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Argriculture in perspective



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"A ( CULTURE IN PER SPECTIVE"

PAPER PREPARED BY THE HON RALPH J HUNT, MP

DEPUTY LEADER OF THE NATIONAL PARTY

SHADOW MINISTER FOR PRIMARY INDUSTRY

FOR

THE FEDERAL PARLIAMENTARY NATIONAL PARTY CONFERENCE

DARWIN

SUNDAY 2 - WEDNESDAY 5 JUNE 1985.

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AUSTRALIAN AGRICULTURE IN PERSPECTIVE

Earlier this century an angry dairy farmer at a political meeting

in Grafton, NSW, complained to Sir George Reid that his costs of

production had exceeded his income. As quick as a flash

Sir George advised him in the strongest terms:

"to pull more tits man, pull more tits!"

Sir George Reid as a former Premier of NSW and a strong advocate

of free trade tendered advice which dairy farmers the world over

must have heeded.-

Ever since those early days of this century dairy farmers,

especially in the EEC and the-USA, with the encouragement of

substantial subsidies have pulled more tits from better

performing, better fed dairy cows resulting in lakes of milk and

mountains of dairy products.

This phenomenon is not peculiar to the dairy industry - indeed

there is a world stockpile of numerous food products.

The world market outlook for many of our traditionally important

agricultural products for the rest of this century does not

appear promising.

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Some forecasts indicate that by 1990 there could be:

a carryover surplus of more than 50 million tonnes of

grain;

a surplus of 1.5 million tonnes of beef;

an-excess of 11 million tonnes of milk;

a stockpile of 1.5 million tonnes of sugar;

a massive stockpile of wine; and

gluts of vegetable oils, dried fruit, sheepmeats, and

other produce.

Whilever the Corrmon Agricultural Policies in Europe and support

programs in the United States continue to defy market demands and

forces, inexhaustible surpluses will continue.

While the United States Administration has foreshadowed an

attempt to come to terms with the problem with its controversial

Farm Bill, there appears to be little indication that the EEC is

prepared to acknowledge the follies of its policies at taxpayers

and consumers expense.

However, the prospect of a trade war between the United States

and the EEC could have disastrous side effects on Australian

sales of grains, dairy products and other commodities on world

markets.

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Already Mr John Kerin, the Minister for Primary Industry, has

expressed his concern to the United States' Authorities. We

should support his representations on this issue.

In a recent well thought through paper, Mr Julian Cribb, the

editor of "The National Farmer" gave a graphic illustration of

his concern and I quote:

"To give you some idea of the size of this EE beef

machine, they grow about 7.2 million tonnes of beef each

year, of which 650,000 tonnes is now in surplus —

stockpiles By 1990, according to the best forecasts,

their output will have risen to 7.5 million tonnes, and

their suplus it is estimated, to between 1.2 and 1 5

million tonnes -equal to Australia's entire beef output."

Clearly there are 3 main external forces at work which have

contributed to our declining market prospects:

1) the excessive susidy policies in agricultural producing

countries such as the EEC and the Unit'ed•States;

2) the arrival of the green revolution in Asia generally, the

third world countries and recently to some extent in

middle Eastern countries; and

3) the ever changing eating habits and tastes of people as

their living standards improve.

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There are, of course, internal factors which have affected our

capacity to find new markets let along hold those we enjoy.

While we should attempt to influence the trend of external

factors, we should not fail to deal with those internal or

domestic impediments, which are threatening to impair our ability

to hold our own as an agricultural exporting nation.

In the last 20 years our share of the world markets has fallen

from 2 per cent to 1.2 per cent.

This trend is shown in a breakup of our export com-nodities in

both volume and value terms over the past 20 years and our

• percentage of the world export trade in those corrmodities (see

Appendix 1).

It doesn't. matter how sympathetic the National Party may be to

the long term welfare of farmers and to agricultural development

generally, our country has no prospect of outsubsidising either

the EEC or the United States In the longer term interests of

the efficiency of Australian agriculture we should not attempt

to do so.

