1. INTRODUCTION TO AGRICULTURE IN AUSTRALIA
It is necessary to consider a large number of factors that can affect income to the farmer, to obtain an overall view of returns to agricultural enterprises in N.S.W, such as :
–seasonal changes, drought, floods, fires
–changes in demand for products
–changes in eating habits
–changes in international markets available
–changes in technology.
Some of the factors that affect income from the general study of cash flow statistics, to a brief break-up of the various economic returns to individual industries will be discussed and these include :
–Government / fiscal policies
–The future of agriculture
–Return on investment.
To obtain an overall view of farm investment returns, it may be helpful to investigate the schedules of statistics, which are made available by the Australian Bureau of Agricultural Research and Economics (ABARE).
2. THE HISTORY OF FARMING
In the first few decades after European settlement in Australia, farms. developed around the early settlements. These farms mainly grew wheat crops and raised sheep that had originally been brought over from Europe.
Farming in the 1800s :
Government sponsored exploration throughout the 1800s opened up new tracts of land, and farmers and ‘squatters’ gradually moved inland and occupied huge areas of pasture. The creation of railways from the 1850s onwards began to connect the more remote farmers with quicker and easier transport of their produce to cities and ports.
Huge areas of forest and scrub (land covered with low trees or shrubs) were cleared for pasture along Australia’s coast and inland. The dry climate and infertile soil of Australia presented challenges to farmers from the start, but they quickly determined that the country was well suited for production of high quality wool.
Wool became the cornerstone of Australian agriculture and Australia is often said to have ‘ridden on the sheep’s back’ through the early days of its economic development. Water availability and drought management were, and still are, key challenges for farmers throughout most of Australia. As irrigation systems were established further inland, new farming practices other than sheep grazing became more viable.
Dairy, fruits, grains & veggies –
In 1900, wool and wheat still dominated Australian agriculture, but greater diversity was developing with beef and dairy cattle, and a wide range of grain, fruit and vegetable crops. At first, most crops were grown in the eastern states, but Western Australia had become a major grain producer by 1905. The sugar cane industry in Queensland and the grape growing industry in the Riverina area of New South Wales were also well established by the early 20th century.
Stockmen & pastorals –
The 1901 Population Census recorded around fourteen per cent of Australia’s total population as working in the agricultural and pastoral industries. This figure did not include the large numbers of Aboriginal people working as stockmen, stockwomen, and in other support roles on the big pastoral spreads, who made a significant contribution to Australian agriculture.
Effect of WW 1 –
By the outbreak of World War I, rabbits had become a major pest to farmers. The rabbits spread north from Geelong in Victoria, and seriously reduced the productivity of farming in Australia. Rabbit control is still a major issue for farmers and governments today.
Excessive Production –
By the early part of the 20th century, Australia’s agricultural production had rapidly increased and output expanded well beyond the needs of the Australian population. This increased production led Australia to become one of the world’s major food exporters. Across much of the early 20th century, the Australian government provided assistance to farmers and primary producers in the form of bounties, to encourage production, employment and export. The government also placed tariffs on some goods to discourage import
To overcome depression of war –
Despite huge impacts from the Great Depression, and the first and second World Wars, Australian agriculture continued to grow throughout the first half of the 20th century.
- Downfall –
The relative importance of farming to the Australian economy has decreased in the second half of the 20th century. Only three per cent of the country’s population is now employed in farming.
Government assistance has been reduced, and wool is no longer such a significant and valuable commodity. Small farming operations are less important than large ones. Farmers have been forced to innovate and diversify to survive.
DEVELOPMENT OF AGRICULTURE
For Australian agriculture, the post war years may be divided into two distinct periods.
The first period –
1945 to the mid-1960’s, was a period or growth and stability made even more favourable by the attitude or governments and their readiness to provide financial support and incentives to those sectors of the industry which fell on hard times.
The second period –
The 1960’s to 1970’s saw difficult adjustments which were considered a consequence of the first period. For example, farms in some dairying areas had survived for many years due to the extent of the government subsidy paid to the industry. By maintaining farms in the industry with no capacity to compete in a free market situation, the government in effect reduced the level of autonomous adjustment. Removal of the subsidy at a time when world stocks of dairy produce were at a very high level resulted in severe adjustment (especially in the number of dairy farms) having to be made in only a few years.
