AUSTRALIANBROADACREFARMING:

Attributesofsuccessfulinvestment

DavidL.Thomas,B.Econ,Grad.Dip.Bus.Admin.,GAICD

JulianV.Thomas,L.L.B,BA(Hons,F.C),(Pol.Sci,IntRel)

March2016

ContentsExecutivesummary...................................................................................................................i

1:Australianagricultureincontext..........................................................................................1

1.1:Internationalmarketforecasts......................................................................................1

1.2:Landusageandefficiency.............................................................................................1

1.3:Farmproductivityandyields.........................................................................................2

1.4:Comparativeadvantage,totalfactorproductivityandtermsoftrade.........................3

1.5:Internationalprivateinvestment–trendsandexperiences.........................................4

2:Social,marketandsovereignrisk.........................................................................................6

2.1:Ruraldemographics.......................................................................................................6

2.2:Ruraldiaspora...............................................................................................................7

2.3:Sustainableproduction–marketpullfactors...............................................................8

2.4:Marketaccess–futurechallengesandopportunities..................................................8

2.5:Sovereignintervention..................................................................................................9

3:Resiliencyandsustainability...............................................................................................11

3.1:Competingincentivesandpublicgoods......................................................................11

3.2:Climatevariability........................................................................................................12

3.3:Wateravailability........................................................................................................12

3.4:Soilutilisationandfertility..........................................................................................14

3.5:Biosecurityandriskmanagement...............................................................................16

3.6:Farmsasenvironmentalstewards..............................................................................17

4:Efficientproduction-knowledgeandskillsinvestment....................................................18

4.1:Farmyieldandproductionfrontier.............................................................................18

4.2:Efficiency–technical,scaleandmix...........................................................................18

4.3:Skillsbaseandacquisition...........................................................................................19

4.4:Innovationandknowledgesharing.............................................................................21

4.5:Researchextension.....................................................................................................21

5:Futurefarms–technologyandinnovation........................................................................23

5.1:FutureR&D..................................................................................................................23

5.2:Thecaseforresearch..................................................................................................24

5.3:Privateinvestment......................................................................................................25

5.4:Informationrevolution................................................................................................26

5.5:Agriculturalautomation..............................................................................................27

5.6:Adaptorperish............................................................................................................27

5.7:Engineeringthefuture................................................................................................28

i

ExecutivesummaryThemediumandlong-termprospectsforAustralianagriculturearefundamentallypositive,butthesectorasawholefacesseveralkeychallengesinsecuringfutureprosperity.

Agrowingglobalpopulationandincreaseddemandforhigh-qualityproductcreatesastrongdemandwhichwearewellpositionedtofill.Australianagricultureishighlyefficient,andatpresentAustraliahasacomparativeadvantageinprimaryproduction.Lowaveragereturnsdisguisetherealitythatmanyfarmsarepoorlyrunorminimallyviable–theclearmajorityoftotalAustralianagriculturaloutputderivesfromatinyminorityoftop-performingfarmswithexcellent and reliable annual returns, which at scale is potentially highly attractive tointernationalinvestors.

Likemanyhumanactivities,agriculturecontributestoglobalclimatechange.Howevermoresustainableproductiontechniquesassist inmitigationoftheseeffects. Intheabsenceofamarket price on carbon emissions and other environmental mismanagement, or ofwidespreadadoptionofinternationalstandardsforsustainabledevelopment,theshort-terminterests of farmers are misaligned with medium- and long-term continued productivitygrowth. Given an increasing government and community focus on sustainability, futureopportunities exist for lucrative public/private partnerships around natural resourcemanagementwhichhaveyettobefullyexplored.

Withshrinkingruralpopulations,theavailabilityofskilledlabourisapotentiallimitingfactor.Thisproblemwillbefurtherexacerbatedbytheincreasedknowledgeandskillsthresholdtoengage with future agricultural technology, however operators are reluctant to invest inupskilling their often seasonal and temporary workforce, instead relying on temporarycontractors to fulfil key roles.This ‘hollowingout’ issue is covalentwithdecreasingpublicsectorinvestmentinagriculturalR&Dandeducationalinvestment,leadingtoadeclineintherenewalandgrowthofagriculturalinnovationandeducationalcurriculaandinvestment.

With most of the land suitable for broad acre farming already under production, futureprosperitywillderivefromembracingagriculturaltechnologyandsustainabledevelopment,thetwokeyareasthetopperformersarealreadyembracingandheavilyinvestingin.Alackofpublicspendinginthisareahasbeenmitigatedtoanextentbyincreasedprivatesectorinvestment, but such investment is usually limited to refinement rather than ‘blue sky’innovation.

Itislikelythatthekeytechnologiesbehindfutureproductivityincreaseswillbe:

1. Precision monitoring and information systems, enabling farmers to make smarterdecisionsfaster;

2. Continuingtheautomationtrend,drivingupproductivityanddrivingdownexpensesbyfreeinghumanoperatorsfromroutinetasks;

3. Incorporatingcutting-edgeadvancementsincropnutrition,biogeneticsandselectivebreedingintoroutinefarmingoperations,increasingyieldswitheverygeneration;and

4. Tailoringmachinery requirements and farm operations to each operation throughbespokehardwareandsoftware,drivingincreasedproductivityandenablingradicalapproachestocapturingallpossibleoutputsforprofit.

WeconcludethatsuccessfulinvestmentinAustralianbroadacreagricultureshouldthereforehavethefollowingattributes:

1. Sufficientscaletomaximisecapitalandprocessefficiency.2. Beinnovationdriventhroughbyintegrationofnetworkbasedskillsandtechnologies

thatareappliedactivelyanddevelopedquicklyatmicrofarmlevelandthenmultipliedacrossthebusiness.

3. Besustainable,beinsyncwithcommunity;andembraceofallpotentialopportunitiesfor revenue generation offered by the land footprint occupied, including carbon,waterandenergy.

4. Actively embracing the opportunity to overcome the skills shortage in agriculturethroughrepositioning foodproductionand landmanagementasan innovativeandvitalsectorfullofopportunity.

1

1:AustralianagricultureincontextAustralianagricultureisasectorofcriticalimportance.Inthe2014-15financialyear,thevalueoftotalfarmexportsexceededAUD$43billion,withatrendaverageyearlyincreaseof8.3%since2010-11andup36.6%overthefive-yearperiod1.Overtheeconomyasawhole,thisplacesthesectorsecondonlytoironoreexports($54billionin2014-15,down27.1%since2013-14)2. Reliable returns combined with medium- and long-term international trendscombinetomakeAustralianagricultureanattractiveinvestmentoption.

1.1:Internationalmarketforecasts

Globalpopulation,currentlyatapproximately7.3billionpeople, isexpectedtoincreaseto8.5billionby2030and9.7billionby20503.Thevastmajorityofthisincreaseisexpectedtooccurinlowandlower-middle-incomecountries,netandincreasingimportersoffood,andby2050morethantwo-thirdsoftheglobalpopulationisexpectedtobeurbanized-90%ofthisincreaseinurbandwellerswillbeconcentratedinAsiaandAfrica,inmanycasesseeinganabsolutedeclineintherural/agrarianprimaryproducingpopulation4.

Thisexpansioninglobalpopulationwillrequirealargeincreaseinglobalfoodproduction.Tofeedthe2050globalpopulationtobaseacceptablenutritionlevelswillrequirea70%increaseinfoodproductionfrom2007levels,withcerealproductiongrowingbyonebilliontonnesandmeatproductionby200milliontonnes.Netcerealimportsintodevelopingcountrieswillneedtotriple,andtheadequacyofdomesticproduction,whilegloballyvariable,willdecreaseinkeymarketareasofAfrica,theNearEastandAsia,increasingrelianceonfoodimports5.Together,thetraditionallystrongmarketsofthePeople’sRepublicofChina(PRC;43%)andIndia(13%)areexpectedtoaccountforoverhalfofthisgrowthindemand6.

Further,changingglobaldemographicswillalsoalterfoodconsumptionpatterns.Asaresultof increased consumer income, the greatest projected increase in demand is for fruit,vegetables, broad acre cereal crops, fish anddairy7. In addition to bare calorific demand,therefore,marketsareprojectedtohaveanincreasedappetiteforhigher-qualityproduce.

1.2:Landusageandefficiency

The simplest route to increased yields – placingmore land under cultivation – is heavilyqualifiedbyeconomicandsocio-political factors.By2050,onlyanadditional5%ofarablelandisexpectedtobeundercultivation.Rather,90%ofthegrowthinfoodproductionwillderivefromincreasedproductivity8.

1‘ValueofAustralianagriculturalexports’,AgriculturalCommodityStatistics2015,ABARES2Australia’sTop25Exports,GoodsandServices,DFAT/ABS3WorldPopulationProspects:2015Revision,UnitedNationsDepartmentofEconomicandSocialAffairs(UNESA)4WorldUrbanizationProspects:2014Revision,UNESA5HighLevelExpertForum–HowtoFeedtheWorldin2050Romeconferencediscussionpaper,UNESA/UNFoodandAgricultureOrganization(UNFAO)6FoodDemandto2050:OpportunitiesforAustralianAgriculture(2012),Linehan,Vetal.,ABARES,Canberra7ibid8HowtoFeedtheWorldin2050,opcit.

Australia,asamajorexporterofbroadacreagriculturalproducts,iscurrentlyinternationallycompetitive.However,oursuccessesinthisareastemmostlyfromaccesstolargeareasofarableland,marketproximity,favourableexportandtaxationpolicies,lowsovereignrisk,andareliableworkforce–factorstiedtoextentoflandcultivated,notefficiencyofusage9.ForAustralianagriculture inparticular, increasing landundercultivationmaysimplynotbeanoption–onlyabout6%ofourtotal400millionhectaresofagriculturallandisofsufficientquantitytosupportintensivecroppingprogramsyear-round10.

This,combinedwithgenerallylowsoilfertilityandhighlyvariablerainfall,meansthataverageAustralianrain-fedtotalcropyieldsarelessthanathirdofthoseinNorthAmerica,EuropeandthePRC11.Despitetheselowertotalyields,Australianfarmersensurecompetitivenessthroughexcellentefficiencyandconservativecropping,leadingtheworldingrainyieldperfertiliserunitandpermillimetreofgrowingseasonrainfall12.

1.3:Farmproductivityandyields

Onaverage,therateofreturnforAustralianbroadacreagriculture is low,averaging1.1%(4.2%includingcapitalappreciation)overthe20-yearperiodto2012-1313,andinthatyearonly6%postedfarmreceiptsofover$1million,with55%under$100,00014.However,theseresultsmaskmuchunderlyingvariability,withtopfarmspostingfarsuperiorresults15.

Australianagricultureispredominantlysmall-operatorbased,with72%offarmscoveringlessthan500,000hectaresand36%oftotalfarmsoccupyinglessthan50hectares.Asmightbeexpected,thelargerfarmsarefarmoreefficient,withthetop20%offarmsproducingover80%oftotalfarmoutputandsmallerfarmsderivingthemajorityofhouseholdincomefromoff-farmsources16.AlargenumberofAustralianfarmsseemtobejust‘gettingby’,orarerunonanon-commercial/hobbyistbasis–overhalfoftotalbroadacreoutputderivedfromthetop25%performers,butthebottomquarteraccountedforonly8%17.

