EMBRACING THE 21 ST CENTURY – THE ROAD TO A MORE SUSTAINABLY PROFITABLE AGRICULTURE SECTOR
NATIONAL FARMERS’ FEDERATION NATIONAL CONGRESS
THURSDAY, 27 OCTOBER 2016
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It is a great pleasure to address the NFF’s premier event.
In my more than three years in the agriculture portfolio – first as Minister and then as the Shadow Minister – I’ve learned a lot, experienced a lot, and made more than a few good friends along the way.
I’ve nothing but the greatest respect for those who produce our food and fibre.
The work can be hard, the hours long, prices unpredictable, and the climate unforgiving. Like any business, risk is ever present but that is particularly true of agriculture.
I’m advised you’ve had a very successful first day and heard some quality and thoughtful contributions.
I’m also aware you had a bit of colour and movement.
The Minister’s contribution prompts me not to respond, but to share a few reflections on both the state of politics and what it might mean for policy advocacy.
Politics is changing. It’s changing dramatically and rapidly.
It’s changing fastest in Western democracies – the emergence of Donald Trump in the US, Brexit and a divided Labour Party in the UK, are the most high profile examples.
But there’s much more. Just seventeen months ago, 62 per cent of Irish voters supported a same-sex marriage referendum. Who’d have thought!
This rapid change is not just confined to the West. For too many, memories of the Arab Spring have faded quickly. In July last year, the Government of Turkey survived a coup d’état.
A year ago Spain effectively moved away from a two-party system to a four-party system. From a norm which provided 33 years of political stability to an unknown, unknown.
For most of those 33 years the two major parties in Spain shared around 80 per cent of the vote. They now share barely 50 per cent.
As social researcher Hugh Mackay pointed out last week, from 1949 to 2007, Federal Governments were defeated on only five occasions. That’s five times in 58 years.
But since 2007, no Prime Minister has lasted a full three-year-term. It’s not just the Leaders; the Rudd/Gillard Government effectively lost the 2010 election but managed to form a minority government.
Another first-term Government - that of Abbott and then Turnbull - survived the 2016 election. But by the closest of margins.
In 1910, the two major parties in Australia shared 95 per cent of the primary vote.
At the recent election it dropped to just 76 per cent – a twenty point fall.
It is tempting to concede that in the not-too-distant future, 1 in 3 Australians will be voting for someone other than on of the traditional major parties.
This will have consequences on many fronts but two stand out.
First, consequences for the major political parties. Second, consequences for industry leadership and advocacy groups.
For the major parties, the challenges are more obvious. Loyalty and tradition cannot be relied upon as they once were. Fewer people are voting for a particular party just because that’s what their parents and grandparents did.
Voters have become more discerning; less concerned about what a particular party did 60 years ago, but more interested in what they are offering now.
Affiliations are fracturing. Union donations are making their way to the Greens for example, and business interests are increasingly hedging their bets.
Industry peak bodies could once be confident the party they were backing would enjoy longevity in government. But today, two-term, let alonr three-term governments are looking more unlikely than likely.
Just as the policies of the major parties must consolidate a smaller proportion of the primary vote, industry groups will need to give loyalty to policy principle over any historical partnership or political ideology – whether that relationship was formal or informal.
In other words, peak bodies may need to consider putting traditional political relationships aside in order to secure best policy outcomes over time.
This re-orientation of relationships will be critical to securing policy continuity in a range of areas, particularly in those sectors where tough issues and decisions lay ahead.
I could think of no sector more in need of policy continuity than our agriculture sector.
Australian agriculture is at a fork in the road. We can stay on the current path to moderate success, or take the high value road to more prosperous outcomes.
Given growing middle class wealth in Asia, the opportunities are significant.
But the rewards won't come without hard-work. They won't come without new thinking and new attitudes, and they won’t come without a high level of political bi-partisanship.
Australia's key competitive advantage is not our geography, as important as that is.
Yes, Australia’s proximity to South East Asia in particular, provides us with a freight advantage. But that edge is diminishing as freight costs fall. And in the markets of North East Asia, no such advantage really exists.
Australia’s key competitive advantage is our reputation as a provider of clean, green and safe food. In the near future, our strong commitment to labour rights, environmentally sustainable practices and animal welfare standards will also count in our favour.
