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Food production in Australia

CHAIR —Thank you very much. I welcome the Western Australian Farmers Federation. If you would like to make an opening statement, we will then ask you some questions.

Mr Norton —Thank you, Senators. Our submission was done back in August. A fair bit has happened since then. Costs and prices have gone up and down. Fortunately, fertiliser and fuel have come down, but back in August it looked extremely doubtful as to whether we would plant a wheat crop in Western Australia at that time due to the price of fertiliser, which had doubled. MAP and DAP had gone from $750 a tonne to between $1,700 and $1,800 a tonne.

We did the exercise with the department of agriculture and consultants on 1 July and, with wheat margins as they were at price, coming down to $300 a tonne, it was pointless planting a crop. If you were good farmer, at $340 a tonne for wheat you might have made a little bit of money. If you were an ordinary farmer and you only got $290 a tonne, then you would tear up a lot of money. Obviously halfway through last year, cost inputs were quite pivotal for farmers in Western Australia. A lot of people were contemplating the future as to where agriculture was going.

There have been a number of ACCC and Senate inquiries since then and some of the results we believed did not do the situation justice, especially the ACCC inquiry into groceries and beef. We believe they missed the mark by a country mile and, whilst ACCC was set up to look after consumers, the legislation obviously does not cover producers. Therein lies the heart of the problem. We have been seeking answers from people like yourselves to change the Trade Practices Act to put the ACCC or another government body in a place to protect agriculture because, if we do not protect agriculture, the way things are going in this country we will not have a sustainable supply of food produce into the future.

Whilst some of you people might laugh and say, ‘He doesn’t know what he’s talking about,’ I think he does know what he is talking about. Whilst we have not gone hungry in this country for many years, it is not all that far away. When you look at the wild swings and roundabouts that we as producers have to face on a daily basis, and in the future without a lot of the younger generation—we have a lot of data back in the office that demonstrates what has happened to agriculture back over quite a long period of time—you can see that we have been going backwards for quite some time.

In 1980 there was a big swing. The younger generation did not come back onto the family farms. They left in droves and are continuing to leave. They have not come back. They have become lawyers and doctors and travelled the world, and good luck to them. There are only fellas like ourselves who were silly enough to come back onto family farms and the small farming operations. That has not changed. The data in the graphs that we have is still going north at a fairly rapid rate. You cannot expect a bunch of 55- and 60-year-olds to feed the nation and increase production to feed the world. It is not going to happen.

As we see the introduction of a lot of other government policies like carbon trading, there is a lot of pressure on the hard stuff that we use to produce the food, and that is land. The high-productive land in this state is being used for urbanisation, lifestylers and tree and wood production, and if carbon trading gets up, that will only continue. The normal agricultural pursuits are being pushed out into the drier, lower rainfall, much more variable areas of the state. The writing is on the wall, but we seem to be completely intransigent about putting in place systems and laws in this country that protect the smaller farmers and agriculture in general.

Unless we do it, and very quickly, another 10 or 20 years and people will go hungry. The price to produce the stuff is going to go through the roof. It has already gone through the roof, and that is one of the reasons the younger generation are not prepared to take the financial gamble, to chance their arm at farming like we did. We have plenty of evidence that the returns we get can vary. It can be doubled. Part of one of our agricultural pursuits is producing broccoli and broccolini. A crate of broccoli can go for anywhere from 14 bucks a crate to its current price of $40 a crate. The break-even for broccoli in our business is about 22 bucks a box, so there are wild swings and variances there.

Sure, at 40 bucks a box you are doing quite well, but at 14 bucks you are tearing up money like there is no tomorrow. It sat at $18 a box for quite some time and, as I said, our break-even is $22. Similarly with dairy producers this year: they were asked at Christmas to take a 20 per cent cut. When we were told that prices were going to go up in March, April, we would have been at our highest price probably for eight to 10 years in real terms, but the dirt got cut from under our feet back in January when the export price fell over between the Kiwis and the Victorians. Whilst we are only a domestic market, it did not make any difference: the price to the growers dropped by 20 per cent.

That has put a real dampener on things. The younger generation once again asks the question, ‘What the hell am I doing this for when, with the flick of a finger, you can have that amount of money cut out of your business for no real reason?’ In the last two years there have been major imports of fresh milk from South Australia into Western Australia. They increased the price to try and head that off, but all of a sudden, once they sucked us in, they have us milking cows, they have us buying food, then they whack a 20 per cent cut on us. I believe National Dairies are starting to import fresh milk back into WA again.

