 130.1 59.1 127.6 104.1 114.7 Total crops 116.5 121.6 83.1 118.3 111.2 114.6 Livestock slaughterings 110.7 108.0 109.8 104.2 107.3 109.3 Total livestock 109.1 107.7 104.4 100.3 102.3 104.6 Total farm sector 113.2 115.1 93.6 109.7 107.1 110.0 Forestry a Broadleaved 117.5 107.8 119.6 112.1 121.5 122.5 Coniferous 115.3 127.0 136.2 128.9 104.4 109.8 Total forestry 116.4 116.9 127.4 120.1 111.4 114.9 Mine b Energy minerals 114.1 115.2 112.6 107.5 109.4 120.4 Metals and other minerals 112.8 111.7 115.7 115.5 125.7 138.3 Total minerals 113.6 113.7 114.1 111.5 117.5 129.4 a Volume of roundwood equivalent removed from forests. b Uranium is included with energy. s ABARE estimate. f ABARE forecast. Note: ABARE revised the method for calculating production indexes in October 1999. The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers' ideal index with a reference year of 1997-98 = 100. Sources: Australian Bureau of Statistics; ABARE.

10 Employment a

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 p ’000 ’000 ’000 ’000 ’000 ’000 Agriculture, forestry and fishing Agriculture 366 385 373 386 326 320 Forestry and logging 14 9 13 13 10 12 Commercial fishing 14 16 19 18 17 16 Total (including services) 422 440 434 444 377 374 Mining Coal 18 20 18 20 21 21 Oil and gas extraction 6 4 6 4 4 6 Metal ore 31 29 30 34 35 38 Other mining (including services) 25 25 24 23 26 27 Total 80 78 77 80 86 92 Manufacturing Food, beverages and tobacco 176 177 179 182 183 171 Textiles, clothing, footwear and leather 93 86 84 74 73 65 Wood and paper product 65 68 70 70 74 78 Printing, publishing and recorded media 110 114 118 105 115 110 Petroleum, coal and chemical product 103 110 107 107 112 100 Non–metallic mineral product 48 49 42 43 47 44 Metal product 172 178 175 155 164 157 Other manufacturing 312 318 319 324 323 309 Total 1 080 1 099 1 094 1 060 1 091 1 033 Other industries 7 060 7 218 7 367 7 512 7 769 7 933 Total 8 641 8 835 8 972 9 096 9 323 9 431

a Average employment over four quarters. p Preliminary. Source: ABS, The Labour Force, Australia, cat. no. 6291.0, Canberra. australiancommodities • vol. 12 no. 1 • march quarter 2005 239 statistics – business, banks 11 Business income

1999-00 2000-01 2001-02 2002-03 2003-04 $m $m $m $m $m Farm Net value of farm production 4 831 7 451 10 516 4 195 6 393 Company profits in selected industries a Mining 10 451 14 801 14 895 15 092 12 133 Manufacturing Food, beverages and tobacco 2 716 3 146 4 820 4 074 na Textiles, clothing and footwear 242 143 439 539 na Wood and paper products 988 870 1 314 1 754 na Printing, publishing and recorded media 1 628 1 292 2 006 2 556 na Petroleum, coal and chemical product 2 254 1 536 1 878 2 861 na Non–metallic mineral product 1 158 675 994 1 358 na Metal product 1 043 2 139 4 169 4 869 na Machinery and equipment 1 373 1 400 2 433 2 534 na Other manufacturing 174 74 692 723 na Total 11 576 11 275 18 744 21 268 20 797 Other industries (including services) 15 898 18 726 27 895 40 289 50 922 Total (including services) 37 925 44 802 61 534 76 649 83 852

a Company profits before income tax. na Not available. Sources: ABS, National Income and Expenditure and Product, cat. no. 5206.0, Canberra; ABS, Company Profits, Australia, cat. no. 5651.0, Canberra; ABS, Business Indicators, cat. no. 5676.0, Canberra; ABS, Australian Industry , cat. no. 8155.0, Canberra; ABARE.

12 All banks lending to business a

2002-03 2003-04 2004-05 Sep. Dec. Mar. June Sep. Dec. Mar June Sep. $b $b $b $b $b $b $b $b $b Agriculture, fishing and forestry 26.8 27.0 27.2 29.0 29.9 31.6 31.8 34.1 35.4 Mining 7.5 7.9 6.5 6.1 5.7 5.4 5.0 5.2 5.4 Manufacturing 28.3 28.5 29.1 29.2 29.9 31.0 31.4 31.8 31.6 Construction 13.0 14.2 13.4 14.4 14.9 16.0 16.4 17.7 17.6 Wholesale, retail trade, transport and storage 40.2 40.6 41.9 43.9 44.4 47.3 47.5 49.3 49.8 Finance and insurance 46.9 43.2 43.9 42.7 44.5 41.3 44.7 46.9 51.0 Other 126.8 131.1 131.9 133.2 138.1 147.1 149.6 153.9 157.9 Total 289.5 292.6 293.9 298.6 307.5 319.7 326.5 338.9 348.7

a Includes variable and fixed interest rate loans outstanding plus bank bills outstanding. Source: Reserve Bank of Australia, Bulletin Statistical Tables, Bank Lending to Business - Selected Statisics D8.

240 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – farm debt

13 Farm indebtedness to fi nancial institutions a

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 $m $m $m $m $m $m All banks b 18 880 21 846 23 663 25 219 27 219 34 116 Other government agencies c 668 677 718 735 773 781 Pastoral and other finance companies 1 093 2 527 2 639 2 691 1 628 3 379 Other farm debt ds 1 852 1 901 1 920 1 967 2 017 2 067 Total farm debt 22 493 26 950 28 941 30 612 31 637 40 343 a The farm sector is defined as enterprises covered by ANZSIC (1993) agricultural categories 011 to 021. Credit outstanding in June of year indicated. b Derived from all banks lending to agriculture, fishing and forestry (table 12) less the fishing and forestry component, which is estimated to be around 6 per cent of that total in 1997. c Includes the government agency business of state banks and advances made under War Service Land Settlement. Prior to 1996 includes loans from the Queensland Industry Development Corporation. From 1996 these loans are included in bank lending. d Includes loans from life insurance companies, lease agreements and indebtedness to hire purchase companies, trade creditors, private lenders and small financial institutions. s ABARE estimate. Sources: Reserve Bank of Australia, Estimated Rural Debt to Specified Lenders, Bulletin Statistical Table D7; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 241 statistics – capital expenditure 14 Capital expenditure of private enterprises

1999-00 2000-01 2001-02 2002-03 2003-04 $m $m $m $m $m At current prices Gross fixed capital formation a All sectors 150 610 145 301 160 901 184 565 198 905 New capital expenditure Mining b 5 468 5 491 7 250 8 766 9 282 Manufacturing Food, beverages and tobacco 2 321 2 206 2 205 2 614 2 274 Textiles, clothing, footwear and leather 212 256 213 230 200 Wood and paper products 1 019 632 593 709 912 Printing, publishing and recorded media 819 735 687 553 538 Petroleum, coal and chemical product 1 857 1 466 1 284 1 608 2 090 Non–metallic mineral products 488 543 554 965 590 Metal products 1 577 1 254 1 541 2 158 2 689 Machinery and equipment 1 617 1 855 1 854 2 180 1 877 Other manufacturing 233 197 251 367 257 Total 10 142 9 144 9 181 11 385 11 423 Total surveyed industries 44 425 42 621 44 380 50 815 51 247 Chain volume measures c Gross fixed capital formation a All sectors 157 957 147 522 162 492 184 565 197 108 New capital expenditure Mining 5 813 5 636 7 291 8 766 9 321 Manufacturing 9 981 8 815 8 824 11 383 12 240 Other selected industries 26 290 26 218 26 763 30 665 33 048 Total surveyed industries 42 135 40 776 42 886 50 815 54 606

a Estimates taken from ABS national accounts, which include taxation based statistics. b Includes industries covered by Division B (for example, the metallic and nonmetallic minerals, coal, oil and gas, construction materials and other nonmetallic minerals industries) as defined in the 1993 edition of the Australian New Zealand Standard Industrial Classification (ANZSIC). c Chain volume measures. Reference year is 2002-03. Sources: Australian Bureau of Statistics; ABARE.

