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Land and Environment : Agribusiness Assoc. of Australia

Connections: Farm, Food and Resource Issues

Connections is refereed by Glenn Ronan and Bill Malcolm. The name reflects its origins, its intentions and the medium. It is a joint product of the Australian Agricultural and Resource Economics Society (AARES) and The Faculty of Agriculture and Food Systems, The University of Melbourne. Connections is an extension publication, connecting material in farm and agribusiness, in marketing and management, in environment and resources.

Connections - 2007


Paper 83

Forward Contracts - a risky business for graingrowers

Hugh Wynter

Former farm management consultant and educator with over forty years experience and now an options trader.

The current seasonal and market conditions for grains are causing a problem for those growers who, in the middle of this year, when crop conditions were excellent and prices attractive, committed part of their expected production to forward prices. Since then prices have continued to rise on the back of global demand and supply and in many areas rains have failed and yields are expected to be less than a few months ago. This has left those who have forward sold with the prospect of having to ‘washout’ their contracts at some cost. This is not the first time that this has happened. In 2002 similar events occurred. It is therefore timely to review the issues surrounding the practice of forward contracting for forward pricing, either through deliverable contracts or through derivatives such as swaps.

Paper 82

Beware a Carbon Theory of Value

Jeff Bennett

In the 19th century, Karl Marx argued that the value of goods and services was generated by the input of labour. A s we venture into the twenty first century, there is a real danger of falling into the trap again of giving trump status to one aspect of resource use. This time, the focus has shifted away from labour to the production, consumption and wealth creation process. Now attention is being devoted to a particular output of the process - carbon.

Paper 81

Biofuel Mania

Bill Malcolm

From an economic perspective, the current fashion for biofuels to help achieve something towards something called ‘sustainability’ seems ill-judged. At some point, economic sustainability becomes relevant. At present, unless heavily subsidized, biofuels only make economic sense if the feedstocks cost little and oil costs a lot. The prospects of achieving much towards the goals of reducing carbon-related pollution need to be established to justify a market failure/public benefit argument. Goals of replacing a cheaper energy source with a more expensive energy source in the name of self sufficiency makes no economic sense. The merit of ‘renewability’ of a resource to replace a resource in plentiful supply until technology makes it passé, is also dubious. This mania for biofuels might yet prove to be one more example, from many in Australia’s mixed economic history, of mercantilist interests masquerading as the national interest, and politics temporarily winning over economics. History is littered with plenty of examples of politics overwhelming economic sense, for a while at least. Fashions change, subsidies dry up, firms go bust. Economics wins, eventually.

Paper 80

Wheat industry grinds slowly on as single desk turns into Frankenstein

Professor Paul Kerin

This article was published in the Australian 5/9/07

WEMA, formed by several state-based farm lobbies, is in total denial. The wheat export fiasco plumbed new lows last week. AWB confirmed it would not de-merge, the Wheat Export Marketing Alliance (WEMA) promoted an insipid single desk "plan", rebel Liberal MP Wilson Tuckey fired off another letter to John Howard and Agriculture Minister Peter McGauran rejecting a particularly important export licence application. These events raise red flags about the behaviours of AWB (yet again), WEMA and Mr McGauran -- and instil no confidence in current or future marketing arrangements.

While the single desk is a silly concept, if we are going to have one we should have the best we can. A desk constructed from first principles wouldn't look anything like the model outlined by WEMA chairman Graham Blight. That Frankenstein is the product of constraints imposed through AWB's intransigence, our Government's ineptitude and WEMA's inability to raise funds.

Paper 79

The financial picture of farms in Canada

Statistics Canada

The number of census farms1 in Canada continues to drop, according to data from the 2006 Census of Agriculture, declining 7.1% to 229,373 farms over the five-year period between the censuses (Table 1). This represents 17,550 fewer farms than in 2001. Yet the drop in farm numbers belies a sector — with some 327,060 operators according to the latest census — that continues to show resilience. The stability of the Canadian agricultural land base between 2001 and 2006, at 167 million acres, is one indication that agriculture continues to adapt. Adaptation is also seen as the number of larger farms, with gross farm receipts2 of $250,000 or more (at 2005 constant prices), have increased 13.8% since 2001 while those with less than $250,000 in receipts declined by 10.5%.

