Chapter 1
Introduction
Conduct of the inquiry
1.1
On 25 June 2008 the Senate referred the following matter to the Senate
Select Committee on Agricultural and Related Industries for report by 27
November 2009:
Food production in Australia and the question of how to
produce food that is:
(a)
affordable to consumers;
(b)
viable for production by farmers; and
(c)
of sustainable impact on the environment.
1.2
The committee subsequently sought and received extensions to the
reporting date, culminating in a final reporting date of 23 August 2010.
Structure of the report
1.3
The remainder of this chapter canvasses the challenging future global
food task in the context of increasing demand and emerging supply constraints.
The committee also considers Australia's agricultural production in this
context.
1.4
Chapter 2 discusses the availability and use of agricultural land in
Australia, including the need to maintain agricultural production in the face
of competing uses; changing agricultural land ownership arrangements; and the
effect of foreign ownership of Australian agricultural land.
1.5
Chapter 3 examines a specific aspect of agricultural land use: the
emergence of agricultural production via managed investment schemes (MIS). The
committee specifically discusses the tax treatment of MIS and its effect on the
allocation of resources in rural areas, as well as outlining major MIS
collapses of recent times and the potentially fragile nature of this structure
as a vehicle for agricultural production.
1.6
Chapter 4 considers the relationship between scientific innovation in
agriculture and its effects on driving the productivity gains necessary to
maintain farmers' viability. The committee outlines agricultural research and
development in Australia, concerns over recent declining investment in this area
and proposals for reform. Finally, the committee explores the implications of
plant gene patenting arrangements on the availability and cost of the base
materials necessary for food production.
1.7
Chapter 5 examines a range of supply chain issues and the impact each
has on the viability of agricultural production and the affordability of food
for consumers. The committee considers evidence regarding the impact of rising
prices for fertiliser, labour and fuel on agricultural production, declining
water availability and inefficiencies within transport infrastructure. The
committee also considers the role that food waste plays in supply chain
inefficiencies. Finally the committee considers food retail issues and how
these impact on returns to growers for raw commodities and the final sale price
of food products to consumers.
Global food demand
1.8
The demand for food globally is predicted to increase considerably in
the coming years as both populations and incomes rise. The United Nations has
predicted that the world's population will increase to over 9 billion people by
2050, from the current 6.7 billion.[1]
Professor Julian Cribb has noted that:
...the world population is going to be around 9.1 or 9.2
billion people by 2050, barring accidents, and food demand is growing at about
one per cent per annum on top of that population growth. So there is going to
be a requirement for roughly double the amount of food by the mid part of this
century.[2]
1.9
The Commonwealth Scientific and Industrial Research Organisation (CSIRO)
informed the committee that rapidly increasing global demand will be driven by
increasing demand for staples from population growth and high protein foods
from rising incomes. CSIRO stated that:
- Demand for cereals is predicted to increase by nearly 50% between
2000 and 2030.
- Consumption of fish, dairy, wheat and meat products all increase
as incomes rise. Demand for more animal protein by the burgeoning middle-income
classes in India and China has been predicted to increase 85% between 2000 and
2030.
- Food imports are predicted to more than double by 2030 in
sub-Saharan Africa.[3]
1.10
Growcom stated that rising incomes in developing nations would have a
significant effect on demand:
Higher incomes in China and India have led to increases in
consumption of meat and dairy products rather than staples like rice. These
products rely heavily on grains as a feedstock, increasing overall demand. By
2020, the Australian Farm Institute estimates that Asia will be importing an
additional 5.2 million tonnes of dairy products, 1.9 million tonnes of beef and
1.1 million tonnes of chicken. That represents 50% of Australia’s current dairy
production, 86% of our beef production and 140% of our chicken meat production.
Such an expansion would require an increase in feedgrains of 225 million tonnes
a year, which combined with bio-fuels, would push world feedgrain demand up to
350-450 million tonnes by 2020.[4]
Food supply
1.11
On the supply side, this increasing demand for food has to be met in the
context of considerable capacity constraints and related input cost pressures. These
include declining available agricultural land from urban encroachment and alternative
fuel needs; reduced water availability from climate change and urban use;
likely limits on greenhouse gas emissions to address climate change; and
potentially a greater scarcity of crucial inputs such as fertiliser and oil.
