RAS Hot Topic Debate, Sydney Showground, Tuesday, March 26, 2013
Can Australia become the food bowl of Asia? Short answer: probably not. Longer answer: not without either a lot of taxpayer subsidy (which is unlikely to be forthcoming) or without a lot more economic reform than rural voters have shown any sign of being willing to accept.
I suspect I’ve been invited here today as the anti-hero, the economic rationalist bad guy for everyone to boo and hiss. That’s OK; I’m happy to help provide the entertainment. But before I get on with it you should know that my father grew up on a dairy farm in the Lockyer Valley of Queensland and my mother grew up on a cane farm in North Queensland.
There’s little doubt the continued rapid economic development of Asia will produce a huge middle class over coming decades who’ll want to eat a lot more Western foods. It’s highly unlikely the Asians will be able to meet their own increased demand, so Asia will become a major food importer. A big part of the reason the Asians won’t be able to supply their own food demand is that they’ve really stuffed up their agriculture, and climate change will make it much worse.
When Asian demand grows much faster than world supply, the effect is to raise world food prices. But as supply eventually catches up, world prices fall back, leaving only those countries and farms that have been able to increase their production with a lasting benefit. Asia’s increasing demand is already pushing world prices higher - or higher than they otherwise would be. And I don’t doubt they’ll go a lot higher. If so, that will be a free lunch for Australian farmers: without increasing their production much if at all, they will - for a time - get much higher prices for what they do produce.
But for us to become the food bowl of Asia requires us to greatly increase the volume of rural production. What I doubt is whether we’ll be able to much increase our production. Why not? Because there are too many obstacles to increased production and farmers and their political representatives show so little sign of being willing to pay the very real prices needed to overcome those obstacles.
The first obstacle is that, partly because we didn’t have the scientific knowledge and partly through wilful neglect, we, too, have stuffed up our fragile farming land, degrading our soil, water table and rivers, and using lots of chemicals that have adverse side-effects - chemicals that will, in any case, become hugely more expensive. We need a lot more water pricing and other economic reforms to get on top of these obstacles to higher production.
The next big obstacle is that climate change will make farming conditions much worse, shifting the rain north and increasing the frequency and severity of extreme weather events such as droughts, cyclones and floods. So far, however, farmers and the National Party have found it easier to deny the existence of climate change and hope it goes away.
The final obstacle to greatly increased farm production is the sector’s very weak productivity performance over several decades. Increasing productivity involves a lot of changes many farmers won’t like: greater investment in on-farm innovation and automation, involving the application of much more equity capital by big companies and Chinese investors. This, in turn, involves more farm consolidation and more agribusiness, but fewer family farms and farm employment. The continued provision of drought relief serves to perpetuate the existence of small, inefficient, badly managed farms. Governments should be promoting productivity by investing in agricultural research and development, but instead they’re wasting taxpayers’ money on the eternal pipe dream of Northern Development, from the Ord River scheme to the Alice Springs to Darwin railway. All of us dream of the free lunch. But a better motto for agricultural dreamers is: no gain without pain.