The nation's economic managers will ignore the forces of the

marketplace at their peril.

Eventually the taxpayers and consumers will twist the arms of the

economic managers of both the EEC and the United States.

5

In the meantime the National Party must pursue policies that will

equip our agricultural industries to compete successfully in the

market place both domestically and internationally.

One of the reasons for the strength of the primary sector through

the recent four-year drought was the dominance of the family farm

unit.

It is also clear that if the Fraser Government had not extended -generous drought relief measures to offset high costs of drought

fodder and interest rates costs enormous structural damage would

have been done to agriculture.

Sole operator or family partnership farms comprise 93 per cent of

all farm enterprises The bulk of these fall in the lower income

brackets.

Figures for 1979-80 show 47 per cent of enterprises were valued

at less than $30,000.

Latest Bureau of Agricultural Economics surveys have shown the

farm income of family farms averaged $ 210 in 1982 83, $16,954 in

1983 84 and $12,149 in the current financial year (see

appendix -2) .

A more accurate assessment of income is the "farm income per

work-year of family labour": $-114 in 1982-83, $9208 in 1983-84

and $6598 in 1984 85.

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Longer term surveys by the National Farmers' Federation show that

the average return to capital in the farm sector is 2 per cent

against 9 to 13 per cent for the mining, manufacturing and

tertiary industries.

Unlike business corporations which require an acceptable return

for capital investment, the farmers and their families absorb

costs of drought, sharp fluctuations to income and low returns to

capital, not because they enjoy it but because they are prepared

to suffer it.

The increasing average age of farmers indicates that fewer sons

and daughters of farmers are prepared to deny themselves a fair

return for their hard work.

Australia has enjoyed a long-term growth in agricultural output

of 2.8 per cent per annum over recent decades, but this has been

achieved by a steadily declining number of producers. In 15

years the total employment of persons in agriculture and services

to agriculture has declined 7 per cent to 382,300; the total

number of farms has fallen at an average 4 per cent per annum.

The ongoing rationalisation has led to improved economies of

scale and productivity has risen at an average 2.9 per cent per

annum. In other words, Australia has produced more output with

fewer people.

II

However the agricultural sector of-our community is facing even

greater pressures today. -

It is not only necessary for Governments to follow policies that

ease pressures on our input production and market costs, it is

necessary for our farmers to diversify production of the goods

sought by the market place.

The National Party should support research and promotion programs

generally to improve the quality of presentation, transportation,

marketing and diversity of our agricultural production.

The first priority of the Liberal and National Parties on being

returned to Government must be to set in place those economic

policies which will make our export industries more competitive.

We cannot allow the present trends to continue where:

in the past 5 years, farm costs have risen by 44 per cent

while farm gate prices have increased by only 12 per cent

(see appendix 3);

the farm income per work year of family labour is $6598

and the average wage is $20,000;

the return to capital on the farm is averaging 1.5 to 2

per cent;

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in the last 7 years farm indebtedness has increased by 121

per cent (see appendix 4);

the interest rate on borrowings is in excess of 17 per

cent;

high interest rates are used to help prop up an ailing

dollar, weakened by a poor export performance and high

balance of trade deficits;

input costs, such as fuel costs, are subject to punitive

excise and taxes;

input subsidies such as those on superphosphate are eroded

by excessive local shipping freight rates;

• the cost to the average farm of the tariff benefitting the

manufacturing industries is $9,000 per annum;

• wages and on-wage costs are passed on to the farm sector

irrespective of its capacity to pay because of the

centralised, inflexible wage fixation system;

• excessive government expenditures are blowing out budget

deficits resulting in excessive borrowings both here and

abroad and unnecessarily high interest rates; and

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Federal, State and local governments continue to increase

their public service to fulfil unnecessary regulatory

roles generally distorting market forces.