That’s why our biosecurity and traceability structures must be a first priority for government. And it’s why I fought for the retention of the former Labor Government’s Inspector General of Biosecurity, and committed during the election campaign to the establishment of an Institute of Biosecurity. A body designed to provide research continuity in this most critical area.
As important as our bulk commodity exports will continue to be, our production volumes are limited by the extent of our natural, labour and capital resources. It’s also hard to imagine farm returns rising markedly in increasingly competitive global commodity markets - just look at world prices in the dairy and grains industries today.
That’s not to say we can’t raise profitability in commodities production by lowering costs and raising productivity. We can and we must.
Government has a role to play, by improving market access and guaranteeing appropriate levels of public investment in research & development, innovation, road, rail and telecommunications infrastructure.
And of course, lowering regulatory costs.
But I believe there is a growing consensus that our greatest opportunities for higher returns lay in premium markets. Selling the higher-margin products our increasingly wealthy Asian neighbours crave for.
Whether it’s a healthier product, a different coloured product, a uniquely tasty product, or just a product cleverly packaged and labelled, we need to chase the big premiums our customers are showing an increasing willingness to pay.
And I agree with Andrew Forrest and his friends, we need to be better at marketing our product. Branding is critically important and another area where a “team Australia” approach is required.
Like in politics, language is important. Government has a role to play in managing expectations and behavior.
For example, keeping the benefits of preferential trade deals in perspective is important.
They are unequivocally a good thing and both the major political parties can take some credit for them. Despite some community disquiet, they have been an area of strong bi-partisanship and of course, Labor has a very strong track record on trade liberalisation.
Securing access to markets on the same basis – at the same tariff rate – as our competitors is a good thing. But it’s anything but a license to succeed.
First, there are many non-tariff barriers still to be overcome. Second, we still need to be able to compete on the level playing field. If you were a football coach you wouldn’t tell your player group in your pre-match chat that because the team had returned to full-strength the game was in the bag.
That would only seed complacency. No, you’d say the playing field just leveled but only commitment and smart, hard work will secure the prize.
Complacency is death in any sector.
It is also important for government to send the right signals to foreign investors. Lifting farm productivity will require significant additional capital investment. What are our aspirations for Northern Development all about if not for some increased foreign investment?
With a population of only 23 million, we have a limited savings pool and by necessity, much of the investment will come from foreign sources. No area of public policy is more deserving of bi-partisanship than this one. Our language and rules must be clear, concise and consistent.
Playing to populist community concern is a zero sum game. Everything we do and say as industry and political leaders must be designed to help people understand why foreign investment is so important and to build community confidence in it.
I congratulate the leadership of the NFF on this front. Your positive messaging on foreign investment has been clear and consistent.
I’m also impressed by your focus on innovation and the digital economy. Whether we are talking bulk commodities or premium product, technology adoption and utilisation will be critical to our success.
The NFF is right to focus mainly on the technologies of the 21st Century rather those of the 19th.
An obsession with dams for example will cause farmers and investors to look back, not forward. Again, it risks breeding complacency.
Improved water infrastructure will be important to our future. Projects like Tasmania’s Midlands Water Scheme are a perfect example. There, the former Labor Government partnered with the State Government, private investors and farmers to build a magnificent productivity and profitability enhancer.
The capital outlay was just $170 million. The economics stacked up. Investors were able to foresee a return on their investment.
This won’t always be the case. Partners need to be able to make money and farmers must be able to afford the water.
Nor will the benefits of every dam proposal outweigh the environmental costs.
Using 21st century technologies and the knowledge we did not have twenty, forty and 100 years ago, we can do plenty to improve water efficiency and utilisation. We can do it more quickly and at less cost. Our research in, and commitment to the quality of our soils is just one example.
It is a constant source of disappointment to me, that we spend so much time talking about water, but so little time talking about our limited and depleting soil resources. Food, land, water and energy are a continuum.
Which takes me to the question of sustainability. Our climate is changing and we should not spend too much time arguing about what’s causing it.
Our dry continent is becoming drier and our weather more variable and erratic.