242 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – mineral exploration 15 Private mineral exploration expenditure

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 $m $m $m $m $m $m At current prices Energy Petroleum Onshore 182.4 110.1 176.9 164.6 191.3 230.5 Offshore 685.4 613.2 866.9 718.1 803.8 713.6 Total 867.8 723.3 1043.8 882.7 995.1 944.1 Coal 39.9 35.3 41.2 50.4 77.8 81.5 Uranium 15.5 11.6 8.4 8.7 6.9 10.6 Total 923.2 770.2 1 093.4 941.8 1 079.8 1 036.2 Metals and other minerals a Gold 486.2 374.8 370.1 331.3 378.4 397.1 Iron ore 41.6 29.7 23.4 25.2 44.5 63.7 Base metals, silver and cobalt b 176.9 156.8 165.3 132.9 142.1 151.9 Mineral sands 19.0 21.5 23.6 33.2 27.3 23.8 Diamonds 41.0 29.8 31.8 35.4 29.9 25.9 Other 17.7 16.9 19.5 23.6 25.9 38.8 Total metals and other minerals a 782.4 629.5 633.7 581.6 648.1 701.2 Total expenditure 1 705.9 1 399.4 1 727.4 1 522.8 1 728.0 1 731.0

a Uranium is included with energy. b Base metals include copper, lead, nickel and zinc. Sources: Australian Bureau of Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 243 statistics – world prices 16 Annual world indicator prices of selected commodities

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Crops Wheat a US$/t 129 128 160 160 151 155 Corn b US$/t 87 90 107 115 97 93 Rice c US$/t 184 192 200 221 229 212 Soybeans d US$/t 201 201 245 321 261 271 Cotton e USc/lb 57.2 41.8 55.4 68.3 50.8 57.0 Sugar g USc/lb 9.8 7.6 8.0 7.9 9.7 8.2 Livestock products Beef h USc/kg 196 227 202 243 280 239 Wool i Ac/kg 764 841 1 049 820 750 740 Butter j US$/t 1 293 1 152 1 186 1 621 2 170 1 700 Cheese j US$/t 2 070 2 000 1 775 2 358 2 818 2 800 Skim milk powder j US$/t 2 167 1 619 1 587 1 862 2 214 2 100 Energy Crude oil Dubai US$/bbl 25.76 21.83 25.90 29.06 36.76 31.13 West Texas intermediate US$/bbl 29.45 23.85 29.92 33.76 44.81 37.51 Brent US$/bbl 27.78 22.79 27.82 31.24 40.72 34.34 World trade weighted average k US$/bbl 26.82 21.59 26.26 29.33 36.88 31.26 Coal l Thermal US$/t 25.73 30.14 25.86 29.45 44.01 45.85 Metallurgical US$/t 36.96 40.75 41.85 43.13 66.43 105.78

Uranium (U3O8) m US$/lb 7.88 9.59 10.22 14.90 21.20 25.09 Minerals and metals n Aluminium US$/t 1 538 1 360 1 361 1 568 1 744 1 600 Copper US$/t 1 787 1 508 1 595 2 333 2 913 2 300 Gold o US$/oz 269 288 334 389 419 382 Iron ore (negotiated) q USc/dltu 27.79 28.98 28.28 30.83 36.57 na Lead US$/t 476 474 445 700 819 770 Manganese (negotiated) r US$/mtu 2.03 2.11 1.97 2.15 2.55 na Nickel US$/t 7 240 5 919 7 673 12 264 14 224 13 388 Silver t USc/oz 467 442 461 579 697 674 Tin US$/t 5 406 4 128 4 371 6 617 8 632 8 058 Zinc US$/t 1 050 791 775 962 1 140 1 209

a US hard red winter wheat, fob Gulf. b US no. 2 yellow corn, delivered US Gulf. c Prices previously reported by the Thailand Board of Trade are no longer available. From September 1998 the price quoted is the USDA sourced nominal quote for Thai white rice, 100 per cent, Grade B, fob, Bangkok (August–July basis). d US cif Rotterdam (October–September basis). e Cotlook 'A' index. g Average of monthly averages of New York no.11 spot price; basis: fob Caribbean ports (October-September basis). h US cif price. i Australian Wool Exchange eastern market indicator. j Average of traded prices (excluding subsidised sales). k World trade weighted average price compiled by the US Department of Energy. Official sales prices or estimated contract terms for major internationally traded crude oils. l Average export unit value, fob Australia. m Average of weekly restricted spot prices over the period, published by Ux Consulting. n Average LME spot price unless otherwise stated. o London gold fix, London Bullion Market Association. q Australian hematite fines to Japan (fob) for Japanese fiscal year commencing 1 April. r Japanese fiscal year commencing 1 April. t London silver fix, London Bullion Market Association. Prior to March 2001, Handy and Harman, commercial bar price used. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Meat and Livestock Australia; Australian Wool Exchange; Cotlook Ltd; Food and Agriculture Organisation; General Agreement on Tariffs and Trade; International Energy Agency; International Wheat Council; ISTA Mielke and Co.; London Bullion Market Association; The London Metal Exchange Ltd; New York Board of Trade; Reuters Ltd; Ux Consulting Company; Platts Oilgram; US Department of Agriculture; US Department of Energy; World Bureau of Metal Statistics; ABARE.

244 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – world prices 17 Quarterly world indicator prices of selected commodities

2003-04 2004-05 2005-06 Unit June Sep Dec Mar June s Sep f Dec f Mar f June f Crops Wheat a US$/t 165 151 159 151 144 152 157 155 158 Corn b US$/t 128 102 94 95 96 90 90 95 96 Rice c US$/t 240 237 232 228 227 215 212 212 212 Soybeans d US$/t 314 268 258 257 242 240 256 271 258 Cotton e USc/lb 68.0 54.2 48.7 49.8 50.7 52.3 56.0 58.3 61.3 Sugar g USc/lb 8.2 9.2 8.9 8.5 8.0 8.2 10.6 10.4 10.3 Livestock products Beef h USc/kg 266 298 288 275 260 247 242 236 231 Wool i Ac/kg 793 777 734 740 747 745 740 740 735 Butter j US$/t 1 842 2 017 2 267 2 200 2 195 2 000 1 800 1 600 1 400 Cheese j US$/t 2 700 2 553 2 842 2 950 2 925 2 800 2 800 2 800 2 800 Skim milk powder j US$/t 2 050 2 167 2 250 2 240 2 200 2 100 2 100 2 100 2 100 Energy Crude oil Dubai US$/bbl 32.33 36.53 38.53 37.05 34.94 32.72 31.80 30.48 29.54 West Texas intermediate US$/bbl 38.35 43.91 48.60 44.61 42.14 39.40 38.32 36.72 35.60 Brent US$/bbl 34.71 41.61 42.15 40.64 38.49 36.25 34.96 33.56 32.57 World trade weighted average k US$/bbl 32.78 36.50 38.74 37.17 35.12 32.83 31.93 30.60 29.66 Coal l Thermal US$/t 40.74 47.25 42.34 42.34 44.12 48.25 47.34 47.34 40.48 Metallurgical US$/t 51.44 51.74 52.29 51.54 110.16 110.76 110.40 110.23 91.71

Uranium (U3O8) m US$/lb 17.98 19.25 20.48 21.80 23.27 24.85 25.17 25.17 25.17 Minerals and metals n Aluminium US$/t 1 678 1 709 1 828 1 740 1 700 1 650 1 610 1 590 1 550 Copper US$/t 2 790 2 850 3 094 3 075 2 633 2 433 2 267 2 250 2 250 Gold o US$/oz 394 401 434 425 415 400 376 375 375 Lead US$/t 786 914 954 947 890 810 780 780 773 Nickel US$/t 12 555 14 002 14 094 14 400 14 400 13 950 13 450 13 200 12 950 Silver q USc/oz 625 645 723 645 623 600 563 578 570 Tin US$/t 9 134 9 028 9 064 8 002 8 433 8 300 8 300 8 133 7 800 Zinc US$/t 1 046 980 1 113 1 235 1 230 1 230 1 225 1 200 1 180

a US hard red winter wheat, fob Gulf. b US no. 2 yellow corn, delivered US Gulf. c Prices previously reported by the Thailand Board of Trade are no longer available. From September 1998 the price quoted is the USDA sourced nominal quote for Thai white rice, 100 per cent, Grade B, fob, Bangkok. d US cif Rotterdam. e Cotlook ’A’ index. g Average of monthly averages of New York no.11 spot price; basis: fob Caribbean ports. h US cif price. i Australian Wool Exchange eastern market indicator. j Average of traded prices (excluding subsidised sales). k World trade weighted average price compiled by the US Department of Energy. l Average export unit value, fob Australia. m Average of weekly restricted spot prices over the period, published by Ux Consulting. n Average LME spot price unless otherwise stated. o London gold fix, London Bullion Market Association. q London silver fix, London Bullion Market Association. Prior to March 2001, Handy and Harman, commercial bar price used. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Meat and Livestock Australia; Australian Wool Exchange; Cotlook Ltd; Food and Agriculture Organisation; General Agreement on Tariffs and Trade; International Energy Agency; International Wheat Council; ISTA Mielke and Co.; Reuters Ltd; London Bullion Market Association; The London Metal Exchange Ltd; New York Board of Trade; Ux Consulting Co.; Platts Oilgram; US Department of Agriculture; US Department of Energy; World Bureau of Metal Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 245 statistics – unit values

