Ag Forum

The perils of managing environmental water!

Tue, 15 May 2012 22:44:00 GMT

In a development that acutely highlights the almost impossible task that confronts the Commonwealth Environmental Water Holder, the much vaunted 'liberation' of the dammed up waters on Toorale Station near Bourke cannot occur at present, because the 'wetlands' created by the dams are now the nesting areas of ibis and brolgas, which are protected species.

The story was carried in todays Australian Newspaper, (subscription required) and quotes an officer of the Office of Environment and Heritage explaining that the Toorale dams - which have been there for up to 100 years - push water onto the floodplain and create habitat for birds and fish. Removing the dams would result in the water 'just running down the river'. The article explains that Toorale is being managed under the NSW National Parks and Wildlife Act, which requires the NSW government to protect the environment and items of Aboriginal and European heritage, which would include the dam walls that were built in the 1880s.

Toorale was purchased in 2008 by the Australian and NSW governments for $24 million, with the promise that between 20 and 80 thousand megalitres of water would be returned to the Darling river each year. However, it appears that only around 10% of that water is likely to be available for release.

As was discussed in a research report commissioned by the Australian Farm Institute, this is just one of many examples of the extremely difficult decisions that will face the Commonwealth Environmental Water Holder - the official owner of all the water entitlements purchased from irrigators as part of the reform process for the Murray Darling Basin. Apart from trying to avoid damage to 'wetlands', the CEWH has to avoid flooding farms and towns with environmental water releases, manage releases to avoid flow limitations such as the Barmah Choke, work out whether or not to trade environmental water entitlements with irrigators at different times, and ultimately try to manage the water holdings to achieve environmental outcomes. Not a task for the faint-hearted or thin skinned!

Concerns about lost farmland not limited to Australia

Tue, 15 May 2012 02:17:00 GMT

It is interesting to note that concerns about a loss of farmland are not confined to Australia, with this topic the subject of discussion in many nations, including developing nations.

The issue has emerged in India, for example, where recent reports indicate that official statistics on available agricultural land show a decline, due to encroaching urbanisation. The issue is important as Indian governments have long been sensitive to the problems that can arise if food prices get too high, due to reduced production. Interestingly, as is the case in Australia, landuse policies in India are the responsibility of State governments rather than the national government.

From an Australian perspective, the reported loss of farmland in India does not seem significant. In the years since 1970, almost 100 million hectares of Australian farmland has been converted to conservation areas (some 20% of all farm land and 11% of the total land area ), and an unknown amount has disappeared under housing developments close to major urban centres. Much of the land concerted to national parks was of low agricultural value, but the same does not apply for land close to urban centres or in locations such as the Liverpool Plains, where mining interests are competing with farmers for land.

Whether Australia needs a national policy to preserve agricultural land is the subject of a forthcoming two day conference and associated field trip being convened by the Australian Farm Institute. For details click here.

Has Treasury underestimated China's role in global agricultural markets?

Fri, 11 May 2012 00:33:00 GMT

In a recent report examining the role of China in global commodity markets published by the Australian Treasury, the authors concluded that China's impact on global agricultural commodity markets has been 'more modest' than its impact on global energy and metals markets. Yet a recent USA Farm Foundation report identified China as one of the two key factors (the other was biofuels) driving global agricultural prices to their current high levels. Has the Australian Treasury report misunderstood the role China now plays in agricultural markets?

The Australian Treasury report looked at the role of China in global commodity markets, including energy, metals and agricultural commodities. The analysis correctly identified a key turning point in recent times being China's accession to the WTO in 2001, which gave China access to Most Favored Nation tariffs for its manufactured exports, but also obligated China to substantially reduce its own tariffs on imported agricultural products. The result since that time has been that China has progressively increased its net imports of agricultural products, especially soybeans and corn, with imports growing 23% per annum over the past five years.