It does not help the carbon footprint, it does not help anything, but we seem to be intransigent as to how to fix these problems. We are pretty good at tearing down things like the single desk and wool structuring and all our old marketing systems that used to give us a degree of stability. We go for the free market option, and that is great, but the free market options come with their negativities too and, as we have seen, there are wild swings. It is very good to hand all the power to Coles and Woolworths, the big corporates, and they do quite well; we tend to do quite badly.

I guess that is our opening salvo, Senator Heffernan. They are some of the issues that are concerning us as to where and how we go. We are relying on people such as yourselves to do that.

CHAIR —Have you blokes had a look at the Future Science predictions for the weather?

Mr Norton —For the weather?

CHAIR —You have had a 50 per cent, near enough to, decline in run-off, certainly in the Perth catchment, since 1975. We got a briefing the other day from the CSIRO which indicated that the south-west parts of Western Australia are going to be seriously depleted over the next 50 years if the science is anywhere near right for the planet.

Mr Norton —That will not worry you and me, Bill.

CHAIR —No, it will not.

Mr Norton —We tend not to worry about the weather too much, because there is not much we can do about it. What we can do is research and innovation as to how we can grow wheat and grass on less rainfall. In this state, with our minimum till and deep ripping, we have done that extremely well. We can grow just as good a crop with some of this modern technology, so weather is not a real problem. It is when you get it, not how much you get it.

CHAIR —The same presentation, I might say, explained that they were doing some work somewhere on zero tillage and the difference in yield capacity, which was astounding, I have to say. We have also received evidence of the decline in research and development for agriculture and the decline from the school. We heard this morning that there is a problem with domestic science. There is also a problem with agriculture. It has become less sexy to do agriculture and go on and get a degree and become an agricultural researcher. We think there is a need for the government to be alerted to the fact that, if we continue to let R&D—and the CSIRO has changed its emphasis in research to other issues—fall off the map, then there will be a serious problem.

Mr Norton —Yes, but the politicians in this country are partly to blame. You set up schemes like the MIS scheme, which is great for the lawyers and doctors to minimise your tax and grow trees, but why the hell don’t you set up a MIS scheme for young farmers to get them in? If you go back to the graphs that I gave you, in 1980 all the young blokes left agriculture because there was no tangible reason there to stop them. The politicians need to set the laws of this land to give the young fellas a little bit of protection and a little bit of incentive, whether it be like a Saskatchewan bank or an MIS scheme, so that they can buy the farm off the old man or finance their way into agriculture. For God’s sake, give them some incentive. There is no incentive. It is all this, ‘Go, go, go,’ and it is everybody else’s problem. ‘Don’t worry about it, mate. She’ll be right.’

CHAIR —I noticed that Great Southern are next door. Great Southern do not want to see me because I have a very strong view about MISs, and I am delighted to see that some of their schemes have fallen into financial chaos.

Mr Norton —It couldn’t happen to a nicer group of people, could it?

CHAIR —You do not wish a burden on anyone, but I have to say, yes, I have a very strong view about the distortion to the market and supply and demand and market forces that has been caused by MISs.

Senator MILNE —I wanted to follow up on your discussion of the demographics of who is going into agriculture and so on. Do you have that broken down on a sectoral basis? It seems to me there has been an intensification in some horticultural pursuits in south-west Western Australia—this is as someone observing it from elsewhere—but a drop-off in people in broadacre. Do you have any breakdown of where there has been the main loss and where the biggest threat is to future viability in terms of people farming in Western Australia? Which sectors are the most vulnerable, in your view?

Mr Norton —They are all vulnerable, the whole lot of them. A lot of that relates directly and indirectly back to market forces and government policy. But it is all hanging there together at the moment, albeit tenuously. I have just finished doing a report for our conference on Thursday, and some of the questions you have asked are embedded in my report. I will have to send you my report.

Senator MILNE —Please do. You should not assume that there is hostility. There is not. This committee has been very strong on issues like maintaining agricultural land for agriculture against a lot of forces. So there is a lot of work we are doing. But I am very interested in breaking down the general statement about young people not going into agriculture into seeing if there is particular vulnerability in any sectors at the moment.

Mr Norton —There are a lot of very good, talented young people in agriculture—do not get me wrong—but there are not enough of them coming through. For example, in the dairy industry, in 2000 at deregulation there were 410 dairy farmers producing about 410 million litres of milk—an average of about one million litres per farm each year in WA. Now we are probably down to about 170 farming enterprises producing last year about 320 million litres. The farms have got bigger and more productive, but the bigger you get and the more employees you get the harder it is to manage, and they are not as cost effective to run as the smaller tight-knit family farm operations.

