THE CURRENT CATTLE INDUSTRY AND RURAL
AND REGIONAL CRISIS
REPRESENTS A CHALLENGE
FOR THE NEW COALITION GOVERNMENT AND
THE NATIONAL PARTY
Congratulations to the
Coalition and the newly elected member for New England Barnaby Joyce on
their election victory, and to Barnaby Joyce for his appointment as Minister
for Agriculture and as Deputy Leader of the Federal National Party. Congratulations
to Warren Truss the leader of the Federal National party for obtaining the
important Ministry of Infrastructure and Regional Development.
The Challenge
The Cattle industry is in
crisis and rural and regional Australia has been in long term decline for
a decade or two.
Cattle Industry
Crisis
Real cattle prices are now
the lowest they have been since the 1970's.
When you take into account the significant increase in the average carcass
weights for cattle and calves since 1997 it can be seen that kilogram for
kilogram the crash in cattle prices in 2013 is far far greater than it was in
1974. (see HuntBlog Newsletter 6 May 2013 at
www.HuntBlog.com.au)
Meanwhile the cost of cattle production
and the burden of government influenced costs and charges on the red meat
industry has skyrocketed with Australia's government influenced red meat costs
and charges now being significantly higher than those imposed on Australia's
overseas competitors.
The burden of these
government influenced costs and charges on Australian red meat producers is
exacerbated by the fact that European, North American and South American
farmers are, unlike Australian farmers, heavily subsidised by their governments.
In other words in competitive
terms Australian red meat producers are hit by a double whammy – receiving little
or no farm subsidies and high government costs and charges compared to their
overseas competitors who receive high subsidies and enjoy the benefit of very
low government influenced costs and charges.
Real Australian cattle prices
have continued dropping in real terms to 1970's prices whilst domestic beef
consumption has continued its long term decline at a rate of
1.7% per year down from 42.3 kg per person in 1997 to 31.4 kgs per person
in the 2012/2013 financial year.
Some cattle properties
are currently unsaleable and have dropped in value by up to 50% since
2007/08.
Supermarket
Duopoly
Australia has the most
concentrated duopoly supermarket power structure in the world and
Australian farmers supplying the domestic market are being financially
squeezed to the point that they are at risk of becoming unviable.
As John Carter advises in
this week’s Land Newspaper, Australian cattle producers receive less than 25%
of the consumer dollar for their cattle whilst US producers are currently
receiving 47%.
Rural and
Regional Australia Caught in Perfect Economic Storm
Australia survived the GFC
better than any other OECD country and has enjoyed a growing economy
without recession for the last 20 years but the consequent downside
has been that in recent years Australia has enjoyed (or suffered from) a
high value Australian dollar and some of the highest interest
rates in the world, which have put our rural export industries into a
position of severe disadvantage with our overseas competitors and foreign
investors in rural and regional Australia.
Rural and
Regional Decline and Farm Debt
Not surprisingly as a
consequence of this perfect storm of events, rural and regional Australia
generally, and the $12B a year cattle industry that is heavily reliant on
exports, in particular, are in severe decline.
Australia's farming
debt has blown out to unsustainable levels during the last decade with many
farm incomes below the level necessary to service existing debt with no
borrowing capacity left to deal with natural disasters such as flood fire or
drought let alone expansion to take advantage of the much touted Asian
food Bowl opportunities.
Declining Rural
Population and Declining National Party Constituency
Meanwhile the population in
rural and regional Australia has been declining.
In NSW the population of
Sydney increased by 10% in the first 10 years of this century with the
population in coastal areas increasing by an extraordinary 60% whilst the
population in rural and regional NSW dropped by about 20%.
Australia's population is
forecast to increase to 42 million people by 2050.
75% of Australia's population
currently live on the coast and the population of major cities have increased
by 10% in the last decade.
In the 40 years between 1969
and 2010 the number of farms in Australia dropped by almost 25% and the
rural workforce dropped from 430,000 in 1967 to 360,000 in 2008 and abattoirs
have lost about 40,000 jobs in the last 30 years.
In the same 40 year period
rural and regional infrastructure has fallen into decline relative to the
infrastructure in the cities.