18 Australian gross unit values or prices of farm products a

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Crops b Grains and oilseeds Winter crops Barley $/t 199 208 255 185 172 175 Canola $/t 307 384 446 405 346 383 Field peas $/t 219 288 344 243 233 245 Lupins $/t 205 250 292 225 207 228 Oats $/t 132 175 219 150 147 150 Triticale $/t 150 195 314 175 170 165 Wheat $/t 232 262 266 218 206 194 Summer crops Maize $/t 188 197 234 198 192 199 Rice $/t 213 274 348 303 364 245 Sorghum $/t 144 173 205 180 161 164 Soybeans c $/t 377 353 384 369 316 303 Sunflowerseed c $/t 360 390 400 392 353 335 Industrial crops Cotton lint d c/kg 256 194 222 225 165 190 Sugar cane (cut for crushing) $/t 23 31 28 23 25 23 Wine grapes $/t 650 659 602 574 522 500 Livestock for slaughter Beef e c/kg 266 306 256 290 324 281 – yearling e c/kg 289 335 289 322 318 295 – ox e c/kg 273 314 284 307 322 288 – cow e c/kg 249 285 227 260 273 242 Lamb eg c/kg 196 300 338 372 355 340 Mutton e c/kg 101 180 167 199 195 175 Pig e c/kg 258 281 244 235 258 249 Poultry h c/kg 354 380 385 394 399 405 Livestock products Wool i c/kg 764 841 1 049 820 750 740 Milk j c/L 29.0 33.0 27.1 27.9 29.0 31.3

a Average gross unit value across all grades in principal markets, unless otherwise indicated. Includes the cost of containers, commission and other expenses incurred in getting the commodities to their principal markets. These expenses are significant. b Average unit gross value relates to returns received from crops harvested in that year, regardless of when sales take place, unless otherwise indicated. c Price paid by crusher. d Australian base price for sales in the financial year indicated. e Average saleyard price (dressed weight). g Lamb saleyard weight indicator 18–20 kg. h Retail, frozen. i Australian Wool Exchange eastern market indicator. j Weighted average farmgate price. s ABARE estimate. f ABARE forecast. Note: Prices used in these calculation exclude GST. Sources: Australian Bureau of Statistics; ABARE.

246 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – world

19 World production, consumption, stocks and trade for selected commodities a

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Farm Grains Wheat Production Mt 582 582 567 554 621 599 Consumption Mt 584 586 600 593 608 602 Closing stocks Mt 202 197 164 130 142 139 Exports b Mt 102 107 105 102 101 101 Coarse grains Production Mt 882 892 872 910 997 931 Consumption Mt 873 904 901 943 969 955 Closing stocks Mt 142 195 166 132 160 136 Exports b Mt 108 103 104 102 99 102 Rice Production c Mt 398 399 378 389 397 394 Consumption c Mt 392 409 405 412 411 407 Closing stocks c Mt 151 139 110 86 68 64 Exports bd Mt 24 27 29 26 25 26 Oilseeds and vegetable oils Oilseeds Production Mt 314 325 329 336 390 348 Consumption Mt 312 324 323 336 365 350 Closing stocks Mt 19 20 26 27 54 52 Exports Mt 72 71 73 64 66 68 Vegetable oils Production Mt 90 93 95 101 107 94 Consumption Mt 89 92 95 100 105 105 Closing stocks Mt 9 8 7 7 7 7 Exports Mt 31 34 36 37 34 35 Vegetable protein meals Production Mt 175 183 185 191 204 195 Consumption Mt 177 183 185 191 201 199 Closing stocks Mt 5 6 5 5 5 5 Exports Mt 48 52 53 58 55 58 Industrial crops Cotton Production Mt 19 22 19 21 25 23 Consumption Mt 20 21 21 21 23 23 Closing stocks Mt 10 11 8 8 10 10 Exports Mt 6 6 7 7 7 7 Sugar Production Mt 131 137 148 144 145 153 Consumption Mt 131 136 142 145 148 151 Closing stocks Mt 61 60 66 65 62 63 Exports Mt 39 43 42 41 41 41 Continued

australiancommodities • vol. 12 no. 1 • march quarter 2005 247 statistics – world

19 World production, consumption, stocks and trade for selected commodities a continued

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Livestock products Meat deg Production Mt 198 205 205 209 212 na Consumption Mt 195 201 202 205 210 na Closing stocks Mt 5.4 9.2 12.7 16.4 13.7 na Exports b Mt 16.6 18.0 18.6 18.0 18.8 na Wool h Production kt 1 361 1 308 1 274 1 231 1 268 1 330 Consumption di kt 1 383 1 311 1 256 1 214 1 273 1 317 Closing stocks j kt 109 106 124 140 135 149 Exports k kt 914 770 567 533 547 576 Butter dg Production kt 5 662 5 747 5 759 5 812 5 733 5 733 Consumption kt 5 402 5 429 5 511 5 651 5 262 5 262 Closing stocks kt 460 731 733 784 485 485 Exports kt 630 613 611 635 660 593 Skim milk powder gl Production d kt 3 294 3 565 3 540 3 020 2 971 2 971 Consumption d kt 2 916 3 027 3 030 3 234 2 556 2 556 Closing stocks d kt 777 1 129 1 044 949 775 775 Exports kt 981 966 954 1 029 1 110 957 Energy d Crude oil Production World m mbd 76.7 76.6 79.6 83.0 84.5 86.1 OPEC n mbd 30.1 28.6 30.7 33.0 33.5 34.3 Consumption m mbd 76.8 77.9 79.8 82.4 84.1 85.8 Closing stocks OECD o days 54.0 50.0 50.0 51.0 na na Coal d Production Hard coal q Mt 3 794 3 910 4 038 4 102 4 168 4 234 Brown coal Mt 885 882 886 893 901 908 Exports Metallurgical coal Mt 196 192 199 208 215 225 Thermal coal Mt 465 477 520 534 544 555

Uranium (U3O8) d Production rs kt 43.5 36.5 42.1 47.4 49.5 51.3 Consumption kt 75.0 77.5 77.8 79.5 80.1 82.4 Metals d Bauxite production kt 137 647 150 463 159 332 171 443 182 073 190 266 Alumina production kt 53 757 56 123 59 178 63 948 67 913 70 969 Aluminium Production kt 24 541 26 145 27 850 29 736 31 580 33 001 Consumption kt 23 546 24 925 27 425 29 893 31 089 32 301 Closing stocks t kt 2 561 2 901 3 144 3 136 3 527 4 226 Exports kt 15 160 15 872 15 407 16 023 16 617 16 980 Continued

248 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – world

19 World production, consumption, stocks and trade for selected commodities a continued

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Iron and steel d Production Iron ore Mt 1 041 1 103 1 196 1 296 1 313 1 366 Pig iron Mt 548 583 636 688 714 743 Crude steel Mt 850 904 968 1 035 1 058 1 098 Seaborne iron ore trade Mt 454 484 529 591 637 668 Gold d Mine production t 2 621 2 590 2 591 2 480 2 571 2 637 Supply t 3 920 3 972 4 140 3 850 3 821 3 877 Fabrication consumption u t 3 522 3 172 3 049 3 179 3 130 3 191 Base metals d Copper Production v kt 15 686 15 381 15 252 15 660 16 890 17 585 Consumption kt 14 698 15 065 15 405 16 380 16 880 17 330 Closing stocks w kt 1 636 1 711 1 414 698 724 1 010 Lead Production v kt 6 579 6 663 6 718 6 744 7 210 7 520 Consumption kt 6 499 6 655 6 794 6 895 7 047 7 220 Closing stocks w kt 436 483 386 310 328 550 Nickel Production v kt 1 160 1 183 1 201 1 240 1 276 1 321 Consumption kt 1 104 1 177 1 233 1 254 1 283 1 317 Closing stocks w kt 100 97 98 95 88 92 Tin Production v kt 270 262 270 282 300 320 Consumption kt 281 274 309 330 335 338 Closing stocks w kt 52 49 38 33 28 25 Zinc Production v kt 9 227 9 712 9 863 10 146 10 500 11 150 Consumption kt 8 926 9 397 9 737 10 393 10 790 11 140 Closing stocks w kt 946 1 095 1 191 1 020 750 800 Mineral sands d Production Ilmenite x kt 9 623 9 739 9 546 9 440 9 858 10 911 Titaniferous slag kt 2 225 2 049 1 987 2 130 2 160 2 140 Rutile concentrate kt 418 435 365 372 442 591 Zircon concentrate kt 1 090 1 128 1 136 1 100 1 220 1 403