Paper 78

Faming in Canada's CMAs: Some farms do better around urban area

Statistics Canada

Does proximity to urban areas favour certain farm types? It comes as no surprise that operations that often sell directly to consumers — nurseries and U-pick fruit farms for example — are close to population centres. Likewise, farms that require a lot of labour — horticultural-type operations — might tend to locate around urban areas where they can source the needed hands more readily. Farms that produce perishable products, such as fresh vegetable operations, might also want to be next to their client base, the better to speed food at its freshest to restaurants and markets. Conversely, crop farmers might find it frustrating to farm smaller parcels and navigate farm equipment on busy roads. Large operations with animals might want to locate farther outside the city and forgo neighbours’ complaints about the smell. We might anticipate all of these things, but are they supported by Census of Agriculture data?

Paper 77

The Importance of Productivity Growth in Australian Agriculture

John Mullen

In an international context, Pardey et al. (2006) noted concerns that both productivity growth and investment in agricultural R&D are falling, particularly in developed economies, with implications for food security in developing countries reliant on technology ‘spillovers’, whose populations will continue to increase for several decades.

Productivity in broadacre has likely grown at the rate of 2 percent per annum from 1953 to 1968 and a the rate of 2.5% since. In a companion paper, trends in productivity growth in Australian broadacre agriculture were reviewed.

Paper 76

R&D: A Good Investment for Australian Agriculture

John Mullen and Leanne Orr

Within the Australian economy, productivity growth in agriculture has been around 3 times that in economy as a whole and has markedly outpaced the decline in the terms of trade facing farmers over the past 15 years. International comparisons are difficult to make but the evidence available suggests that Australian agriculture has performed well against the agricultural sectors of most other countries.

Taken together, these trends suggest that productivity growth in broadacre agriculture has been at a rate likely to have made the sector more competitive relative to agricultural sectors in other countries, noting that the final outcome is also influenced by trade and farm support policies in these countries and by exchange rate conditions.

Paper 75

The National Plan for Water Security: Taking Over the Role of a Market?

Tihomir Ancev and Willem Vervoort

The proposed National Plan for Water Security, while representing a bold move in the direction of addressing water shortage problems, lacks some of these attributes and could be improved by taking into account economic arguments presented in this paper. In particular, the section of the Plan that addresses improving on-farm water use efficiency can benefit from further scrutiny, in the context of incentives currently in place and the distortion of those incentives under the proposed Plan.

Paper 74

A cure worse than the disease

Paul Kerin

This article was published in the Financial Review 1/5/07.

There is no point sticking to the single−desk notion. Paul Kerin suggests abolishing the veto altogether (ideally) or by vesting it with an independent party (not AWBI or a politician) empowered to make transparent licensing decisions on genuine public−interest grounds.

Paper 73

Bold leadership needed on AWB morass

Paul Kerin

John Howard must stand up to the Nationals. The British government had some excuse for establishing such daft governance arrangements − no historical evidence demonstrating the daftness. Four centuries later, our government had no excuse. Its avoidable mistake galvanised the same toxic political forces that thwarted British attempts to rid themselves of their Frankenstein. Only bold, decisive leadership can wrench us from our morass.

Paper 72

Are there economies of scale in dairying? If so what is the most economic size?

David A Beca

To determine whether there are likely to be economies of scale in dairying then there is a need to examine the variability of costs in the business.

PDF-Appendix 1 and 2

Paper 71

Tri-Nations Revisited: Profitability Variations between the Average and the Best in South Africa, Australia and New Zealand

David A Beca

This paper sets out to determine the differences between the levels of profitability in pasture-based dairying in South Africa, Australia and New Zealand. In particular the paper examines where the performance in the three countries differs as well as where it is similar. The comparisons are based on 2004/05 data analysed on an identical basis via the same software. The data is based on: 57 South African farms from Natal and Eastern Cape; and 298 Australian farms from Victoria, Tasmania and South Australia; and 372 New Zealand farms from throughout the country. Although there is no way to verify how representative the samples are of each industry as a whole, they are sufficiently large to provide a valid group for comparative purposes. In all three countries the farms are most likely to represent the top 50%-70% of farms rather than a true average, and as a result the group identified as the ‘Top 10%’ is most likely to represent the top 5%-7%.