Similarly in the wheat belt. Some of the research that we did for my report showed that 10 years ago there were over 10,000 growers signed up to deliver to CBH. Now there are 4,800. That is an attrition rate of 570 enterprises to CBH per year. If that happened with nurses or doctors, there would be people marching up and down St Georges Terrace. Because we are cockies, the academics say, ‘You’ve got to get more efficient. You’ve got to get bigger. You’ve got to get this,’ and now it is corporatised farming. We have seen how Great Southern and the MIS boys have gone, we have seen how the bankers have gone and we have seen how some of these corporate fellows that have come into agriculture have gone. When times get tough, some of those big corporates are the first to sell up and leave. They come and go. They have done that for 200 years and will continue to do it.

Nothing has changed. We are battling on. Our production is just holding up there. But these farms can only get so big and, once they get so big, you have to bring in labour; you have to fly people in from America; you are reliant on tourist type visas. In our operation, on our vegies where we employ 30-odd people, we have Australian management but our pickers have tourist visas. We find that the South Koreans are the best. We have got a South Korean workforce that rotate. Some of them are on 457 permits, and hopefully we will get some of them as permanent residents eventually.

The abattoir industry is a bit the same. The bulk of the abattoirs in Western Australia are manned up by people from offshore, and that is no disrespect to Graeme Haynes and the workers union. We meet quite regularly with Graeme. But the people just are not here or the Australians do not have the inclination to get on a slaughter floor and, similarly, to go and pick and broccoli and broccolini.

Senator MILNE —Having said that, what is the one intervention that a federal government could make that you think could turn around some of these issues about retention to agriculture, because it is a big and complex area. Are there any specific interventions?

Mr Norton —As we said in our report, we need changes to the Trade Practices Act for a start to give us a little bit of protection and try and level the playing field a little bit against the supermarkets. We have got no beef with the supermarkets. They have got their businesses to run and we have got our businesses to run, but we are at a distinct disadvantage. It is up to the parliament to set the laws of the land that level the playing field so that we can compete fairly without one hand tied behind our back, or in some cases both hands tied behind our back.

Senator NASH —What changes do you want to see to the TPA?

Senator MILNE —Yes.

Mr Norton —We have met with one of your previous senators, whose name eludes me, from the Democrats.

Senator IAN MACDONALD —Andrew Murray.

Mr Norton —Andrew Murray. Andrew assures us that there have been any amount of Senate inquiries that have highlighted the pieces of legislation that need to be changed. We have got it on file and he has given it to us again. Andrew’s great disappointment with being in the Senate was that the two major parties had never ever picked it up.

Senator NASH —Would you like to forward that to the committee—that legislation that you have targeted.

Senator MILNE —Yes, the specific amendments.

Senator NASH —The specific amendments and the specific legislation. That would be very useful.

Mr Norton —Yes.

Senator IAN MACDONALD —But along which lines? We will wait to read it in detail but, broadly speaking, what do you think needs to be done?

Mr Norton —You have a piece of legislation that gives the ACCC some fairly awesome powers so far as consumers are concerned, which protects them. You have to develop some legislation that produces some equal protection. I am not a politician; I am only an agripolitician that looks at things in fairly simplistic terms.

Senator IAN MACDONALD —But are you wanting price support from the ACCC? Is that what you are saying?

Mr Norton —No, we are not saying that at all. We want a return on our investment. Our costs of production need to be recognised domestically. You cannot do that on the export market, and we accept that. But domestically we should be able to argue our point that we have a cost of production and we are entitled to a return on our investment.

Senator NASH —Do you think there should be some kind of mechanism in place—without wanting to necessarily go to floor prices—to ensure that farmers are not consistently producing below the cost of production?

Mr McMillan —If I could jump in for two seconds, one of the paragraphs in our submission, under ‘Food that is affordable to consumers,’ talks about the ACCC flippantly stating in its report that the red meat supply chain—et cetera. The actual wording of that report was quite patronising to the farming community. Obviously there is no obligation on the ACCC to investigate that level of detail to look after the interests of farmers. They are the ACCC for consumers, not for farmers. To tighten up the whole guidelines there, to require the ACCC to dig deeper and not just gloss over the top of it, I think would start the whole ball rolling.

Senator NASH —How on earth can you have any certainty of food production into the future if farmers do not have a viable business at the bottom of the food chain?

Mr McMillan —Absolutely.

Senator IAN MACDONALD —This is the bit I cannot understand: you have a product that people not only want but need—we can do without most things except food. If you are not supplying it, we all die.

Senator MILNE —No, we import it cheaper.

Senator IAN MACDONALD —All right. Is that what you are getting at?

Senator MILNE —That is the key issue.

Senator IAN MACDONALD —That is what I was asking before. Are you saying we should be banning the import of competing foods?

Mr Norton —No. I am being very careful not to be too provocative in saying that we—

Senator IAN MACDONALD —Be our guest! Be provocative.

