Introduction
2.1
Reaching the National Farmers Federation’s (NFF) $100 billion by 2030 vision will require individual businesses and industries taking advantage of specific market opportunities. In addition, achieving productivity growth across the agricultural sector will be central to meeting the $100 billion by 2030 target.
2.2
This chapter will consider agricultural growth and productivity including the effects of increasing costs and the power of significant market participants. This chapter will then look at the growth opportunities available in some of Australia’s largest agricultural sectors. More detailed consideration of the issues facing agricultural businesses will be provided in later chapters.
Review of the Evidence
Sector-wide Growth and Productivity
2.3
The Australian Farm Institute (AFI) reported that the value of Australian agriculture had doubled since 2000 and that agriculture exhibited ‘robust long‑term average growth despite prolonged and widespread droughts.’ AFI also noted that agriculture had grown faster than economy-wide GDP, having ‘exhibited average growth of 3.6 per cent per annum (pa) over the past 30 years, 4 per cent pa over the past 20 years and 4.8 per cent pa in the past decade.’
2.4
AFI suggested that based on global and domestic population growth demand for Australian agriculture should continue rising but warned against complacency, stating:
... demand will be met partly by the rapid expansion of agricultural output occurring in Eastern Europe, South America and Asia. It is naïve to assume that Australian agriculture will be guaranteed a meaningful share of these opportunities.
2.5
ANZ noted that Australia’s agricultural production had reached record highs in 2016-17 due to a strong season and good commodity prices. In addition, ANZ stated that in the years leading up to 2016-17 output had grown due to ‘structural changes to the industry including strong productivity growth through new technologies, farm consolidation and positive global commodity markets.’ ANZ noted, however, that following 2016-17 the sector had been challenged by drought and ‘an uncertain geopolitical and trade outlook.’
2.6
A report by EY attributed recent agricultural growth to commodity prices, stating that they were responsible for 90 per cent of the growth in farmgate output since 2010, whereas productivity growth had stagnated.
2.7
CSIRO provided details on the how productivity trends have varied across agricultural industries, stating that:
In some cases rates of increase have been strong (cotton, maize, dairy), while others have slowed (e.g. temperate grains) or remained static (e.g. wool). The slowdown has been attributed to drought, although it may also be reflecting that a plateau has been reached in adoption of significant farming technologies (e.g. low till farming) coupled with greater [seasonal] variability in rainfall and frost.
2.8
CSIRO suggested that in general cropping had outperformed livestock in productivity growth and that the experience of the grains industry offers lesson for other industries. CSIRO explained that increased understanding of cropping systems in the 1980s and 1990s had led to strong productivity growth. The increased understanding enabled farmers to more effectively use inputs and led to practices such as ‘effective use of crop rotations, increased fertiliser and ameliorant use, reduced tillage, and change to cropping practices such as integrated weed management.’
2.9
The University of Western Australia (UWA) described the long-term productivity trends experienced by Western Australian grain growers, stating that yield grew by 5.6 kilograms per hectare per year between 1904 and 1981. In the period 1984 to 1999 yields increased by 25 kilograms per hectare per year despite significantly reduced rainfall. After 1999, yield growth slowed, averaging 18 kilograms per hectare per year.
2.10
The Department of Agriculture, Water and Environment (DAWE) stated that structural adjustment was a key element of agricultural productivity growth. This included increasing the size of farms as well as producers changing how they make use of their land and water and potentially changing the crops or livestock they produce. DAWE stated that governments should ensure that these structural adjustments are not impeded and where possible policies support producers transition to more productive business models.
2.11
CSIRO suggested that significant productivity growth can occur through incremental improvements rather than transformational change, stating that ‘when viewing small but consistent annual gains in productivity over the last 30 years, the change is truly transformational.’
2.12
CSIRO added that there would be a ‘critical role for systems thinkers (such as agronomists)’ in integrating diverse knowledge as:
Proposed transformational changes often focus on one component of a system championed by largely disconnected research disciplines. In reality, and throughout history, few individual technologies have been singularly transformational either in the scale or the speed with which they have influenced productivity. Rather step changes in productivity have come only when combinations of technologies, often a mix of old and new, synergise within a system.
2.13
WA Grains Group (WA Grains) suggested that it was important to avoid a sole focus on yield when driving growth, stating ‘yield doesn’t equal profit.’ To illustrate, WA Grains described a 10 per cent yield increase as a ‘once in-a-generation’ increase, but that a grower could reap the same financial gain (once costs were included) through an $11.26 per tonne price increase. WA Grains reported that on any given day the gap between the highest and lowest price on the day may exceed $11.26, so consistently securing the best price on the day would result in the equivalent benefit of a 10 per cent yield increase.
