As a great trading nation, trade liberalisation is a very good thing for Australia.
Promoting free trade is a great Labor tradition dating back to Whitlam, and taken to previously inconceivable levels by Hawke and Keating.
Howard, Rudd, Gillard and Abbott have followed that tradition and that bipartisanship has helped to achieve reform during a period in which it has been so difficult in so many other areas of public policy.
Australia is a country with a relatively small population and therefore, one with limited domestic savings and levels of consumption.
We could never have hoped to be amongst the wealthiest nations on earth without both foreign exchange earnings and the capital in-flows we need to fund our productive capacity.
For all of our history, we’ve relied on the exports and the savings of others for much of our national wealth; from the time our economy “rode on the sheep’s back” through to the more recent mining boom.
Living standards have risen more rapidly in recent decades because successive governments have tackled the hard reforms.
For the one hundred years leading up to the 1970s, our national economic model was one most defined by:-
• strong export incomes arising from high commodity prices underpinned by a heathy terms of trade;
• high levels of national income funded by a high tariff; and,
• inflated consumer prices made affordable by arbitrarily set domestic wages.
This model broke down when our terms of trade turned against us as the value of the things we exported - mainly commoditised agriculture and mineral products – continued to decline, and the value of the products we imported continued to rise.
Critical to the on-going success of the new Australian model – an open and internationally competitive economy –will be our capacity to grow the value of the future foreign earnings we secure for our agriculture products and the extent to which we can lift productivity in our agriculture sector.
Sadly, both our share of the global market and our farm productivity are in decline.
The former reminds us why further trade liberalisation is so important and it’s why Labor remains so committed to it.
But eliminating the barriers to trade in key markets that our competitors don’t face is only part of the solution.
First, because producers of commodities will remain price-takers.
Second, because in the short-run at least, Australian output will remain restricted by financial, infrastructure and natural resources constraints
That’s why Australia’s focus must not be just on volume, as important as it will be.
Rather, to fulfil our ambitions our key focus must be on value and margins. Government must take the lead in building on our clean and safe image by establishing a reputation as a provider of high value, high quality, and niche product. And of course, strengthening our capacity to protect and sustain that reputation.
It will require us to attract more investment into the sector – money for infrastructure, money for research and development, money for extension and money for marketing and branding.
On the productivity front, so much needs to be done. Particularly in the management of our natural resources – the productive capacity of our soils, the efficient use of limited water supplies, the most efficient farming practices.
Again, all of this will require a big step up in investment.
The 2012 ANZ report entitled Greener Pastures suggests that to reach our aspirations in agriculture, Australia will need $600 billion of capital investment, and another $400 billion will be needed to support demographic driven farm turnover out to 2050.
To put this in context — the agriculture sector in Australia would need investment of just over $26 billion per annum on top of existing levels of investment (recently around $16 billion) in order to meet the investment levels needed to achieve the "dining boom" type production targets needed to satisfy both demand and the cost of acquiring land and farm assets between now and 2050.
In other words just over two and a half times the most recent annual level of investment in agriculture. To put this further into context —aggregate investment in mining was $632 billion in the ten years to June 2014 while investment in agriculture was just $141 billion.
For agriculture to achieve its investment goal of $42 billion per annum for the next 38 years, it would need aggregate investment over the next ten years of $420 billion — three times the level of investment achieved in the ten years to June 2014.
So where will the financial capital come from?
There are many, including me, who lament the fact that a greater share of our superannuation savings does not make its way to Australia's agriculture and agri-business pursuits. And anything we can do to improve that outcome we should do.
But given the size of the investment challenge, it could never be enough.
According to the Foreign Investment Review Board around $167 billion of foreign investment was proposed for Australia in 2013/14. Of that, only $3.4 billion was invested in agriculture, forestry and fishing.
That’s why I’m so frustrated both by the quality of public debate around foreign investment and the Government’s changes to the regulation of foreign investment.
The competition for global capital is intense and changes to FIRB thresholds and application fees, along with rules which discriminate between nation-states, simply make Australia a less attractive destination in which to invest.
This article was first published in FARMONLINE on Monday, 10 August 2015.