Mr Norton —We have been down the path of the old statutory regulations for the dairy industry and for the grains industry and, as late as last year, the parliament suggested that we do need a single desk for wheat. That is fine; we have to run the gauntlet now and just see how we go. So it is pointless trying to go back there, but what we have to do with the legislative backing that we have for our proposal is to try and make it as effective as we can for the producers we have left.

Having said that, to come up with schemes and dreams is not easy, but that is what we need to collectively focus on. We can certainly affect domestically the returns growers can get. It is very difficult on the export side of things, unless we can streamline the way that we get rid of our grain. Similarly with our imports, there is a lot of restriction on our inputs, be they fertiliser or whatever. I think there is a lot we can do there. We have done as much as we can—more by playing bluff poker than anything else—to try and get the cost of fertiliser, sprays and chemicals down, by advising our members not to buy and trying to look at ways and means of importing the damn stuff ourselves.

CHAIR —You may be aware that we are doing an inquiry into that.

Mr Norton —I am aware of that.

Senator IAN MACDONALD —But you are playing Coles and Woolworths at their own game on the other end—

Mr Norton —That is right.

Senator IAN MACDONALD —which is what you have got to do.

Mr Norton —What else can we do?

Senator IAN MACDONALD —You have got to do that.

CHAIR —Can I raise something with you. The ACCC said that they did a desktop study, I would call it, of the fertiliser industry and found that there was not a problem—there was no monopoly behaviour—which was just bloody stupid! I actually said that I thought they were as useless as tits on a bull. Can I take you to some of the logic behind that. The information that they were given by the NFF was so far off the mark, I could not believe it. The reason that they were given that information that was so far off the mark was because the NFF did not appear to have the resources to go and do the research. That could well be the case with food, with Coles and Woolworths.

If we do not present the ACCC with the facts, I do not think they have got the capacity or the interest to go looking. As they said, ‘It’s a long and complex meat chain. Let’s go and have a smoke.’ You really have to provide them with some of the information to make them sit up and look. Since that happened, by the way, they have been sitting up and looking at fertiliser. There is a serious problem with fertiliser.

Mr Norton —We gave the ACCC some very detailed on-farm costings on what it cost to produce a kilo of beef in Western Australia and what they sold it for. There is this gap in the middle. We can take it as far as the farm gate, and we know a little bit about the processing industry—I have been involved in the processing industry, and the producers have got a co-op down at Katanning—so we can get access to pretty accurate data on what it cost to process a kilo of lamb. We have some pretty accurate data there, but what you do with it and how much leverage you can generate is the difficult bit.

You spoke about fertiliser. It was not very difficult to get your mind around the fertiliser issue and it did not all happen until Christmas time, when the price of international fertiliser came down. You could google it on the internet and see what a tonne of the various fertilisers cost.

When we started to get a little bit provocative with the fertiliser companies, we realised that they had a lot of stock in store, and they came out quite publicly and said, ‘You farmers have to buy this expensive fertiliser. We bought it back in July, after we’d done all the numbers.’ We said, ‘Listen, we’re not going to plant a crop with fertiliser at this price.’ They still went out and purchased considerable tonnages of fertiliser because they thought fertiliser was going to go to $2,000-plus a tonne, but they did not go back and do their research about what it costs us to produce a tonne of wheat. They tried to bully and bludgeon us into buying all that fertiliser, and there were probably a couple of hundred thousand tonnes, which is $40-odd million that they expected us to bear.

CHAIR —Anyhow, this is not the fertiliser crisis, because I could give you a very detailed answer to the con of that, and it began back in July with the Black Sea FOB price, Black Sea from the Russian MAP.

Mr Norton —But that is how these companies behave. If you let them behave like that, they will take you to the cleaners, hang you out to dry and pat you on the back and tell you what a great fellow you are. We supported Ravensdown, the New Zealand company. Farmers are very supportive of companies that stitch them up and do it for a very long period of time, and CSBP and Summit have been doing that. They have gone back and are still buying product off them, so farmers are their own worst enemies in some respects.

Mr Hill —Bringing the discussion back to food, the ACCC, in their inquiry into food pricing, came up with similar concerns—that they were getting information from producers that was not validated—and almost came to the same outcome. They said, ‘It’s very difficult to follow these through,’ so they did not do it. I think industry is under-resourced to provide some of these figures.

CHAIR —They were not interested to go out of their way; there is no question about that.

Mr Hill —No, that is right, and they were a bit critical, which certainly at the time we were a little offended by.