Thishugedisparityinfarmperformancemayberelatedtoscaleandefficiencyofoperation–topperformingfarmswere,onaverage,geographicallytwiceaslargeandpostednearlythreetimeshighertotalfarmreceiptsthanmiddleperformingfarms,aswellasbenefittingfromsignificantly lower relative operating costs. Thesemost successful operations also postedvastlyhighercapitalinvestment–64%ofreturnsasopposedto2%-thanthebottomcohort.

9OptimisingAustralianagriculture’scompetitiveadvantage(2014),Keogh,M.,forFarmManagementInstituteAgricultureForum,Sydney10ibid11Australia’sAgriculturalFuture:Returns,ResourcesandRisks(2015),Grafton,R.Qetal,AustralianCouncilofLearnedAcademiesforSecuringAustralia’sFutureworkinggroup12ibid13AgriculturalCompetitivenessGreenPaper(2014),CommonwealthofAustralia14‘SizeofAustralianFarmBusiness–2011’,AustralianSocialTrends(2012),ABS15Seealsobelowat2.1.16Australia’sAgriculturalFuture,opcit.;see2.1belowonthisissue.17ibid

Againasafunctionofscale,top-performingfarmshadahighergearingrateandgreaterdebt,butspentalowerpercentageofincomeonservicinginterest–8%asopposedto11%18.

WhileAustralianyieldsarecurrentlygloballycompetitive,realgrossvalueofproductionhasstalled since the 1950s; starting at about $40 billion in 1953 on the back of thesuperphosphateboomandconsistentlyhoveringatabout$45billion(2013dollars)eversinceProductivityhasincreasedatanaverageof2.1%perannumoverthetotalperiod–however,thisdisguisesapronouncedslackeninginthepasttwodecades,withthegrowthrateuntil1994at2.5%andonly0.7%since19.Consolidatingfarmholdingsandintensifyingproductionofexistingareasundercultivation,whilemaintainingexistingexpertiseinefficientcropping,thus presents a compelling opportunity to capture a greater share of the expandinginternationalmarket.

1.4:Comparativeadvantage,totalfactorproductivityandtermsoftrade

Totalfactorproductivity(TFP)istheratioofoutputstoinputs.TFPgrowthoccurswhentheamountofoutputs increases foragivenamountof inputs.Profitability is the ratioof thegrowthin incometothegrowthincosts. It istiedtothetermsoftrade (ToT)availabletofarmers–theratioofthepricesreceivedbyforoutputsrelativetothepricespaidforinputs.

Crudely,therefore,profitability=ToTxTFP,or,inotherwords,increasedproductivitywillonly result in increased profits if the terms of trade remain constant. TFP is obviouslyinfluenced by many factors including climate events, technological innovation, wateravailabilityandsoon.ToTissimilarlyaresultofmanydifferentvariables,someofwhichcanbemanipulatedbyfarmersandgovernment(suchastaxationpolicycapitalworks)butmanyofwhichcannot(marketmovements,climatechange,globalphosphatereserves,etc.).

CompetitivenessininternationalmarketsisrelatednotonlytoTFPandprofitability,butalsototheconceptofcomparativeadvantage–theextenttowhichastate’seconomyismoreefficientatturningagiveninputofcapitalandlabourintoaparticularoutputthananotherstate;orinotherwords,theopportunitycostforaparticularindustryislower.IfAustraliaismore efficient at agriculture than, say, America, then even though the USmay have thecapacity to produce far more total agricultural output than we do, their economy willnaturallyprefertoallocateresourcestowardstheindustriesatwhichtheUSismoreefficientandimportfoodfromus–Australianagriculturehasthecomparativeadvantage.Australia has retained this comparative advantage for many decades as a result ofproductivitygrowthintheagriculturalsectoroutstrippinggrowthintherestoftheeconomy.Fortheperiod1975-99agriculturalproductivitygrewfourtimesfasterthananyothersector,andtwicethatofotherOECDnations20.Assuch,whileothernationshavehigherTFPgrowth,we have maintained higher relative efficiency and hence a comparative advantage. AreductioninTFPgrowth,eitherabsoluteorrelative,couldthreatenthisposition.

18ibid19ibid;seealsobelowat3.220ProductivitygrowthinAustralianagriculture:trends,sources,performance(2007),Mullen,J.D;Crean,J,AustralianFarmInstitute

Asindicatedabove,ToTisalsocriticaltoprofitability.Historically,ToThasdeclinedbyabout2.1%perannum,althoughatadecreasedratesincethe1990s,slightlyoutstrippingaverageTFPgrowth21.Thisongoingpressureonprofitabilityhasseenmanysmalleroperatorsfallingbehind,witharelativelystaticrealvalueofagriculturalproductionbeingconcentratedinthehandsofhigher-performingfarms22.

Insummary,theprofitabilityofagriculturedependsonhowefficientlyitusesresources(TFP)andtherelativepriceofagriculturaloutputsversusrequiredinputs(ToT).Australiacurrentlyhasacomparativeadvantageinmanyagriculturaloutputsasaresultofthestructureofoureconomy,whichhas allowedus to remain internationally competitive despite lower totaloutputsthanotherstates.Thispositionhasdeclinedinrecentyears,requiringarefocusingandreinvestmentofresourcesinordertomaintainourpresentlead.

1.5:Internationalprivateinvestment–trendsandexperiences

Globally, investment in agriculture and primary production has dramatically increased inrecentyears.Since2006,privateequityfundshaveinvestedsomeAUD$2.8billioninEuropealone23.Investmentactivitiesvaryfromcasetocase,butmayrangefrompurchasingequityinexistingcorporations,purchasinglanddirectandfarmingundercontract,jointventures,orlinked activities such as storage, logistics and training. As most entities are private andunlisted, fulldataon investment figuresand returns isunreliableorunavailable,howeverglobally it is estimated there is around $30 billion in funds committed or targeted forinvestment in primary production from approximately 60 major institutional investorsoperatingpredominantlyintheagriculturalspace24.

While large in absolute terms, these investments represent only a tiny fraction of thepossibilitiesopen–theseoperationsrepresentinterestsinlessthan1%ofgloballyavailablefarmland25,andthetotal$40-50billioninvestedinagriculturetodatefallsfarshortoftheestimated $1.35 trillion potential opportunities worldwide26. Australia is seen as a highlyattractive investment destination, with approximately $3 billion worth of internationalinvestmentinourprimaryagriculturalproduction,secondonlytotheUSat$4.2billionandmorethandoublethenextcontender,SouthAmerica,at$1.1billion.

Returns on investments are highly variable. Following the 2006-2007 spike in agriculturalcommodityprices,a largenumberoffundsquicklydiversifiedintoagriculturalacquisitionswhichhaveproven tobemore complicated tomanage than initially estimated.However,competentlymanagedpropertiesarepostingsignificantreturnswithinshorttimeframes,inparticular purchase/develop/sell investments – of companies willing to disclose results,

21Australia’sAgriculturalFuture,opcit22Seeaboveat1.3.23 Emerging investment trends in primary agriculture (2013), Luyt, I et al; for UN FAO/European Bank forReconstructionandDevelopment24ibid25Responsibleinvestmentinfarmland–TIAA-CREFfarmlandsustainabilityreport(2012),forformerTeachersInsuranceandAnnuityAssociation–CollegeRetirementEquitiesFund(nowjustTIAA)26Emerginginvestmenttrendsinprimaryagriculture,opcit

AdecoAgro posted a return on investment of 34%, while BrasilAgro managed 27%27. Ofinternationalfundsbuyingintothemarketafterthe2006/07priceboom,andcontemplatingalongerreturnsperiod(inparticularown/operatestrategies)nomajorinvestmentshaveyetreachedmaturityorbeenexited.Modellingreleasedbyfundsindicatesinvestmenttenureperiodofaround10years,withreturnsexpectedofbetween8%and25%,averagingaroundthehighteens.IntheUSA,aregisteroffarmlandownedexclusivelybytax-exemptforeigninvestorsdemonstratesthatovertheperiod2003-2013theaveragereturnsoninvestmentaregreaterthan10%-since2012,anannualreturnoncroplandofaround17%(12.6%capitalappreciation/4.4%incomereturn)28.

AnanalysisofexistingmarketperformanceofmajorinternationalinvestorsworkingwithinEuropeandEurasia,while incomplete and reliantupon literature andmarketing releases,combinedwithlimitedpublicdata,yieldssomeinsightsintothefeaturesofbest-performinginvestments29:

1) Disciplinedbusinessmodelemphasisingefficiencyandperformanceoverscalegrowthandquickreturns;

2) Expansionfrommodestscaleinmanageablesteps,recruitinglocaltalent;3) Ensuringcapitalwasraisedatmanageablelevels,basedonyieldperformanceofthe

landratherthanexpectedgainsincapitalorlandvalue;and4) Aggressiveimprovementofcapitalandlandtoaddvaluetotheunderlyingproduction

enterprise.

In summary, market fundamentals for agricultural commodities are positive and trendupwards over themid-term,with some uncertainty over the long-term out to 2050. Keydriversofratesofreturnrewardanapproachthatseekstomaximisetheproductivityoftheland and the improvement of agricultural activities upon it, rather than a ‘grab and sell’approachfocusingonscaleofacquisitions.

27ibid28ibid29ibid

2:Social,marketandsovereignriskAustralianagriculturefacessomeuniquechallenges,includingachangingruralpopulation,shiftingproductionpatterns,andinternationalmarketrisks.Bothindustryandgovernmentactionisrequiredtoensurecontinuedproductivityandprofitabilityinthesector.However,agrowingspaceexistsforsophisticatedoperatorstosecureamarketleadingpositionthroughearlyadoptionofkeypracticesdesignedtomeetthesechallenges.

2.1:Ruraldemographics

ThefaceofAustralianagriculturenowismuchdifferenttothatofpreviousdecades.Asanemployerthesectorhasseenarelativedecline,droppingfrom14%ofthepopulationinthe1970sto3%today30.Thefacesonthefarmhavechangedtoo,ortobemoreprecisetheyhavenot– themedianageof farmershas increasedbynineyearssince the1980s to thehighestinanysector,withthepercentageoffarmersaged55yearsandoverincreasingfrom26%to47%andthepercentageagedunder35decreasingtojust13%31.Theproportionofemployershas fallen, ashas thenumberof familymembers contributing to thebusiness,raisingsuccessionasamajorissue.Further,theproportionoffarmfamiliesderivingincomefromoff-farm sourceshas increased tonearly50% since1990,with theaverageearningsmorethandoublingto$33,500peryear32.Theaveragefarmerisnowolder,likelytobeself-employedoracasualworker,likelytobepoorlyeducatedandpoorlypaid33.