a Some figures are not based on precise or complete analyses. b Includes intra–EU trade. c Milled equivalent. d On a calendar year basis, e.g. 1991-92 = 1992. e Beef and veal, mutton, lamb, goat, pig and poultry meat. g Selected countries. h Clean equivalent. i Virgin wool at the spinning stage in 65 countries. j Held by marketing bodies and on-farm in five major exporting countries. k Five major exporting countries. l Nonfat dry milk. m Includes crude oil, marine bunkers, refinery fuel, nonconventional oil and natural gas liquids. 1 million litres a year equals about 17.2 barrels a day. n Includes OPEC natural gas liquids. o Industry stocks in OECD countries at the start of the quarter. q Includes anthracite and bituminous coal, and for the United States, Australia and New Zealand, sub-bituminous coal. r World production data has been revised to exclude reprocessed uranium. t LME and producer stocks. u Includes jewellery consumption. v Primary refined metal. w Commercial stocks excluding former and current centrally planned economies. x Excludes some small producers and large tonnages produced from ilmenite–magnetite ore in the Commonwealth of Independent States. s ABARE estimate. f ABARE forecast. na Not available. Sources: Australian Bureau of Statistics; Meat and Livestock Australia; Commodities Research Unit; Commonwealth Secretariat; Consolidated Gold Fields; Department of Agriculture, Fisheries and Forestry Australia; Economic Commission for Europe; Fearnleys; Food and Agriculture Organisation; Gold Fields Mineral Services; International Atomic Energy Agency; International Energy Agency; International Iron and Steel Institute; International Lead–Zinc Study Group; International Nickel Study Group; International Sugar Organization; International Wheat Council; ISTA Mielke and Co.; Metallgesellschaft A.G.; Ministry of Agriculture, Forestry and Fisheries (Japan); New Zealand Dairy Board; New Zealand Wool Board; UNCTAD Trust Fund on Iron Ore; United Nations; Uruguayan Association of Wool Exporters; US Department of Agriculture; World Bureau of Metal Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 249 statistics – Australia

20 Australian commodity production

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Crops Grains and oilseeds Winter crops Barley kt 6 743 8 280 3 865 8 728 6 454 7 272 Canola kt 1 775 1 756 871 1 622 1 496 1 403 Chickpeas kt 162 258 136 178 114 189 Field peas kt 456 512 178 407 311 401 Lupins kt 1 055 1 215 726 953 758 1 160 Oats kt 1 050 1 434 957 1 520 1 057 1 180 Triticale kt 840 860 269 675 615 635 Wheat kt 22 108 24 299 10 132 25 700 20 376 22 555 Summer crops Cottonseed s kt 1 140 1 054 546 494 779 859 Maize kt 345 457 309 392 358 374 Rice kt 1 643 1 192 438 535 430 515 Sorghum kt 1 935 2 021 1 465 1 851 2 098 2 088 Soybeans kt 49 63 18 74 99 65 Sunflowerseed kt 77 70 25 58 69 58 Other oilseeds a kt 53 48 72 75 81 81 Total grains and oilseeds kt 39 432 43 518 20 006 43 261 35 096 38 835 Industrial crops Cotton lint kt 819 703 387 349 551 608 Sugar cane (cut for crushing) kt 28 117 31 424 36 995 36 741 37 515 37 812 Sugar (tonnes actual) kt 4 162 4 987 5 461 4 994 5 155 5 224 Wine grapes kt 1 422 1 606 1 411 1 895 1 872 1 879 Livestock slaughterings Number slaughtered Cattle and calves ’000 8 930 8 587 9 228 8 779 9 056 9 133 Cattle exported live b ’000 846 797 968 578 556 583 Sheep ’000 16 628 14 441 13 657 10 421 11 346 11 434 Lambs ’000 18 629 17 400 16 870 16 562 16 977 17 622 Sheep exported live b ’000 5 936 6 443 5 843 3 843 3 535 4 478 Pigs ’000 5 016 5 402 5 742 5 591 5 290 5 123 Meat produced Beef and veal c kt 2 119 2 028 2 073 2 033 2 128 2 155 Lamb c kt 367 348 329 341 350 363 Mutton c kt 348 296 268 220 245 249 Pig meat kt 365 396 420 406 386 375 Poultry meat c kt 657 705 726 732 728 739 Total kt 3 856 3 773 3 816 3 732 3 837 3 882 Continued

250 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – Australia

20 Australian commodity production continued

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Livestock products Wool d kt 657 605 547 523 531 557 Milk e ML 10 545 11 271 10 326 10 075 10 170 10 339 Butter g kt 172 178 149 122 130 136 Cheese kt 376 431 368 375 374 374 Casein kt 13 14 13 10 10 13 Skim milk powder h kt 249 243 215 198 211 219 Wholemilk powder kt 205 239 170 168 163 163 Buttermilk powder kt 16 17 16 16 16 16 Forestry Volume of roundwood equivalent removed from forests '000 m3 24 211 24 542 26 717 25 178 23 400 24 100 Fisheries i Tuna j kt 16.1 15.9 14.7 14.4 14.1 14.5 Other fish k kt 122.0 137.3 150.8 163.2 186.1 132.5 Prawns kt 30.1 29.4 26.3 27.1 25.6 26.3 Rock lobster kt 16.8 14.3 17.1 19.7 17.9 15.3 Abalone kt 5.7 5.9 5.2 5.8 5.9 5.9 Scallops kt 9.2 5.6 8.4 9.2 7.2 8.1 Oysters kt 9.6 10.2 11.4 7.6 11.3 10.7 Other molluscs kt 10.9 8.7 9.4 10.6 9.0 9.0 Other crustaceans kt 8.9 8.1 8.0 7.7 8.7 8.7 Energy Coal Black, salable Mt 258.2 272.6 274.9 285.9 298.4 313.6 Black, raw Mt 321.5 344.4 348.9 362.2 378.1 397.0 Brown Mt 65.0 66.7 66.8 67.3 67.5 67.8 Petroleum Crude oil and condensate ML 38 705 36 100 33 321 27 876 26 695 32 901 Petroleum products l ML 47 690 46 677 46 723 43 486 44 005 44 193 Natural gas m Gm3 34.3 35.8 36.8 37.0 43.7 47.7 LPG (naturally occurring) ML 4 056 4 647 4 681 4 639 4 756 4 851

Uranium (U3O8) t 9 549 7 964 9 263 9 538 11 066 11 156

Metalliferous minerals and metals n Aluminium Bauxite Mt 54.6 53.9 54.5 56.3 58.2 63.3 Alumina kt 16 098 16 417 16 413 16 690 17 077 18 655 Aluminium (ingot metal) kt 1 788 1 809 1 855 1 877 1 937 1 996 Copper Mine production o kt 876 876 883 800 916 953 Refined, primary kt 517 561 537 458 497 499 Gold Mine production o t 295.5 264.6 277.8 266.7 278.7 324.7

Continued

australiancommodities • vol. 12 no. 1 • march quarter 2005 251 statistics – Australia

20 Australian commodity production continued

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Metalliferous minerals and metals (continued) Iron and steel Ore and concentrate q Mt 175.6 185.3 198.1 221.5 244.9 275.3 Iron and steel Mt 8.0 8.3 9.4 9.4 7.8 8.2 Lead Mine production o kt 724 744 695 677 671 716 Refined r kt 215 275 267 247 115 247 Bullion kt 153 201 181 143 73 151 Manganese Ore, metallurgical grade kt 1 948 1 850 2 472 3 062 3 540 3 902 Metal content of ores and concentrates kt 953 994 1 127 1 171 1 727 1 901 Nickel Mine production o kt 195 193 183 185 199 208 Refined, class I s kt 108 120 117 112 120 122 Refined, class II u kt 13 11 13 12 10 10 Total ore processed v kt 242 235 230 233 243 250 Silver Mine production o t 2 021 2 106 1 905 2 056 2 129 2 229 Refined t 532 616 672 619 646 623 Tin Mine production o t 10 016 8 173 6 222 1 533 2 256 7 014 Refined t 1 039 829 708 553 460 489 Titanium Ilmenite concentrate kt 2 092 1 843 2 069 1 910 1 978 2 921 Leucoxene concentrate kt 34 34 43 53 59 110 Rutile concentrate kt 209 207 208 154 175 289 Synthetic rutile s kt 650 612 673 696 736 750 Titanium dioxide pigment s kt 181 186 189 196 203 201 Zinc Mine production o kt 1 483 1 490 1 529 1 355 1 380 1 454 Refined kt 534 572 570 502 481 495 Zircon concentrate kt 377 389 458 448 439 618 Other minerals Diamonds ’000 ct 22 475 30 676 32 006 24 310 32 339 35 310 Salt kt 9 492 9 233 10 438 10 705 10 707 11 000 a Linseed and safflowerseed. b Excludes animals exported for breeding purposes. c In carcass weight and includes carcass equivalent of canned meats. d Greasy equivalent of shorn wool (includes crutching), dead and fellmongered wool and wool exported on skins. e Includes the wholemilk equivalent of farm cream intake. g Includes the butter equivalent of butteroil, butter concentrate, ghee and dry butterfat. h Includes mixed skim and buttermilk powder. i Liveweight. j Tuna captured under joint venture or bilateral agreements or transhipped at sea is included. k Includes an estimated value of aquaculture but excludes inland commercial fisheries. l Includes production from petrochemical plants. m Includes ethane, methane and noncommercial natural gas. n Uranium is included with energy. o Primary production, metal content. q Excludes iron oxide not intended for metal extraction. r Includes lead content of lead alloys from primary sources. t Products with a nickel content of 99 per cent or more. Includes electrolytic nickel, pellets, briquettes and powder. u Products with a nickel content of less than 99 per cent. Includes ferronickel, nickel oxides and oxide sinter. v Includes imported ore for further processing. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Consolidated Gold Fields; Coal Services Pty Limited; International Nickel Study Group; Queensland Government, Department of Natural Resources and Mines; Raw Cotton Marketing Advisory Committee; ABARE.