2.14
Similarly, the University of Queensland (UQ) stated that typically Australian agriculture has invested in ‘growing the crop faster, better, cheaper, or to produce more.’ UQ stated there needs to be greater focus on understanding markets and noted:
...one of the easy mistakes to make is to identify a product which has a high value but not do sufficient work to determine the price sensitivity in the marketplace. [For example, if you have] a commodity with a very high value, but it’s actually a very small market. [If] Australia has the capacity to equal the world supply of a commodity, suddenly that commodity is not worth very much at all.
Market Power
2.15
Growcom highlighted the ability of powerful buyers to reduce grower margins, stating that boosting farmgate value required consideration of ‘the relationship between growers and the next person down the supply chain, and onwards down the supply chain.’ Growcom stated that growers could be ‘played off against each other [resulting in] the price being driven downwards.’ Growcom hoped that the export market would eventually provide alternatives for growers but worried that this may not occur at enough scale in the near future to make a real difference for horticulturalists.
2.16
Mr Robert Miller and Narrawilly Dairy (Narrawilly Dairy) described the power of dairy producers having a similar impact on the profits of farmers, stating that:
... the milk price crashed when two of the largest dairy producers, Murray Goulburn and Fonterra, cut the farmgate milk price. Farmers’ incomes were slashed and hundreds of dairy farmers exited the industry.
2.17
In addition, Narrawilly Dairy highlighted the market power of Coles and Woolworths, describing them as having an ‘enormous influence over dairy farming in Australia.’ Narrawilly Dairy drew attention to the difficulties for dairy farmers during the period from 2011 to 2019 when milk was being sold to shoppers at $1 per litre. Even when the $1 milk price was lifted, only farmers supplying home brand milk received an increased price, and then only a few cents extra per litre.
Costs
2.18
ANZ warned that rising commodity prices do not always result in benefits to farmers as they are often matched by input price increases. WA Grains suggested that input prices for farmers were actually rising much faster than other prices, resulting in reduced profits per hectare. As an example, WA Grains added that, since 2009, if repair and maintenance costs had risen in line with inflation it would have resulted in a rise of $6 per hectare, but in reality the rise had been $30 per hectare.
2.19
WA Grains added that this process, which it called ‘aginflation’, was due to a number of factors including the booming mining industry and subsidies in countries manufacturing farm machinery. In particular though, WA Grains highlighted the costs of repairing machinery, stating:
… with a lot of new equipment, it’s really dealer only servicing, because they’ve got the software and the technology to diagnose problems – and obviously, that comes at a big cost – so there’s no real competition or incentive for dealers to be realistic on price either. You’re trapped in having to use them to keep the machinery running. And obviously, with agricultural machinery it’s all time critical.
2.20
The Murrumbidgee Valley Food and Fibre Association emphasised the costs associated with the fluctuations of the Australian Dollar, stating that due to the cost of labour farmers could not afford to have a high dollar. In contrast, the benefits of recent periods where the dollar had a low value had been even more significant than the benefits of the China Free Trade Agreement.
Growth Potential in Major Industries
2.21
The following section outlines the growth prospects of individual agricultural sectors. Specific opportunities and issues faced by these sectors, including options for increasing export opportunities, are considered in more detail in later chapters.
Livestock
2.22
Livestock farming is the most common agricultural activity in Australia with 49 per cent of farms carrying beef cattle and 36 per cent of farms involved in sheepmeat production. Australia is the world’s largest exporter of sheepmeat and goatmeat and third largest exporter of beef. In total more than 128,000 people are employed in red meat production. If indirect employment in service industries is included it has been estimated that the livestock industry has created around 438,000 jobs.
2.23
ACIL Allen reported that livestock represented Australia’s largest agricultural sector by value and forecast that it would provide the largest total growth in the years to 2030. ACIL Allen estimated that the livestock sector would grow by $5.57 billion to $25.9 billion by 2030. The Red Meat Advisory Council (RMAC) advised that it had set a target of doubling the value of total (including post-farmgate) red meat sales from $28.5 billion in 2019 to $57 billion in 2030.
2.24
Austrade stated that the production of protein is a significant export opportunity for Australian producers and noted that beef consumption has experienced a 40 per cent increase in China and Southeast Asia.ACIL Allen added that growth in the sector will be dependent on continued demand in the Asian market as well as productivity gains within the sector.
2.25
Australian producers should have an advantage over competitors due to the relative importance placed on ‘animal welfare, ethical production and sustainability.’ To leverage these strengths, the Centre for Nanoscale BioPhotonics advocated for the development of new tools to measure welfare, which would enable Australia to maintain its ‘international market advantage for ethically produced red meat and livestock products.’
