◆

522 Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

Land use changesSignificant changes in land use have occur-red in broadacre agriculture in Australiaover the past decade. Sheep numbers andwool production have declined substantially,while cropping activities and cattle produc-tion have increased. These and otherchanges in agricultural land use have impli-cations for policies directed to ensuring thelong term viability of farming and theproductive capacity of the resource base inrural Australia.

Concern for these issues has led toincreased interest in the factors that de-termine land use change as well as thecapacity to predict patterns of land use inthe future.

Climatic conditions and features of thenatural resource base, such as soil types andtechnology, play an important role in de-termining agricultural land use options.Economic factors that affect net returns toagricultural activities, such as commodityprices and input costs, are equally impor-tant in determining the choice betweenproduction alternatives, including produc-tion intensity and product mix.

To understand what has driven land usechange in the past and to predict futurepatterns of change, it is therefore necessaryto develop a comprehensive and integratedunderstanding of the influence that theseeconomic factors have on changes in agri-cultural land use.

In this article, changes in land use acrossbroadacre farms in the 1990s are examinedusing data collected as part of ABARE’sAustralian agricultural and grazing indus-tries survey. Measures of production mixand land use intensity are calculated for theyears 1989-90 to 1997-98. Changes in thesemeasures are examined in the context of

Broadacre agricultureChanges in land use and returns in Australia in the 1990s

Stephen Beare, Lisa Chapman and Anna Heaney

Given the increasing interest in landuse change and its implications forthe sustainability of both agricul-ture and the natural resource base,

an understanding of the factors thatdrive this change is important.

Most attention has focused on theinfluence of climatic conditions andfeatures of the natural resource base.

To date, little has been said aboutthe influence of other factors such as

commodity prices.

◆This preliminary research suggests

that economic factors such asrelative commodity prices and thedirection of aggregate commodityprice changes are likely to explain

a significant proportion of thevariation in patterns of land use

and land use intensity in broadacre agriculture.

Project: 1588 Contact: Lisa Chapman +61 2 6272 2091

523Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

relative changes in key commodity pricesand farmers’ terms of trade (the ratio ofoutput prices received to input prices paid).These relationships have direct implicationsfor financial performance.

The analysis is conducted at the nationaland regional level using a statistical map-ping technique. The technique highlights thedegree of variation in land use changes thatoccur across broadacre agricultural zones.

Production mixABARE collects farm level survey data forthe major broadacre industries acrossAustralia. Included are farms growing cerealgrains, coarse grains, oilseeds, and pulses,or running sheep or beef cattle. These farmsaccount for over 90 per cent of agriculturalland use in Australia.

Based on the survey data, the productionmix alternatives used in this analysis havebeen simplified to wool production (esti-mated by the number of sheep on hand),beef production (the number of beef cattleon hand) and cropping (the area planted towheat and other broadacre crops). To exam-ine changes in broadacre land use, theproportion of land allocated to each of theseproduction alternatives was calculated foreach year.

For farms engaged in a combination ofthe three production alternatives, the pro-portion of the production mix allocated tocropping was estimated as the percentageof farm area planted to broadacre crops. The

remainder of the farm area was assumed tobe used for wool or beef production. A‘sheep equivalent’ measure was used toconvert beef cattle to a comparable numberof sheep in terms of stocking rate. This ratewas used to estimate the proportion of beefand wool in the production mix. It wasassumed that every head of cattle was equiv-alent to eight sheep.

The average production mix for broad-acre farms has changed significantly overthe past decade. Land use in wool produc-tion declined from 46 per cent of the produc-tion mix in 1989-90 to a low over the periodof 37 per cent in 1995-96 (figure A). Therehas been a corresponding increase in therelative importance of both beef productionand cropping in the land use production mixover the decade.

Estimates by the Australian Bureau ofStatistics of the total number of sheep andbeef, as well as estimates of the area croppedin Australia over the decade, support thechanges in production mix that have beenobserved at the farm level. The number ofsheep fell by 30 per cent over the period —from over 170 million in 1989-90 to less than120 million in 1997-98. Over the sameperiod, beef cattle numbers increased byaround 4 per cent. The area planted to wheatincreased by around 16 per cent. The areaplanted to coarse grains including barley,oats, sorghum, maize and triticale increasedby close to 30 per cent, and the area plantedto oilseeds more than doubled (ABARE1998).