CHAIR —I think the NFF needs to be resourced better than it is. It certainly is not what it used to be. That is not meant as anything other than a constructive criticism. We are also inquiring into lamb, and you have an excellent certification scheme for lamb over here—you have even locked a couple of people up—which we would like to see harmonised right across Australia. But in the case of lamb and the dentition test, which we think is essential: as you know, you can have a Merino lamb, which is what you would call budget lamb, or a first-cross lamb or a Dorset-cross lamb or a Dorper or any of those. I could take you to Sydney and show you the same grade rack of lamb costing $69 per kilo at Double Bay, where people come in and do not ask the price—they just want to know it is the right quality and that the butcher goes out and selects the lambs from the wholesaler—and at DJs’ food hall it is $59.99, and at Burwood Road the same rack of lamb is $39.95. What the market will bear is how these fellows market their meat.

Senator NASH —One of the things that has been raised in this submission, which is probably core to what we are doing, is this question of: does Australia want viable, family-farm-driven agricultural industries and healthy rural communities? I think that is the key to the whole thing. If the answer is yes, which we hope it is, how do you do it? In my view, you cannot do it without some kind of government intervention; you cannot say yes to that and then leave it to a free market, because it is just not going to happen. In your view, what role should government play in a sustainable farming future? I suppose that goes on to the next question. You say:

The government needs to take steps to ensure that the viability of farmers is preserved in a subsidised and distorted international market place.

What steps should government take?

Mr Norton —Where government have tried in the past, they have invariably failed, unfortunately. Hendy Cowan from the National Party tried to set up these decentralisation commissions, and he tried very hard. He tried to put a hide plant down at Darkan and that went broke. It is certainly not easy. We have got a road-on-rail for our wheat industry. We desperately need substantial capital investment in our rail system throughout the wheat belt. I think there are things like that that need to be done to try and maintain these rural communities.

The Americans possibly do a lot better than we do, and we will have Kenneth Chern, the US Consul General, addressing our conference on Thursday evening. The Americans really go out of their way to look after their rural communities and they try and develop some form of secondary industry or other industry in a lot of these communities. For whatever reason, in Australia we have not done that. We tend to let people drift down to the coast and let them all park around the beaches and where there is a bit of water. You probably have to do it with tax incentives. The old taxation system is a great incentive. When I was a young bloke, the shearers never used to pay more than 20c in the dollar, or two bob in the pound, in relation to tax to get people to go shearing. Similarly, there used to be tax concessions when you went north of Carnarvon. Is it the 39th parallel? As soon as you went beyond a certain parallel, you got tax incentives.

A lot of that old legislation was not all that bad, and we probably need to go back and look at some of the legislation and some of the processes that were used after the war, when we really drove agriculture because we had to. We did not have any mining industry or tourism industries. We need to look at some of the things that we did then and try and apply them now.

Senator NASH —Is there a more hands-on approach from government in terms of intervening and assistance, if you like, rather than: leaving a free market is the way forward?

Mr Norton —There is a classic example here. We were bulking up containers down at Kewdale. We need to bulk them up out of Brookton. If we put another spur line straight out to Brookton, we could containerise all our hay and our grain out around Brookton and Pingelly and just punch it straight into Fremantle, into the port. I think we have to look at some long-term infrastructure. I am not willing to get too closely involved with politics here, but during the Depression we put money into key infrastructure and we are still using a lot of that key infrastructure today. With that whole south-east land division, we had hundreds of people digging drains. The first base foundations were done for the Wellington Dam during the Depression and it is still one of our key dams. I think that is what we need to do.

I know it is hard for a politician to drift away from education and policing and all the other issues of trying to make people happy and love them and vote for them, but I think that there is too much money going into projects that do not really give the country a good long-term return on its investment. I know it is hard.

Senator MILNE —Mr Norton, just on that, has the Western Australian Farmers Federation put forward a proposal to either the state or federal government for the rail infrastructure you are talking about?

Mr Norton —Alan, do you want to answer that?

Mr Hill —Yes, absolutely. We have been on this bandwagon for quite some time, both federally and at a state level, and it is a continuous circle.

Senator MILNE —So you submitted it to Infrastructure Australia for its current bid round?

Mr Hill —We would not have been part of the submitting process to Infrastructure Australia, but we have certainly been supportive of the people that have been in that process.

Senator MILNE —So the Western Australian government put something up?

Mr Hill —I could not tell you for sure.

Senator MILNE —This is the issue here. One of the problems that Infrastructure Australia has had is that state governments did not put up infrastructure bids to improve the electricity grid—which would have taken renewable energy capacity out to rural and regional Australia, which is a supplementary income in a lot of those communities—nor did they put in bids for much in the way of water infrastructure. I am interested to know whether the state government has put up bids for rail infrastructure. I would be fairly sure that it was minimal if they did.Part of the problem here is that you can talk about infrastructure, but the reality is that, unless the bids go up, people are not going to make decisions. Part of the job is to actually have the proposals, have the costings for the proposals and get them into the process that actually gets some sort of quantifying of the benefits in terms of the capacity to build employment and diversify income in rural communities and therefore make them more resilient. That leads back to your argument that attracting people and keeping people depends on diversity in those communities.