252 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – value of production

21 Gross value of Australian farm and fi sheries production

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f $m $m $m $m $m $m Crops Grains and oilseeds Winter crops Barley 1 344 1 725 984 1 615 1 110 1 275 Canola 545 675 389 657 517 537 Chickpeas 75 130 65 58 34 62 Field peas 100 147 61 99 72 98 Lupins 217 304 212 215 157 264 Oats 138 251 210 228 155 177 Triticale 126 168 84 118 105 105 Wheat 5 130 6 356 2 692 5 596 4 192 4 369 Summer crops Maize 65 90 72 78 69 74 Rice 350 327 153 162 157 126 Sorghum 279 349 300 334 338 342 Soybeans 18 22 7 27 31 20 Sunflowerseed 28 27 10 23 24 19 Other oilseeds a 33 23 43 43 43 41 Total grains and oilseeds 8 448 10 596 5 281 9 252 7 005 7 511 Industrial crops Cotton lint and cotton seed b 1 862 1 504 817 639 971 1 107 Sugar cane (cut for crushing) 657 989 1 019 848 925 870 Wine grapes 925 1 059 849 1 088 977 940 Total 3 482 3 589 2 726 2 608 2 903 2 945 Other crops Other crops nei c 6 657 6 809 7 042 7 253 7 398 7 208 Total crops 18 587 20 993 15 049 19 113 17 306 17 664 Continued

australiancommodities • vol. 12 no. 1 • march quarter 2005 253 statistics – value of production

21 Gross value of Australian farm and fi sheries production continued

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f $m $m $m $m $m $m Livestock slaughterings Cattle and calves d 5 949 6 617 5 849 6 338 7 776 6 844 Cattle exported live e 482 526 562 314 329 269 Sheep g 368 544 468 455 496 453 Lambs gh 776 1 181 1 161 1 321 1 290 1 283 Sheep exported live 258 392 408 266 238 274 Pigs 822 968 911 878 879 826 Poultry 1 060 1 175 1 281 1 281 1 275 1 313 Total 9 715 11 403 10 640 10 853 12 284 11 263 Livestock products Wool i 2 541 2 713 3 318 2 394 2 475 2 560 Milk j 3 053 3 717 2 795 2 808 2 948 3 241 Other livestock products k 462 501 423 461 478 502 Total 6 057 6 931 6 536 5 663 5 900 6 303 Total farm 34 359 39 327 32 225 35 629 35 490 35 230 Fisheries products l Tuna m 329 323 317 276 206 223 Other fin fish n 490 546 560 550 668 550 Prawns 453 429 360 355 335 346 Rock lobster 481 502 460 406 383 366 Abalone 276 247 216 196 199 197 Scallops 39 23 33 24 20 24 Oysters 55 57 62 72 58 56 Pearls 150 175 150 150 140 160 Other molluscs o 78 42 64 72 60 60 Other crustaceans 67 65 61 61 62 62 Total fish q 2 439 2 430 2 305 2 180 2 148 2 061

a Linseed, safflowerseed and peanuts. b Value delivered to gin. c Mainly fruit, vegetables and fodder crops. d Includes dairy cattle slaughtered. e Excludes animals exported for breeding purposes. g Excludes skin values. h Lamb saleyard indicator weight 18–20 kilograms. i Shorn, dead and fellmongered wool and wool exported on skins. j Milk intake by factories and valued at farmgate. k Mainly egg production, honey and beeswax. l Value to fishermen of product landed in Australia. m Tuna captured under joint venture or bilateral agreements or transhipped at sea is included. n Includes an estimated value of aquaculture. o Includes Northern Territory aquaculture production. q Also includes fish and aquaculture values not elsewhere included. s ABARE estimate. f ABARE forecast. Note: The gross value of production is the value placed on recorded production at the wholesale prices realised in the market place. The point of measurement can vary between commodities. Generally the market place is the metropolitan market in each state and territory. However, where commodities are consumed locally or where they become raw material for a secondary industry, these points are presumed to be the market place. Note: Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE.

254 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – areas, stock

22 Crop areas and livestock numbers

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Crop areas Grains and oilseeds Winter crops Barley ’000 ha 3 454 3 707 3 864 3 800 3 589 3 600 Canola ’000 ha 1 459 1 332 1 298 1 005 1 141 1 080 Chickpeas ’000 ha 262 195 201 152 113 195 Field peas ’000 ha 397 337 380 301 321 372 Lupins ’000 ha 1 180 1 139 1 025 638 634 950 Oats ’000 ha 650 784 911 880 864 760 Triticale ’000 ha 389 409 408 356 338 343 Wheat ’000 ha 12 141 11 529 11 170 12 401 11 991 11 871 Summer crops Maize ’000 ha 74 83 52 79 75 78 Rice ’000 ha 177 150 46 65 50 60 Sorghum ’000 ha 758 823 667 570 659 734 Soybeans ’000 ha 33 32 10 33 34 34 Sunflowerseed ’000 ha 82 79 40 46 53 58 Other oilseeds a ’000 ha 24 14 44 51 55 54 Total grains and oilseeds ’000 ha 21 098 20 627 20 126 20 399 19 941 20 213 Industrial crops Cotton ’000 ha 527 409 224 198 315 341 Sugar cane b ’000 ha 411 417 423 415 420 410 Winegrapes b ’000 ha 111 136 140 146 153 159 Livestock numbers c Cattle Beef million 24.50 24.74 23.62 24.11 24.46 24.80 Dairy million 3.22 3.13 3.05 3.04 3.04 3.05 milking herd d million 2.18 2.12 2.05 2.04 2.04 2.04 Total million 27.72 27.87 26.66 27.15 27.50 27.85 Sheep million 110.9 106.2 99.3 94.5 101.5 106.5 Pigs million 2.75 2.94 2.66 2.53 2.49 2.47

a Linseed and safflowerseed. b Cut for crushing. c At 30 June from 1999-00. Details for establishments with an estimated value of agricultural operations of $5 000 or more. d Cows in milk and dry. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 255 statistics – yields

23 Average farm yields

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Crops Grains and oilseeds Winter crops Barley t/ha 1.95 2.23 1.00 2.30 1.80 2.02 Canola t/ha 1.22 1.32 0.67 1.61 1.31 1.30 Chickpeas t/ha 0.62 1.32 0.68 1.17 1.01 0.97 Field peas t/ha 1.15 1.52 0.47 1.35 0.97 1.08 Lupins t/ha 0.89 1.07 0.71 1.49 1.20 1.22 Oats t/ha 1.62 1.83 1.05 1.73 1.22 1.55 Triticale t/ha 2.16 2.10 0.66 1.89 1.82 1.85 Wheat t/ha 1.82 2.11 0.91 2.07 1.70 1.90 Summer crops Maize t/ha 4.66 5.51 5.94 4.96 4.77 4.79 Rice t/ha 9.28 7.95 9.52 8.23 8.60 8.66 Sorghum t/ha 2.55 2.46 2.20 3.25 3.18 2.84 Soybeans t/ha 1.46 1.95 1.77 2.21 2.92 1.90 Sunflowerseed t/ha 0.94 0.88 0.62 1.26 1.31 1.00 Industrial crops Cotton (lint) t/ha 1.55 1.72 1.72 1.76 1.75 1.78 Sugar cane (for crushing) t/ha 68 75 88 88 89 92 Winegrapes t/ha 12.81 11.81 10.08 12.98 12.23 11.82 Livestock Wool a kg/sheep 4.31 4.38 4.25 4.51 4.48 4.48 Wholemilk L/cow 4 846 5 309 5 037 4 948 4 983 5 058

a Shorn (including lambs). s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; ABARE.