Asdiscussedabove34,however,theseaveragescanpaintaslightlymisleadingpictureoftheoverallstateofhealthoftheagriculturalsector.Whiletheoveralltrendinproduction-focusedcommercial-scaleagriculturehasbeentowardsconsolidation,expansionandintensification,aparalleltrendhasbeentherisein‘hobbyfarms’or‘lifestyleproperties’.Approximately30%ofallbroadacrefarmsproduceanaverageoutputof$100,000orless.That30%produceonlyapproximately4%ofAustralia’stotalagriculturaloutput,and,crucially,deriveover90%oftheirtotalincomefromoff-farmsources.Indeed,inbadyears,off-farmincomeisreliedupontooffsetbadharvestsandoperating losses,withoff-farmincomeasapercentageoftotalspikingtoover120%in2007-200835.

Australianagricultureisthereforeincreasinglydivergingintothreecamps:

1) hobbyists,producingatinypercentageofallagriculturaloutput,remainingonthelandasa lifestyledecision,andforwhomtheeconomicsofproductionarelessrelevantthanthepersonalsatisfactionofengaginginprimaryproduction;

2) existing ‘family operators’, farming as a commercial enterprise and producing areasonable(butshrinking)proportionoftotaloutputbutincreasinglyreliantuponoff-farmsourcesofincome;and

30Australia’sAgriculturalFuture,opcit31CensusofPopulationandHousing(2011),ABS32TrendsinAustralianAgriculture(2005),ProductivityCommission33Australia’sAgriculturalFuture,opcit34Seeat1.335TimetogetridoftheaverageAustralianfarmer,(2013),Keogh,M,AustralianFarmInstitute

3) larger‘commercialoperators’,producingthelargestshareoftotalagriculturaloutputandincreasinglyresponsibleforprofitsinthesector.

2.2:Ruraldiaspora

Connectedtothischanging faceof ruralcommunities isacontinualmovement fromruralAustraliatourbancentres,drivenbygreaterworkoptions,bettersupportservices,healthoutcomes and educational options. This diaspora has obvious consequences for the localavailabilityoflabour,particularlyskilledlabour36,andtheviabilityofregionalcommunities37.Asasector,agriculturefacesnegativepublicperceptionsaboutprofitability,lifestyleoptions,workingconditions, ruraldeclineandanageingworkforce,discouragingnewentrantsandtalent38.Further,thesectorfacesstrongcompetitionforlabourfromotherindustries,poorengagementofyouth,women,migrantsandIndigenousAustralians,poorhumanresourcesplanningandcapacityandlimitedworkforcedevelopment39.

Compoundingthisproblemistheroleofthe‘familyfarm’asamajorsourceofpopulationstability and growth in rural areas.With an increasing number of farmers strugglingwithsuccessionissues,anincreasingnumberofpropertiesbeingboughtforhobbyistorlifestylepurposes,andadrivetowardsconsolidationandexpansionofruralholdingsbycommercialenterprises,manytraditional farmingfamiliesaredisappearingfromruralcommunities. Inparticular,youngerpeopleareleavingruralcommunitiesandnotreturning,citingfeelingsof‘under valuing’, poor accessibility, limited transportation, poor medical services,accommodation, information technology and communications infrastructure and limitedcareeropportunities40-asnotedabove,atinyminorityoffarmersarenowundertheageof35,a75%declinesincethe1970s41.

Thispopulationdeclineisalsochangingthenatureofruralcommunities,furtherdegradingtheirviabilityand‘liveability’andleadingtoaviciouscycle.Largerenterprisesarelesslikelyto purchase produce and machinery from local businesses, while a drive towardsconsolidation and larger holdings means fewer potential customers for non-farm inputs,meaninglocalbusinessesareforcedtorelocate,shutdownorreduceservices42.Theincreaseinthenumberof‘hobbyist’farmshashadonlylimitedabilitytosloworreducethistrend–mostsuchfarmstendtobeperi-urban,locatedonthefringesofurbancentresandwithineasycommutingdistanceandhencewithlittlereasontoformattachmentstoruralorlocalcommunities43.

36Onthisissue,seebelowat4.3.37AustraliaandFoodSecurityinaChangingWorld(2010),PrimeMinister’sScience,EngineeringandInnovationCouncil38Workforce,TrainingandSkillsIssuesinAgriculture(2009),PrimaryIndustriesMinisterialCouncil39Australia’sAgriculturalFuture,opcit40Workforce,TrainingandSkillsinAgriculture,opcit41Seeaboveat2.1;NewentrantstoAustralianagriculturalindustries–Wherearetheyoungfarmers?(2014),Barr,N;forRuralIndustriesResearchandDevelopmentCorporation42ibid43Australia’sAgriculturalFuture,opcit

2.3:Sustainableproduction–marketpullfactors

ConsumersofAustralianagriculturaloutputwill havenoticed that therehasbeena largeincreaseinrecentyearsof‘certified’product(RSPCAapproved,ForestryStewardshipCouncil,WAMade,etc).Certificationofthistypeisaglobalphenomenon,howevertheproliferationofAustraliancertificationschemes,particularlythoserunbyindustrygroups,hasconfusedbuyersandcreatedsuspicionamongstthepublic,andtheseschemesarepoorlyunderstoodbyinternationalmarkets44.Inparticular,voluntarycertificationschemeswhichrepresentagenuinepushtowardsmoresustainablepracticesareatriskofbeing‘crowdedout’bythose(generallybackedbyindustrybodies)whichmerelyupholdexistingstandards45.

Further,manyoftheseschemesdonotalignwithinternationalstandards,orhavenotbeentested against them. Thus, Australian-only sustainability certified products face higherproduction costs forquestionablebenefits46. Thereappears tobeaneed for governmentsupportforinternationalstandards-basedcertification,oralternativelygreaterregulationofvoluntary industry schemes, to address what is arguably a market failure in this area. IfAustraliaistocontinueourexcellentreputationforfoodsecurity47andsecureakeypositionasaproviderofhigh-qualityproducetoagrowinginternationalmiddleclass,furtherworkisrequiredtobetteralignthewillingnessofproducerstoseekaccreditationtowardsthosethataremeaningful48.

2.4:Marketaccess–futurechallengesandopportunities

Inpursuinginternationalmarketopportunities,AustralianfarmersfaceadditionalchallengesbeyondthosefoundinotherOECDexporternations.

AsAustraliaexportsahigherproportionofitsagriculturalproducethanmanyothernations,and maintains relatively free and open access to its domestic markets, the fluctuatinginternationalmarketpricehasmoreofanimpactonourfarmers.Additionally,withasmallerrelativedomesticmarket, thepotentialconsequencesofmarket interferenceordistortionarecommensuratelymoreserious49.Manyofourkeycrops(oilseeds,wheatandbarley inparticular) are subject to larger price variations than other products in internationalmarkets50,andthelackofapricesupportschemeordomesticsubsidyremovesimportantcushionsenjoyedbyprimaryproducersinothereconomies.

Therecentconclusionofseveralfreetradeagreements(FTAs)withkeynationssuchastheRepublicofKorea,JapanandthePRCrepresentimportantdevelopmentsinthisarea-the

44VoluntaryAustralianlandmanagementcertificationsystems(2007),Gleeson,T,forRuralIndustriesResearchandDevelopmentCorporation45TenCommitmentsRevisited:SecuringAustralia’sFutureEnvironment(2014),McKenzie,F;Williams,J,edLindenmayer,DBetal,CSIROpublishing46PrivateFoodStandardsasResponsiveRegulation:TheRoleofNationalLegislationintheImplementationandEvolutionofGLOBALG.A.P.(2013)Lockis,Setal,InternationalJournalofSociologyofAgricultureandFood,vol.20no.2pg27547Seealsobelowat3.5.48Australia’sAgriculturalFuture,opcit49ibid50ManagingRiskinAgriculture–aholisticapproach–Highlights(2009),OECDPublishing,Paris

opportunitytosecurelowerpricesintheseimportantanddevelopingmarketsisobviouslycritical for the future of exports to these regions.However, further developmentmaybeneededonthisfront–insomecases,Australiahasismerely‘catchingup’toitscompetitors,suchasNewZealand,andmanystaplefoodgrains(particularlywheatandrice)areregularlyleftoutofsuchagreementsduetoforeignconcernssurroundingself-sufficiency51.Withsuchgrain crops steadily increasing as a share of domestic production52 the implications forinternationaltradeoverthelongtermareunclear.

2.5:Sovereignintervention

In addition to international tradepolicy, government and regulators can also provide keyservices to better serve the needs of the agricultural sector, reduce risk and encourageefficientandprofitableproduction.Theneedforpublicinterventioninthesectorisgenerallylow, and evidence suggests that private industry is usuallymore effective at providing amarket-basedsolutionformanydifficultiesfacingfarmers53.However,acasemaybemadeforinterventiontohelpmanagecatastrophicrisk,orwhereexigenciesandnewdevelopmentsininternationalmarkets(forexample,abanonliveexportsimposedbykeynations)meanthatwhileanunderlyingindustryorusageremainseconomicallyviabletemporaryassistanceisnecessary(forexample,retraining,negotiatingexemptionsorqualificationstoimportbans,or providing credit facilities). In other words, where market failure means that theconsequencesofgovernmentinterventionwillbelesseconomicallyinefficientthaninaction.

An example of the facilitative role of governmentmay be found in thewatermarkets inexistenceinmanyareas,whichutilisemarketforcestoensureoptimumproductionefficiencyandarecurrentlyworkingwell54-asdiscussedbelow55,theefficiencyofsuchmarketswassuchthatalthoughtotalwaterextractionsduringthedroughtyears fellby70%,thegrossvalueofirrigatedproductdippedonly1%56.

Another initiative gaining ground in Australian agriculture is the adoption of regionalresourcemanagementbodies,wherebyauthority forstrategic landusezoning,catchmentplanningandmanagement,regulatoryandpermittingfunctionsandothergovernmentrolesaredevolvedfromcentralcontroltosmallerregionalbodies.Suchgroupsarethenabletooperate at a scale small enough to capture local knowledge and stakeholder input,whileremaining large enough to encompass the diverse needs of communities, both rural andurban,andmanagethevariouspressuresimpactingonlandscapeuse57.

Governmentsmay alsoprovide risk-mitigation services through incomeor tax smoothing,wherebyfarmersmay‘setaside’pre-taxincomefromgoodyearstooffsettherisksofpoor

51ibid52Seealsobelowat4.2.53ManagingRiskinagriculture–Policyassessmentanddesign(2011),OECDPublishing,Paris54WaterMarketsintheMurray-DarlingBasin(2014),Grafton,R.Q;Horne,J,AgriculturalWaterManagement,vol145pg6155Seeat3.3.56 Sustainable irrigation: how did irrigated agriculture in Australia’s Murray-Darling Basin adapt in theMillenniumDrought?(2014)Kirby,M,etal,AgriculturalWaterManagementvol145pg15457BlueprintforaHealthyEnvironmentandProductiveEconomy(2014),WentworthGroupofConcernedScientists

returnsinfutureyears,howevercaused–anexampleinthedroughtreliefcontextistheFarmManagementDepositScheme.Whilesuchapproachesfacesomecriticismfor‘crowdingout’privateriskmanagement,thereisessentiallynocosttotaxpayersandsothisrepresentsalow-hangingfruitofgovernmentintervention.