Mr Hill —I think a big part of the situation going forward is to literally give farmers some more tools for the tool-box. We have a national drought review, but we are still awaiting the outcomes in relation to that. You talked about long-range forecasting earlier. That is certainly one of the points we picked up in our submission to all the various panels in the national drought review. We have also proposed that multi-peril crop insurance get another look at on a national basis. Western Australia has done extremely poorly out of exceptional circumstances over the years that that has been in existence. There are a whole range of reasons for that, but we see multi-peril crop insurance as being a far more effective thing, both from a farmer’s planning perspective and also from a government budgetary perspective, because instead of having an inverted funnel like EC is on the eastern states, you have a cap you can put on an underwriting scheme for multi-peril crop insurance. So there are big benefits to be had there.

The emissions-trading scheme has the potential to either sink agriculture or give it a hand. It has been our view for many years that agriculture is a bigger part of the solution to the climate change debate than it is a cause of the problem, and we see opportunities through an emissions-trading scheme for soil carbon to be recognised. We are quite supportive of agriforestry, which is a combination of traditional farming and forestry practices.

We see an opportunity for preservation of native vegetation to be picked up as sequestering carbon. That would make amends for the land clearing bans that were put in place back in the nineties: that everyone puts their hand up and says, ‘How good’s Australia?’ because we are meeting our Kyoto targets, but no-one is saying, ‘Thank the farmers for giving up their land clearing ability.’ So there are a lot of inequities that can be addressed coming out of this emissions-trading scheme if the government has got the gumption to take the ball over to—where are we going?—Copenhagen.

Senator FISHER —Can I seek a clarification on that point. Your submission—I am wondering whether I am missing something—on page 2, about halfway down, says:

If farmers are to be penalised for production based emissions without being compensated for on farm mitigation … production will be reduced to levels where viability is not impacted.

It might seem like a stupid question, but do you mean ‘not’?

Senator MILNE —Yes, I read the same as well. It just seems a bit confusing.

Mr McMillan —No. Simplistically, what we are getting at there is that if agriculture is included from 2010 and farmers have to start paying extra for all their inputs—

Senator MILNE —Well, it is not going to be.

Mr McMillan —No-one is telling us that. That would be the first time I have actually heard someone say that, Senator, so I will write that down. Thank you.

Senator MILNE —There is absolutely no view that I am aware of that agriculture is going to be included from start-up.

Mr McMillan —No, this is for the farm inputs.

Senator MILNE —The farm inputs?

Mr McMillan —Yes.

Senator MILNE —You are talking about the fuel?

Mr McMillan —Well, it is all relevant.

CHAIR —More than fuel.

Senator MILNE —No, sorry. I thought you meant that agriculture was going to be one of the covered sectors, and it seems that clearly it is not a covered sector.

Mr McMillan —No, we recognise that we are out there until 2013 and then they will look at whether we get included or not.

Senator MILNE —Yes.

Mr McMillan —But in the interim, if our production costs are going to go up, one of the ways that farmers can address the increase in production costs is by cutting production to bring the balance back down to retain viability. So that is the point we are making there. If that was to occur, it flies in the face of everything governments want farmers to do to increase production to feed the growing world population.

Senator MILNE —The key tool here is the accounting.

Mr McMillan —Yes.

Senator MILNE —We have to get the accounting right or this could impact really adversely on agricultural production.

Mr McMillan —Absolutely, yes.

Senator MILNE —Equally, if you improve soil carbon, you can reduce your input volumes and therefore your input costs, as the work of Christine Jones and others has shown, in terms of changing practices to reduce petrochemical fertiliser inputs as well. There is the opt-in provision, of course, for forestry, but that is a risk and that is why a number of people on this committee have voted strongly against the carbon sink forests proposal—tax incentivised carbon sink forests—because it will displace food production et cetera. We are very cognisant as a community of all those issues, but there is also the opportunity, do not forget, for renewable energy as an additional crop in your rotation. Do not forget that—both biofuels and renewables.

Senator FISHER —Call me stupid; I still remain confused. In terms of your actual submission, are you saying that, if you are penalised as part of an emissions-trading scheme and not compensated for those things of which you have spoken, then farmers will self-manage and reduce their production, as your submission says, ‘to levels where viability is not impacted’. Do you mean that ‘not’? Are you suggesting that farmers can reduce their productive capacity to a stage, in that environment, where their viability is not impacted and, if so, how does that work?

