June 7, 2013
Australian agriculture must be made more profitable. Most of the time there isn’t enough money in farming to compensate for the long hours of work and large sums of financial risk required. Farmers not only have to deal with the most variable climate in the world but they are also saddled with high costs, including paying wages well above their overseas competitors, volatile commodity markets, inadequate transport and telecommunications infrastructure and expensive over-regulation.
Much more must be done to improve the competiveness (the key driver of profitability) of farming including heavy public and private investment in research, innovation and technology. In its pre-election strategy the NFF said high production costs and over-regulation were threatening agriculture’s profitability and global competitiveness.
Among its recommendations to take the cost pressures off farmers was the creation of a red tape register with a view to quickly simplifying and streamlining legislation such as the Environment Protection and Biodiversity Conservation (EPBC) Act and agricultural and veterinary chemical regulations. Also on the NFF’s shopping list were adjustments to competition law and the role of the ACCC to ensure fair competition in the domestic food processing and retail chain. The industry also needed to help itself by developing and adopting competitiveness and benchmarking indicators, the NFF said.
The federal commodity forecaster, ABARES, underlined the profitability “strain” on farmers at its recent Outlook conference in Canberra. After hitting highs of almost $61,000 two years ago, business profits on broadacre farms were likely to slump to average just $7000 this year, it said. The big drop comes after tighter cropping and grazing seasons in 2012-13 (particularly in WA), a farm earnings dip in many regions and fewer livestock and stored grain tonnages on properties. Yet, in a notable indicator of long-term management resilience in the family farm-dominated broadacre sector, this year’s relatively modest forecast would still be the sixth best broadacre business profit result in 20 years.
On the plus side, average farm debt levels were down, farm costs were down and only four per cent of farmers had less than 70pc equity in their land – lower than the average equity position recorded for the past 20 years. Farm costs were also down marginally for the second year despite broadacre farmers spending more on crop production, repairs and maintenance. However, ABARES said dairy farmers’ costs would be up about one per cent because of higher electricity, labour and fertiliser bills.
Low milk prices had also hit dairy earnings which were likely to drop from an average $100,000 last year to $95,000. With most ag market returns tightening up, the number of Australian farms actively increasing their debt load has fallen dramatically towards the historic lows recorded 12 years ago.
The shrinking enthusiasm for borrowing and a focus on debt repayment followed a leap in farm sector borrowings which sent average broadacre debt jumping from about $350,000 in 2002 to $527,000 in 2009, before retreating below $500,000 by July last year. ABARES put total farm debt at the start of this financial year at a flat to declining $66 billion.
About 13pc of broadacre farms and 22pc of dairies were estimated to be carrying more than $1m in debt with more than two thirds of the total broadacre debt held by just 12pc of farms, which in turn produced about 40pc of broadacre production. Farmers might be reducing their borrowings but the reality is that extra investment is part of the recipe for increased productivity and competiveness. “The Land” http://www.theland.com.au/news/agriculture/agribusiness/general-news/growing-farm-profitability/2654324.aspx?storypage=0