1.12
Professor Cribb has taken a pessimistic view about the capacity of the
global agricultural system to meet future demand for food. He claimed that doubling
output will need to occur when vital agricultural inputs are in decline,
nominating water, agricultural land, nutrients, oil, technological advances and
suitable growing conditions as likely to be increasingly scarce. He stated:
City demand is now outrunning irrigation demand worldwide.
Groundwater levels are falling in almost every country where water is used to
produce food. Five billion people will face water scarcity in 2050.
...
...the global stock of good farmland is declining.
Twenty-five per cent of the world’s farmland is degraded to some degree or
other. That is FAO data. We are losing about one per cent per year. So project
that into the future and you will see how much we may have left. Urban land use
is set to double. That is not only the footprint of the city itself but also
all the land in the catchment that it swallows up for recreation and other
activities. Basically, it is the world’s best farmland because cities are
located in river valleys, by and large.
...
With regard to peak nutrients, the world perhaps passed peak
phosphorus in 1987. Peak gas, which is the main source for producing nitrogen
fertiliser, is expected to occur some time in this decade. So fertiliser prices
are likely to go up very sharply. More than half of all food produced and
three-quarters probably of all nutrients are currently being wasted.
...
The International Energy Agency says that we are heading for
peak oil. As you know, half of the world’s agricultural industry is entirely
dependent on oil to keep the wheels of the tractors turning. Fuel prices are
going to go up quite savagely, obviously over the next 20 years or so. If
agriculture switches to farm produced biofuels, it will probably involve a
penalty of about 10 per cent in food output in order to sustain the actual
agricultural activity. If, however, agriculture has to supply the fuel for the
trucks that carry the food to the cities, then you can expect roughly 30 per
cent of agriculture may well be devoted to producing that fuel.
...
There is declining R&D...[Since] the early 1970s, the
rate of agricultural research has been declining in every major country in the
world and internationally. There has not been a real increase in international
agricultural research funding since 1974, which is a very long time, and the
world population was half what it is today at that time. All the major
countries that have invested so much in agricultural research have been pulling
back. Even countries such as China have reduced significantly the amount of
agricultural research that they are doing. So farmers worldwide are driving
into a large technology pothole...
...
...the climates are becoming much more erratic, and we
ourselves appear to be one of the early witnesses to the sorts of changes that
are going on in the climate. Yes, it will rain more in some countries, but not
always where you want it to. The general picture is for the large grain growing
areas of the world to dry out, particularly critical areas such as India,
central Asia, China and so on. [5]
1.13
These challenges as they relate to Australian food production are
examined further in the remainder of this report.
Australia's agricultural production
1.14
Australia's agricultural sector is an integral part of the Australian
economy and a significant exporter, providing food and fibre for tens of
millions of people around the world. Agriculture employs over 300,000 people on
134,000 farms utilising around 60 per cent of the Australian land mass. The
industry accounts for just 2 per cent of national GDP, though the effect recent
droughts have had on economic growth have demonstrated the importance of
agriculture to Australia's overall economic performance.[6]
1.15
The Department of Agriculture, Fisheries and Forestry (DAFF) informed
the committee that Australian agriculture is export oriented:
In 2007-08, food exports were valued at $23.4 billion,
accounting for approximately 13 per cent of Australia's total merchandise
exports. Imports of food and food products in 2007-08 were valued at around $9
billion, nearly 40 per cent of the value exported. The dependence of Australian
farming on exports varies between industries. Over the period 2005-06 to
2007-08, around 56 per cent of the commodities produced on farms were
exported...[7]
1.16
Consequently, returns for producers are heavily influenced by global
price movements:
For Australian agriculture, changes in world prices and
currency movements have an important impact on producer returns. This is
because domestic prices for these commodities will generally be relatively
closely correlated with those in international markets. This is particularly
relevant for commodities of which a large proportion are exported, or which
face competition from imports or domestically produced substitutes that are
traded globally.[8]
1.17
DAFF noted that Australia's relatively small and slowly growing
population, with already high per capita incomes, means that future growth in
Australian agriculture will depend on expanding export markets.[9]
1.18
Another notable characteristic of Australian agriculture is the long
term downward trend in farmers' terms of trade. That is, the prices of
agricultural inputs are rising faster than the prices received for agricultural
outputs they produce. The one factor mitigating declining terms of trade has
been productivity growth, which has enabled Australian farmers to use their
inputs more efficiently to remain competitive and sustain their incomes. DAFF
explained that:
Productivity of Australian farms, measuring the efficiency of
using inputs to produce a specific level of outputs, has risen strongly for
cropping specialists and the mixed crop-livestock industry - averaging 2.1 per
cent and 1.5 per cent a year respectively from 1977-78 to 2006-07. Beef
specialists achieved the same average performance level as the mixed
crop-livestock industry over the past three decades. Their productivity growth
coincided with high output growth and relatively marginal growth in input use.