As Warren Truss said during
his address to the National Press Club on the 29 August 2013 “unless we can bring business and people to
regional cities and develop new commercial hubs, the projected 42 million
people we are expected to have by 2050 will grind our cities into gridlock”.
To the National Party’s
credit Warren Truss announced at the press conference on the 29 August 2013
that the coalition government would deliver a dedicated National Stronger
Regions Fund with an initial allocation of at least $1B over the next five
years for social and economic infrastructure in regions with high
unemployment. Each project will require
50% matching contributions from the proponent or Local or State Government.
The National Stronger Regions
Fund is a good first step with $200K per year for five years commencing in 2015
will barely scratch the surface of decentralisation work that needs to be done
to develop the new regional commercial
hubs and to bring business and people to regional cities and towns.
Free Trade
Agreements
During the last decade
Australia has fallen behind to both the United States and our South Pacific
neighbour New Zealand in terms of negotiating free trade agreements with
important trading partners.
Australia is still trying to
negotiate a free trade agreement with one of its most important beef export markets,
South Korea. Currently Australia’s
beef exports attract a 40% tariff into Korea whilst Australia’s largest beef
export competitor to South Korea, the United States entered into a FTA with
South Korea in March 2012 which has already given the United States a 5.3%
tariff advantage over Australian beef exports to South Korea.
More importantly Australia
has failed to conclude its free trade negotiations with China which commenced
in 2007 whilst our South Pacific neighbour New Zealand concluded its free trade
agreement with China in October 2008.
In the first twelve months
after New Zealand signed its free trade agreement with China, New Zealand’s
exports to China rose by 25% and in the first quarter of this year New
Zealand’s exports to China jumped by 32% led by dairy products, logs and meat,
with New Zealand’s exports to China surpassing New Zealand’s shipments to
Australia for the first time.
New Zealand also currently
enjoys a 5% advantage over their Australian counterparts with respect to exports
of mutton into a number of Middle East countries.
Australian free trade
negotiation with Japan commenced in 2007 but are yet to be concluded.
Outdated Rural
Organisational Structures
Over the last 50 years, in
response to changing trade and economic conditions, Australia's red meat collective
organisations have been restructured in almost every decade as the collective
needs of the red meat industry and levypayers changed and evolved.
The last much needed
and then overdue red meat industry organisational change was introduced by the
then new Federal Agriculture Minister John Anderson when the
Coalition came into government in 1996 after a long period in opposition.
There are many cattle and
sheep producers and processors, including large and influential, as well as
medium and small cattle and sheep producers and meat processors, who think that
the current organisational structures are outdated and no longer adequately
serving the collective needs of the red meat industry.
There are also many red meat
levypayers who feel disenfranchised by the current MLA board selection process
and the Cattle Council, which is meant to set policy and direct MLA operations
on behalf of grass fed cattle producers, are strapped for cash and urgently
trying to reform and refinance itself.
A number of other levy funded rural
industry organisational structures that have been reformed since John
Anderson's red meat industry organisational reforms were introduced in the
1990's such as the wool industry organisational structure and the egg,
grain and pork industry structures all have some form of directly elected
boards with greater levy payer enfranchisement than under the current red
meat industry organisational structures.
It is an axiomatic principle
of jurisprudence that to be effective, social and industry organisations need
to be structured in a way that will deliver the outcomes needed for the
industry or group that they represent and that as times and needs change and evolve
so to do the collective organisational structures need to evolve or change if
the desired outcomes are to be achieved.
Outcomes are the product of
the structures that give birth to them.
Structures that are outdated and inappropriate to the needs of an
industry at a particular time or in particular economic circumstances are not
equipped to produce the outcomes needed by that particular industry in those
circumstances or times.
If the current Federal
Government is going to achieve what it needs to do for rural and regional
Australia during the next decade they will need to be able to work with strong
and well structured industry organisations that are truly representative of
their constituents.
Australia’s Food
Bowl Opportunity
The 21st century has been
tagged as the Asian century with skyrocketing living standards,
improved diets and demand for protein rich foods from emerging economies
bringing predictions of a doubling in global demand for food over the coming
half century.
Consequently, food
security is becoming an increasing concern to countries around the world as
populations increase with available prime farming land and water resources
decreasing and many countries are becoming increasingly concerned about their
ability to feed their populations in the future.