A

On broadacre farms in the 1990s, while the relative importance of wool production in the land use production mix declined, there was a corresponding increase in the relative importance of both beef production and cropping

Acreage production mix for broadacre farms in Australia

1989-90

1991-92

1993-94

1995-96

1997-98

%

30

20

40

50

Beef

Sheep

Cropping

524 Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

Influence of economic factorsWhile climate, soil types and technologymay determine production options, eco-nomic factors influence the extent to whicheach of these options is taken up on farm.One of the most important factors is likelyto be relative price movements betweendifferent commodities. To increase their netreturns, farmers may adjust their produc-tion mix in response to these changes in rela-tive prices.

To analyse movements in relative com-modity prices over the past decade, threeprice ratios were constructed: cropping tosheep, beef to sheep and cropping to beef.The gross unit value of wheat was found tobe a reliable proxy for an index of broadacrecropping prices. Average auction prices forgreasy wool and a weighted average of sale-yard prices for yearling, ox and cow havebeen used to represent wool and beef pricesrespectively.

Changing between beef, cropping andwool production is not costless and in manycases can involve a considerable investment.As a consequence, farmers are unlikely tomake significant adjustments in theirproduction mix in response to short termchanges in what have been volatile relativereturns. At the same time, the capacity torespond to longer term trends in commod-ity prices is essential if the viability of thefarm business enterprise is to be maintained.The general trend in beef, cropping andwool returns has driven the considerable

change in production mix that has beenoccurring on broadacre farms.

Overall, commodity prices have beenrelatively volatile during the 1990s. Wheatprices peaked in 1995-96, more than 20 percent higher in real terms than in 1989-90 and1997-98. Beef prices also fluctuated in realterms over the period, peaking in 1993-94and dropping more than 30 per centbetween 1993-94 and 1996-97. Wool pricesfell by almost 35 per cent between 1989-90and 1992-93 and have not recovered sincethat time.

Fluctuations in commodity prices haveresulted in considerable variability in rela-tive commodity price ratios over the 1990s(figure B). The ratio of cropping prices towool prices increased in the early 1990s. Theratio rose sharply to peak in 1995-96 whenwheat prices increased by 9 per cent in realterms, and wool prices dropped substan-tially. Crop prices relative to wool prices fellover the two years to 1997-98 but the ratioremains higher than in 1989-90.

As the price of crops increased relative tothe price of wool, on average, farmers re-duced their sheep numbers and increasedthe area planted to crops.

The ratio of crop prices to beef prices overthe period followed a similar pattern as theratio of crop prices to wool prices, rising inthe early 1990s and peaking in 1995-96. Cropprices relative to beef prices increased onaverage over the period. This is consistentwith the increase in the proportion of crop-ping in the production mix being higher, on

BGeneral trends in beef, cropping and wool returns have driven the considerable change in production mix on broadacre farms. As the price of crops increased relative to the price of wool, on average, farmers reduced their sheep numbers and increased the area planted to crops

Relative price ratios

Cropping/beefBeef/sheep

Cropping/sheep

index

100

150

200

1989-90

1991-92

1993-94

1995-96

1997-98

525Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

average, than the increase in the proportionof beef.

The beef to sheep price ratio showed anupward trend until 1993-94. However, in1994-95 it fell by more than a third and hasnot improved much since. Positive influ-ences on beef returns since the mid-1990shave included substantial increases in livecattle trade and beef feedlot production,particularly in northern Australia.

Regional changes in productionmixRegional variation in the physical attributesof farms is a recognised characteristic of theAustralian farming sector (ABARE 1999).Climate, soil type and water drainagepatterns, among other things, combine toinfluence regional patterns in commodityproduction. These physical attributes con-strain each farmer’s flexibility to alter pro-duction mix and capture higher net returns.

ABARE survey farms with broadly simi-lar physical characteristics are classified asbelonging to one of three geographic zones:• the pastoral zone, which includes most

of the northern tropical areas and the aridand semiarid regions of Australia. Agri-cultural land use in this zone is charac-terised by extensive grazing of nativepastures and only limited cropping.