256 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – export volumes

24 Volume of Australian commodity exports

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Farm Grains and oilseeds Winter crops Barley a kt 4 142 4 964 3 462 5 308 5 696 4 207 Canola kt 1 479 1 303 612 1 049 1 200 996 Chickpeas kt 218 278 89 164 135 161 Lupins kt 714 414 199 430 388 651 Oats (unprepared) kt 97 130 177 172 171 172 Peas b kt 387 459 108 209 201 301 Wheat c kt 16 621 16 464 10 851 15 073 17 640 16 165 Summer crops Cottonseed kt 658 594 259 167 296 515 Rice kt 578 534 216 108 156 276 Sorghumkt 691 586 70 289 623 386 Other oilseeds d kt 53 23 16 19 30 37 Total grains and oilseeds kt 25 639 25 750 16 059 22 988 26 538 23 868 Industrial crops Raw cotton e kt 834 718 596 459 402 552 Sugar kt 2 966 3 499 3 975 3 882 4 034 4 071 Wine ML 339 416 508 581 679 778 Meat and live animals for slaughter Beef and veal gh kt 959 902 902 860 938 925 Live cattle i ’000 846 797 968 578 556 583 Lamb g kt 116 118 102 119 125 134 Live sheep i ’000 5 936 6 443 5 843 3 843 3 535 4 478 Mutton g kt 192 166 162 129 148 151 Pig meat g kt 44 59 63 51 49 43 Poultry meat g kt 21 21 23 20 19 20 Canned meat kt 3 6 3 3 3 3 Wool Greasy js kt 479 403 307 321 314 320 Semiprocessed kt (gr.eq.) 281 227 169 127 142 150 Skins kt (gr.eq.) 95 56 28 27 31 43 Total js kt (gr.eq.) 855 686 505 474 487 513 Dairy products Butter k kt 108 108 100 76 84 89 Cheese kt 219 218 208 212 213 215 Casein kt 10 9 8 8 8 9 Skim milk powder kt 203 210 181 155 167 175 Wholemilk powder kt 167 165 142 117 136 135 Continued

australiancommodities • vol. 12 no. 1 • march quarter 2005 257 statistics – export volumes

24 Volume of Australian commodity exports continued

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Forest products Woodchips kt 10 096 9 490 10 935 10 630 11 029 10 800 Fisheries products Tuna l kt 14.8 13.9 12.6 12.8 11.6 12.2 Other fish kt 13.3 17.5 17.4 13.2 15.2 15.3 Prawns m Headless kt 1.0 0.8 0.6 0.3 0.3 0.4 Whole kt 10.8 10.9 8.7 8.9 9.6 9.5 Rock lobster Tails kt 1.0 0.9 1.7 2.1 2.1 1.9 Whole kt 11.9 9.7 9.5 10.9 10.2 8.8 Abalone Fresh, chilled or frozen kt 1.5 2.0 1.7 2.1 2.2 2.3 Prepared or preserved kt 2.0 2.0 2.5 2.8 2.5 2.6 Scallops n kt 2.1 1.5 1.2 1.5 1.1 1.4 Mineral resources Energy Crude oil o ML 24 044 23 936 20 950 17 526 17 174 23 451 LPGML2 785 3 211 3 194 2 916 2 991 3 240 LNG qs Mt 7.530 7.600 7.826 7.914 10.789 12.367 Bunker fuel r ML 2 291 2 267 2 238 2 216 2 229 2 220 Petroleum products ML 4 564 3 409 3 140 2 474 2 194 2 063 Metallurgical coal Mt 105.5 105.8 107.8 111.7 121.3 127.9 Thermal coal Mt 88.0 92.0 99.9 106.7 108.9 116.5

Uranium (U3O8) t 9 722 7 367 9 593 9 099 10 806 11 156 Continued

258 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – export volumes

24 Volume of Australian commodity exports continued

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f Mineral resources (continued) Metalliferous minerals and metals t Aluminium t Alumina kt 12 721 13 091 13 168 13 572 13 899 14 762 Aluminium (ingot metal) kt 1 471 1 490 1 551 1 546 1 591 1 667 Copper Ore and concentrate kt 1 150 1 271 1 193 1 286 1 446 1 526 Refined kt 366 388 359 301 321 319 Gold v t 302 280 282 315 299 321 Iron and steel Iron ore and pellets Mt 157.3 156.1 181.5 194.8 231.8 255.3 Iron and steel w kt 2 931 3 297 3 589 3 818 2 316 2 763 Lead Ores and concentrates kt 433 380 366 417 365 413 Refined kt 199 236 269 231 239 242 Bullion kt 119 153 150 113 164 166 Manganese Ore s kt 1 522 1 660 2 014 2 603 3 197 3 438 Nickel vs kt 208 210 209 214 216 220 Titanium Ilmenite concentrate x kt 1 012 914 1 020 783 706 1 678 Leucoxene concentrate kt 70 60 41 125 91 110 Rutile concentrate kt 190 190 195 146 159 275 Synthetic rutile s kt 443 398 456 470 506 541 Titanium dioxide pigment kt 140 145 147 165 168 158 Refined silver t 450 547 511 415 467 420 Tin v t 9 660 8 026 5 963 143 763 6 524 Zinc Ores and concentrates kt 1 903 1 849 1 913 1 844 1 985 2 033 Refined kt 452 496 486 396 380 386 Zircon concentrate y kt 375 388 445 426 435 612 Other minerals Diamonds ’000 ct 25 513 25 811 32 274 26 667 32 086 35 310 Salt kt 8 636 8 912 10 172 10 285 10 561 10 780 a Includes the grain equivalent of malt. b Includes field peas and cowpeas. c Includes the wheat equivalent of flour. d Includes soybeans, linseed, sunflowerseed, safflowerseed and peanuts. Excludes meals and oils. e Excludes cotton waste and linters. g In shipped weight. Fresh, chilled or frozen. h Includes meat loaf. i Excludes breeding stock. j ABS recorded trade data adjusted for changes in stock levels held overseas by Wool International. k Includes ghee, dry butterfat, butter concentrate and butteroil, dairy spreads, all expressed as butter. l Exports of tuna landed in Australia. Tuna captured under joint venture or bilateral agreements or transhipped at sea is not included. m Excludes volume of other prawn products. n Includes crumbed scallops. o Includes condensate and other refinery feedstock. q 1 million tonnes of LNG equals about 1.31 billion cubic metres of gas. r International ships and aircraft stores. t Uranium is included with energy. u Exports of bauxite are confidential. v Quantities refer to total metallic content of all ores, concentrates, intermediate products and refined metal. w Includes all steel items in ABS, Australian Harmonized Export Commodity Classification , ch. 72, ’Iron and steel’, excluding ferrous waste and scrap and ferroalloys. x Excludes leucoxene and synthetic rutile. y Data from 1991-92 refer to standard grade zircon only. s ABARE estimate. f ABARE forecast. Sources: ABS, International Trade, electronic data service, cat. no. 5464.0, Canberra; Australian Mining Industry Council; Department of Foreign Affairs and Trade; Department of Agriculture, Fisheries and Forestry Australia; International Nickel Study Group; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 259 statistics – export values 25 Value of Australian commodity exports (fob)