3:ResiliencyandsustainabilityAustralianagriculturehasdevelopedastrongrisk-managementcultureintheuseofnaturalresources. Faced with some of the oldest and most weathered soils under cultivationanywhere on the planet, good land stewardship practices and significant investment inagriculturalandbio-scienceshasnonethelessensuredcontinuedproductivityacrossarangeof resources. However, a range of new challenges posed by biosecurity hazards, climatechangeandchangingenvironmentalandespeciallyhydrologicalconditionswillrequirenewtechniquestoovercomeandprosper.3.1:Competingincentivesandpublicgoods

Agricultural activities almost always result in both positive and negative side effects, orexternalities,thatarenotfullyreflectedinthemarketpriceofinputsandthemarketvalueofoutputs.Asasimpleexample,goodlandstewardshipandtopsoilmaintenancepolicieswillhaveapositiveimpactonriverineandecosystemhealththatprovidesgreatbenefittothesurroundingcommunity,whilelandclearing,overcroppingandmonocultureagriculturewillhaveanetdetrimenttowatertablelevels,soilsalinity,andbiologicalresiliency.Whilerecentadventuresincarbonpricinginthedomesticpoliticalsphereandapushtowardssustainabledevelopmentaspartof industryself-regulationhavegonesomewaytowardsincentivisingpositivebehaviourandpenalisingpoorstewardship,thefullextentofpossibleoutcomesisnot,andisincapableofbeing,fullycapturedinapricingmodel.

Furthercomplicatingmattersisthatmanyoftheseexternalitieshavethenatureofapublicgood–thatis,somethingwhichisbothnon-rivalrous(useofaresourcebyonepartydoesnot restrict another party from also using that resource) and non-excludable (one partycannot realisticallypreventanother fromalsousing that resource).Theclassicexample inagriculturewouldbeutilisingaquiferwatersupplies–onefarmersinkingaboredoesnotstopanotherfromdoingthesame,norcantheystopthesecondborebeingsunk,orthethird,untiltheaquiferpressuredropstoolowtobeusable.Thishastwomainconsequences:

1)nopartyhasaneconomicincentivetoinvestinmaintainingthepublicgood–thebenefitsofdoingsocannotbeenjoyedbythemaloneandsotodowouldbetoallowothersa‘freeride’attheirexpense;and

2)nopartyhasaneconomicincentiveforsustainableconsumption–infact,quitetheopposite;astheusageofotherscannotberestricted,everypartyhasanincentivetograbwhattheycanfortheirownbenefitbeforetheresourceisexhausted.

Inadditiontocompetitionforpublicgoodswithintheagriculturalsector,farmersalsofacecompetitionfromsocietymorebroadly.Asabove,whileinrecentdecadessomemechanismshavereducedthis,adisparitystillexistsbetweentheinterestsoflocalcommunitiesandthatoffarmersseekingtomaximiseefficiency,productivityandprofits.Further,aformof‘marketfailure’canbeseentoexist,wherebyatleastpartofthedecreasingproductivitygrowthin

agriculturecanbeattributedtodegradationofnaturalresourcesbecauseinthepasttherewasnoeffectivepricepenaltyforpoorstewardship58.

Consequentially, any future measures to promote growth and efficiency in agriculturalproductionwillnotbeimplementedinavacuum.Publicpolicynolongeraccordsagricultureaprivilegedposition,despiteitseconomicimportance,andtheefficiencybenefitsofanynewmeasures will be balanced against the societal and wider community interest. Further,farmers themselves shouldbe cognisantof andwilling toprice into their own calculusofinterestthelikelymid-andlong-termconsequencesoftheiractivities.

3.2:Climatevariability

Intimately connectedwith the land and the changing seasons, agriculture is beholden tothem,andasinglegoodorbadseasoncanhaveconsequencesonproductivityandoutputthat far outweigh any other single factor. As such, accounting for climate variability inundertakinganyanalysisofagriculturalgrowthrateandproductivityiscritical.

Asnotedabove,AustralianagriculturalTFPhassincethe1970sincreasedatanaverageofabout2.5%perannumuntilthemid-90s,beforedroppingsharplytoabout0.7%intheyearssince59.Accountingforclimatevariability,asomewhatclearerpictureemerges–theaverageTFPgrowthfortheperiod1978-2008dropsto1.53%,withTFPgrowthfortheperiod2000-2008 dropping even further to 0.24%60. As such, despite individual years of drought, it isevidentthatapparentsteadygainsinproductivityovertherecentdecadesinfacthavemoretodowithgenerallygoodgrowingseasons.

ThefutureAustralianclimateundertheeffectsofglobalwarmingaredifficulttopredict,butgenerally the consensus seems tobe that average temperatureswill increase and rainfallpatternswillshiftunpredictably61.Underhigherrainfallscenarios,TFPispredictedtoincreaseforallaspectsofagriculturalproduction.Takingbroadacrewheatproductionasanexample,lowerrainfallmayseeaTFPreductionovertheperiodof7.3%inWAand4.2%inNSWby2030underabusiness-as-usualmodel.Farmersbyadaptationmaybeabletoreducetothisreductionto3.6%inWAand2.1%inNSW62.

Accordingly,itiscriticalthatTFPgrowthismaintainedatatleasthistoricalaveragesinordertooffsetthepotentialimpactsofclimatevariabilityonagriculturalproduction.Adaptationiscritical,andfarmersmustbepreparedtoshiftproductiontosuitthechangingclimate.

3.3:Wateravailability

Asthedriestinhabitedcontinentwiththemostvariableannualandseasonalrainfallpatternsworldwide,theavailabilityofwaterisobviouslyakeyissueandasignificantlimitingfactorin58SeeegdiscussioninAustralia’sAgriculturalFuture,opcit.59Seeaboveat1.360ProductivityPathways:ClimateadjustedproductionfrontiersfortheAustralianbroadacrecroppingindustry(2011),Hughes,Hetal,ResearchReport11.05,ABARES61 Climate change in Australia: agricultural impacts and adaptation (2006), Kingwell, R., AustralasianAgribusinessReviewvol.1462Adaptingtoclimatechange:issuesandchallengesintheagriculturalsector(2007),Heyhoe,Eetal,AustralianCommoditiesvol.14no.1

agriculturalproduction63.Atapproximately60%oftotalwaterconsumptioneconomy-wide,agricultureaccounts for the largest shareof totalwaterextraction64,primarily in irrigatedproduction. As might be expected, total usage varies from season to season, generallymirroring rainfall, but historically has stayed at approximately 12,000 gigalitres in non-droughtyears,droppingtoalowofapproximately7,000gigalitresin2007-2008atthepeakofthemillennialdrought65.

Interestingly, gross value of irrigated product and amount ofwater used are only slightlycorrelatedovertheshortterm.Asnotedabove66,Australianfarmersaresomeofthemostefficientusersofwaterinagricultureworldwide–duringtherecentdroughtyearsof2006-2012, gross value of irrigated product increased from approximately $10 billion toapproximately$13billion,whilewaterusageremainedatabout6,000gigalitresbelowpre-droughtlevels67.

Given theobvious importanceofwater to irrigatedagriculture, it is likely that this lackofdeclineintotalgrossvalueinsteadrepresentstheagilenatureofirrigatedindustriesandtheefficiency of water market mechanisms. Irrigated industries generally have a degree offlexibilitybuiltintotheiroperationsimposedbymanyyearsofvariablewateravailability,andtheoperationof nationalwatermarkets allows scarce resources tobe allocated to thoseparticular operations able to make most economic usage68. Of the major irrigatedcommodities,thereexistsaverylargedisparitybetweenthegrossvalueofthecommodityproducedandtheamountofwaterrequiredtoproduceit.Asanexample,in2011-2012riceproductionusedapproximately1,140gigalitres toproduceagrossvalueofapproximately$248million,($220,000foreachgigalitre),livestockgrazingused1,580gigalitresforavalueofapproximately$3.15billion ($1.9million foreachgigalitre),whilevegetablesused0.37gigalitresforavalueof$2.6billion,anefficiencyofapproximately$7billionpergigalitre69.

ThegeographicdistributionofAustralia’swatersuppliesarealsomisalignedwithmuchofourpopulationbaseandhistorical irrigatedagriculturalareas.Approximately45%ofour totalexploitablewateryieldoccursintheextremenorthofthecontinent,followedbyTasmaniaat 25%, however themajority of irrigated agriculture occurs in theMurray-Darling basin,whichcapturesonly6.1%ofexploitableyield70.Existinginfrastructureintheseareasrangefromverygood (Tasmania) to sporadic (northernAustralia,with somenotableexceptionssuchastheOrdRiverscheme).

Further preventing a straightforward expansion in irrigation in this area is the competingincentives of local communities and long-term sustainable resource management – inhydrologicalsystems,nowateris‘wastedwater’,withrunoffintostreamsandoceanscritical

63Australia’sAgriculturalFuture,opcit64‘Inlandwater’,FederalDepartmentofEnvironment/BureauofMeteorology65‘Agriculturalwateruse’,ABS66Seeaboveat1.267Australia’sAgriculturalFuture,opcit68Seealsodiscussionaboveat2.5.69DerivedfromGrossvalueofirrigatedproductandVolumeofwaterapplieddatasets,2012,ABS70A continental scale assessment of Australia’s potential for irrigation (2010), Petheram, C.M et al,WaterResourcesManagementvol.24pg1791

for maintaining hydrological cycles and riverine health. Integrated land and waterstewardshipisessentialtolong-termsustainabledevelopment,andover-extractioncanhaveextremely serious and expensive consequences for remediation, as seen in the Murray-Darlingregionwhereatlastestimateapproximately$12billionwillberequiredtoimplementtheMurray-DarlingBasinPlan.

Growthinthissectorwillthusrequireinnovation,goodlandstewardshipthroughexplorationof techniques such asmosaic irrigation, increased efficiency of usage and regulatory andindustry action to ‘price in’ the environmental costs of over extraction. Given the innatevariabilityofthesector,industrywillalsoneedtoretainflexibilityofoperationsandtheabilitytoscaleoutputtoavailableresources.Nonetheless,thelargedisparitybetweenthecurrentgeographic concentration of irrigation activity and the location of underutilised resourcespresentsirrigatedagricultureasasignificantpotentialgrowtharea.

3.4:Soilutilisationandfertility

AgricultureusesanenormouspercentageofAustralia’stotallandmass–some456millionhectares,orapproximately59%oftheentirecontinent.Ofthistotalusage,byfarthelargestsingleuseislivestockgrazing,with429millionhectares,or94%oftotalagriculturallanduse,setovertograzingonnaturalvegetationormodifiedpastures.Cropping(27millionhectares)andhorticulture (500,000hectares) comeverydistant secondand thirdplace71. In recentyears there has been a slight reversal, with a total decrease of approximately 19millionhectares (likely representing the abandonment of marginal ventures and the transitiontowardsforestryandnativere-vegetation).Thepatternofagriculturalusagehasalsoshiftedovertime,witha6%declineintheareausedforgrazinganda39%increaseincroppingsincetheearly90s72.