Australia is generally
regarded as having the opportunity in these circumstances to become
the 21st century Food Bowl supplier for Asia.
State Owned
Enterprises
Yet at the same time as
commentators are talking up Australia’s opportunities to become the food supplier
to Asia in the 21st century, Australia is allowing foreign
government financed and state owned enterprise entities to buy up prime Australian
farming and grazing land, and Australian processing and commodity trading and
handling companies, to secure food security for the future for their
citizens, at the cost of ours.
Margaret McKenzie,
lecturer in Accounting Economics and Finance at Deakin University, recently
noted that foreign investment in property is more restricted than domestic
investment in property in all 34 members of the OECD and is also more
restricted in 10 non OECD countries who are signatories to the OECD
principle of "national treatment".
At least 15 of these 44 countries have additional regulation with
respect to foreign investment in rural land.
The realities are
that most countries
in the world limit or control foreign ownership of farming land in some
form or other including Indonesia whose government has just announced an intention to
buy one million hectares of Australia's Top End cattle breeding land
to obtain a cheap and secure supply of live cattle for their domestic feedlots.
As the editorial in this
week’s Land Newspaper suggested (and I paraphrase) “the sale of Top End cattle properties to Indonesian interests might be a
short term solution to revive an ailing property market but (sic) there are plenty of questions being asked
about the long term wisdom of allowing sovereign entities to gain control of
our food industry supply chain”.
Again, as the Land Newspaper
said commonsense must support Tony Abbott’s promise to reduce the threshold for
consideration of farmland to foreign buyers by FIRB as to whether or not such a
sale is of “national interest” from $248M to $15M.
More work, however, needs to
be done to explicitly define the term “national interest” in relation to the
sale to and control by a foreign sovereign entity of the elements of
Australia’s food industry supply chain.
The good news for Australia
is that Barnaby Joyce, Senator Nash and Liberal Senator Heffernan (who headed
up an inquiry into foreign ownership of Australia’s food industry supply chain
earlier this year) are on the case and have all expressed concern that the
current “national interest” FIRB test is out of date.
The Task Ahead
for the National Party and Government
So the challenges for the new Agriculture
Minister Barnaby Joyce whose electorate of New England breeds some
of the highest eating quality cattle in Australia, and Warren
Truss the Minister for Infrastructure and Regional Development to address
the issues facing rural and regional Australia are great indeed.
Some
of the pressing issues that need to be urgently addressed include:
- the ever increasing level of Australia's uncompetitive government influenced costs and charges,
- the economic power of Australia's supermarket duopoly,
- the long term decline in per capita domestic beef consumption which has eroded Australia's most important and reliable beef market,
- the negotiation of free trade agreements that provide true parity after government charges and subsidies are taken into account and true parity with free trade agreements negotiated by Australia’s trading competitors,
- an active decentralisation policy to ease the overpopulation drain on resources and infrastructure costs in Australia's major cities and coastal areas and address the continuing decline in population and services in rural and regional Australia, and
- the need for improved rural and regional telecommunications, road and rail infrastructure,
- the need for reconstruction finance and a regional Development Bank to tackle the farm debt problem and provide long term "patient" finance to take advantage of the touted Food Bowl development opportunities,
- the red meat organisational industry structures which were set up in the 1990's are in urgent need of a review and an update to enfranchise their members and levy payers and make them relevant to service the collective needs of the red meat industry during the next decade,
- a long term plan to protect Australia's food security and control the purchase of Australian farming and grazing land by state owned or controlled entities or entities financed by foreign governments.
HuntBlog
wishes Barnaby Joyce, Warren Truss and the Coalition Government well in
its endeavours to address these important issues.
A fuller
account of the issues raised in this HuntBlog Newsletter including source
references for the matters raised in this Newsletter can be found at www.Huntblog.com.au by following
the links to the document section of Hunt Partners website.
See in
particular the HuntBlog linked document entitled “Beef's New Direction Strategic Plan 2010” prepared by Hunt Partners for the United Beef
Group Forum hosted by Graeme Acton at Paradise Lagoons Rockhampton in August
2010. A forum that both Barnaby Joyce
and Senator Bill Heffernan attended as guest speakers.
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