We cannot support policies that continue a situation where one in

every four employed Australians work for governments.

We cannot go on supporting crazy policies which have resulted in

5Z million Australians receiving most of their support from the

Government at the expense of the 44 million taxpayers employed in

the private sector.

We cannot go on reducing assistance to the agricultural sector

while we continue to support a centralised wage fixation system

• operated by the self congratulating "wages club" of the

Conciliation and Arbitration Commission.

Agriculture has suffered from Government taxes and charges rising

at a rate of 6 times faster than the returns for their produce.

While effective assistance for agriculture in the past 12 years

has fallen from 28 per cent to 9 per cent, it has only fallen

from 36 per cent to 25 per cent for manufacturing. In other

words, the fall for agriculture has been twice as fast as it has

been for manufacturing.

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Over the same period, little effort has been made to either

improve efficiencies or competition among our service industries

such as coastal shipping and the State railways.

On the wages front, Australia's wages system with its full

indexation and ever inreasing on-wages costs has become even more

protected under the Hawke Labor Government.

These factors have resulted in declining terms of trade for

agriculture - declining at the average rate of 2.3 per cent per

annum with enormous transfer of resources away from agriculture

to other protected sectors of the corrrnunity (see appendix 5).

If farmers had not improved their productivity there would have

• been a massive economic depression in this country.

The rural sector has undergone enormous reconstruction and

individual farmers have suffered from an extended recession since

the 1960s.

For instance, in the past 25 years 40,000 dairy farmers have left

the industry.

Today a new poor has emerged - they are a band of hard working

farmers and their families whose incomes are now less than half

of the average weekly earnings.

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Unfortunately too many shrug this fact of life off with the

trendy quip "farming is a way of life".

Farming is the "life blood of Australia" and the sooner people

recognise this fact, the sooner we will have some hope of saving

ourselves from a fate worse than Argentina.

The published book "Australia and Argentina - on Parallel Paths",

traces the economic paths of our two nations, which shared almost

corrmon standards of economic wellbeing 80 years ago.

Both nations were rich in agricultural potential.

10

In both nations, governments of the day became dependent on the

farm sector as a source of wealth from which to redirect

resources to manufacturing in the cities and sustain relatively

high living standards.

However the Governments in Argentina were more ruthless and bled

their farm .sector dry at a faster rate.

Now Australian Governments are set on the same course. In 50

years we have seen our living standards slide from No 1 to No 21.

We have seen our fall from being the 12th greatest trading nation

to about 20th - falling behind Singapore.

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We have dropped from being the 8th most competitive nation to

19th.

In short, we are dropping out of the field fast.

In 10 years our foreign debt has risen from $20 billion to $50

billion.

Our overseas borrowings are now likely to require the total

export proceeds from the wool, wheat and beef industries to

service our interest repayments on the foreign borrowings.

The writing is on the wall for all to see.

"Our honeymoon is over."

If the Premiers of NSW and Victoria were to shout at dairy

farmers "to pull more tits" today the farmers would drown them in

their surplus milk.

No longer are we afforded the luxury of "pulling more tits".

The Governments, State and Federal, in responding to the indulged

demands of the multitude and in their own indulgent wishes to

remain in government have almost milked the farmers dry.

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It is there for all to see - the Hawke Government bloated the

public service by 10 per cent in 2 years. Last year the non-

wealth producing public service employment rose by 8 per cent,

while the wealth producing farm sector shed a further 5 per cent

of its jobs in a desperate effort to survive.

Slowly, but surely, we are going down the horrible path that

trapped Argentina.

It is not too late to arrest this madness, but it will take guts.

I t will require the National Party to take a firm hard economic

line when we return to government.

Australians probably don't realise it, but they are faced with -

the choice of working harder and for longer hours for less money

i n real terms, if we are to make the most of our enormous natural

resources, the billions of dollars already spent on education and

the energy of our people.