The Farm Foundation report also focused on the role of China in global agricultural markets, reaching similar conclusions as the Treasury report about the factors behind China's emergence in agricultural markets (growing Chinese consumer wealth and urbanisation leading to increased and changed food consumption), but importantly also pointing out that China's emergence as an agricultural importer coincided with the surge in the use of crops for biofuels, and that these two demand shocks in combination had a major effect on global markets. As the Farm Foundation report highlighted;

Land adjustments highlight the impact of the two demand shocks. In 2005, 16.1 million acres of land in the United States were required to meet the demand for biofuels production and U.S. soybean exports to China. In 2010, it took 46.5 million acres—an increase of 189%—to satisfy these demands, or 29% of total U.S. corn and soybean harvested acreage.

What the Farm Foundation report is highlighting is the high degree of interaction between different agricultural commodity markets, caused by the fact that crops essentially 'compete' for acerage in nations such as the USA. Even though China's main imports have been corn and soybeans, the resulting price increases for these commodities have diverted acerage away from wheat and other crops as farmers chase better returns. The higher corn and soybean prices have also made livestock production less profitable (US beef production is much more reliant on feed inputs than Australia's predominantly pasture-based production systems), with the result being that US beef herd numbers are at historic lows.

The same picture emerges in the other agricultural powerhouse, Brazil. Booming soybean exports to China are estimated to account for 25 million hectares of Brazilian cropland (more than Australia's total area of broadacre crops) which has pushed aside beef production and other less profitable crops in Brazil, with a resulting indirect impact on global agricultural markets.

It is this interrelated nature of global agricultural commodity markets that seems to have not been fully recognised in the Australian Treasury report, and the fact that relatively small changes in demand for specific commodities can have major flow-on impacts across a number of different markets, especially given the limited proportion of global agricultural output that is actually traded. Nevertheless, the recognition by Treasury of the likely future demand for agricultural commodities by China and the potential that creates for Australian agriculture is a welcome change, as is the recognition of this potential in a recent speech by by the Prime Minister.

Of course, recognition of potential is one thing, but action to help the realisation of that potential is another thing altogether. The sector awaits policy developments with interest!

This is also the topic of the next John Ralph Essay Competition organised by the Australian Farm Institute.

Register your interest here.

To mandate or not to mandate? The critical biofuel question.

Mon, 07 May 2012 03:56:00 GMT

There is probably no issue in Australian agriculture more likely to pitch crop producers against livestock producers than the question of whether or not Australia should adopt mandatory biofuel targets. And somewhat surprisingly, when it comes to politics the positions of the major parties on this issue are the opposite of what might be expected. The Coalition - the parties which philosophically favour small government and deregulation - support mandatory biofuel targets, while the ALP - often painted as the party in favour of bigger government and regulation - oppose mandatory targets.

In the latest Farm Institute Insights newsletter, Resources Minister Martin Ferguson argues against biofuel mandates, stating

Mandates ... by their very nature, distort existing transport fuel market outcomes, reduce consumer choice and result in higher fuel charges for consumers. Investment signals arising as a result of a biofuels mandate focus development on meeting the mandate rather than on innovation. Indeed by removing competition and the incentive to innovate, mandates set the bar too low. And of course, a mandate for biofuels could also distort Australia’s land use – potentially impacting on food production.

Leader of the National Party, Warren Truss, argues the opposite case, putting the view that in the absence of some certainty, a viable biofuel industry will never develop in Australia. He argues;

The biofuel industry has enormous potential for Australia. The policy settings in this country have been so inconsistent over the last decade that the industry needs a massive boost in certainty and confidence to attract necessary investment to achieve that potential. It will now require the security of a mandate to set the course for the future.

Bringing together issues such as food security, the environment, energy policy and rural and regional development, and pitching Australian livestock producers and grain producers in opposition to each other, Australia biofuel policy seems certain to remain a matter of contention for some considerable time.

South Korea and Australia - how comparable are proposed emissions trading schemes.

Fri, 04 May 2012 04:49:00 GMT

The decision by the South Korean Parliament to adopt legislation creating an emissions trading scheme has been welcomed by Australian policymakers and climate change advocates, but a close look at the available details of the South Korean Scheme suggests there are some fairly major differences between the two schemes.