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f $m $m $m $m $m $m Farm Grains and oilseeds Winter crops Barley a 1 101 1 278 954 1 239 1 147 885 Canola 544 572 289 453 466 383 Chickpeas 113 167 52 71 55 66 Lupins 166 109 57 129 96 186 Oats 22 37 44 38 35 38 Peas b 112 157 43 56 51 76 Wheat c 4 197 4 612 3 109 3 475 4 101 3 964 Summer crops Cottonseed 137 148 82 62 66 91 Rice 369 286 113 68 103 177 Sorghum 122 109 17 61 114 64 Other oilseeds d 28 20 21 25 27 14 Total grains and oilseeds 6 910 7 495 4 782 5 676 6 263 5 943 Industrial crops Raw cotton e 1 957 1 547 1 152 982 718 976 Sugar 1 111 1 358 1 179 1 029 1 248 1 111 Wine 1 614 1 970 2 386 2 545 2 791 3 082 Total 4 682 4 875 4 717 4 556 4 757 5 169 Other crops 3 145 3 432 3 420 3 096 3 241 3 290 Total crops 14 737 15 801 12 919 13 329 14 261 14 402 Meat and live animals for slaughter Beef and veal 4 007 4 189 3 756 3 793 4 233 3 993 Live cattle g 482 526 562 314 329 269 Lamb 508 626 554 636 632 654 Live sheep g 258 392 408 266 238 274 Mutton 416 490 346 379 458 420 Pig meat 186 265 256 181 187 163 Poultry meat 26 26 22 20 18 20 Canned meat 16 39 17 12 12 12 Total 5 898 6 553 5 922 5 601 6 107 5 805 Wool Greasy h 2 310 2 271 2 266 1 850 1 696 1 808 Semiprocessed 1 289 1 119 991 632 593 613 Skins 298 297 288 296 229 288 Total h 3 897 3 687 3 545 2 778 2 519 2 709 Dairy products Butter 291 297 224 182 243 211 Cheese 950 1 033 800 738 801 836 Casein 89 77 43 48 73 62 Skim milk powder 694 698 406 386 493 510 Wholemilk powder 580 571 380 321 409 404 Other dairy products 442 520 526 503 694 863 Total 3 047 3 196 2 378 2 179 2 713 2 886 Other livestock exports 1 884 1 771 1 977 2 224 2 350 2 385 Total livestock exports 14 725 15 207 13 821 12 781 13 688 13 785 Total farm exports 29 462 31 009 26 740 26 110 27 949 28 186 Continued

260 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – export values 25 Value of Australian commodity exports (fob) continued

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f $m $m $m $m $m $m Forest products Woodchips 744 712 808 794 825 800 Fisheries products Tuna i 332 326 321 273 169 193 Other fish 146 176 164 137 147 157 Prawns j Headless 25 19 12 5 6 8 Whole 258 239 193 151 154 161 Rock lobster Tails 60 65 113 103 101 97 Whole 461 420 344 318 322 306 Abalone Fresh, chilled or frozen 104 123 109 117 123 120 Prepared or preserved 145 140 107 120 127 113 Scallops k 53 34 29 35 24 28 Pearls 419 404 332 310 279 300 Other fisheries products 163 153 121 81 76 121 Total 2 169 2 100 1 844 1 652 1 528 1 606 Total rural exports l Derived as sum of above 33 443 35 123 30 698 29 816 31 462 32 000 On balance of payments basis m 32 653 34 495 29 964 28 811 31 144 31 664 Mineral resources Energy Crude oil n 8 137 6 390 6 402 5 055 6 333 7 412 LPG 830 721 855 647 802 762 LNG 2 671 2 613 2 607 2 174 3 487 3 754 Bunker fuel o 899 760 775 696 849 718 Other petroleum products 1 844 1 234 1 198 918 936 785 Metallurgical coal 6 597 8 038 7 448 6 510 10 863 18 381 Thermal coal 4 204 5 294 4 448 4 372 6 260 7 421

Uranium (U3O8) 497 361 427 364 489 650 Total Derived as sum of above 25 678 25 411 24 161 20 737 30 018 39 883 On balance of payments basis (excl. bunker fuel) 24 308 24 370 23 036 19 767 28 824 38 312 Metalliferous minerals and metals Aluminium Bauxite s 196 136 186 173 185 184 Alumina 4 507 4 114 3 660 3 781 4 059 3 966 Aluminium (ingot metal) 4 229 3 965 3 696 3 441 3 722 3 732 Copper p Ore and concentrate 1 037 1 028 1 048 1 242 1 625 1 414 Refined 1 249 1 131 956 924 1 185 1 018 Continued

australiancommodities • vol. 12 no. 1 • march quarter 2005 261 statistics – export values

25 Value of Australian commodity exports (fob) continued

2000-01 2001-02 2002-03 2003-04 2004-05 s 2005-06 f $m $m $m $m $m $m Mineral resources (continued) Metalliferous minerals and metals (continued) Gold p 4 887 4 950 5 133 5 510 5 377 5 559 Iron and steel Iron ore and pellets 4 903 5 160 5 342 5 277 7 592 11 192 Iron and steel 1 484 1 484 1 855 2 006 2 038 2 088 Lead p Ores and concentrates 318 323 289 387 486 445 Refined 167 211 203 199 303 290 Bullion 151 195 165 142 291 298 Manganese Ore s 261 299 313 383 554 759 Titanium Ilmenite concentrate q 154 138 135 82 75 193 Leucoxene concentrate 21 23 16 33 28 46 Rutile concentrate 161 167 149 95 115 203 Synthetic rutile s 313 296 292 255 299 332 Titanium dioxide pigment 494 460 428 399 422 414 Nickel s 2 308 2 032 2 321 3 093 3 622 3 542 Refined silver 142 163 136 118 133 147 Tin p 76 49 38 1 13 76 Zinc p Ores and concentrates 977 735 670 677 784 823 Refined 905 794 757 557 524 577 Zircon concentrate r 228 272 281 246 289 401 Total 29 170 28 125 28 071 29 021 33 722 37 699 Other minerals Diamonds s 634 512 789 531 650 729 Salt 253 267 233 186 190 196 Other 2 177 2 392 2 529 2 561 2 562 2 372 Total mineral resources exports 57 912 56 707 55 782 53 035 67 142 80 879 Total commodity exports Derived as sum of above 91 355 91 830 86 480 82 851 98 604 112 879 On balance of payments t 89 666 90 441 84 971 81 150 97 436 111 825

a Includes the grain equivalent of malt. b Field peas and cowpeas. c Includes the wheat equivalent of flour. d Includes soybeans, linseed, sunflowerseed, safflowerseed and peanuts. Excludes meals and oils. e Excludes cotton waste and linters. g Excludes breeding stock. h On a balance of payments basis. ABS recorded trade data adjusted for changes in stock levels held overseas by Wool International. i Exports of tuna landed in Australia. Tuna captured under joint venture or bilateral agreements or transhipped at sea is not included. j Other prawn products included in other fisheries products. k Includes crumbed scallops. l Sum of farm, forest and fisheries products. m The value of exports derived as the sum of published detailed items differs from the balance of payments aggregates shown in table 6 for two main reasons: the ABS makes special adjustments to some recorded trade data for balance of payments purposes; and ABARE derives its own estimates, (using non-ABS sources), for several items as footnoted. For more detail on a balance of payments basis, see table 7. n Includes condensate and other refinery feedstock. o International ships and aircraft stores. p Value of metals contained in host mine and smelter products are not available separately and are included in the value of the mineral product or metal in which they are exported. q Excludes leucoxene and synthetic rutile; data from 1991-92 refer to bulk ilmenite only. r Data refers to standard grade zircon only. t As derived in table 6. s ABARE estimate. f ABARE forecast. Sources: ABS, International Trade, electronic data service, cat. no. 5464.0, Canberra; ABARE.

262 australiancommodities • vol. 12 no. 1 • march quarter 2005 statistics – import value 26 Value of Australian imports and exports of selected commodites

2000-01 2001-02 2002-03 2003-04 2004-05 s $m $m $m $m $m Vegetable oilseeds and products a Imports 376 399 401 382 80 Exports 743 784 443 603 828 Dairy products Imports Cheese 149 166 168 158 165 Other dairy products 105 84 92 101 106 Total 254 250 260 259 271 Exports Cheese 950 1 033 800 738 801 Other dairy products 2 097 2 163 1 578 1 440 1 912 Total 3 047 3 196 2 378 2 179 2 713 Edible fisheries products Imports Shellfish b 361 352 360 360 390 Fin fish 509 537 591 545 500 Total 870 889 950 905 890 Exports Shellfish b 1 238 1 160 1 000 909 878 Fin fish c 478 502 485 410 316 Total 1 717 1 662 1 485 1 319 1 194 Forest products Imports Sawnwood 428 443 505 502 360 Wood based panels 152 165 200 191 130 Pulp and paper products 2 792 2 591 2 670 2 624 2 771 Other d 462 529 591 585 589 Total 3 834 3 727 3 965 3 901 3 850 Exports Woodchips 744 712 808 794 825 Pulp and paper products 657 872 890 873 803 Other e 411 430 416 386 500 Total 1 812 2 014 2 114 2 054 1 985 Petroleum Imports Crude oil g 8 753 7 458 8 610 6 594 9 000 Petroleum products h 1 816 1 625 2 050 3 595 4 632 Total 10 569 9 083 10 661 10 190 13 633 Exports Crude oil g 8 137 6 390 6 402 5 055 6 333 LPG i 830 721 855 647 802 LNG 2 671 2 613 2 607 2 174 3 487 Bunker fuel j 899 760 775 696 849 Other petroleum products 1 844 1 234 1 198 918 936 Total 14 381 11 719 11 838 9 490 12 406 a Includes peanuts, oilseeds, vegetable oils and vegetable protein meals. b Includes all crustaceans and molluscs including canned. c Excludes tuna transhipped at sea or captured under joint venture or bilateral agreements. d Includes roundwood, other processed wood and minor forest products. e Includes roundwood, sawnwood, sleepers, processed wood and minor forest products. g Includes condensate and other refinery feedstock. h Includes LPG. i Naturally occurring and refinery byproduct gas. j International ships and aircraft stores. s ABARE estimate. Sources: Australian Bureau of Statistics; Department of Agriculture, Fisheries and Forestry Australia; ABARE.