Australians need strong and honest leadership - less appealing rhetoric - less nourished expectations and more firm and resolute action.

I t was sheer hard work that won us the highest per capita incomes

at the turn of the century. It will be only by sheer hard work

and economic rationalism that will take us to the turn of the

next century with any credit.

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The National Party must set out to achieve the following

objectives:

The implementation of macro-economic policies that will

improve our competitiveness;

The- abandonment of the centralised indexed wages system,

giving flexibility and an opportunity for employees and

employers to opt out of the system by collective

bargaining and enforcible agreements;

The lowering of protectionism of our secondary industries

on a predictable but enforced timetable;

No further reductions of effective assistance to

agriculture until these programs are in place;

Reduction of taxes on such inputs as fuel;

Removal of any forms of capital taxation and death duties

that may be imposed by the Hawke Labor Government on the

rural producers;

Reductions of Government expenditure in real terms across

the board and to progressively move to budget balances;

Removal of unncessary regulations, interventions and

government charges such as export inspection charges;

DEPARTMENT OF THE PARLIAMENTARY LIBRARY

STATISTICS GROUP

AUSTRALIAN EXPORTS OF•SELECTED COMMODITIES,

1964-65T0 1983-84 (continued)

1964-65 1969-70 1974-75 1979-80 1983-84

Barley -Value ($m) - Current prices 18 23 187 354 499

- 1983-84 prices(a) 59 101 281 473 499

Quantity ('000 tonnes) 369 632 1,760 2,962 3,122

Quantity Index (1964-65= 100) 100.0 171.3 477.0 802.7. 846.1

Oats Value ($m) - Current prices 16 8 20 44 4.1

- 1983-84 prices(a) 52 31 38 67 41

Quantity ('000 tonnes) 366 219 267 472 289

Quantity Index (1964-65=100) 100.0. 59.8 73.0 129.0 79.0

Rice -Value ($m) - Current prices 8 17 43 130 - 92

- 1983-84 prices(a) 24 48 65 171 92

Quantity ('000 tonnes) 65 129 174 457 246

Quantity Index (1964-65=100) 100.0 198.5 267.7 703.1 378.5

Sugar, from cane -' Value ($m) - Current prices 113 116 644 667 621

- 1983-84 prices(a) 340 365 526 580 621

Quantity ('000 tonnes) 1,290 1,386 1,996 2,201 2,357

Quantity Index (1964-65=100) 100.0 107.4 154.7 170.6 182.7

(a) Calculated by multiplying quantity by the unit price in 1983-84.

Source : Exports of Major Commodities and Their Principal Markets , published by the Australian Bureau of Statistics.

COMPILED AT REQUEST BY THE STATISTICS GROUP OF THE LEGISLATIVE RESEARCH SERVICE.

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DEPARTMENT OF THE PARLIAMENTARY LIBRARY

STATISTICS GROUP

AUSTRALIA'S WORLD MARKET SHARE (a),

SELECTED COMMo DITIES, 1971 AND 1981

(percent)

Commodity 1971 1981

Barley 11.2 7.8

Butter 6.3 0.6

Cheese 2.7 2.9

Meat — Beef and Veal 19.0 14.4

— Mutton and Lamb 26.7 21.2

Raw Sugar 9.4- 16.6

Rice 2.4 3.4

Wheat 17.5 10.0

Wool 50.2 42.0

(a) Australian exports as percentage of total exports by World Market Economies.

Source : Yearbook of International Trade Statistics, published by the United Nations.

COMPILED AT REQUEST BY THE STATISTICS GROUP OF THE LEGISLATIVE RESEARCH SERVICE.