The sheep industry continues to lag behind the broadacre sector in terms of
long-term productivity growth. Between 1977-78 and 2006-07, the industry has
experienced a decline in both output and input use...[10]
1.19
However, DAFF warns that broadacre productivity has slowed since the
turn of the century, after surging in the 1990s. This is partly attributable to
droughts in 2002-03 and 2006-07.[11]
1.20
The committee was also informed that primary producers are receiving a
declining proportion of final retail prices. DAFF stated that:
With respect to the farm to retail supply chain, the value of
raw commodities has tended to represent a declining proportion of the final
sale price of food products, despite competition at all levels of the supply
chain (Whitehall Associates, 2004). The growing gap between farm-gate and
retail prices is mainly a reflection of the rising cost of services (including
transport, storage, handling, distribution and retailing) and the incorporation
of additional attributes (packaging, presentation and qualities) in the final
product in response to consumer demands.[12]
1.21
Likely future global demand and supply drivers provide both
opportunities and challenges for Australian producers. The submission from red
meat representative organisations indicated that increasing global demand provided
opportunities for local industry:
- Global demand for meat is projected to double by 2050, with this
growth highly concentrated in developing Asian countries.
- Even after accounting for growth in domestic production and
competing supplies of white meats in these countries, there is a significant
gap to be filled by imports of red meats.
- Australia is the world’s number two red meat exporter, so this
represents a major commercial opportunity.
- It also represents a major responsibility to provide a highly
nutritious, affordable, secure and environmentally sustainable food source for
the people of the developing world.[13]
1.22
However, increasing demand and prices for agricultural commodities will
need to overcome the significant supply-side challenges highlighted by Professor Cribb
above at paragraph 1.12. The committee notes that many contributors to this
inquiry were broadly pessimistic about meeting the global food task within
Australia's current agricultural system. For example, Victorian Eco-Innovation
Lab's evidence represented a view that our food systems need to be re-designed
to meet the needs of producers, consumers and the environment:
Our challenge is not just to produce more food, increasing
productivity in the way that we have been doing—increasing efficiency in
existing systems is necessary but not sufficient—we also need to think about
what food it is, who gets it and how and about regenerating our resources to
produce sustainable food in the long term. Acknowledging these challenges, we
have a choice to continue as we are with farmers increasingly being squeezed
between a declining resource base and input costs and being unable to pass
those costs up through the supply chain or being able to pass those costs up
the supply chain and having more expensive food with the corresponding food
security challenges and poor nutrition outcomes for a steadily increasing group
of people; or we can take on the challenge of developing new food and farming
systems that are less reliant on these resources and that maximise the
nutritional value of food produced from the resources that we have, hopefully
while sequestering carbon.[14]
1.23
The specific challenges facing food producers in Australia are examined
in the remaining sections of this report.
Committee view
1.24
The global community faces an enormous challenge to feed itself by the
middle of this century as the demand for food increases significantly, perhaps
doubling, while our capacity to produce food is constrained by water scarcity,
declining arable land, declining nutrient inputs, declining agricultural
research and development and deteriorating climatic conditions in key food
growing regions of the world. If the challenge is not met, the consequences for
global peace and security could be grave and Australia will not be immune.
1.25
The committee discusses a number of these specific challenges in further
detail in the chapters that follow.
1.26
From Australia's perspective, it is imperative that we maintain a
productive base capable of meeting the food needs of the domestic population to
ensure food security in the event that other countries become unwilling to trade
food grown within their borders. Even more important, however, is the need for
Australia, as a major food exporter, to contribute to meeting the global food
task and thereby prevent the potentially disastrous consequences of major food
shortages.
1.27
The committee is therefore of the view that governments around the
world, including Australia's, must plan for the food needs of the population
into the long term future. Such planning should begin in earnest as of now. The
views expressed by the committee in the remainder of this report reflect
changes to our current approach to agricultural food production that must occur
if Australia is to meet its food production objective of producing food that is
affordable and can be produced viably by farmers in an environmentally
sustainable way.
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