RISK MANAGEMENT, EFFICIENCY, AND FARM ADJUSTMENT.
CROPPING INDUSTRIES
Data for cropping and cropping establishments shows these industries have adjusted for risk, improvements in efficiency through the substitution of capital for labour. and without Government intervention
There are strong downward trends in establishments along with strong upward trends in crop areas, indicating larger areas per establishment, indicating improved labour productivity (using establishments as a proxy for labour) implying substitution of capital to replace labour. This is evident in all grains area and all grains establishments, and major grain crops wheat, barley which show a rising area, as well as in grain, sheep, beef establishments. Likewise production of these major grains (wheat & barley) has trended upward since 1950. Values have also trended upward for all crops, wheat, barley and oats
Adjustments in the cropping industries have been associated with improvements in technology such as improved and large scale planting equipment and harvesting equipment. In addition to their capital component these technologies enable larger areas to be to be economically farmed with less labour in addition to requiring larger areas to reward the capital component. Together with capital labour substitution an additional input into this improvement in efficiency would be improvements in technology through changed farming practices such as the use of herbicides, genetic improvement in seeds and broad area machinery for weed control and better soil structure.
Larger more efficient establishments leads to businesses/establishments with a larger capital base better able to financially survive risks through low rainfall and low market prices thus avoiding the need for government support. This supports the thesis that Government support for struggling agricultural enterprises would be better directed towards assisting more efficient enterprises absorb less efficient financially unviable enterprises than to maintaining such enterprises through Government assistance policies. In my thesis I argue that in order to survive an enterprise must grow in terms of total assets through capital investment, improvements in technology, thus to remain financially viable enterprises should be assisted to grow not remain unviable.
DAIRY INDUSTRY
The dairy industry shows a more classic example of industry adjustment and improved efficiency over the period 1950 to 2020. The industry adjusted through a decline of 41,000 establishments leaving dairying Efficiency also increased when milk production increased by 69% from 5.3 million litres to 9 million litres. There is further evidence of efficiency gains where milk cattle numbers moved from around 4.7 million to around 1950 to 2.7 million, a decline of 48%. Furthermore over the same time period gross value of production went from $190 million to $4,491 million at current prices.
Over this period the of Government removed its support to the industry allowing efficient enterprises to develop in areas with a comparative advantage in dairying. The most significant increases in production took place in Victoria with a 177% increase and Tasmania a 415% increase Adjustment would also have been aided by the injection of capital into labour saving designed milking practices such as herring bone milking sheds or rotolactors.. Another contributing factor would have been improved breeding practices through Artificial insemination from proven stock.
INDUSTRY FEATURES.
POTATOES
I chose to include potatoes in the data because potatoes were an important cash crop in the area where I grew up; Thorpdale, Gipslamd, Victoria. From around the beginning of the data series, the 1950s, potatoe growing was emerging from the wartime controls on production of the then Department of Supply where growers were given a quota to supply a given quantity to the market for a given price.
After the removal of these restrictions and the move to open market conditions, the industry went into a situation of boom and bust with over supply followed by a shortage of with high prices to the extent potatoes were sometimes quoted as gold nuggets by market observers
I undertook a study to investigate the potato market as a final year project for my degree in Agricultural Economics at the University of New England (1964). My study concluded there was around a two year cycle in production whereby following a year of low production and high prices, area planted would increase in response to good returns and opportunist growers entering the market. Most growing occurred in mixed farming areas where opportunist farmers with alternative sources of income would turn to growing potatoes in response to high prices the previous season contributing to over supply and depressed the following year.
PRODUCTIVITY CHANGES
There has been marked changes over the period in productivity and production geographically ; area grown decreased by 49%,whilst production increased by 149%. Historically Victoria had largest area at 30% of Australia s area now South Australia has largest area at 30% of Australia s area. In South Australia area sown increased by 190% associated with a reduction in all other states and a production increased of 700%
MARKET CHANGES
The market was primarily the fresh market in state capitals. Over the period demand has moved to the use of potatoes by processers to the extent that the ABS now differentiates data for fresh market and he processing market. More than 50% of potato production now goes to processing.
RICE
It is ironic and questionable that the world's driest continent should allocate it's most limited resource (water) to growing rice, the worlds most water demanding crop.
Data on rice is a good indicator of drought conditions in the Murray-Darling basin with minimal plantings and production in drought years; 2008,2009 and 2019. It is ironic with the worlds driest nation growing one of the worlds most water hungry crops, but there is some consolation to note that the water market works to provide minimal water to a low net margin for water crop.
THE WATER MAARKET
The data suggests that the pricing of scarce water is effectivly allocating water to uses of highest marginal return. It is also evident from the economics of water pricing and the frequency of drought years that rice growing should be viewed as an opportunistic crop in Australia.
Average production is 525,000 tonnes, average area planted 68,000 hectares. In drought years both production and area planted are far below these figures (greater than one standard deviation).
COTTON
Cotton is another example of the growth and development of a successful agricultural industry, despite the alledged need by buerocrats for government assistance in the beginning for the industry to survive.
Production took off over 30 years without government assistance from the early 60s to reach 1 million tonnes by the early 90s while the value of production reached over $1 million around the same time. There is no evidence to suggest this growth would not have occurred without early Government intervention. Most production is in the black soil plains of north western NSW and south west Queesnland. There are around 800 establishments in the industry mostly family operated businesses.
After early failures on the Ord River development in the Kimberly , cotton growing technology has shown potential to meet the develop the north myth following recent production in the Kimberly Ord River region of Northern West Australia and in the Northern Territory from around 15 establishments
GRAPES
Grapes have been grown for a long time mostly in South Australia, Victoria and NSW. There are three markets for grapes, mainly for wine and also for dried fruit and the fresh (table) market.
From 1980 to 1997 there was almost exponential growth in the industry in the grapes market through demand for exports; area increased 170%, production 123% and value 480%.. The largest of these increases took place in South Australia the top state for the grapes industry. Following this growth burst there has been the emergence of the industry in Tasmania; wine grapes , and Northern Territory; table grapes. together with an increase in Western Australia in area, production and value around the turn of the centuary for the wine market.
Apart from an anomaly with the tax on alcohol in wine there is little government intervention in the industry.
A relatively small quantity of grapes has been grown in Queensland mainly for the table market.
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