Purchase growth :
An Important feature of the growth in the farm sector between 1945 and trip late 1960’s was the increasing importance of purchased inputs to farm production. From the early 1950’s until the late 1960’s the rate of increase in usage of purchased inputs was 2.6% per year while the rate of growth in output was 3.3% per year.
This meant that during this period farmers were able to maintain incomes by simply expanding production even though much of this expansion was due to the use of purchased inputs. Another aspect of the increase in use of purchased inputs was the change in on-farm activities as many of the goods and services used in the production process, traditional provided by the on-farm work force, were now being supplied from off-farm sources. Farmers became production specialists and for perhaps the first time in history, they and their farms lost much of the self-sufficiency, which had characterized them for generations.
Increased Demand :
The research and service sectors of agriculture responded to the increased demands of the farm sector with the provision of new production technology, often with little concern for either its long-term environmental effects or its economic implications. Although the cost of farm inputs as a proportion of gross returns rose steadily during the ’50’s and early ’60’s, it appears to have been generally accepted that the ability to increase production was the only important criterion on which long-term viability of a farm enterprise needed to be assessed. It is therefore not surprising that the agricultural training programs of the time gave considerable emphasis to the study of production technology and practically no emphasis to subjects such as business management, agricultural economics and environmental studies.
Since the late 1960’s there have been some substantial changes in the way in which farmers manage their businesses. Increasing productivity rather than increasing production has become the lodestar of agriculturalists and the discipline of farm management has gained new status as agriculturalists and farmers recognize the potential for the management sciences to contribute to the solution of problems down on the farm.
Cost cutting measures :
As the cost of farm inputs increased more rapidly than the value of farm commodities, the terms of trade facing farmers continued to decline, especially in the early 1970’s when there was a downturn in the demand for most rural commodities on international markets. Declining terms of trade do not necessarily mean that farmers’ average incomes will also fall, as productivity gains, at least in the longer term, may be sufficient to maintain incomes. Judging by the trends farmers have to date been extremely successful in increasing productivity through cost-cutting measures.
Such cost cutting measures have been affected in any of three ways:
Adopting improved technology –
As mentioned previously, the new technology adopted by farmers in the 1950’s and 1960’s tended to be primarily of a type which would lead to higher production levels, for example, sowing large areas to pasture, using better grasses and clovers and increasing the use of fertilizers and mechanization.
Since 1975, the major technological improvements have been related to reducing the cost of production per unit of output. For example, the use of large equipment has enabled a reduction in labour costs, while the expanding use of chemicals in crop production has provided higher. Yields per unit area with a resultant lowering of production costs per unit of output.
Changing the organizational structure of the farm business –
Clearly many farmers adjusted the organizational structure of their farms as they found that they could no longer afford to employ labour to the extent they had in the past.
Eliminating inefficiencies –
Production inefficiencies at the farm level may occur in three main ways.
– It may not be economically efficient to invest in new production input as soon as it becomes available. For instance, it does not always pay to upgrade farm equipment whenever better machines embracing new technologies come on the market.
– Thus, a farmer may continue to use an existing machine even though it is slower or in some way less effective. Inefficiencies may be deliberate on the part of a farmer. A farmer may not adopt a particular practice or procedure because it is seen to be risky or because the farmer may feel that the quality of life will be reduced.
– Various inefficiencies may result from poor management practices. The elimination of some management inefficiencies may be achieved by increasing the farmer’s knowledge and skills, so that a more astute selection of inputs to achieve a given level of output can be made.
Another effect of the declining terms of trade facing farmers has been to force them to adjust their enterprise mix away from enterprises providing low net returns to those with the potential to offer higher net returns. An example of this has been the swing away from the animal industries and towards cropping, which occurred during the 1970’s. The effects of this change, both on farms and on the infrastructure of the various farm service industries, have been considerable. For example, transport, storage and shipping facilities have often been stretched to their limit in coming with the increase in grain production.
Significant changes have also occurred in the service and distribution facilities of the farm inputs sector as the demand for machinery, chemicals and fertiliser has increased substantially in some areas. The change to cropping has also brought pressure on the supply of credit for agriculture.