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DEPARTMENT OF THE PARLIAMENTARY LIBRARY STATISTICS GROUP

AUSTRALIAN EXPORTS

Valued in Valued in Share in

Period Current Prices 1979-80 Prices Period World Trade

$m $m %

1964-65 2,574 (a) 1964 2.0

1965-66 2,626 (a) 1965 1.8

1966-67 2,926 (a) 1966 1.7

1967-68 2,942 (a) 1967 1.8

1968-69 3,217 (a) 1968 1.6

1969-70 3,969 11,353 1969 1.7

1970-71 4,217 12,371 1970 1.7

1971-72 4,722 13,740 1971 1.6

1972-73 5,991 14,227 1972 1.7

1973-74 6,709 13,298 1973 1.8

1974-75 8,442 13,843 1974 1.4

1975-76 9,446 14,779 1975 1.5

1976-77 11,446 16,109 1976 1.4

1977-78 12,006 16,400 1977 1.3

1978-79 14,072 17,307 1978 1.2

1979-80 18,589 18,589 1979 1.2

1980-81 18,718 17,400 1980 1.2

1981-82 19,083 17,622 1981 1.2

1982-83 20,656 17,913 1982 1.3

1983-84 23,669 19,377 1983 1.2

f

(a) Unavailable.

COMPILED AT REQUEST BY THE STATISTICS GROUP OF THE LEGISLATIVE RESEARCH SERVICE FROM DATA PUBLISHED BY THE AUSTRALIAN BUREAU OF STATISTICS AND THE INTERNATIONAL MONETARY FUND.

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LIAPPENDIX 2DEPARTMENT OF THE PARLIAMENTARY LIBRARYSTATISTICS GROUPnFAMILY FARM INCOMEFarm Income per Family Farm (b)(c)Period (a) All IndustriesValued in 1980-81Actual Values prices (d)$ $1976-77 9,700 13,8371977-78 5,215 6,7991978-79. 16,316 19,6581979-80 19,685 21,5371980-81 16,870 16,8701981-82 19,770 17,9081982-83 - 210 - 1711983-84 16,954 12,8831984-85 12,149 (e) 8,887 (f)(a) Data is not available for years prior to 1976-77.(b) Farm income is defined as total cash returns for farmproducts less total cash costs (excluding paid familylabour) less depreciation, plus an adjustment forchanges in levels of trading stocks.(c) A family farm is a farm which is the dominant sourceof income for the owner. Hence company farms andsmall part-time farms are excluded.(d) Adjusted to 1980-81 prices using the C.P.I.(e) B.A.E. forecast.(f) C.P.I. for 1984-85 based on Budget forecast.COMPILED AT REQUEST BY THE STATISTICS GROUP OF THELEGISLATIVE RESEARCH SERVICE FROM DATA PUBLISHED BY THEBUREAU OF AGRICULTURAL ECONOMICS.

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APPENDIX 4

DEPARTMENT OF THE PARLIAMENTARY LIBRARY STATISTICS GROUP

RURAL INDEBTEDNESS

As at 30 June

Net Rural Indebtedness (a)

$m

Average 1963-66 1,189

1967 1,590

1968 1,857

1969 1,953

1970 2,082

1971 2,104

1972 2,094

1973 2,221

1974 2,402

1975 2,447

1976 2,597

1977 2,682

1978 2,960

1979 3,302

1980 3,772

1981 4,360

1982 4,725

1983 5,478

1984 5,923 (b)

(a) Excludes indebtedness to hire purchase companies, trade creditors and private lenders data for which is not available.

(b) Estimated by the B.A.E.

COMPILED AT REQUEST BY THE STATISTICS GROUP OF THE LEGISLATIVE RESEARCH SERVICE FROM DATA PUBLISHED BY THE BUREAU OF AGRICULTURAL ECONOMICS.

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APPENDIX 5

Prices received and paid by farmers

400

Prices paid

350

300

250

Prices Received _-

200

r ^

150 1 00

...

Ratio

50

SAE than

1972-73 1974-75 1976.77 1976-79 198"d1 1982-83

Source: BAE

FARM TERMS OF TRADE: THE DIFFERENCE BETWEEN

PRICES RECEIVED (INCOME) AND PRICES PAID (EXPENSES)