Mr McMillan —This is the advice I am receiving from our members that advise us on climate change policy.

Mr Norton —What they might do is sell the back paddock, eliminate all their debt, just keep a couple of hundred breeders, and go and get a job. That is fine. That helps him, but it does not increase food production. It actually decreases food production.

Senator FISHER —It depends upon your definition of ‘viability of farm’ as well—

Mr Norton —Yes.

Senator FISHER —to the extent to which supplementation may come from off-farm. With a government faced with a very difficult, of its own making, emissions-trading scheme debate, I would be thinking very carefully about saying to that government that there is a point at which farmers in that environment will be able to reduce their production in a way that does not threaten their viability. I would think very carefully about putting that proposition to government and I would make very clear the basis upon which you are doing so. You may wish to review that bit of your submission, because that also stands as part of the record, and, if you so wish, provide the committee with further information as to your views.

Senator O’BRIEN —Would it be a fair proposition to say that the value of agricultural land in this state has grown significantly in the last decade?

Mr Norton —That is a very fair synopsis, bearing in mind that there is no more agricultural land being brought into production. There is actually less, so there is plenty of competition for the stuff that is left, but you have to weigh up what you can get back off it.

Senator O’BRIEN —That is exactly the point I was coming to. Why, if there is pressure on return, are farmers paying more and more for land? Why does the value of land increase where, on the other hand, you are saying you cannot make a dollar off the higher value land? Who buys it?

Mr Norton —There are many reasons. There are plenty of real estate agents floating around offshore still running the line that Western Australian land is the cheapest farming land in the world. There have been a number of offshore investors come in and buy it, not necessarily to make a return on their investment but basically to park some money and get some hard core assets. There is not going to be a revolution here. We have a very stable government and economy, and there is a reasonable chance that it will increase in value for the very reasons that I have outlined.

Senator O’BRIEN —Is that land going out of production?

Mr Norton —No, they will try to crop it. Between consultants and farm managers, a lot of them will probably burn a fair bit of money one way or another. They will have a lot of fun doing it. Then they will find out, ‘This is no good. I’m out of here. I’m selling.’

Senator O’BRIEN —What happens then? Who buys it? Another person who is prepared to burn money?

Mr Norton —Possibly, or the cost of wheat might go to 400 or 500 bucks a tonne. Who knows what is going to be down the track in five years time? That is agriculture since its first inception.

Senator O’BRIEN —On the other side of this continent, the same land price scenario exists but there has been a hell of a lot of borrowing because of bad seasons and effectively converting equity into debt. In that scenario, and given in some areas crops are very intermittent, I am still struggling to understand how the farming community is financed against potential returns and how others are financed to buy into the sector, if the proposition you put about diminishing returns and unviability is the likely future scenario.

Mr Norton —Farmers are born gamblers, believe it or not, even though they do not go to the casino. If you looked at that northern wheat belt the last couple of years, where they did not have any crop for two years, a lot of those fellas were down to 30 per cent and 40 per cent of equity. The banks were not prepared to sell them up because, if they had done, it would have devalued the amount of money that they had to spread around their agriculture portfolio, so they managed them very closely.

When it comes to money, farmers need managing very closely because they love to spend money. So they managed them very closely and they put a crop in and they had a bolter. Some of them had their best crop ever up in that northern wheat belt. All of a sudden a lot of them have gone probably from $2 million or $3 million in debt, and that is why they are selling for cash this year, so the bank can get a return. If you have a couple of bad years up there, the old blokes will tell you it can take three, four or five years to trade your way out. This year, they traded their way out in virtually one year.

That is what keeps people farming: ‘What’s going to happen next?’ That is why they go and buy the next-door-neighbour’s farm, because they say, ‘I’m getting bigger; I can cut my costs; I’ll still have the same fixed costs,’ and it goes on till the bubble bursts or the international price of grain crashes and all of a sudden there is a hell of a dilemma and a big clean out.

Senator O’BRIEN —That is a cycle. You have seasonal and market cycles, and the farming community have traded through that for the last 50 years or more.

Mr Norton —Last 200 years.

Senator O’BRIEN —Perhaps we have not looked at the figures properly. It is fair to say, isn’t it, that despite the resistance to the trend ‘get big or get out’ there has been a tendency to get big because that provides the capacity to utilise assets better and put in storage to take advantage of trading circumstances that vary over a season? All of these things are the hallmark of a successful farmer these days, aren’t they?

Mr Norton —Yes, and there are a lot of very good farmers out there. They are probably some of the best in the world with all of the difficulties we have.