The decision by the South Korean Parliament has been welcomed by Climate Change Minister Greg Combet and mentioned by other members of the government including Parliamentary Secretary Mark Dreyfus. The South Korean decision has also been hailed by the Climate Institute. The general sentiment of commentary on the decision by South Korea is that it confirms that Australia is not 'going it alone' and signals the potential for an expansion of international carbon markets. Some details of the Korean scheme are starting to be made available (see here and here).

However, the differences between the two schemes suggest that it might be some time before the carbon price in South Korea approaches that proposed in Australia, and therefore the potential for interaction between the two schemes might be some considerable time in the future. In particular, the Korean scheme is based largely on freely allocated emission permits for the first five years, with participating companies only having to purchase a small proportion of required permits.

The following table attempts to compare the two schemes - albeit the details of the South Korean Scheme are still somewhat uncertain. The dramatic difference in the total annual cost estimates for the two schemes highlights the difference in approaches being taken.

	Australia	South Korea
Scheme commencement	1 July 2012	January 1^st,2015
Coverage	A facility producing more than 25,000 tonnes of emissions annually.	A corporation producing more than 125,000 tonnes of emissions annually, or an individual facility producing in excess of 25,000 tonnes of emissions annually.
National emissions covered	Approximately 60%	Approximately 60%
Permit availability	Unlimited numbers of permits available over the period from 2012 to 2015 at a fixed price. Limited numbers of permits from 2015 onwards at market price.	Permits allocated to participants, presumably based on existing emission levels.
Permit price	$23 per permit in 2012, increasing by 5% per annum.	95-100% of permits allocated free of charge, presumably based on existing emission levels, during the first two phases to 2020. Balance of permits auctioned.
Annual scheme cost for participants (estimated)	US $9 - $10 billion	US $4.2 billion
Export competitiveness measures	Up to 95% of required permits free of charge for some eligible high emissions intensity exporters.	Almost all permits free of charge.
International linkage	Proposed from 2015, when companies will be able to meet 50% of emission liabilities by purchasing international carbon offsets.	Proposed from 2015. Apparently no limits on the use of international offsets.

Retaining consumer confidence becoming more critical for luxury red meats.

Wed, 02 May 2012 03:48:00 GMT

If ever a reminder was needed of the added importance of retaining consumer confidence in 'luxury' products such as beef and lamb (and wool), the current US beef market situation should serve as a perfect example. The 'Pink Slime' crisis, closely followed by the recent BSE detection, has resulted in a significant drop in beef prices and analysts are not confident how quickly the market will recover.

Whether Australian farmers like it or not, beef and lamb are now a discretionary luxury item for many consumers, which means heightened expectations about safety and quality. The recent Pink Slime furore in the USA (Pink slime is very fine textured mince beef that has been treated with ammoniun hydroxide) has already resulted in a major consumer reaction in the US, with beef industry critics coming out of the woodwork , and beef prices dropping as a result of reduced demand. The major manufacturer of the product has been forced into bankruptcy , and even support for the product by the US agriculture secretary has not be sufficient to stem the tide. The recent detection of a BSE case in California has only made a bad situation worse, with beef demand and prices dropping, and analysts uncertain how quickly the situation will recover.

The message for the Australian red meat industry is clear. There is no alternative but to keep ahead of the game in terms of supply chain integrity, disease management, and industry quality standards. While things like mandatory cattle or sheep ID systems might seem to just be an added cost, there is a need to weigh that against the cost of a loss of consumer confidence, and an inability to quickly recover when markets are lost. The same risk applies in the case of mulesing and other animal welfare issues. Wealthy consumers are prepared to pay more for 'luxury' products, but they are also very fussy and will desert a product very quickly if their sensibilities are offended. Its probably better to proactively move away from some of these practices (as the pig industry has with sow stalls) rather than have change forced on the industry by a consumer or government reaction.

Organic agriculture not matching conventional agriculture yields.

Mon, 30 Apr 2012 05:53:00 GMT

There has been some heated debates in agricultural circles over recent years about whether organic agricultural systems can achieve equal or better yields than conventional agriculture systems. The issue has gained prominence because organic systems have been proposed by some as the way to meet future global food demand without increasing agriculture's environmental footprint. However, new research indicates that yields achieved in organic systems do not match those achieved in conventional agriculture.