It is perhapsunsurprising that thiswidespread landusagehashadanextreme impactonAustralianflorathroughhabitatdegradation.SinceEuropeansettlement,99%oftemperatelowland grasslands, 60% of coastal wetlands, 34% of low eucalypt woodland andapproximately30%eachofmalleeandeucalyptforesthavebeencleared73.Thismodificationfromnaturalequilibriumandintensificationofusagehashadconsequencesforsoilqualityandfertility,requiringcarefulmanagement.

Goodsoil,andAustraliansoilinparticular,hasmanyqualitiesofanon-renewableresource.Australiansoilis,ingeologicalterms,extremelyold,veryweathered,andonaveragesomeoftheleastfertileintheworld.Asaresult,itformsandregeneratesveryslowly,whiledegradingrapidly,particularlyunder intenseuse.Whilesomesoilaroundwetlandareas,particularlyblackandbrowncrackingclaymostcommonlyfoundinfloodplainsinNSWandVictoria,ishighlyproductive,themajorityoftheremainderisofpoortofairquality.74

71NationalLandUsage2005-2006(2010),ABARE-BRS72Towardsnational reportingonagricultural landuse change inAustralia (2013),Mewett, Jetal,TechnicalReport13.06,ABARES73‘Loss,fragmentationanddegradationofhabitat’,YearBookAustralia(2009-10):Australia’sbiodiversity,ABS74Australia’sAgriculturalFuture,opcit

Theprimary issues facingAustralianagriculture inmaintainingsoilqualityand fertilityareacidification, erosion, and loss of soil carbon. Further, managing soil quality requires abalancingofpublic,privateandintergenerationalinterests,difficulttoreconcile.

Acidificationisprimarilyanissuewherehighnitrogenfertilisersareused,combinedwithahigh degree of product removal, and hence is most an issue in WA, NSW and Victoria.Approximately50millionhectaresarealreadysufferingfromsoilacidification,whilecurrentlevels of soil liming are fundamentally inadequate.Without further adequate action, it isestimatedthatanadditional30-60millionhectareswilldroptoapHlevelhostiletoallbutthemost acid-tolerant plant species75. In an Australian context, the effects of increasingacidity have been somewhat masked by the selection of mostly acid-tolerant crops andgrasses,particularlylegumes,therebyslowingproductivitylossduetopoorsoilmanagement.Further,limeisusedsparinglyandinfrequentlyinAustralia,ornotatall,andhencethelocallimeindustryissmallandproductmuchmoreexpensivethanintheUSAorEurope76.

ErosionremainsasignificantprobleminAustralia,despiterecentadoptionoftechniquessuchas revegetation, minimum tilling and contouring. Thanks to a varied landscape, differentmechanismsoferosionapplytodifferentoperations,hillside(slipping,runoff),gully(floodingandsurfacewater)oraridplain(duststorms)andthusdifferentialmanagementtechniquesarerequired.Unfortunately,mostsuchtechniquesrequireareductioninthetotalareaundercultivation, or a lessening in intensity of existing usage, and thus perverse short-termincentives can apply to limit take-up of techniques that would benefit long-termsustainability.Asecond-orderproblemtowhicherosionfurthercontributesissedimentandnutrient loaddelivery to rivers andestuarine systems,particularly innorthernand south-easternAustralia.Nearly19,000tonnesofphosphorusand141,000tonnesofnitrogenfromagricultureareexportedtothecoastannually77,causingsignificantenvironmentaldamagetoestuarine,riverineandmarineecosystems.Intheabsenceofregulatoryoversight,thesecostsarenotusually‘pricedin’tofarmeconomics.

Salinity,despiteenteringthenationalconsciousness intheearly2000s,hashad lessofanoverallimpactonagriculturalproductionthanpreviouslyfeared;somewhatperverselythankstootherenvironmentaldisordersandmismanagementdisguisingitseffects.First,thesalinityprocessismostlyrainfall-driven,andsotheMillenniumDroughtslowedtheexpressionofdryland salinity. Second, overuse of aquifer resources has in areas lowered thewater table,shrinkingandinsomecaseshaltingsalinedischarge.Third,thealteringofrainfallpattersduetoclimatechangetendstoproduce‘shorter,sharper’burstsofperiodichigherthanaveragerainfall,whichcanhavetheeffectof‘washing’salinityoutofsoilsandintoriversystems78.

Despitethesemaskingfactors,overallsalinityhascontinuedtoincrease,particularlyinwaterandriversystems.Thus,whileclimatechangeandmismanagementmayreducethedirect

75ManagingAustralia’s Soils:APolicyDiscussionPaper (2008)Cambell,A.,NationalCommitteeon Soil andTerrain/NaturalResourceManagementMinisterialCouncil76Australia’sAgriculturalFuture,opcit77ManagingAustralia’sSoils,opcit78 The effects of global change on soil conditions in relation to plant growth and food production (1996),Brinkman,Retal,UNFAOLandandWaterdivision;Australia’sAgriculturalFuture,opcit

exposureofagriculturallandtosalinity,thelikelyimpactsonwaterqualityarelikelytogetworse,reducingtheutilityofnon-rainfallon-farmwatersourcesandimposingdownstreamsocialandenvironmentalcosts.

3.5:Biosecurityandriskmanagement

Thankstoourrelativeisolationasanislandcontinent,Australiaisbothprotectedfromandvulnerabletoemergingpestanddiseasethreats.Asaresultofstrictbiosecuritymeasures,manythreatssuchasfoot-and-mouthareunknownhere,whichhashadapositiveimpactonbothourtotalproductivityandtheperceivedfoodsafetyofourproducts.

However,alackofexperiencewithseveralcriticalthreatscouldleadtoalackofpreparednessandslowresponsetofuturepotentialoutbreaks,whichwouldhavethepotentialtocausewidespread potential losses. The CSIRO has identified five ‘megatrends’ that raiseimplicationsforfuturebiosecurity,aswellasanumberof‘megashocks’whichcouldhaveapotentialcatastrophicimpactonagriculturalproduction79.

Broadlythetrendsorriskfactorsinclude:

1) Increasedagriculturalproductionandexplorationofnewornicheproductsincreasetheriskofintroducingnewpestsordiseases,whileincreaseproductivityplaceslocalecosystemsundermorestress;

2) Agrowing shift fromrural tourbanareashas led toadisconnection fromprimaryproductionandalackofawarenessoftheimportanceofgoodbiosecuritypolicy;

3) Increasedmovementsofgoods,peopleandvesselsacrossborderscreatesadditionalvectors for disease, including particularly through the explosive growth in onlineretailing;

4) A loss of biodiversity through ecosystem destruction resulting from poor landstewardship reduces resiliency in the natural environment, while climate changetendstofacilitatethemovementofpestsanddiseasesintonewareas;

5) Alackofinvestmentinthearea,combinedwithanagingpopulationandlossofskills,limitstheabilityoftheindustrytorelatetobiosecurityshocks.

Twelvepotential‘megashocks’areidentifiedbythereport,andincludesuchpotentialissuesasawheat rustepidemic, introductionofexotic fruit flies, footandmouthorbluetongueoutbreak, and a spike in antimicrobial resistance amongst microorganisms. Therecommendedresponsediffersaccordingtothethreat,howevercommonthreadsexist:

1) Returning research and development to previous levels to maintain skills andtechniquesneededtocombatpotentialoutbreaks;

2) EmphasisingthepotentialbenefitsofAustralianbiosecurity,includingtheexportofskillsandknowledgeandthebrandingbenefitsof‘diseasefree’status;

3) Recognising that mitigation and preparedness is just as important as prevention,requiringinvestmentfromindustryandgovernmentalike.

79Australia’sbiosecurityfuture:preparingforfuturebiologicalchallenges(2014),Simpson,Metal,CSIRO

4) Co-opting industryexpertiseandknowledge intosurveillanceand reporting, ratherthana cultureof secrecy and top-down impositionof policy viewedasbeing anti-farmer.

3.6:Farmsasenvironmentalstewards

Farm operations cannot be easily divorced from the local ecosystem in which they aresituated. This is true especially of ecological processes such as nutrient cycling, nitrogenfixation,hydrologicalandclimatecycles,butalsoofsomebiologicallinks,responsibleforpestandparasitecontrol,pollination,andotherbiologicalservicesoftenundervaluedbyfarmers.Additionally, the off-farm impacts of unsustainable or harmful agricultural practices aresignificant, but are often not priced in to cost/benefitmodels. Australia has the dubioushonourofhavingthelargestdocumenteddeclineinbiodiversityofanycontinentforthepast200years,andthehighestrateofspeciesdeclineintheOECD80.

Inaddition to thesocialandoff-farmcosts,biodiversity lossandspeciesdeclinecanhavesignificantimpactsonfarmproductivity.Whileexactfiguresaredifficulttoquantify,nativefaunacanassistinseedentrapment,pestcontrol,buildingsoilnutrientstores,assistwaterpenetration and storage, andbuildmicrobial activity,while flora arewell-adjusted toourpeculiarsoils,controllingsoilacidityandsalinity,preventingerosionandpromotingregularrainfall. Where native ecosystems have been replaced, significant costs are incurred inmanaginginvasivespeciessuchaspigs,camels,buffalo,rabbitsandgoats,alongwithweeds–thecostofcontrollingweedspeciesaloneisinexcessof$4billionperyear81.

However,lookingforwards,significantopportunitiesexistforagriculturetonotonlysecureitsfuturesustainabilityandthereforemedium-andlong-termprofits,butalsotoprofitfromagrowingmovementtowardssustainability.Globalmarketsforcarbonandotherformsofenvironmentalserviceshavealreadyattractedmuchinterestfromfarmers,andpublicpolicyoffers some support for the ideaof viewing theagricultural community as environmentalstewards, who should be paid accordingly82. Progress in this area will require furtherdevelopment of monitoring and reporting standards, along with regulatory clarity, asgovernment seeks to avoid subsidising private benefit with public money and therebyreducingordistortingmarketdriverstowardsincreasedefficiency83.Futuremarketsforpublicgoodscouldseefarmingoperationsincorporatingmultiplelandstewardshiprolesintotheirincomestream;forexample,inadditiontosellingwoolandwheat,farmingoperationscouldderiveincomefromcarboncredits,bepaidforbettermanagingwaterqualityandreducingsalinitybyalocalcatchmentauthority,receivegovernmentfundingforaspeciesconservationprogram,andselltothelocalgridrenewableenergyproducedfromon-farmsolarandhydro.

80‘BiodiversitydeclineinAustralia’,YearBookAustralia(2009-10):Australia’sbiodiversity,ABS81Australia’sAgriculturalFuture,opcit82BlueprintforaHealthyEnvironmentandProductiveEconomy(2014),opcit83 Targeting Payments for Environmental Services: The Role of Risk (2003), Alix-Garcia, J et al, Gianni Foundation ofAgriculturalEconomics

4:Efficientproduction-knowledgeandskillsinvestmentWhile Australian farmers have gained an excellent reputation for landmanagement andcroppingstrategies, further roomto improveexists inattainingmaximumproductivity.Asalreadyaddressed,realgrossproductionvaluehasstalled inthesector,duetoarangeoffactors84.Tofurtherincreaseyields,maintaincurrentmarketleadingpositionanddrivefutureprofitability, a range of new approaches will be required, both in the areas of technicalproficiency and innovation, addressed in chapter 5, and through a range of possibleefficienciesderivingfromgreatermanagementexpertise,skillsandknowledgegrowth.