• the wheat–sheep zone, which has aclimate and topography that generallyallows regular cropping of grains in addi-tion to the grazing of sheep and beef cattleas rainfall is generally adequate for pro-ducing a variety of pasture species,usually as part of a crop–grazing rotation.

• the high rainfall zone, which forms thegreater part of the coastal belt and adja-cent tablelands of the three eastern main-land states, small areas in south easternSouth Australia and south western West-ern Australia, and the whole of Tasmania.Higher rainfall, steeper topography andgreater humidity make the high rainfallzone less suitable than the wheat sheepzone for grain production but well suitedto grazing and producing other crops(ABARE 1999).The changes in the proportion of sheep,

cropping and beef in the production mixover two three-year periods are shown in

maps 1. When the proportion of land usedin different activities on a farm is mapped,the proportions are best interpreted as landuse probabilities. That is, the probability thatland within a region depicted on the mapwill be used to produce either beef, crops orwool.

In the maps, the ‘early 1990s’ periodincludes data from 1989-90 to 1991-92 andthe ‘late 1990s’ period includes data from1995-96 to 1997-98. The data were averagedover three-year periods to remove shortterm seasonal fluctuations, allowing theanalysis to focus on the overall trends.

As shown on the maps, sheep productionhas declined as a proportion of the produc-tion mix across large areas of Australia. Therelative importance of sheep in the produc-tion mix has declined for broadacre farms inthe wheat–sheep zone across all of the coun-try. In the early 1990s, sheep production wasthe dominant land use in the pastoral zoneof central Queensland, New South Walesand southern South Australia. However, bythe late 1990s, the proportion of sheep in theproduction mix had decreased significantlyin these areas.

In the high rainfall zone in WesternAustralia, South Australia and Victoria thedecline in sheep production within theproduction mix appears to have been lessmarked. This may suggest that the produc-tion alternatives in these regions might beconstrained by climatic conditions and farm-ers may be unable to make many changes totheir production mix. Further, some land-holders in these regions are specialist lambproducers rather than wool producers.Lamb prices have increased in real termsrelative to the returns to both cropping andbeef production, which may have providedsufficient incentive for farmers in theseregions to maintain sheep production overthe period (ABARE 1998).

While at the national level the areacropped increased by more than 15 per centover the period, the increase in cropping asa proportion of farmers’ production mixoccurred primarily in the wheat–sheep zoneof the southern states. An exception to thisis in Western Australia where the propor-tion of cropping has increased not only inthe wheat–sheep zone but along the edge ofthe high rainfall zone as well.

526 Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

Land use sharesBroadacre farms

Crops

Sheep

Beef

1

Early 1990s Late 1990s

under 20 per cent20–40 per cent40–60 per cent60–80 per centover 80 per centno data

Early 1990s Late 1990s

Early 1990s Late 1990s

527Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

Despite the increasing returns to croppingrelative to the other broadacre productionalternatives, farmers in or near the wheat–sheep zone are more likely than those in theother zones to have the seasonal conditionsand soil types suited to cropping. Never-theless, increases in the area cropped appearto have extended into the border of thepastoral and wheat–sheep zones and thehigh rainfall zone in Western Australia. Thissuggests that farmers on more marginalcropping land changed their production mixtoward cropping when returns increasedsufficiently to cover the costs incurred inapplying fertiliser and chemicals to produceviable crops. As indicated in the maps, therewas little change in cereal cropping inQueensland.

At the national level, beef productionincreased by around 10 per cent over theperiod. As shown in the maps, farmersengaged in beef production are located innorthern parts of Australia. Between theearly and late 1990s the proportion of beefproduction in farmers’ production mixincreased most in central Queensland andnorthern New South Wales. This is likely toreflect the production alternatives availableto farmers in these two regions given theirclimatic conditions, and the increase inreturns to beef production.

The maps highlight the influence thatclimatic conditions and the suitability of thenatural resource base have on the produc-tion mix in broadacre agriculture. Changesin production mix away from wool produc-tion and into crop production occurredprimarily in the wheat–sheep zone inWestern Australia, South Australia, Victoriaand New South Wales. Changes in produc-tion mix toward beef production occurredmainly in central Queensland. Changes inland use in these areas reflect the suitabilityof the resource base for a wider range ofagricultural production. Farmers in theseregions have greater flexibility to adjust tochanges in commodity prices and, therefore,respond to alter their terms of trade.