2.26
The Australian Livestock Exporters Council reported that the live export cattle industry is worth around $1.2 billion per year and the live sheep trade is worth around $220 million per year. In both cases, approximately half this total value is directly returned to the farm gate.
2.27
Livestock Shipping Services (LSS) described its export operations, stating that it serviced markets, by air and sea, in the Middle East, the United States, China, Korea, and Canada. LSS suggested that, in the Middle East, demand for live exported sheep was at an all-time high, and that it could be exporting ‘between 2.4 million and 2.8 million sheep instead of just under one million for the financial year.’ LSS highlighted increasing competition in this market from North Africa, Romania, and South Africa and noted that the moratorium on summer exports had limited its trade opportunities and resulted in some markets being lost due to not being able to provide sufficient quantity of sheep.
2.28
CRC DNA described the cattle industry in northern Australia as having mature export-oriented supply chains that is ‘largely an extensive industry that’s reliant on the success of low-cost, high-volume production systems, with minimal inputs.’ CRC DNA added that potentially the combination of live exports and boxed beef could be worth $13 billion to the cattle industry in northern Australia.
2.29
The Northern Territory Livestock Exporters Association (NTLEA) reported that the live export industry supported 10,000 jobs in northern Australia and that 380,000 cattle per year were exported out of Darwin. The Northern Territory Government described the live export industry as a uniquely integrated international production system, stating:
The animals are bred in northern Australia cheaply, efficiently and in large numbers, and then they are fattened in South-East Asia on by-products of food production … I think it’s probably the only value‑adding chain that involves any international linkage.
2.30
The Northern Territory Cattlemen’s Association (NTCA) highlighted the potential opportunities in demand for beef in the ASEAN countries and reported that already around 26 million Indonesians eat NT beef annually. The NTCA advised that it had a target to double the value of the Territory beef industry by 2030, from $1.2 billion to $2.4 billion. The NTCA added, however that with ‘investments in infrastructure, water security, roads, and better land tenure’ the industry could grow as large as $15 billion per year.
2.31
The NTLEA added that the biggest impediment to expansion of the live export industry in its region was the supply of cattle, stating that it has ‘the infrastructure, we have the facilities, to be able to export more cattle than we do, we just need a more consistent supply.’
Horticulture
2.32
In its base-case forecast, ACIL Allen estimated that between 2016-17 and 2029-30, horticulture would grow from a $9.8 billion industry to a $14.6 billion industry. ACIL Allen suggested this growth will be driven by increased demand for fresh vegetables, fruit, and especially nuts. Further, ACIL Allen added that increasing profitability will require moving from being a labour intensive to a highly automated industry.
2.33
Horticulture Innovation Australia (HIA) described horticulture as the fastest growing sector in Australian agriculture and suggested that a conservative estimation could see its value grow to $20 billion by 2030, while a high‑growth outlook could see value rise to $30 billion by 2030.
2.34
Similarly, DAWE noted the potential of the horticulture industry, highlighting that horticulture had been achieving 12 per cent growth while primarily servicing domestic consumption. DAWE stated that if horticulturists were able to increase production, and access to overseas markets was expanded, there was potential for the industry to grow further.
2.35
A submission from four major Australian horticulture businesses highlighted the unmet potential of the export market, stating that just 11 per cent of horticultural produce is exported, in comparison to 46 per cent of produce in other agriculture sectors. Nevertheless, horticultural exports are growing, having nearly doubled between 2013 and 2017, from $654 million to $1.17 billion.
2.36
Growcom stated that while export markets were important to the horticulture industry it was important not to forget the domestic market, stating that ‘there is room to grow the domestic market, we shouldn’t just say that it’s fully mature and... let’s focus on exports.’
2.37
Australia produces around 750,000 tonnes of citrus, roughly one-third is exported, another third sold for domestic use, and the final third juiced. Citrus Australia reported that the land planted with citrus is expected to grow 25 to 30 per cent in the next five years due to demand from Asia, where Australian citrus is well-received and ‘our close proximity means that we should have a competitive advantage over other southern hemisphere suppliers.’
2.38
In contrast, Citrus Australia suggested the juice industry had been facing a tough market since the introduction of concentrate juice from Brazil. Citrus Australia added that many farmers had chopped the top off valencia trees, which is a juice variety, and grafted different more valuable varieties onto the trees. Citrus Australia expected this trend to continue unless an export market for juice could be rapidly built.
