Issue 33
January 2001

Copyright
Prairie Grains Magazine
January 2001

For Australian producers, productivity key to cash flowing grain

By Tracy Sayler

John Lush tells the dark-humored joke that compares what brain surgery and grain production have in common: One mistake, and you’re dead.

“That really is an analogy of farming today. There is no room for mistakes any more,” says Lush, president of the Grains Council of Australia, which represents the country’s 45,000 grain producers. At a meeting of the International Federation of Agricultural Journalists held recently in Adelaide, in South Australia, Lush pointed to a key factor that has helped Australian producers to cash flow grain—productivity.

Average wheat yields are about 30% higher now than they were in the 1980s. Further, research by the Australian Bureau of Agricultural and Resource Economics (ABARE) shows that over the 21 year period to 1997/1998, annual productivity growth in the farms that specialized in grain production was 3.6% compared with just 2.6% for all farms. “So the grains industry is very productive, and that is what has kept us farming,” says Lush, who farms about 2,500 acres of wheat, barley, peas, beans, canola, medic seed and hay with son Paul in central South Australia.

Key drivers of Australian grains industry productivity include better farm management, advances in plant breeding, improved crop rotations, better weed and pest control, new herbicides, more efficient fertilizer use, larger scale farming and advances and adoption of better farm equipment and other farm technology. Lush says there is “absolutely no doubt” that a continued investment in grains research and development will be critical in ensuring that Australian grain producers are profitable, sustainable and internationally competitive well into the future.

“Unless we keep our productivity going, then Australian grain producers will find it very tough going,” he says.

Grain production including wheat, course grains, oil seeds and pulses, is Australia’s most valuable agricultural industry, says Lush, accounting for about 25% of the value of Australia’s farm output.

Also beneficial is the fact that the Australian grains industry has become consumer, rather than producer driven, he says. “Grain is no longer treated as a bulk commodity, because experience has shown that customers will pay more for, or be more loyal to a product that better matches their needs,” says Lush. “Our differentiation strategy focuses on consistently producing and delivering a specific well defined product in accordance with customer requirements. In Australia growers produce grain according to the quality characteristics desired by our customer, rather than our needs as a producer.”

Australia’s single desk selling system—AWB Limited—is an integral part of the country’s grain differentiation strategy.  It maximizes value through economies of scale, vertical management and coordination of logistics, says Lush, and places discipline on growers and the industry to produce and deliver what the customer wants, when it is wanted and on time.

U.S. subsidies sore subject
Given that Australia must export about 80% of the grain it produces, and that grain exports account for around 25% of Australia’s total farm exports, further world trade liberalization is crucial to the future of Australian grain production, says Lush.

“Although Australia’s share of international trade is around 10-15%, we produce only around 3% of the world’s grain crop.  As a small producer and a large grain exporter, the prices received by Australian growers are determined by world supply and demand. While Australian growers are sympathetic to the desire to keep farm families farming, we do not believe this argument justifies trade distorting agricultural policies,” he says.

Lush says that when governments—primarily Europe and the United States—implement measures that distort trade, it affects producers in other countries, and in a lot of cases this is Australia and Argentina, where farmers are not subsidized.

“All we can see is an overproduction of grain in the U.S., which is being guaranteed by further subsidies, so that the farmers there are not getting the market signals so that they say, ‘OK, we’ve produced too much of this, we should back off and grow something else.’ They just keep producing and then say to the government ‘here it is, pay us.’”

Since Australian grain producers aren’t subsidized, they must be truly responsive to market signals, says Lush. For example, he says he grew 1,700 acres of canola last year, but none this year, because the price was not profitable. Instead, he switched to lentils, field peas, and faba beans, and increased his wheat acreage. “It can get difficult to switch crops when there’s no high price for any of them, and you’ve got to pick the best of what’s a bad bunch,” he says. “But in the U.S. we don’t see farmers responding to those price signals, because they know they’ll get subsidies to help.”

Australian grain producers receive no subsidy payments or subsidized crop insurance, but they are able to compete because of productivity, single desk sales of AWB Limited, and lower input costs, says Lush. He points out that his land is worth about $800 U.S. per acre. Equivalent land in the U.S. would be worth about $2,500 an acre.

Further, pesticides cost less. For example, the cost of Roundup is two and a half times less in Australia than it is in the U.S. Herbicides are cheaper in Australia primarily because the products are priced on what the market will bear, according to Lush. Pesticide manufacturers realize that Australian producers can’t afford to spend as much on inputs as producers in the U.S. and Europe, he says, because Australian producers aren’t subsidized.

Australian grain producers see the U.S. as hypocritical, says Lush. “You go around the globe preaching free trade, but you don’t actually practice it. In fact, you’ve swung back the other way, and have even heavier subsidies now than what you had before the Uruguay GATT round. At least the (European Union) doesn’t beat around the bush. They are quite honest about the fact that they are going to subsidize their farmers.”

Lush says his group is urging the U.S. to decouple farm payments from crop production, so it doesn’t distort world prices.

“If you’re going to (subsidize), do so in a way that it’s not tied to any commodity, so it doesn’t affect the price of any of those commodities,” he says. “We don’t really care if you do subsidize your farmers, as long as it doesn’t affect the world price. As soon as you do it in a way that it affects the world price, then we are not competitive, and we can’t make a living. There are farmers leaving the land in Australia, because of U.S. and EU subsidies.”

Andrew McConville (left), southern region manager of AWB Limited, and Kevin Holt, a regional representative of AWB Limited, based in Victoria, check the condition of a wheat crop in New South Wales. Excessive moisture has caused quality problems this year in some areas of the Australian wheat belt.