Paper 70

The Public Interest in Resource Rent

Jim Sinner and Jörn Scherzer

Resource rent is defined as a surplus value, i.e. the difference between the price at which a resource can be sold and its respective extraction or production costs, including normal returns. Reasons to collect resource rent include ensuring a return to the owner of a resource, avoiding inefficient allocation, and achieving ethical objectives. Rent recovery should not be confused with cost recovery. Cost recovery aims at recovering a variety of costs that arise from resource use, whereas rent is a return to the owner. Rent is best treated separately from externalities even though a negative externality can be seen as a reduction in rent realised by another user of the resource. Depending on their design, rent recovery mechanisms can therefore capture the value of externalities otherwise unaccounted for. Any rent regime has to take into account local circumstances and values (e.g. in New Zealand recreational access to public resources is traditionally free).

Paper 69

Dry Water : An economic evaluation of the National Plan for Water Security
R. Quentin Grafton

The ‘big dry’ in Western Australia and southeast Australia has focused policymakers on what is wrong with water policies in Australia. Building on the 2004 National Water Initiative and an earlier vision to 'Secure Australia’s Water Future’, the Prime Minister, John Howard, on 25 January 2007 announced a major funding and policy initiative to help address the problems of too little water.

Paper 68

Dry Water: Water and the environment

Jeff Bennett

Re-Published with the permission of the Crawford School of Economics and Government, ANU (pages 7 - 8)

Until relatively recently, water flowing from rivers into the sea was regarded by politicians, engineers, farmers and the general public as a ‘waste’—a resource that could otherwise have been used to generate wealth through irrigating crops, processing minerals, watering playing fields and so on. There is now a growing recognition that such flows provide a range of benefits to society. They are the sources of wealth from industries such as fishing. They enable the continued functioning of a wide range of ecosystems including wetlands that help mitigate floods and improve the quality of our drinking water. And they provide recreational opportunities including swimming, boating and riverside picnicking. Without them, a range of plant and animal species would bepushed to extinction.

Paper 67

Dry Water: Recognising and reconciling social equity issues in contemporary water policy

Karen Hussey

Re-Published with the permission of the Crawford School of Economics and Government, ANU (pages 9 - 11)

The fight for scarce water resources has become a source of conflict at the local and regional scales (for instance, between landholders, and between the urban and rural sectors), as well as at the global scale, as attested by disputes between Arabs and Israelis, Indians and Bangladeshis, Americans and Mexicans, and among all 10 Nile Basin co-riparians (Wolf 1999). But the dynamic nature of water resource management—including highly variable climatic conditions, terrain, land use and development priorities, and gaps in scientific understanding of surface and ground water systems—means that developing and implementing policy is no mean feat.

Paper 66

Corruption and Anti-Corruption - Democracy and political corruption : idealism verus realism

Richard Mulgan

Re-Published with the permission of the Crawford School of Economics and Government, ANU (pages 1 - 3)

If corruption is the disease, is democracy part of the cure or a further contributing factor? On the one hand, many Western governments and their advisers look on democracy as an antidote to corruption.

Paper 65

Corruption and Anti-Corruption: Are free trips and payments to politicians bribes?

Satish Chand

Re-Published with the permission of the Crawford School of Economics and Government, ANU (pages 4 - 6)

Is there anyone who has never faced a situation that could, even vaguely, be construed as being at the margins of corruption? The incident in Marshall Islands allows us to explore a number of issues relevant to this slippery notion of corruption. What is corruption? Why the current focus on corruption? What are the consequences of corruption? How can corruption be combated? Sure, you have a view on each of these questions; here, I will put on my economist cap to address the questions raised above. In doing so, I will steer clear of the moral issues surrounding corruption.