Regional terms of tradeRegional changes in farmers’ term of tradeover the period 1989-90 to 1997-98 areshown in map 2. Generally, in the wheat–sheep zone, farmers have been able to

increase production of grains and oilseeds,taking advantage of favorable movementsin crop prices. As a consequence their termsof trade tended to improve over the latteryears of the period.

In contrast, input costs increased relativeto output prices on most farms in the highrainfall and pastoral zones, where produc-tion is largely restricted to livestock. As aresult, farmers’ terms of trade generally fellin these regions. It should be noted that inmeasuring the terms of trade it was notpossible to take account of factors such asthe increase in live cattle trade, so the poten-tial terms of trade from beef production havebeen understated in some regions ofAustralia.

Influence of economicfactors on land use intensityIn the short term, changes in farmers’ termsof trade are likely to result in a change in theuse of variable farm inputs such as fertiliserand veterinary chemicals. In the longer term,changes in the terms of trade will be re-flected in changes in farm investments infarm capital, including farm machinery and,in some cases, the productive capacity of theland.

Since land is generally a fixed input in theproduction process, any increase in outputin the short term must come from a corre-sponding increase in other (variable) inputs.

A Changes in terms of tradeBroadacre farms

2Decreasing terms of tradeIncreasing terms of tradeno data

528 Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

Therefore, increases in variable costs per unitof land may be used to represent an increasein the short term intensity of land use asfarmers increase inputs to support increasedproduction.

In this analysis, input intensity is esti-mated as a cost per hectare of land, deflatedby the index of prices paid. Farm costsinclude expenditure on fuel, fertiliser, chem-icals, seed and fodder, and wages. Interestpayments and expenditure on repairs andmaintenance have been excluded from thisanalysis. While input use on broadacrefarms has fluctuated in the 1990s, farm costsper hectare, overall, have increased byaround 6 per cent (figure C).

As farmers alter their input intensity, theoutput intensity from agricultural produc-tion should also change. In this analysis,output intensity has been estimated on a perhectare basis using total cash receipts plusthe change in trading stocks, deflated by anindex of prices received, expressed in 1997-98 dollars. The components of total cashreceipts include revenues from the sale oflivestock, livestock products and crops, plusthe value of livestock transfers off theproperty.

In contrast to Australian agriculture as awhole, there has not been a substantialincrease in the total volume of agriculturaloutput from broadacre farms.

Between 1989-90 and 1997-98, the totalvolume of agricultural output increased by17 per cent — driven largely by increasedcotton, dairy, sugar and viticultural produc-

tion (ABARE 1998) — while broadacre farmoutput increased by only 8 per cent(figure C).

Regional changes in land useintensityThe relationship between input and outputintensity has an important influence on theviability of farm enterprises. The extent towhich farms can take advantage of an im-provement in their terms of trade dependson their ability to contain production costsand/or capture higher prices as they expandoutput. The ability of farms to maintainviability when their terms of trade declinedepends on their capacity to sustain produc-tion as they reduce their costs.

Generally, input intensity increased inareas where terms of trade increased, includ-ing the live cattle regions of northernAustralia. Input intensity also increased inareas of wool and lamb production and insome high rainfall beef areas. Changes inoutput intensity were similar but extendedmore into areas of beef production in northwest Western Australia and southernNorthern Territory.

The overall changes in both input andoutput intensity are summarised at a zonelevel in figure D. Increases in input intensityoccurred mostly in the wheat–sheep zone.These areas are generally more climaticallyand topographically suited to intensive agri-cultural production, which allowed farms totake advantage of higher grains and oilseedsprices.

C

Increases in both average farm costs and farm receipts on broadacre farms throughout the 1990s indicates increasing input and output intensity respectively

Average farm costs and receipts per hectareIn 1997-98 dollars

$/ha

15

20

25

30

35Average farm receipts (incl trading stocks)

Average farm costs

1989-90

1991-92

1993-94

1995-96

1997-98

529Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

In the wheat–sheep zone, the percentageincrease in output per hectare was greaterthan the percentage increase in input use.This partly reflected the good seasonalconditions for crop yields in the later part ofthe decade. The greater increase in output,in combination with improved terms oftrade in this zone, can be expected to haveresulted in a significant improvement infarm performance.

