ANZ forecasts that by 2050 Australia will have to find $600 billion to improve farm productivity and another $400 billion for older farmers to sell to the next generation
Geoff Winestock and Julie-anne Sprague
Farm output has stalled over the past decade and requires massive injections of capital, more modern farming techniques, and efficient supply chains to cash in on booming demand for cereals and meat from Asia, according to a report for the ANZ Banking Group.
The farm sector could generate an extra $1.7 trillion for the economy up to 2050, according to the report, which was written by consulting firm Port Jackson Partners, and says that far from facing a food security threat, Australia can cash in on changes to Asian diets as the region becomes wealthier.
One of the obstacles to seizing market share from New Zealand and South America is a lack of capital, a problem exacerbated by foreign investment restrictions.
The report’s findings illustrate the disadvantage of restricting foreign investment in agriculture – a position pushed by Nationals senator Barnaby Joyce and others.
“National interest tests used to assess foreign investment lack clarity and transparency in relation to agricultural assets,” says the report, Greener Pastures: the global soft commodity opportunity for Australia and New Zealand.
Exports could triple by 2050
The report predicts the real value of farm exports could more than triple by 2050.
The report says strong global food prices have masked a decade of mostly flat farm production and exports, particularly for beef and wheat, which cannot be mainly blamed on drought.
“It would seem that as the world raced to capture global soft commodity opportunities, Australian agriculture came to a standstill, with no major engines of growth currently in motion,’’ it says. ‘’Moreover, the period also showed no signs of agriculture shifting to higher value products to compensate for flat production volumes.’’
The report argues that given the right safeguards foreign investment is the best way to fill the gap. But it says that the current debate in Australia where the Greens and some Nationals have called for limits on foreign investment is skewed. It calls for a “long-term perspective” that focuses on the risks and the benefits of foreign investment.
It endorses moves to collect more data on foreign investments and a review of the Foreign Investment Review Board.
Based on modelling by Port Jackson Partners, ANZ forecasts that by 2050 Australia will have to find $600 billion to improve farm productivity and another $400 billion for older farmers to sell to the next generation.
Australia faces a collapse in farm values
Without this capital, “Australia faces a collapse in farm values or delays to farm succession, which can only be sustained in the short to medium term,” it says.
Independent MP Bob Katter said he remained opposed to foreign farm purchases, even though he acknowledged foreign investment was “the only thing holding up land values”.
“I’m not ashamed to say I hope I’m a patriot and I don’t want to see my country owned by foreigners. We’re a sovereign power and we will own our own land,” he said.
The Coalition is considering tighter restrictions on foreign ownership of farms but the issue causes tensions between free-market Liberals and protectionist Nationals.
The Greens want tighter restrictions on foreign ownership of farms. Greens leader Christine Milne has previously argued that “Australia simply cannot afford to make weaker provisions of the Foreign Investment Review Board and the Greens have been arguing for much stronger restrictions because we need to keep control of our own land and water for food production.”The government has argued against this but is investigating an ownership register for agricultural land.
Drought not only reason for weak growth
The ANZ report argues that the weak growth in productivity in the agricultural sector over the past decade cannot be fully explained by the drought that broke in 2008.
To take advantage of the significant opportunity to export more agricultural produce, the report argues industries such as grains need to be reinvigorated through innovation and supply chain improvements.
GrainCorp chief executive Alison Watkins said Australia had enormous opportunity to harness growing demand for food but it would require farmers, industry and government to work together.
“We see a massive opportunity for agriculture, particularly grains,” Ms Watkins said.
“It is imperative for the world to boost production. We need to remove the obstacles and the barriers [that add costs].”
Ms Watkins, who is on the ANZ board, said moves by the Liberal and National Party to stymie complete deregulation of the grains industry was an example of how policy makers can impact the industry.
Failing to fully deregulate would increase GrainCorp’s costs, which she said would be passed on to growers.
She said it was a “dangerous mind set” for people to simply expect Australia to sit back and benefit from rising demand for food rather than working hard to capture the opportunity. This would require co-operation between farmers, industry and government, she said.
Older Farmers set in their ways
ANZ’s report raises concerns that farmers are getting older and more indebted and are increasingly reluctant to invest in new techniques that could boost production because it would involve risks and require a long-term horizon.
There is a shortage of graduates in agricultural science and Australia has lost its once leading position in agricultural research and development.
As a result Australian agriculture is increasingly split between efficient and under-performing farms. The top 20 per cent of farms have double or triple the yields of the bottom 20 per cent, even after adjusting for differences in rainfall.
The report calls for more information of agricultural land use to ease concerns that the rapid expansion of urban centres and the encroachment of large mines is reducing the area available for arable land.
The report quotes estimates that climate change could cut production of some commodities by up to 19 per cent by 2050.
It argues the answer is to develop better systems of water trading and invest in irrigation. It says drought relief packages should focus on protecting farms against future droughts.
The report says that New Zealand has handled many of these issues better, for instance by innovative investment structures to attract in fresh capital such as equity partnerships where farmers sell part stakes in farms to outsiders or professional management companies that run farm businesses for outside investors.
The report suggests foreign investment could occur without land ownership under “off take” agreements that guarantee to sell production.
The report says Australia should develop integrated plans for promoting sectors with potential. For instance, Tasmanian dairy could grow faster given investment in irrigation and Australia could switch from traditional crops to soy, safflower and biofuels.