4.1:Farmyieldandproductionfrontier

Inmeasuringefficiency,theproductionfrontierrepresentsthetheoreticalmaximumoutputforaparticularenterprise, taking intoaccountexistingbestpractice in landmanagement,technological developments, employee training and so on, but also domestic politicalrealities,market forces andaccess to capital. As farmsbecomemoreefficient, farmyieldapproachesclosertotheproductionfrontier.Formanyyears,Australianfarmershavebeenrelatively close to this theoreticalmaximal efficiency, however there has been amarkeddownwardstrendinrecentdecades85.Toaddressthisdeclinewillrequireareneweddrivetowardsefficientproduction,anewapproachtotechnicalchallengesandhumancapital,andsignificantinvestmentinagriculturalR&D.

4.2:Efficiency–technical,scaleandmix

Technicalefficiencyrepresentsthedifferenceinperformancebetweentop-performingfarmsandaveragefarms–or,inotherwords,howefficientindividualfarmsareatadoptingandapplyingexistingtechnicalinnovation,strategiesandtechniques.Australianfarmershaveagenerallystrongrecordofrapidadoptionoftechnologydirectedtowardsefficiencybenefits,continuing our historical accomplishments in this area86. A good example of technicalefficiency is themodernconceptofprecisionagriculture–usingtechnologiessuchasGPSmonitoring,geographicinformationsystems,soilsensorsandyieldmonitorstoallowfarmersto implement best-practicemanagement techniques and juggle a number of variables toensuremaximumyield fromminimal inputs87.While the benefits of such technology andtechniquesdifferfromfarmtofarm,inmostcasesinitialcapitaloutlayisfullyrecoupedwithin2-5yearsandinthemajorityoffarmswithin2-3years88.

Muchofagriculturepresentsadiminishingreturnsscenario.Scaleefficiencyrepresentsthedegree towhich a particular farm is operating at themost efficient size and intensity ofoperations,takingintoaccountsuchthingsasnaturalresourcepreservation(fallowing,crop

84Seeaboveat1.385ProductivityFrontiers,opcit;Australia’sAgriculturalFuture,opcit.86Seeaboveat1.2.87Australia’sAgriculturalFuture,opcit88Theeconomicbenefitsofprecisionagriculture:casestudiesfromAustraliangrainfarms(2007),Robertson,Metal,forGrainsResearch&DevelopmentCorporation/CSIRO

rotation,salinityreductionstrategies,etc.),degreeofcapitalreinvestment,localsupplyanddemand,labourcostsandsoon.

Mixefficiencyrepresentsthedegreetowhichthechosenagriculturalactivitiesofafarmalignwiththemaximumefficiencyforthatparticularproperty,takingintoaccountrainfall,soiltypeandquality,distancefromgrainhandlingterminals, livestockexportports,andsoon.Mixefficiency is calculated on a sustainability basis and is highly dependent variables beyondmere land suitability – for example, one of the future challenges for agriculture is that adeclining pool of skilled labour and the increased technical requirements of modernagriculturaltechnique89havedrivenmanyoperatorstofocusononetypeofproduction.

Asanexample,theclassic‘mixedfarm’hasseenarapiddecline,withtheareaofbroadacreproductiondevoted tograzingdecreasingby6%while landplanted tocrops increasedbyapproximately50%sincetheearly90s90.Thislowerscostsandallowsforincreasedtechnicalefficiencybyallowingoperatorstonarrowtheskillsandcompetenciesrequiredforon-farmoperations,butmayreducescaleandoverallproductivity,aswellpotentiallyendangeringsustainabilityandleadingtonegativeenvironmentalimpacts91.

4.3:Skillsbaseandacquisition

Traditionally, the agricultural industryhasplaceda low level of priorityoneducation andtraining, with a perceived bias against ‘book learning’ and increased focus on on-the-jobpracticaltraining.OverathirdoffarmershavenoeducationbeyondaYear10completioncertificate (or below), while nearly 60% have no tertiary qualifications92. Historically, thisdisinterest may stem from a number of factors, including lack of access to goodcommunications and technology infrastructure, theneed to travel significant distances toattend training, a lackof available time,particularlyduringnormalbusinesshours,higherrelativecostsperstudent,andlowerlevelsofliteracyintheruralpopulation93.

A number of entrenched perceptions also present barriers. Traditionally low universityentrance requirementspairedwitha lackof familyencouragementandnegativeviewsofmanyteacherstowardsagriculturalcareerscombinetocreateanimpressionthatagriculturalstudies are for students of lower abilities, or are unrewarding or boring. As a result, thenumberofstudentsstudyingagricultureatatertiarylevelisdeclining,andwellshortoftheestimated market requirement94. For example, for the period 2001-2006 there were

89Formoreonwhich,see4.3,following.90Landscapesintransition:trackinglandusechangeinAustralia(2011)Lesslie,Retal,ScienceandEconomicInsights,pubABARES,issue2-2.91Trajectoriesofchangeinrural landscapes–theendofthemixedfarm?,McKenzie,F inRuralChangeinAustralia(2014)ed.Connel,J,Dufty-Jones,R,AshgatePublishingLtd92EmploymentOutlookforAgriculture,ForestryandFishing–July2008 (2008),DepartmentofEmployment,EducationandWorkplaceRelations93Workforce,TrainingandSkillsIssuesinAgriculture,opcit94Workforce Planning inAgriculture:Agricultural Education andCapacity Building at the Crossroads (2008),Pratley,J,FarmPolicyJournalvol5(3)p27

approximately 800 (trending downwards) graduate completions per annum, serving anestimateddemandofapproximately2,000positionsfornewgraduateswithinthefield95.

Industryisalsoinmanycasesreluctanttoparticipate.ThemajorityofAustraliafarmersarestillsmalloperators,whoaregenerallynotabletoaffordforstafftotaketimeofffortrainingandlacktheresourcestopayforaccesstoeducationalcoursesthatareoftenbasedinurbancentres96. Even for larger enterprises, perceptions are that formal training provides noimmediatefinancialbenefittofarmers,orthatinvestmentintrainingwhatareoftenseasonalorcasualemployeeswillnotaccruefinancialbenefittofarmmanagementwithinthetermoftheiremployment.Asaresult,thefocusshiftsawayfromupskillingexistingstaffandtowardstheemploymentofcontractorsperceivedtohavethenecessaryskills97.

Thislackofreplenishmenthasledtoasituationwherethespecialistknowledgerequiredtocompeteinmodernagricultureisincreasinglyconcentratedinashrinkingpoolofexperts.Thenumberof‘familyfarms’hasdecreasedby30%sincethemid1980s,withthetotalnumberof farms shrinkingbyapproximately42,000and the total numberof employees shrinkingrapidly,fallingby19%between2001and200698.

Anumberofproposalshavebeenputforwardstotackletheseissues99,broadlythat:

1) Negativeperceptionsamongsteducatorsandthegeneralpublicshouldbeaddressed,throughprovidingpertinent,clear informationonagriculturalcareerpathwaysandcloserintegrationwithsecondaryschoolsandindustry;

2) Streamliningandaddingflexibilitytocurrentvocationalregimes,includingbyreducingfocuson ‘fullpackage’ coursesand insteadoffering shorter, cheapermore specificcourses offering only the competencies and skills needed for specific processes orindustries;

3) Addressinglackofconsistencyinthemutualrecognitionofqualificationsandtrainingbyuniversitiesandthevocationaltrainingsystem,toaidpathwaystoeducation;and

4) Encouragingaforward-lookingattitudeamongstindustrythatrecognisestheneedforemployeeupskilling.

This declining knowledge and skills base, andmore critically the potential decline of theinstitutions and pathways needed to upskill new workers into the future, has potentialconsequencesforagriculturalproductivity.Modernagriculturalpracticesaremoreintensivethaneverbefore,bothintermsofenergyandinputsbutalsointermsoftheknowledgeandskillsrequiredtoproperlymaintainsuchpractices.Bothcroppingandgrazingsystemsrequirespecialisedskillstomanagenotonlymachinery,technicalandstrategicelements,butalsoto

95Graduate Completions in Agriculture and Related Degrees from Australian Universities (2008), Pratley, J,Copeland,L,FarmPolicyJournalvol5(3)p196Realitycheck:MatchingtrainingtotheneedsofregionalAustralia(2008),Gelade,S;Fox,T,NationalCentreforVocationalEducation97Workforce,TrainingandSkillsIssuesinAgriculture,opcit98AgricultureinFocus:FarmingFamilies,Australia,2006(2008),ABS99ibid;Australia’sAgriculturalFuture,opcit

compete in a crowded marketplace in the arenas of sustainability, branding, marketpenetrationandfinancialandsuccessionplanning100.

4.4:Innovationandknowledgesharing

Distinctfrominvention,innovationrepresentsthecombinationofexistingknowledgefromdifferentsourcestoproduceanovelbeneficialoutcome-inotherwords,doingmorewithwhat is currently known. Innovation is driven by knowledge exchange and informationnetworking,asdistinctfromformalprocessesofinquiryorresearch.Further,innovationis(orshouldbe)anongoingprocess,ratherthanaone-offevent,providingcontinuinglow-levelgainsinefficiencyorproductivity.Suchgainsmaybelessimpressivethanone-off‘quantumleaps’,butarenonethelesscriticalinmaintainingpositivegrowthtrajectory-inastudyof270WAbroadacrefarmsfrom2002-2011,theonlyfactorstohaveasignificantpositiveeffectwere farmer’s preparedness and ability to utilise cropping innovations (such asminimumtillage,pasturephases,strategicseeding,etc.)alreadywellunderstoodwithintheindustry,andtheirtimemanagementandorganisationalskills101.

Assuch,interactionsanddevelopmentsatthefarmlevelareasimportant,ormoreso,thanuniversities,colleges,commerciallabsandotherinstitutionsoflearning,yettheseprocessesaregenerallypoorlyunderstoodandpoorlysupportedbyregulationandpolicy102.Innovationrequiresintegrationwithlocalandindustrypartners,acertaindegreeofflexibilityandaccesstocapital,andtrustandcollaborationbetweenpartners,supportedbygovernancestructuresthatensureequalvalueisderivedbybothpartiestotherelationship103.

Whileboth industryandgovernmenthavea role toplay inencouraging innovation,akeyissuetoovercomeistogivefarmersagreatervoice.Knowledgegenerationintheagriculturalspaceisoftenregardedasatop-down,high-endprocess,whereresearchersandcorporationsapproachfarmerswithafaitaccompli.Whilethisisanimportantmechanismforknowledgedissemination,enablinginfrastructureandconnectionsbetweendifferentpartiesislikelytohave a greater effect, rather than seeking to impose defined interventions on primaryproducers104.Farmer-to-farmernetworks,both formaland informal,arehighlyefficientatencouragingandenablinginnovation,whileagrowingtrendisdevelopingwhereformalisedgrower’sgroupspairtopartnerinoptimisingtheirparticularproductionmix.