No group is more acutely aware of it than our farmers – the custodians of our farming and pastoral lands.
I was pleased to hear Brent Finlay talking about it on Radio National just yesterday.
We know farmers understand the challenge. We know they are doing their best to manage it. But is government doing enough?
The management of Murray Darling Basin water has not been painless and we’re always open to fine-tuning.
But know-one would now argue the Murray Darling Basin Plan was a mistake, or suggest an alternate course.
Through the Plan, we’ve taken a market-based approach to water management and water efficiency. Just as important, we’ve ensured that our precious water resources are allocated where they provide the highest return.
Resource misallocation is an economic curse. It undermines our productivity and profitability.
Recognising that, we should also be turning our minds to our soils. We need market-based responses there too.
We began the work in soils by attaching a value to carbon. Sadly, that work has fallen away.
You can have a debate about the design of the so-called “carbon tax”, but if the floating mechanism it was to become was still in place today, it would be trading at around $7 per tonne.
More particularly, farmers and foresters would be earning cashable carbon credits and important sustainability programs like Caring for Country and the Carbon Farming Initiative would still be funded.
Also funded on an on-going basis would be the renewable energy projects producers and growers were co-investing in – reducing both their power costs and their carbon footprint.
Ok, that’s history. But what’s next?
We must have market-based mechanisms guiding resource allocation, guaranteeing sustainability, and lifting farm productivity. But the reality is, the current Australian Government has no plan.
This should be of grave concern to all of us.
On the subject of our changing climate, I want to say something about drought policy. To its great credit, the NFF supported the former Labor Government’s drought policy reform. But the work remains incomplete.
After 3 years studying the challenge in detail, I’m left in no doubt that again; we need a market-based solution.
Insurance risk mitigation seems the obvious model.
This is an initiative in the Government’s Agriculture White Paper that I welcome. If we can establish a successful scheme and bring it to maturity, it will not only offer income protection for farmers, but also help drive both productivity and sustainability.
I’ve said a lot about resource allocation. Our most precious resource is our people.
The recent backpacker tax debate demonstrates one thing if nothing else; we haven’t given enough thought to labour force issues.
Technology is allowing our farm enterprises to be less labour intensive.
But manual labour will always be a necessary ingredient to success. We need a serious conversation about giving locals a greater chance of being part of the equation while also making sure our regulatory and tax settings for foreign labour are both competitive and welcoming.
Of course, a profitable sector will bring skilled employees, good money attracts good people.
I’d like to close by saying something about two issues I’m advised Barnaby laboured yesterday.
First, infrastructure investment has been pretty steady across Australian governments of all persuasions. The only time that changed was when a Global Financial Crisis caused a Labor Government to take spending to record levels.
Second, Barnaby seems to think his love of the family farm is unique to him. Not so, we all love our farming families.
Barnaby is apparently satisfied with the status quo. It’s what makes him genuinely conservative.
But I’m not content with their losses and low profitability. I believe they can do better. I want them to do better.
And their sons and daughters will return to farming when there is good money in it.
Barnaby’s close friend, Gina Rinehart, Andrew Forrest and Sterling Buntine may have farm family backgrounds but few would describe their operations as traditional “family farms”. But their corporate operations are both profitable and critical to our success.
According to the Productivity Commission, in 2005-06, the largest 30 per cent of farms generated 82 per cent of the value of agricultural operations, while the smallest 50 per cent generated just 7 per cent.
Further, as a group, the bottom 25 per cent of broad-acre farms have not recorded a profit in 30 years. This 25 percent, deserve more than platitudes from our political leaders. The status quo is not good enough.
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 in order to meet the investment levels needed to achieve the 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 in 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 to have aggregate investment over the next ten years of $420 billion — three times the level of investment achieved in the ten years to June 2014.
As important as the family farm is, its contribution to that investment will be modest.
The opportunities for Australian agriculture are huge. But so too are the challenges.
Overcoming those challenges and capitalising on the opportunities will take new thinking, hard work and cooperation.
And it will require all of us to spend more time talking in positive rather than in negative tones.
The heavy lifting will be done by the private sector. But government has an important role to play too and I look forward to working with you all towards a more diverse, sustainable, profitable and productive agriculture sector.