The research comparing the performance of organic and conventional agricultural systems has been published in the recently-released edition of the Nature journal. The full report has to be purchased, but a summary and discussion of the results can be accessed online. The researchers analysed a wide range of different comparisons of conventional and organic agriculture, and concluded that even in the case of "Best Organic Practice", organic crops still recorded a yield disadvantage relative to conventional crops. The yield disadvantage ranged from 5% (rain-fed legumes and perennials) to 34% (when the conventional and organic systems are most comparable). The researchers found;

The performance of organic systems varies substantially across crop types and species. For example, yields of organic fruits and oilseed crops show a small (-3% and -11% respectively), but not statisticallysignificant, difference to conventional crops, whereas organic cereals and vegetables have significantly lower yields than conventional crops(-26% and -33% respectively).

The results suggest that those who propose that organic agriculture should be more widely adopted and will provide the answers to future global food insecurity need to rethink that position. Even extending beyond just yield and examining wider environmental costs and benefits, conventional agriculture was still found to outperform organic in many respects. As the authors concluded;

There are many factors to consider in balancing the benefits of organic and conventional agriculture, and there are no simple ways to determine a clear ‘winner’ for all possible farming situations.However, instead of continuing the ideologically charged ‘organic versus conventional’ debate, we should systematically evaluate the costs and benefits of different management options. In the end, to achieve sustainable food security we will probably need many different techniques—including organic, conventional, and possible ‘hybrid’ systems—to produce more food at affordable prices, ensure livelihoods for farmers, and reduce the environmental costs of agriculture.

US Crop insurance subsidies at the centre of Farm Bill debate.

Thu, 26 Apr 2012 22:36:00 GMT

The future of the US Farm Bill is very much in play at the moment, with the current Bill due to expire and a new one being negotiated against a backdrop of record farm income levels, a record US Government debt level, and a forthcoming US Presidential election. A central feature of the current Farm Bill is the US Government subsidies for crop insurance - between 60 and 70% of premium cost - and whether that will be retained in the future.

Crop insurance subsidies are a central part of the US Farm Bill. Under the arrangements, farmers taking out crop insurance each year have the cost of the premium subsidised by the US government - with most recent estimates suggesting the subsidy is equivalent to almost 70% of the premium cost. This system has worked well for both Governments and crop farmers in the US, limiting government expenditure while also limiting farmers exposure to lower crop prices. However, given current US budget pressures, it seems likely the level of subsidy will be reduced. The American Farm Bureau sees crop insurance as a critical element of US farm support measures, but others argue that it is too narrowly focused and picks winners from amongst commodity producers. The Senate Agriculture Committee's first draft of legislation appears to retain crop insurance subsidies while removing direct subsidy payments and payments for 'not' growing crops.

It will be interesting to watch the development of this debate over the next few months. The Senate will begin debating amendments (markup) over the next few week and the real horse trading will start to emerge. After that, the House of Representatives will have a go - or may reject the Bill altogether and try a different approach! One thing is for certain - the process will be neither pretty, or quick!

Double standards in foreign ownership debate.

Wed, 25 Apr 2012 23:41:00 GMT

One of the more interesting aspects of the debate about foreign ownership of farmland is the claim that any move to make foreign farmland ownership more transparent will discourage much-needed foreign investment in agriculture, or kill off the prospects of free trade agreements. The irony is that these warnings of the dangers of more scrutiny of foreign investment in agriculture are from governments which have implemented much greater scrutiny of foreign purchases of residential real estate in Australia. Presumably a suburban house or apartment block is much more strategically important to Australia than farm land!

Trade Minister Craig Emerson penned an extended opinion piece in The Australian newspaper (subscription required), warning that any restrictions or closer scrutiny of foreign ownership of Australian farm land could drive away much needed foreign investment, and kill off the prospects of a free trade agreement with China.

The Minister argues 'Protectionist approaches to trade and investment flows [...] would probably kill off future free trade negotiations, including with China.' The Minister highlights the importance of being able to speedily conclude a free trade agreement with China, citing the benefits that NZ agriculture has gained from its 2008 free trade agreement. "Since the agreements entry into force, NZ agricultural exports to China have grown by 38 percent a year, treble the previous rate."