2.39
The Australian Nut Industry Council stated that the nut industry was experiencing 7 per cent annual growth and that currently $500 million per year was being invested in new nut tree orchards. The ANIC further stated that the current farmgate value of nuts was around $1.6 billion, of which approximately $1 billion was from exported produce. The nut industry has set a target of reaching a farmgate value of $2 billion by 2025 and $3 billion by 2030.
2.40
The ANIC also highlighted that nuts are a high-value crop capable of creating value of $25,000 to $30,000 for each hectare of land, and $2,000 to $3,000 for each megalitre of water. Nut growing is also relatively labour intensive in comparison to other agriculture sectors.
Aquaculture
2.41
The Fisheries Research and Development Corporation (FRDC) stated that Australian aquaculture had increased its production by 208 per cent over the last 20 years, and in particular since 2005, there has been strong growth in the Tasmanian Atlantic Salmon and South Australian Tuna industries. FRDC highlighted the potentially rapid growth trajectory of aquaculture and gave the example of Western Australia, where the state government is aiming to grow the industry 40-fold over the next decade to reach $600 million a year.
2.42
Seafarms Groups drew attention to the growing global importance of aquaculture produced fish as a food source. Globally, wild-catch seafood consumption is declining as 90 per cent of fish stocks are overexploited, but despite this per capita seafood consumption is growing at a rate of 3.4 per cent per year due to increased consumption of aquaculture grown fish. Seafarms Group reported that, globally, aquaculture production has grown from $US 142 billion in 2014 to an estimated value of $US 200 billion in 2020.
2.43
The CRC DNA estimated that by 2030 aquaculture in northern Australia would be valued at around $1 billion, primarily in prawns and barramundi, although CRC DNA also identified an opportunity for a tropical oysters industry.
2.44
The FRDC provided the example of Project Sea Dragon, which it stated could lift Australia from the 67th largest prawn producer into the top ten. The FRDC stated the ‘project brings together big science and big commerce to ensure the operation starts on a large enough scale to be economic from day one.’ Seafarms Group, the Project Sea Dragon proponent, stated that it will be a 10,000 hectare land-based prawn farm, which once fully complete is expected to generate production valued at $3 billion per year.
2.45
Seafarms Group added that land-based aquaculture is extremely common across the world but that Australia had been ‘asleep at the wheel’ to its potential. Seafarms Group added reaching the $100 billion target will require moving away from business-as-usual practices, the development of greenfield sites, and the use of innovative technologies.
2.46
Humpty Doo Barramundi reported that it expected that the farmgate value of its aquaculture business based in the Northern Territory will grow to around $200 million per year by 2030. Humpty Doo added that at this size its business will have indirect benefits for its local area, stating:
We envisage we will be locally processing and value-adding our fish and putting out branded products. We believe the size of the industry here will be sufficient to enable establishment of a feed mill, and this will have the effect of reducing food costs; providing a potential market for local products, including meat mill; and also supporting the development of the cropping industry.
Forestry
2.47
The Australian Bureau of Agriculture and Resource Economics (ABARES) has estimated that, in 2019-20, the farmgate value of forestry was $2.78 billion. The AFPA stated that once downstream processing is included the forestry industry is worth $24 billion per year and directly provides jobs to 80 000 people in rural and regional Australia.
2.48
The Australian Forest Products Association raised the importance of value‑adding to products after the farm gate in expanding the agricultural sector overall. The AFPA asked ‘how can we lift inside the farm gate by doing more outside the farm gate?’ The AFPA stated that newer opportunities for forest products such as using fibre for plastic replacement products had not yet been developed in Australia.
2.49
Tiwi Plantations Corporation outlined the forestry operations on the Tiwi Islands, which involve a 30,000 hectare plantation providing 100 jobs, and a woodchip plant at Port Melville. The plantation is currently planted with acacia which are processed for lumber, pulp, and woodchips. The operations include a woodchip plant at Port Melville. Tiwi Plantations Corporation added that its second rotation would be a fast growing eucalyptus hybrid and highlighted that shipping to Asia out of Port Melville offered a 10-day advantage over southern ports.
2.50
The Forest Industry Advisory Council (FIAC) stated that ‘for Australia’s forest industry to grow the question of supply has to be addressed, Australia is a net importer of wood products by value, with a deficit of about $2 billion each year.’ In June 2020, the Committee began an Inquiry into the timber supply chain constraints in the Australian plantation sector. The Committee is considering the issue of timber supply in more detail in that inquiry.
Grains
2.51
In 2016-17, the grains industry created an output of $17.8 billion, representing roughly a quarter of the overall Australian agricultural output. ACIL Allen estimates the sector will add value of $400 million (2.2 per cent) over the period 2016-17 to 2029-30. In terms of productivity, Rabobank projects the grain industry to have an ‘average productivity growth of 0.4 per cent per annum over the coming decade.’