australiancommodities • vol. 12 no. 1 • march quarter 2005 263 management

CONTACTS

Executive director Brian Fisher bfi [email protected] +61 2 6272 2100 Deputy executive director Karen Schneider (a/g) [email protected] 6272 2033 Chief economist Stephen Beare [email protected] 6272 2040 Commodity outlook and data management branch Branch manager Terry Sheales [email protected] 6272 2054 Commodity forecasting Vince O’Donnell [email protected] 6272 2255 Commodity and food statistics John Hogan [email protected] 6272 2056 Data management Geoff Armitage [email protected] 6272 2367 International branch Branch manager Andrew Dickson (a/g) [email protected] 6272 2173 International trade Troy Podbury [email protected] 6272 2244 Developing countries Neil Andrews [email protected] 6272 2242 International cooperation Jane Mélanie [email protected] 6272 2266 Climate change and trade model development Anna Matysek (a/g) [email protected] 6272 2170 Natural resource management branch Branch manager Peter Gooday (a/g) [email protected] 6272 2138 Fisheries Leanna Tedesco (a/g) [email protected] 6272 2295 Land and water Tim Goesch [email protected] 6272 2009 Resources and trade Anna Heaney (a/g) [email protected] 6272 2066 Industries branch Branch manager Colin Mues (a/g) [email protected] 6272 2027 Agriculture Lisa Elliston (a/g) [email protected] 6272 2091 Energy and minerals Graham Love [email protected] 6272 2055 Regional and farm data analysis Peter Martin [email protected] 6272 2363 Surveys branch Branch manager Rhonda Treadwell [email protected] 6272 2043 Surveys collection Neil Bingham [email protected] 6272 2208 Information systems Mark Neilsen [email protected] 6272 2013 Program development Branch manager Jenny da Rin [email protected] 6272 2024 Corporate management Corporate manager Annette Blyton [email protected] 6272 2222 Conferences Yvonne Kingsley [email protected] 6272 2265 Publication sales Denise Flamia dfl [email protected] 6272 2211 Publishing and marketing Wendy Pang (a/g) [email protected] 6272 2110

264 australiancommodities • vol. 12 no. 1 • march quarter 2005 commodity outlook

COMMODITY OUTLOOK TO 2009-10 ❋ impact of recently negotiated iron ore prices

• While negotiations on iron ore are still proceeding, Major Australian commodity exports settlements reached in the past few days have secured signifi cant price increases 2005-06 of around 72 per cent from Value Value Volume World Japan’s leading steel mills. price In response to this better Metallurgical coal than expected outcome, Iron ore, ABARE has revised upward pellets * its forecasts of commodity Crude oil export earnings in 2005-06 to $114.6 billion from the Thermal coal initial $112.9 billion printed Gold in the copy of Australian Commodities released at Beef, veal the Outlook conference this Alumina morning. Wheat • The total value of Austra- 2004-05 lia’s minerals and energy LNG 2005-06 exports is now forecast to be $82.6 billion in 2005-06, Aluminium a rise of 22 per cent from Nickel an expected $67.7 billion in 2004-05. Export earn- Wine ings from coal are forecast to increase by 51 per cent Dairy to $25.8 billion in 2005-06. Wool The value of iron ore exports is forecast to be $13.0 billion Copper in 2005-06, compared with a Iron, steel forecast $8.1 billion in 2004- 05. $b24681012141618 Major short term indicators of Australia’s commodities sector

Change from 2000 2001 2002 2003 2004 2005 previous year Unit -01 -02 -03 -04 -05 f -06 f 2004-05 2005-06 %% Exchange rates US$/A$ US$ 0.54 0.52 0.58 0.71 0.75 0.72 5.0 – 4.0 Trade weighted index for A$ a index 50.1 50.6 53.0 61.4 63.0 61.0 2.6 – 3.2 Australian exports Unit returns b Farm index 100.0 108.7 106.9 99.0 96.8 95.1 – 2.3 – 1.8 Energy minerals index 100.0 99.9 95.9 85.3 116.1 137.9 36.2 18.7 Metals and other minerals index 100.0 95.4 91.7 90.9 105.2 112.2 15.8 6.6 Total mineral resources index 100.0 97.5 93.6 88.5 110.0 123.5 24.3 12.3 Total commodities index 100.0 100.6 97.3 91.5 106.0 115.5 15.8 9.0 Value of exports Farm A$m 29 462 31 009 26 740 26 110 27 949 28 186 7.0 0.8 Other rural c A$m 3 981 4 114 3 958 3 706 3 513 3 814 – 5.2 8.6 Total rural A$m 33 443 35 123 30 698 29 816 31 462 32 000 5.5 1.7 Energy minerals A$m 25 678 25 411 24 161 20 737 30 018 39 883 44.8 32.9 Metals and other minerals A$m 32 234 31 296 31 622 32 298 37 641 42 762 16.5 13.6 Total mineral resources A$m 57 912 56 707 55 782 53 035 67 659 82 645 27.6 22.2 Total commodities A$m 91 355 91 830 86 480 82 851 99 121 114 645 19.6 15.7 Australian production Volume of farm production b index 100.0 101.7 82.7 97.0 94.6 97.2 – 2.4 2.7 Net value of farm production A$m 7 451 10 516 4 195 6 393 5 742 5 070 – 10.2 – 11.7 Volume of mine production b index 100.0 100.1 100.4 98.2 103.5 113.9 5.4 10.1 a Base: May 1970 = 100. b Base: 2000-01 = 100. In this table the indexes have been re-referenced from the base years used in the original data sources. c Forest and fisheries products. f ABARE forecast. Sources: Australian Bureau of Statistics; ABARE. Medium term outlook for Australia’s commodities, in real terms

2002 2003 2004 2005 2006 2007 2008 2009 Unit -03 -04 -05 f -06 z - 07 z -08 z -09 z -10 z Exchange rates US$/A$ US$ 0.58 0.71 0.75 0.72 0.68 0.67 0.66 0.65 Trade weighted index for A$ a index 53.0 61.4 63.0 61.0 59.0 58.0 57.0 56.0 Australian exports b Unit returns c Farm index 115.9 104.8 100.0 96.0 92.1 88.5 86.4 83.9 Energy minerals index 86.6 75.2 100.0 116.1 102.1 87.9 78.9 72.0 Metals and other minerals index 91.3 88.4 100.0 104.2 95.5 83.4 77.5 76.1 Total mineral resources index 89.2 82.4 100.0 109.7 98.6 85.5 78.1 74.2 Total commodities index 96.3 88.4 100.0 106.5 97.0 86.3 80.4 76.8 : Forecasts revised owing to higher renegotiated iron ore prices in late February, : Forecasts revised owing to higher renegotiated iron ore prices in late February, Value of exports Farm A$m 28 039 26 737 27 949 27 553 27 689 27 686 27 988 28 037 Note Other rural d A$m 4 150 3 795 3 513 3 728 3 731 3 805 3 867 3 887 Total rural A$m 32 189 30 531 31 462 31 281 31 420 31 490 31 855 31 924 Energy minerals A$m 25 334 21 235 30 018 38 987 36 891 32 994 30 961 29 025 Metals and other minerals A$m 33 158 33 073 37 641 41 801 41 140 38 264 36 646 36 974 Total mineral resources A$m 58 892 54 308 67 659 80 787 78 031 71 258 67 608 65 999 Total commodities A$m 90 681 84 839 99 121 112 068 109 451 102 748 99 463 97 923 Australian production Volume of farm production c index 87.4 102.4 100.0 102.7 105.4 107.0 108.7 110.3 Net value of farm production b A$m 4 398 6 546 5 742 4 956 5 318 4 894 4 959 4 523 Volume of mine production c index 97.1 94.8 100.0 110.1 116.5 119.9 120.9 123.0 a Base: May 1970 = 100. b In 2004-05 Australian dollars. c Base: 2004-05 = 100. In this table the indexes have been re-referenced from the base years used in the original data sources. d Forest and fisheries products. f ABARE forecast. z ABARE projection. Note: ABARE revised the method for calculating farm price indexes in October 1999. The indexes for the different groups of commodities are now calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. Sources: Australian Bureau of Statistics; ABARE.