In the high rainfall zone, input use perhectare fell further than output in percent-age terms. Further, the terms of trade de-clined more sharply in the high rainfall zonethan in other zones. This was brought about

by the concentration of finer wool produc-tion in these areas and the sharp decline infine wool prices. Between the two periods,prices for 21 micron diameter wool fell byover 16 per cent in nominal terms whileprices for wool above 25 microns increased.

Overall, changes in input and outputintensity in the pastoral zone do not providea clear picture of what occurred in thisregion of Australia, largely because of offset-ting changes in beef versus wool production.The regional changes in the level of inputand output intensity that occurred through-out the pastoral zone are shown together inmaps 3.

Change in input and output intensityBroadacre farms

3

Input intensity Output intensity

Decreasing intensityIncreasing intensityno data

D Change in input and output intensity, by zone

Pastoral zoneHigh rainfallzone

Wheat–sheepzone

S/ha

30

60

90

120

150

Outputs late 1990sOutputs early 1990sInputs late 1990sInputs early 1990s

530 Australian Commodities, vol. 6, no. 3, September quarter 1999

LAND USE CHANGES

Both input and output intensity increasedin northern Australia, which may reflect themarket opportunities associated with theexpansion of live cattle trade. Both input andoutput intensity generally fell in the rest ofthe pastoral zone, especially in regionswhere wool production was a large propor-tion of the product mix (map 1). This couldreflect a move to more extensive woolproduction in an effort to reduce costs.

Furthermore, sheep production in thepastoral zone is concentrated on coarse woolproduction. As prices for coarse wool didnot fall as sharply as those for fine wool,terms of trade may not have decreased tothe same extent in the pastoral zone as in thehigh rainfall zone. As a consequence, farmperformance could be expected to have beenstronger in the pastoral than in the high rain-fall zone.

Farm performanceIn the early 1990s Australia’s broadacre agri-culture faced an adverse economic environ-ment. Wool prices had declined sharply andwool producers were taxed to cover thefailed operation of the buffer stock scheme.Alternative production options were limitedas beef prices were also declining in nomi-nal and real term.

During the later part of the 1990s, relativereturns to broadacre commodities shifted.While wool prices remain subdued, grainprices lifted. Traditional markets for beef didnot change significantly but new marketswere developed. The expansion of live cattletrade and the use of feedlots have improvedthe returns to beef production in manyregions. The deregulation of the domesticgrains and oilseeds market over the 1990shas led to more diversified crop production,with producers able to respond to changesin the markets for grains, pulses andoilseeds, achieving higher net returns as aconsequence.

The majority of Australian farmers havelargely adjusted to changes in their terms oftrade and have improved their financialperformance over recent years (map 4).

In general, financial performance in thepastoral zone improved over the decade,with some farms taking advantage ofmarket opportunities in live cattle trade and

A4 Change in profitBroadacre farms

Decreasing profit at full equityIncreasing profit at full equityno data

others adopting more extensive productiontechniques to cut per unit costs of produc-tion. One exception is in south west Queens-land. This may be an indication of a resourcedegradation problem such as the infestationof woody weeds (Barson et al. 1993).

Farms in the wheat–sheep zone alsorecorded increases in farm business profitover the decade. In the early 1990s averageprofits were generally negative, but in thelate 1990s profits were generally positive,following improved grain prices andincreased grain production. A more diver-sified production base may assist cropproducers to manage volatile world marketsfor grains in the future.

Financial performance in the high rainfallzone of the eastern states generally declinedover the period. However, farm financialperformance improved in the high rainfallzone in areas closer to the wheat–sheep zonewhere farmers were able to change theirproductivity mix and shift into crop produc-tion.

ReferencesABARE 1998, Australian Commodity Statistics 1998,

Canberra.—— 1999, Australian Farm Surveys Report 1999,

Canberra.Barson, M., Evans, G., Fordham, D., Walcott, J.

and White, D. 1993, Opportunities for regionalrural adjustment, Bureau of Resource SciencesWorking Paper, Canberra, October.