2.52
ACIL Allen noted that while there are opportunities in the South East Asian market, the grains industry also faces ‘significant competition from low cost producers in the Black Sea states, which have freight advantages into the Middle East and Asia [that] will challenge the sector.’
2.53
Cooperative Bulk Handling Group (CBH) outlined the scale of the challenge posed by the Black Sea states, stating that ‘Western Australia’s biggest ever harvest was just under 17 million tonnes, the Black Sea region is currently exporting 100 million tonnes per year and that is forecast to grow.’ CBH added that the scale of these competitors means that in most export markets Australian growers are price takers and even small increases in cost can lead to a loss of market share.
2.54
The University of Queensland stated that unlike the beef industry, the wheat sector was not succeeding in moving towards higher value products, stating:
Our wheat is the same as wheat coming out of the Black Sea countries. We don’t want to be competing with them, because they’re at the bottom of the market. They’re doing it cheap. We don’t want to be doing it cheap.
Dairy
2.55
ACIL Allen stated that the ‘dairy sector has experienced significant adjustment since deregulation’, and added that to be able to compete globally there would be a need for transition to a smaller number of larger farms. ACIL Allen added that while ‘changing consumer perceptions related to animal welfare’ will challenge the sector it will also provide the industry with ‘a valuable marketing differentiation compared with less developed competitors.’
2.56
ANZ stated that while currently dairy producers are experiencing strong prices due to low production and competition for supply from processors, the ‘global market remains competitive’ due to high levels of production in the European Union and New Zealand. CSIRO added that:
The primary concern facing most dairy farmers is the high cost of inputs including water and feed, with high water prices in particular posing the prospect of significant structural changes for those dairy farmers in the Murray-Darling Basin.
2.57
Narrawilly Dairy described the dairy industry as being in a crisis and stated that the industry has ‘shrunk by a third because of competition policy failure and supply chain market failure.’ In addition, Narrawilly Dairy highlighted the effects on the industry of increased competition from central and eastern European producers, increasing consumer demand for plant based dairy alternatives, a lack of younger workers, and the impact of bushfire and drought.
2.58
Dairy Australia statistics show that total milk production has reduced from 10.8 billion litres in 2000 to 8.7 billion litres in 2019. Narrawilly Dairy stated that Victorian dairy farmers had reduced the proportion of milk exported from 50 per cent to 25 per cent due to inability to meet domestic demand. Narrawilly Dairy added that in the 2018-19 financial year:
China received over 20 per cent of our breeding stock. There aren’t enough animals to replenish our existing dairy herds, let alone grow our herds. Farmers are forced to sell breeding stock to generate the cash-flow necessary to survive the drought.
Committee Comment
2.59
Despite the impacts of droughts and downturns, the Australian agricultural sector in Australia has returned a high long-term average annual rate of growth. Given Australia’s proximity to the growing markets of Asia and reputation for high-quality produce there is every chance that this trend will continue. Nevertheless, there are many emerging competitors in the global agriculture market and so maintaining growth will require consistent productivity improvement.
2.60
Fortunately, the livestock and horticulture sectors, already two of the largest existing agricultural industries, have significant opportunities that could continue to drive industry growth through to 2030. Even conservative estimates expect these industries to add a combined $10 billion to the agriculture sector, and if opportunities in export markets can be realised it is likely that growth will be much larger than this figure.
2.61
The livestock sector is the largest single component of Australian agriculture and, beef production in particular, is practiced by just under half of all Australian farms. The growth outlook for the sector appears positive, in part due to the increasing demand for protein within Asian markets. The live export sector in particular has the potential to expand its reach into new markets in Asia and the Middle East.
2.62
Further, Australian meat has a strong reputation for quality, sustainability, and animal welfare standards, these characteristics are likely to be increasingly attractive to burgeoning middle-class markets in Asia. The opportunities in these markets are likely to be particularly significant in northern Australia where pastoral leases are the dominant farming enterprises. The potential challenges the industry may face are discussed in more detail later in the report, particularly relating to market access and export regulation (Chapter 3) and infrastructure and freight issues (Chapter 8).
2.63
The horticultural sector has been growing at a rate of 12 per cent per year and there are good reasons to assume that this trend can continue. For instance, just 11 per cent of Australian horticulture produce is currently exported. There is, therefore, a huge opportunity to drive growth if this figure can be increased. Issues relating to the expansion of horticultural market access are discussed in more detail in Chapter 3 and the potential of greater use of protected cropping in horticulture will be considered in Chapter 5.