4.5:Researchextension

Arelatedissuetoknowledgeandskillsacquisitionisresearchextension,orthedisseminationofandtake-upinnovationandinventiontofarmers.ThebenefitsofR&Dareonlyrealised

100Harvestingproductivity:ABARE-GRDCworkshopongrainsgrowth(2010),ABARES;Trajectoriesofchangeinrurallandscapes–theendofthemixedfarm?,opcit101Adeeperunderstandingof farmproductivity (2011),Kingell,R. et al,AustralianExportGrains InnovationCentre/UniversityofWesternAustralia102Farmer-drivenInnovationinNewSouthWales,Australia(2013),McKenzie,F,AustralianGeographervol.44,pg81103Community-based, Regional Delivery ofNatural ResourceManagement: Building system-wide capacities tomotivatevoluntary farmer adoption of conservation practices (2008), Marshall, G.R; for Rural Industries Research andDevelopmentCorporation104Australia’sAgriculturalFuture,opcit

whenfarmerschoosetoputthosenewtechnologies,techniquesorstrategiesintopractice,whichmayrequireindividualupskilling105.

State and Territory governments have traditionally undertaken a major role in researchextension,howeverfundinghasdeclinedovertimefromapproximately24%oftotalpublicagriculturalresearchexpenditureinthe1950stoapproximately19%today106.Givenshiftinggovernment priorities and budget pressures, this trend is unlikely to be reversed, withdisseminationofinformationincreasinglyviewedasaprivateissueforindividualoperatorstohandleasabusinessexpense107.Further,public-sectorextensionislikelytoincreasinglyfocus on sustainability and resource management policy for agriculture, rather than thepreviousemphasisonproductivityandyieldgrowth.Assuch,thepublicsectormaynotbeableorwillingtoassistinservingthewholeofthefield108.

Toacertainextent,thisslackhasbeentakenupbyprivateindustry,grower’sgroups,inputsuppliers(inanattempttocreateamarketfortheirownproduct),andinformalfarmer-to-farmer contact109. Indeed, some private providers (such as consultants and industryconferences)areratedhigherthanCSIROorStategovernmentbodiesasasourceofaccurate,relevantinformation110.

105Onwhichtopic,seeaboveat4.3.106PublicinvestmentinagriculturalR&Dandextension:ananalysisofthestaticanddynamiceffectsonAustralian,broadacreproductivity(2011),Sheng,Yetal,ABARESresearchreport11.7107Public-sectoragriculturalextension–whatshoulditlooklikein10years?(2013),Pannel,D;Marsh,S,FarmInstituteInsightsFebruary2013,AustraliaFarmInstitute/UWASchoolofAgriculturalandResourceEconomics108ibid109TheblueprintforAustralianagriculture2013-2020(2013),NationalFarmersFederation110 Are traditional extension methods still preferred? Farm Institute Insights February 2013, Australia FarmInstitute/UWASchoolofAgriculturalandResourceEconomics

5:Futurefarms–technologyandinnovationAs already noted111, modern agricultural practices already require a degree of specialistknowledge. Farming employs a range of technologies and practice that require lifelongcontinued professional development and learning in a climate of expensive capitalinvestment, volatile markets and social challenges112. As noted above113, Australianagriculture,generallyveryefficient,alreadyoperatesatorclosetoproductionfrontiers.Inrecentdecades,productivitygrowthhasslowedtolessthanhalfhistoricalaveragesandiscontinuing to trend downwards114. While many factors may have contributed to this,diminishingpublic andprivate investment in agricultural R&D is consistently identifiedbyindustry and researchers as a critical factor. Thus, to drive continuing productivity gains,operatorswillbeforcedtoinvestinnewmethodsandexplorenewtechnologicalfrontiers.

5.1:FutureR&D

Australian agricultural research and development is largely unique in its use of statutorycorporations funded by levies imposed on industry matched by government grants. Thisapproach largely removes the free-rider problem115, and historically, backed by adequatefunding of research extension programmes116, has been largely effective in ensuringAustralianagriculturalproductivityandefficiency117.Concernsexistwiththecurrentconflictbetweengovernmentandprivateindustry,eachsuggestingthattheothershouldshouldermoreoftheburden.Governmentgenerallyseekstoincrease(orun-cap)theleviesrenderedonindustry,whilethelonglagtimesbetweeninceptionandthefruitsofresearchcomingtolightmeanmanyfarmersfeelthattheyreceivenobenefitsintheirworkinglives-althoughsuchargumentslikelyignorethebenefitsaccruingtothecurrentgenerationsthatwerepaidbyotherfarmersinthepast118.

Asresearchandinnovationcannoteasilybedividedintopublic-andprivate-sectorbenefits,and the knowledge and skills products of research in the sector have many public-goodcharacteristics, the current structural approach on balance remains likely to best deliverfutureR&Doutcomes.However,adeclineinfundingandashrinkingpoolofresearchers119,combinedwithachangeinfocusformanyinstitutions,willrequirearefocusandincreasedallocation of resources to maintain previous trend productivity growth and henceinternationalcompetitiveness.TomaintainTFPgrowthatorabove2%,neededtostayahead

111Seeaboveat4.3.112Theroleofnetworksofpracticeandwebsofinfluencersonfarmers'engagementwithandlearningaboutagriculturalinnovations(2010),Oreszczyn,Setal,JournalofRuralStudiesvol26p404113Seeaboveat4.1.114Seeaboveat1.3.115Seealsoaboveat3.1.116Seeaboveat4.5.117Australia’sAgriculturalFuture,opcit118ibid119Formoreonwhich,seeaboveat4.3.

oftrenddeclineintermsoftrade,investmentinagriculturalR&Dwillneedtobereturnedtohistoricallevelsatorabout3%ofthegrossvalueofagriculturalproduct120.

Muchof currentpublicly-fundedR&D in theagricultural space seeksnotonly toenhanceproductivity,butalsotodeliverbetterenvironmentaloutcomes,usuallyseekingtomaintaincurrentlevelsofproductivitywithlessofanenvironmentalcost121.Asalreadynoted122,suchbenefits may not be ‘priced’ in a way which allows them to be easily assessed inconsiderations of TFP, but are nevertheless critical for future sustainable operation andbalancingofpublicpolicyconcerns.Further,muchR&Disperhapsunderstandablyfocusedonsinglesystemsorsingleenterprises,seekingtoenhanceaspecificprocess,orovercomeaparticularchallenge.

Asaresult,theinteractionsbetweensystemshavebeenlesswellstudied123,andthepotentialforrealisingefficiencies, linkagesandpotential futuregains inmixed-usefarmshavebeenneglected.Notably,nearlyhalfoftheworldsfoodsupplyderivesfrommixedcrop/livestocksystems124,andthecurrentfocusonsingle-outputagriculturalsystemspreventsrealisationofmixefficiencyandthreatenssustainability125.Anopportunitythereforeexistsforindustrytopotentiallyderivemuchoftheneededincreaseinproductivityandefficiencyfrompursuingmixedagricultureratherthanincreasingmonocultureproduction.

5.2:Thecaseforresearch

InvestmentinagriculturalR&Dbringswithitasignificantreturnoninvestmentintermsofincreasing productivity. While difficult to measure and decouple given the mixedpublic/privatenatureofourR&Dsystem,therateofreturnonAustralianpublicspendinginR&Dhasbeenestimatedatabout30%126.Notably,thesemeasuresfailtoreflecttheentiretyofthebenefitsstemmingfromR&D–asdiscussedaboveat5.1,significantgainshavebeenmade in the areas of sustainability and mitigation of environmental impacts, which arecurrentlynot‘pricedin’toratesofreturn.Further,asAustralianindustrypaysonlyacappedshareofthecostsofR&D,therateofreturnforindustry(asopposedtopublic)spendingisgreaterstill.

Australiahasnotbeenalone inneglectingagriculturalR&D.Since the1960s, theshareofpubliccontributions toagriculturalR&Dbydevelopednationshasdecreased from58%to48%by2009.Overthesameperiod,thecontributionsfromtheAsia-Pacificregion–notably

120Australia’sAgriculturalFuture,opcit121ibid122Seeaboveat3.1.123 Evidence of farm-level synergies in mixed-farming systems in the Australian Wheat-Sheep Zone (2010),Villano,Retal,AgriculturalSystemsvol.103issue3124 Smart investments in sustainable food production: revisitingmixed crop-livestock systems (2010), Herrerro,M et al,Sciencemagazinevol327pg822125Seeaboveat4.2.126ThereturnsfromresearchinAustralianbroadacreagriculture(1995),Mullen,J.D,Cox,T.L,AustralianJournalofAgriculturalEconomicsvol.39no.2p.105;PublicinvestmentinagriculturalR&Dandextension:ananalysisofthestaticanddynamiceffectsonAustralianbroadacreproductivity(2011)Sheng,Y,etal,forABARESResearchReport11.7

fromIndiaandChina–haveincreasedfrom20%to31%andcontinuetotrendupwards127.Consideringthelonglagbetweenpublicinvestmentandbenefitsaccruingtoindustry128, ifAustraliawishestoremaincompetitiveintheinternationalmarketplaceoverthemediumandlongterm,thisdeclineneedstobeaddressedinthenearfuture.

5.3:Privateinvestment

Drivenpartlybynecessitycausedbyadecliningpublicinvestment,purelyprivateinvestmentinagriculturalR&Dhasbeenrising129.Themajorityofsuchinvestmentisdirectedtowardsthe‘practicalend’ofthespectrum–privateactivityinAustraliaiscomplementarytopublicR&Dgivenouruniquesystem130andrelativelysmallmarket.TheexperienceintheUS,whereprivateinvestmentmakesup56%oftotalspending,similarlysupportstheviewthatprivateinvestmentismoreconcernedwiththeimplementationormonetisationofthemore‘bluesky’projectssupportedbythepublicdollar.Itisthususuallymoredirectedtowardstheshortterm, and produces value increases primarily over that period rather than the sustainedgrowthstemmingfrompublicsectorinvolvement131.

Asforeshadowedabove,agriculturalresearchtendstohavemanypublic-goodqualities.Thus,privateagriculturalR&DinAustraliacan,inadditiontofinessingandadaptingtheproductsofAustralianpublic-sectorR&D,‘freeride’offinternationaldevelopmentstoacertainextent.Asanexample,Australiaprivate-sectorbreedershavecapitalisedondevelopmentsmadebyCIMMYT132,withtheoverwhelmingmajorityofAustraliansemi-dwarfwheatcultivarsnoweither using CIMMYT lines as at least one parent ancestor and 98% of Australian wheatproductionsowntothisancestry133.

Whileforecastingisaninherentlyimpreciseexercise,thereappearstobeageneralconsensusamongst industryandprivateoperatorsas to thetechnologieswiththegreatestpotentialimpactoverthemediumandlongterm:

1) Betterinformation,allowingsmarterdecisionstobemadefasterandenablingothertechnologies;

2) Increasingautomation,increasingproductivityandreducinglabourrequirements;3) Continued refinement, suiting production to the land rather than trying to force

marginalorunsustainableproduction;and4) Exploringnewfrontiersandsolvingengineeringchallenges.