Senator O’BRIEN —Have you seen some of the soils? I was in the northern wheat belt at the beginning of the season last year and we saw the state of the soils—it was actually sand—that they were growing crop in, so the fertiliser input was obviously very important. You have to be very good farmers here, and they are, to be successful.

Mr Norton —The key is, do not get too much debt, whatever you do. The fellas who go down to 30 per cent and 40 per cent equity are flying by the seat of their pants. If you stick around 70 per cent or 80 per cent, you can trade through a few tough times.

Senator O’BRIEN —And it is fair to say, isn’t it, that, when times are bad, the banks are not too keen to start selling up because they will force a drop in property values and they will end up with assets that are not worth what they have lent on them?

Mr Norton —That is right.

Senator O’BRIEN —So we have quite a different dynamic that exists for the farming community than might exist in other business communities, haven’t we?

Mr Norton —Yes. The banks have only just woken up that agriculture is probably one of the safest investments that they have in their portfolio.

Senator O’BRIEN — You talked about broccoli and broccolini and prices, and obviously that feeds back into the supermarket debate. My experience going to a major producer in the Gippsland area at the beginning of 2007 was that they had no problems with the way the supermarkets treated them. They thought that it was a very fair marketing arrangement, so far as their very large broccoli enterprise was concerned. So is there a problem here, or is it just a problem of perception from different producers about how the market works?

Mr Norton —On the east coast you have a very big domestic population. We only have two million people in WA, so we do not have to produce much broccoli or broccolini to feed them.

Senator O’BRIEN —So it is the isolation of your market here that might make for special circumstances?

Mr Norton —It is a big problem with our horticulture and our vegies. When we went into South-East Asia, until the Chinese bombed us, that was our big outlet. We are not sending much east at the moment. We sell a bit east every now and then, but our domestic market is the key and there are only two million people here.

Senator O’BRIEN —I see your lamb abattoir here was shedding labour recently in an environment where traditionally abattoirs have had difficulty holding labour. What is the current situation with the processing facilities for farmers in that regard?

Mr Norton —I think you are talking about Harvey Beef. It is a beef abattoir. The lamb abattoir at Katanning would like another 50 slaughts to further value-add.

Senator O’BRIEN —You are right. Sorry.

Mr Norton —They are looking. They have about 50 457s from China and would like some more. There were 160 put off down at Harvey Beef, but none of them are too keen to go to Katanning. It is a better lifestyle on the beach than what it is out at Katanning. Getting those slaughts to go and work out there is nearly impossible. The only way you can get them is to bring them in from offshore. There have been problems at that Harvey plant for a very long period of time and there is a bit of sorting out going on down there to try and make the thing more cost effective. Some of it has been management as much as anything. You need good management and a disciplined workforce.

Senator IAN MACDONALD —You said earlier that the young people were leaving the farming areas, but most of the people you are getting in on 457 visas would be young people. Is that right?

Mr Norton —They certainly are, but they are not going back onto farms full time. They will be brought in for seasonal work in the harvesting area—for seeding and harvesting. Where we use them in vegie production, they come in under tourist visas. We got some South Koreans in under 457 who we are trying to apply for permanent citizenship. But the tourist visa fellas are the ones that circulate amongst—

Senator IAN MACDONALD —These are the backpackers.

Mr Norton —The backpackers, yes. They are really good too.

Senator IAN MACDONALD —Yes, I know. They keep the mango production going in North Queensland. But they are all paid award wages, and better.

Mr Norton —And better, yes. We pay them on an hourly and a production rate. They are there to make money.

Senator IAN MACDONALD —Is there a contradiction, though, that you cannot get young Australians to do these things but you can get young people to take an interest. You say you are wanting to make some of them permanent Australians. I assume that means they would have permanent employment.

Mr Norton —Yes, especially if they can speak South Korean.

Senator IAN MACDONALD —Yes. Thank you.

CHAIR —Thank you very much. We have come to the end. Welcome to Senator Sterle.

Senator STERLE —Thank you, Chair.

CHAIR —We are very grateful to the farmers. I presume you are aware of the CSIRO study that says, if we do not get off our backsides, in 50 years time there will be no wheat for export from Australia.

Mr Norton —It has already happened on the east coast, hasn’t it, Senator Heffernan? Western Australia is the major exporter of wheat out of Australia.

Senator STERLE —Hear, hear!

Mr Norton —And 94 per cent of our production is exported.

Senator STERLE —You are doing very well.

CHAIR —The CSIRO are saying you are going to have none in 50 years if we do not work.

Mr Norton —I would not worry too much about that. We will be right. We will get there.

Senator STERLE —That is the attitude I like.

Senator MILNE —Mr Norton, you will table your speech?

Mr Norton —Yes. Andy has got all that. Thank you.

[11.33 am]