LAND DEGRADATION AND THE AUSTRALIAN AGRICULTURAL INDUSTRY Paul Gretton Umme Salma STAFF INFORMATION PAPER 1996 INDUSTRY COMMISSION © Commonwealth of Australia 1996 ISBN This work is copyright. Apart from any use as permitted under the Copyright Act 1968, the work may be reproduced in whole or in part for study or training purposes, subject to the inclusion of an acknowledgment of the source. Reproduction for commercial usage or sale requires prior written permission from the Australian Government Publishing Service. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Commonwealth Information Services, AGPS, GPO Box 84, Canberra ACT 2601. Enquiries Paul Gretton Industry Commission PO Box 80 BELCONNEN ACT 2616 Phone: (06) 240 3252 Email: [email protected] The views expressed in this paper do not necessarily reflect those of the Industry Commission. Forming the Productivity Commission The Federal Government, as part of its broader microeconomic reform agenda, is merging the Bureau of Industry Economics, the Economic Planning Advisory Commission and the Industry Commission to form the Productivity Commission. The three agencies are now co- located in the Treasury portfolio and amalgamation has begun on an administrative basis. While appropriate arrangements are being finalised, the work program of each of the agencies will continue. The relevant legislation will be introduced soon. This report has been produced by the Industry Commission. CONTENTS Abbreviations v Preface vii Overview ix Part 1 Report 1 Introduction 1 2 Agriculture and the management of land 3 3 Sustainability and land degradation 19 4 Economic effects of land degradation in Australia 39 Part 2 Appendices A Classification of agricultural land degradation in Australia A1 B Classification of agricultural regions in New South Wales B1 C The extent of land degradation in Australia C1 D Conceptual model of land degradation, farm output and profits D1 E Production equivalent of degradation, and costs and benefits of amelioration E1 F Estimates of the effects of land degradation in New South Wales F1 References iii STAFF INFORMATION PAPER Boxes 3.1 Pilot study using data on the biogeographic regionalisation 32 of New South Wales 4.1 The Commission’s econometric model of New South Wales 50 agriculture Tables 2.1 State budgetary outlays benefiting agriculture by type of 13 support, 1990–91 2.2 Estimated agricultural sector environmental protection 15 expenditures by state, 1991–92 2.3 Grants and subsidies received by farm businesses by state, 16 1991–92 2.4 Expenditure on land care by broadacre farms and the dairy 17 industry, 1993–94 2.5 Main reasons for broadacre and dairy industry farms not undertaking land 17 care expenditure, 1993–94 4.1 Estimated responsiveness of current production and profit 51 due to changing land degradation Figures 2.1 Farmers’ terms of trade, 1951–52 to 1993–94 4 2.2 Deployment of land for agricultural uses 6 2.3 Trends in average wheat yields since 1870 7 2.4 Contributions to average annual growth in real output by the 8 agriculture, forestry, fishing and hunting sector, 1974–75 to 1993–94 2.5 Commonwealth budgetary outlays to industry, 1994–95 12 3.1 Economic-environmental input-output framework 23 4.1 Index of land degradation by type of degradation and 45 agricultural SLA in New South Wales, 1987–1988 4.2 Marginal net benefits from controlling dryland salinity with and 47 without commercial trees iv LAND DEGRADATION AND THE AUSTRALIAN AGRICULTURAL INDUSTRY ABBREVIATIONS na not available kg/ha kilograms per hectare .. nil or less than 0.5 0 small value rounded to zero in tables AAGIS Australian Agricultural and Grazing Industries Survey ABARE Australian Bureau of Agricultural and Resource Economics ABS Australian Bureau of Statistics ANCA Australian Nature Conservation Agency APEC Asia Pacific Economic Cooperation BRS Bureau of Resource Sciences CSIRO Commonwealth Scientific and Industrial Research Organisation ELZ Extensive Landuse Zone ESD Ecologically Sustainable Development FAO Food and Agricultural Organisation GIS Geographic Information System(s) IBRA Interim Biogeographic Regionalisation of Australia IC Industry Commission ILZ Intensive Landuse Zone IMF International Monetary Fund IUCN International Union for Conservation of Natural Resources NAFTA North Atlantic Free Trade Agreement NRIC National Resource Information Centre NRSCP National Reserve System Conservation Plan NSW New South Wales OECD Organisation for Economic Cooperation and Development R&D Research and Development RDC Rural research and development corporation/council SCS Soil Conservation Service SLA Statistical Local Area UN United Nations UNCED United Nations Conference on Environment and Development UNEP United Nations