127Agricultureintheglobaleconomy(2014),Alston,J.M;Pardey,P.G,JournalofEconomicPerspectivesvol.28(1)pg121128Estimatedhistoricallyat35-50years,althoughwithdecreasing lag times inmoderncontext–Australia’sAgriculturalFuture,opcit129ibid130PrivatesectorinvestmentinagriculturalresearchanddevelopmentinAustralia(2010),Keogh,M;Potard,G,forAustralianFarmInstitute131Losingtheplot?Agriculturalresearchpolicyandthe2014FarmBill(2014),Pardey,PGetal,Choicesmagazine(AgriculturalandAppliedEconomicsAssociation)3rdquarter132CentroInternacionaldeMejoramientodeMaízyTrigo/InternationalMaizeandWheatImprovementCentre,ElBatan,Mexico133AnalysisoftheImpactofCIMMYTResearchontheAustralianWheatIndustry(2004),Brennan,J.P;Quade,K.J,economicresearchreportno.25,forNewSouthWalesDepartmentofPrimaryIndustries

5.4:Informationrevolution

Informationiscriticaltofarming.Withoutknowingwhatstockarewhere,theircondition,thechanceofrainfall,cropcondition,diseasestatus,breedingseason,nitrogenlevels,andthethousand and one other individual variables that can impact production, it is almostimpossibleforfarmerstoensureadequateyields.Increasinglycommonaspartofprecisionagricultural systems134,monitoringand information systems can takemany forms rangingfromsimpleweather stations through toper-field soil sensorsmeasuringeverything frommoisturelevelsandaciditytonitrogen,salinityandrootpenetration.

Monitoringsystemsarecurrentlycommerciallyavailable,invariousforms,anditislikelythattheirusagewillbecomeincreasinglyubiquitous.Asthetechnologydevelops,thepotentialuseswillalsoexpandtoallowevenfurthergainsinefficiencyandproductivitytobepursued.For example, researchers at the University of Bonn are pairing high-resolution 3D laserscanningof field topographybeforesowingwithregular imagingofcropsas theygrowtoprovideaccurateindicationsofplantdimensionsandthereforebiomass–allowingper-sectorassessmentsofgrowthpatterns.Differentiallightreflectionfromplantleavescanevensignifythepresenceofnematodesorotherparasitesinfestingcrops,allowingrapiddiagnosisandtreatmentwithouthavingtouprootgrowingcrops135.Inthelivestocksector,‘smart’eartagsfor cattle allow the collection of a wealth of data, including number of steps taken, jawmovement during rumination, body heat and other key signs of vitality that allow earlydetectionof sickordistressedanimals, remotelyand longbeforehuman feedlot staff candetectdistressbyeye136.

Ultimately, the biggest impact of better information will be to enable better decisions –particularlyimportantinAustralia,hometosomeofthemostvariablerainfall,soilandclimateconditionsintheworld,conditionswhichwillonlybecomemorevariableastheglobalclimatechangesfurther.Inthewordsofonedairyfarmer:

“Thisisoneoftheworstseasonsonrecordaroundhereandtheonlythingthathasmadeitsurvivablehasbeengood,earlyplanning...Itwasnotaprettyplan.Itwasasurvivalplanintheteethofafailedseason...CentraltoourplanningweretheCSIRO’ssoilmoisturemapsandPasturesfromSpace.Combiningthetwotools,wecouldseethatnotonlywereourpasturesnotgrowing in thepeakofSpring, therewas littlechancetheycould.Thesoilwaspowderdryallthewaydowntoacoupleofmetres.Thatcanonlybefixedbyweeksandweeksofrain.Inotherwords,weknewwewerestuffedearlyenoughtodosomethingaboutit,thankstotheCSIRO.It’ssurvivableifweplanearly,planwellanditdoesn’thappentooregularly.”137

134Formoreonwhich,see4.2above.135UniversityofBonnDepartmentofPhotogrammetry/InstituteofGeodesyandGeoinformation,www.ipb.uni-bonn.de/research136Technicalnote:accuracyofanear-tagattachedaccelerometertomonitorruminationandfeedingbehaviourinfeedlotcattle(2015),Wolger,Betal;JournalofAnimalSciencevol.93no.6p3,164137Climatechangehasnotbeenansweredforfarmers–weneedmoreinformation,notless(2016),MacDonald,M,TheGuardiannewspaper9February2016

5.5:Agriculturalautomation

Theprocessofmechanisationinagriculturehasgenerallybeentoadd‘forcemultipliers’tothemanuallabourinputofahumanoperator–asmoothlinefromhandsowingandthesickleto multi-row tillers and combine harvesters. Current trends take this development evenfurtherbynotmerelyaidinghumaninputtoexistingsystemsbutbyremovingitaltogether–to move from mechanisation to automation, taking many rote decisions and routineresponsesofftheshouldersoffarmersandleavinghumanoperatorsfreetopursuehigher-orderstrategy.

Automation of this kind is highly reliant upon better information, and hence is a naturalprogression from the development of advanced sensors and connected agriculturalinfrastructure. Australian farmers are experts in efficiency, deriving the greatest possiblebenefitfromeverydropofwaterandgranuleoffertiliser,howevermanyofthesedecisionsaresimplecause/effectoncesufficient information isavailable.Forexample,knowing thegrowth profile and needs of a particular wheat cultivar, together with the available soilmoistureandnutrientlevels,itbecomesreadilyapparentwhatneedstobedonetoensuremaximumgrowth–thereisnoneedforahumanoperatortobeinvolved.

Armedwiththisdata,therefore,agriculturalrobots–‘agbots’–canbeprogrammedwiththedesiredresultsandcropprofileandautonomouslyapplyinputsoffertiliser,water, limeorothersoiladditivesexactlyandonlywhenneeded.AnexamplecurrentlycomingontothemarketwouldbeRowBot™138,ajointventurebetweenCarnegieRoboticsandindependentcorngrowersintheUS,whichisabletoautonomouslynavigatebetweencornrowsandside-dress in-season nitrogen only as and when needed, minimising usage and maximisingefficiency and profit. In Australia, SwarmFarm has released its first commercial robottargetinggrainproductioninQueensland,capableofconductingsprayingoperationsaroundthe clock completely autonomously, navigating around obstacles and recognising andpreciselytargetingweedgrowth,cuttingherbicideuseby40%139.

5.6:Adaptorperish

Inadditiontoovercomingtechnicalandproductionchallenges,technologymayalsoenableresearchandcroptailoringtomoveoutofthelabandontothefarm.High-throughputplantphenotyping(HPTT)combinessensors,geneticsandroboticstodevelopnewlinesofacrop,continually improving nutritive content, drought and pest tolerance. By automating therecording of physical characteristics – phenotypic traits such as fruiting location, stalkthickness,leafnumberandsoon–andcomparingthistoalready-knowncharacteristicsandmarkersforthevarietyundercultivation,artificialselectioncanbespedupbyseveralordersofmagnitudeoverhandselectionbasedonindividualobservations.Pairedwiththeincreasingsophisticationofrobotlabour,farmerscouldrapidlyselectfortheparticularcharacteristicsthatsuittheirownuniquesoil,rainfallandclimateconditions140.

138www.rowbot.com139Campbell’sComeback,Courtney,P;ABCLandlinebroadcast20September2015;www.swarmfarm.com140Lights,camera,action:high-throughputplantphenotypingisreadyforaclose-up(2015),Fahlgren,Netal;CurrentOpinioninPlantBiologyvol.24p93

Farmproductivitycanalsobeincreasedbytailoringresponsestopestandweedthreatsaswell. Taking over cropmonitoring duties fromhuman labourers allows quicker andmorerigorous inspectionofexistingcharacteristicsusedto indicatediseaseordistress,butalsoopens up the potential for new avenues of inspection – sampling airborne chemicalpheromonesormould spores todetect insect infestationorwheat rust,monitoringhigh-frequencysoundstopinpointratinfestationsinsilos,or,asabove,observingdifferentiallightabsorptionfromplantleavestodiagnosenematodeinfection141.Fromthatdata,aresponsetailoredtothespecificpestseverityandmakeupcanbearrivedattosuittheneedsofthatparticular operation. Ultrasonics can determammalian pests and be fine-tuned to targetinvasiveEuropeanspecieswhile leavingnative faunaundisturbed,pinpointUVapplicationcan selectively sterilise areas affected by mildew while limiting collateral damage, andartificial pheromones can deter pests such as fruit fly without needing recourse topesticides142.

5.7:Engineeringthefuture

Continuing capital and engineering investments in agriculturewill take new and differentforms.Inpursuitofincreasedefficiency,fleetmanagementandrapidresponseisalreadypartofmanyfarmingstrategiesthroughexistingtechnologiessuchasJohnDeere’sFarmSight™ortheGoogle-backedFarmer’sBusinessNetworkintheUSA,howeverconcernsexistabouttheproprietary nature of vendor-driven technologies and the potential for users to become‘locked in’. Future capital investment in this area is likely to see increased uptake ofautonomousagbots,responsivetohumaninputbutneedingnohumanguidanceforroutinetasks,with farmers taking advantage of advance in 3D printing and small-run productionmanufacturingto‘rolltheirown’solutions,customisingtheirfleetsanddevelopingtheirownsoftwaresolutions,allscaledtotheirownindividualneeds143.

The verymechanics of agriculturemay change, too. All farming relies upon efficiency ofinputs,howevertechnologyhasallowedadvancesin‘closedloop’agriculturethatradicallyincreases input efficiency. Primarily seen in hydroponics setups, such systems view foodproductionasasystemwithinputsandoutputs;inputswithcostsattached,outputscapableofbeingcapturedforprofit.Productivityandprofitabilityisthereforeamatterofreducingtheinputstoaminimumwhilecapturingamaximumofoutputs,withtheidealsystemonethatistotally‘closed’–theonlyproductsbeing‘lost’tothesystembeingthefoodproductsthemselves.

Whilesuchconceptsaremorecommonlyseeningreenhousesandtherelativelynewconceptof‘verticalfarms’,theprinciplesarealsocapableofbeingappliedtobroadacreagriculture.Asanexample,dairyfarmsproduceasoutputsnotonlymilkbutalsocopiousamountsofmanure.IntheUSA,98%ofdairyfarmsarenotcapableofassimilatingthequantityofmanureproducedbackintothebiologicalcyclesontheland,andassuchtheremainderoftheoutput

141Dronesascommonastractors?Farmtechnologyin2025,McConchie,Retal;ABCRural–QueenslandCountryHour,published27October2015142Thislastexamplealreadyincommercialusage–seeeg.www.semios.com143TechnologyischangingthefaceofnorthernAustraliancattlefarming,Swain,D;TheConversationwebsite,published30October2014.

iswasted.ApartnershipbetweenFairOaksDairyandBionEnvironmentalTechnologies inIndianasawtheexcessmanureproducedbythe27,000headofdairycowscollectedandusedinethanolgenerationforbiofuel,providingforalltheenergyneedsofthecattleoperation,whilethecattlearefedonthewetdistillersgrainscoproducedbytheethanolprocess144.

144www.fofarms.com