The impacts of Australian trade and agriculture policies for

farmers (and everyone else)

Michael Cebon

Global Trade Watch“From Plains to Plate” Conference

Adelaide, Feb 12, 2010

1973:• 185,000 farms • Employing 377,000 Australians• Producing gross value of $47.15 billion

($09/10)• And net value of $20.72 billion ($09/10)• Using $17.66 billion of debt ($09/10)

2009:• 140,704 farms

• Employing almost 318,000 Australians

• Producing gross value of $45.91 billion ($09/10)

• And net value of $8.38 billion ($09/10)

• Using $22.5 billion of debt ($09/10)

What Changed?• In the 1970s, agricultural policy moved from:

– market intervention to ensure stability and prosperity for farmers, high levels of government intervention, including protection, regulation and economic and social support.

• To a radical vision to transform agriculture:– An end to government intervention would allow an

export-focused rural sector to compete “freely” at an international level by increasing efficiency, productivity and output.

Beginning in 1973, the new (bipartisan) policy involved:

• Protection (tariffs) reduced from an average of 30% in 1970-1 to around 10% in the mid-1980s to 0 for most agricultural products now.

• Roll-back of government support (subsidies) for agriculture from about 8% of production in the mid-1980s to about 5% now, compared to the OECD average of 27%, 34% in the EU and 11% in the USA

• Deregulation of cooperative marketing arrangements and price supports in almost all markets.

• “Structural Adjustment” - “Get Big or Get Out” where “failures are part of the steering mechanism that directs an economy toward prosperity through the production of wealth” (Gow, 1994)

Through the 1980s and 1990s these reforms became codified in the

“Washington Consensus”• Spread around the world via “structural

adjustment” programs by the International Monetary Fund & World Bank

• Trade liberalisation, deregulation and privatisation have transformed agriculture across more than 100 countries via IMF & WB policies

The aims of these policies have been:

• Maximise production & export, and therefore maximise economic output (growth)

• More efficient & productive farms maximise farmers’ incomes

• Lower prices for consumers

Actual Impacts for Australia?

Production has risen…

Total Volume of Australian Farm Production 1973-2009 (Index)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

Real Gross Value of Farm Production 1973-2009 (2009/10 dollars)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

$million

But the real value of production hasstagnated…

So farming has become (almost) irrelevant to the national economy…

Gross Farm Product's Contribution to GDP 1974-2009 (%)

0

2

4

6

8

10

12

14

16

18

20

1974-751976-771978-791980-811982-831984-851986-871988-891990-911992-931994-951996-971998-992000-012002-032004-52006-72008-9

And for farmers?

“Going back to the last ten years, production [has been] getting bigger . . . [but] we have been going with less and less every year, even though production has been coming up. But things are just going backwards”– Australian farmer, 27y/o (Gray & Lawrence, 2001)

“Farmers operate in an economy where competitiveness and efficiency must be improved and output increased in order to maintain net income and ensure survival. The resultant increases in output place downward pressure on agricultural prices and, accompanied by increasing costs from competing demands for resources from the non-farm sector, are manifested in a cost price squeeze” – RIRDC, 2000

Increased production has driven down prices, while deregulation and the end of protection have left farmers exposed…

Farmers' Terms of Trade 1973-2009 (Index)

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

210.0

230.0

250.0

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

While increased input use and prices have driven up costs

Real Farm Costs 1973-2009 (2009/10 dollars)

$20,000

$22,000

$24,000

$26,000

$28,000

$30,000

$32,000

$34,000

$36,000

$38,000

$40,000

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

$million

As a result, farmers incomes have fallen…

Real Net Value of Farm Production 1973-2009 (2009/10 dollars)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

$million

Farmers’ debts have soared…

Total Real Farm Debt 1973-2009 (2009/10 Dollars)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

$million

About 45,000 farms have disappeared (about 5 per day)…

Number of Agricultural Establishments 1973-2008

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

190,000

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

And jobs have disappeared from farms and rural areas

Total Farm and Rural Employment 1973-2009

300

320

340

360

380

400

420

440

460

480

500

1973-741975-761977-781979-801981-821983-841985-861987-881989-901991-921993-941995-961997-981999-002001-022003-42005-62007-8

'000 Persons

Total FarmEmployment

Total RuralEmployment

So what about consumers? Surely we’re the winners here!

Since 1980, the price of bread has increased at more than double the rate of the price of wheat

Wheat vs Bread Prices 1980-2009

0

50

100

150

200

250

300

350

400

1980-811982-831984-851986-871988-891990-911992-931994-951996-971998-992000-012002-032004-052006-072008-09

Cents

Bread($/slicedwhiteloaf)Wheat(c/kg)

Since 1980, the price of beer has risen at more than triple the rate of the price of barley

Barley vs Beer Prices 1980-2009

0

50

100

150

200

250

300

350

400

1980-811982-831984-851986-871988-891990-911992-931994-951996-971998-992000-012002-032004-052006-072008-09

Cents

DraughtBeer(c/285mlglass)

Barley(c/kg)

Since 1980, the price of steak has increased 45% faster than the price of cows

Cow vs Steak Prices 1980-2009

0

500

1000

1500

2000

2500

1980-811982-831984-851986-871988-891990-911992-931994-951996-971998-992000-012002-032004-052006-072008-09

Cents

RumpSteak(c/kg)

Cow -FarmGatePrice(c/kg)

Since 1980, consumer prices for milk have risen 75% faster than farm-gate prices

Milk - Producer vs Consumer Prices 1980-2009

0

20

40

60

80

100

120

140

160

180

200

1980-811982-831984-851986-871988-891990-911992-931994-951996-971998-992000-012002-032004-052006-072008-09

Cents

Milk -ConsumerPrice (c/L)

Milk -producerprice (c/L)

So if the Australian economy, farmers and consumers have all been losers from the last 35 year of farm reform, who

has won?

But don’t we need to over-produce to feed the hungry people in the rest of

the world?

“Australian agriculture's tragedy can be attributed to the elite thinkers who crafted what passed for "rural and regional policy" in a succession of governments spanning the past quarter century. Still frozen in a post-colonial theory that revolves around "get big or get out', economies of scale, point theory, and the cherished hope that eventually the world would adopt a truly free market philosophy, they have instead delivered an economically and ecologically unsustainable future. . . . the old theories are now found wanting, and it is time for a new paradigm for agriculture and the rural and regional communities that depend on it.”

– National Party MP De-Anne Kelly, 2002

“We need the World Bank, we need the IMF, we need all the big foundations, we need all the governments to admit that for 30 years we all blew it, including me, when I was president. We blew it. We were wrong to believe that food is like some other product in international trade. And we all have to go back to a more environmentally responsible, sustainable form of agriculture. . . . We should go back to a policy of maximum food self-sufficiency. It is crazy for us to think we can develop countries around the world without increasing their ability to feed themselves.”

– Bill Clinton, World Food Day 2008