Paper 64

Corruption and Anti-Corruption - Diagnosing the disease of corruption: what different discipline suggest

Peter Larmour

Re-Published with the permission of the Crawford School of Economics and Government, ANU (pages 7 - 10)

Corruption is often talked about as a disease. That metaphor suggests the possibility of a treatment, even cure. It also raises the question of diagnosis, or misdiagnosis. What kind of a disease is it: a cancer, perhaps, or a virus, or merely indigestion? If it’s the first, the cure might be surgery. If it’s the last, the cure might be an aspirin—or patience until it cures itself. It’s clearly important to get the diagnosis right, before a cure is prescribed.

Paper 63

Fishing Futures: Too few fish and too many boats
R. Quentin Grafton

Re-published with the permission of the Crawford School of Economics and Government, ANU (pages 5 - 7)

The world’s fishery industries are facing the problem of too few fish and too many boats. To many casual observers the case of overfishing is simply another example of humankind’s greed exceeding its needs. The reality is, however, that even if fishers wanted to conserve fish stocks, a reduced harvest by a conservation-minded fisher would simply allow someone else to catch more fish. Consequently, whatever their concerns about the future, many fishers have little or no incentive to conserve fish stocks and, over time, fishery levels decline.

Paper 62

Fishing Futures: Getting things right: structural adjustment in Australia’s Commonwealth fisheries
Tom Kompas

Re-published with the permission of the Crawford School of Economics and Government, ANU (pages 8 - 9)

Given the problems with open access resources, as well as the effectiveness of modern fishing technology, there are few fisheries, if any, which will not be both overexploited and unprofitable unless they are managed effectively. For a fishery to be economically efficient, it is necessary that management targets be set correctly, enforced effectively and delivered in an inexpensive and incentive-compatible manner. An efficient outcome is important not only because it
protects fish stocks and guarantees sustainability, but also because it ensures that resources will be allocated to the fishery correctly and in a way that maximises the returns from fishing. Inefficient fisheries are plagued by low profits and excessive boat capital or fishing capacity, with the all too familiar outcome of too many boats chasing too few fish’.

Paper 61

Ensuring sustainable fisheries in the Pacific
Kate Barclay

Re-published with the permission of the Crawford School of Economics and Government, ANU (pages 10 - 12)

Around half of the world’s tuna catch comes from the Western and Central Pacific Ocean. This fishery has been considered to be healthy compared to other tuna fisheries around the world. The tropical tunas (such as Skipjack and Yellowfin) are on the whole more resilient to fishing than some of the larger temperate tunas (such as Northern and Southern Bluefin). As other tuna fisheries around the globe have dropped in productivity levels and have become more tightly regulated, fishing companies have been increasing fishing effort in the Western and Central Pacific. In recent years scientists have agreed that two of the four main species of tuna caught commercially in the Pacific, Bigeye and Yellowfin, are being overfished. A third species, Skipjack, is still biologically safe, but excessive and competitive fishing has caused prices to drop by as much as half in real terms since the 1980s.

Paper 60

A National Plan for Water Security: Pluses and Minuses

Alistair Watson - PDF Version

The debate over water in Australia is overwhelmed by arcane technical and political arguments, convoluted and shifting allegiances, and mammoth journalistic commentary. That does not make life easy for observers and commentators. A couple of drafts of this paper have already been discarded after being overtaken by events.

Paper 59

Pipes and Drains, Rabbits and Hats, Politicians and Promises

PDF - Version

Lin Crase

The topic of water and its relative scarcity in south-eastern Australia has officially assumed the status of ‘barbeque-stopper’. 

Paper 58

Water Markets and the Chimera of Price Distortions

PDF - Version

Lin Crase

The role of water markets is receiving increased attention following the Federal government’s $10 billion bid to assume management responsibility for the affairs of the Murray-Darling Basin. 


Glenn Ronan, Co-editor and Principal strategy Consultant, corporate Strategy and Policy, Primary Industries and Resources South Australia.

Bill Malcolm, Co-editor and Associate Professor, Faculty of Land and Food resources, The University of Melbourne, Victoria.



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