Environment Programme UNESCO United nations Education, Science and Cultural Organisation WWF World Wildlife Fund v PREFACE The Industry Commission has a statutory obligation to report on the performance of Australian industry. Management of land for agricultural and pastoral purposes on a sustainable basis is essential for the ongoing development of that sector. For development and environmental issues to be adequately considered, a broad framework needs to be adopted and necessary information of both an ecological and economic nature needs to be gathered and analysed. As part of its reporting process, this staff paper has drawn together certain information and has used a pilot study of New South Wales agriculture as a start to the very substantial task of understanding the relationship between agricultural production and land degradation. The Commission intends this discussion paper to bring together information about agriculture and land degradation from a wide range of sources and in doing so it is intended that it contributes to the development of a broad policy framework for a sustainable agricultural sector. The Commission seeks comments on the content of the paper, errors and ommissions. The authors would like to acknowledge the assistance received from colleagues in the preparation of the study. Outside the Commission, John Robertson of the Department of Statistics at the Australian National University provided a technical review on the New South Wales pilot study (see Appendix F) and Warren Musgrave of the New South Wales Premier’s Department gave general support. Numerous other people provided information and studies. Any remaining errors are the responsibility of the authors. vii OVERVIEW The management of land degradation and its effects on environmental quality are important challenges. How the community responds to these challenges will affect the well being of all Australians both now and into the future. There are many causes of land degradation resulting from human activities, including the production of food and fibres by the agricultural sector. This study explores the relationships between agricultural production, profitability and land degradation, and some of the broad issues that affect land management. In particular, it discusses the concept of ecologically sustainable development, the link between bio-physical and economic processes, information on the extent of land degradation, and the costs and benefits of degradation and repair. An experimental analysis of New South Wales agriculture is provided using a state-wide model developed in the Commission. The agricultural industry and management of land The agricultural sector is constrained in its capacity to increase supply and to influence demand. The supply of land suitable for agricultural activities is limited and its availability for agriculture comes under pressure from alternative uses. At the same time, the agricultural sector predominantly produces standard commodities (often traded on world markets) with individual producers having virtually no control over the prices that they receive for their output, nor the prices paid for their off-farm inputs to production. The agricultural sector has experienced a systematic decline in its terms of trade over the last 40 years. To the extent that expectations about future prices have been based on the continuation of past trends alone, the incentives facing individual farmers would seem to have favoured early exploitation of the land resource in order to take advantage of relatively higher prices. However, past price trends are only part of the picture. Innovation to lower the unit cost of output, the expectation of a more favourable price outlook in the future, and the opportunity to vary farm outputs to take advantage of more profitable farming options, improve the economic incentives for land holders to preserve land resources for future agricultural use. In practice, productivity growth has steadily improved with support from industry and government sponsored research and development, and with experience gained through farming Australian land. Over the last 20 years, agricultural sector growth has been sustained by more intensive use of existing ix STAFF INFORMATION PAPER farmland and by higher productivity. Opportunities for growth in agricultural output will continue. The positive links between rural research, development, farmer experience and productivity indicate the potential for further growth in output from supply-side changes. On the demand side, there are population, income and policy induced changes that are likely to place upward pressure on the demand for Australian agricultural outputs in the longer term. These will come from increasing food needs