The only problem with the Ministers use of New Zealand as an example, is that New Zealand already has a much more comprehensive review requirement for foreign investment in farmland. Any foreign investment in "sensitive" land requires approval by the NZ Overseas Investment Office, with sensitive land defined as follows;

'Sensitive land is dependent on individual transaction details. The following land types and area thresholds describe some examples of sensitive land:

farm land that exceeds five hectares
land that exceeds 0.4 hectares and adjoins certain types of reserve or conservation areas (that also exceeds 0.4 hectares)
land that exceeds 0.2 hectares and adjoins foreshore.'

This begs the question - if any moves to increase scrutiny of foreign farm ownership in Australia might place at risk a future free trade agreement, how come NZ already has such a free trade agreement in place while also having much more restrictive foreign ownership scrutiny processes. Is it that their trade department officials are just much better at negotiating than Australian trade official?

What is also incongruous about this whole issue, however, is the fact that the current Australian government substantially increased scrutiny of overseas investment in residential real estate in April 2010, with the then Assistant Treasurer Nick Sherry announcing new arrangements, stating

'The Rudd Government is acting to make sure that investment in Australian real estate by temporary residents and foreign non-residents, is within the law, meets community expectations and doesn't place pressure on housing availability for Australians," said the Assistant Treasurer."The new provisions announced today will mean that anyone trying to flout Australia's strict foreign investment rules will face tough new penalties that will be fully enforced.'

This announcement has been implemented by the Foreign Investment Review Board (FIRB)- as is evident in the following information provided on the FIRB website.

It identifies that all foreign purchases of residential real estate are subject to FIRB scrutiny, but when it comes to rural land the threshold for scrutiny is only purchases in excess of $244 million, and this relates to a single purchase, not multiple purchases that collectively might exceed this amount.

This obviously begs the question - why is it so essential to scrutinise the purchase of a small Gold Coast apartment, but not the purchases of a large area of farm land?

There is absolutely no doubt that foreign investment in Australian agriculture is essential, and has been and continues to be of great value. There is also no doubt that the best way to move on from the current debate is to make the issue much more transparent (as is already the case in most overseas locations including NZ, China and the USA) so the debate is based on facts rather than rhetoric.

There is also no doubt, however, that those involved in Australian agriculture can spot double standards and spurious arguments from a long way off, and will remain uneasy on this issue until more transparent information is available.

This will be discussed at the Managing the future of Australian farmland Conference, convened by the Australian Farm Institute on the 28.29 and 30th of May 2012 in Sydney. More information here.

EU report questions biofuel sustainability.

Tue, 17 Apr 2012 05:16:00 GMT

A new report released by the EU Commission has questioned the sustainability of first-generation biofuels, arguing that a full account of the energy and emissions associated with the production and use of the fuel shows that the cost of biofuels far exceeds their benefits, and would mean an effective carbon cost of between 100 and 300 euros for each tonne of greenhouse emission abatement achieved.

The research, recently released by the EU, attempts to incorporate the full picture of emissions associated with biofuel production, including those associated with growing the required crops to produce the feedstock.

One of the authors of the report made some interesting comments about EU biofuels policy, which involves a 10% renewable energy target by 2020.

“The truth is that policy makers inside and outside Europe are doing biofuels for other reasons than environmental ones,” said David Laborde, a leading agricultural scientist and author of key biofuels reports for the European Commission.

“It’s a new and easy way to give subsidies to farmers, and it’s also linked to industrial lobbies that produce these biodiesels, and also what they will call energy security,” he told EurActiv.

“They want to diversify the energy supply, and keep their foreign currencies instead of buying oil from the Middle East. They prefer to keep it for something even if it is not efficient or even green,” he added

The peak body of European farmers (Copa-Cogeca) criticised the report, arguing that the landuse change assumptions included in it for biodiesel production were not appropriate.

If nothing else, the report and the resulting arguments highlight how fragile the methodology is that is used to estimate the carbon footprint of different products, something that Tesco Supermarkets in the UK discovered, after bravely committing to put a carbon footprint label on their products, and then having to abandon the effort.

Scientific confusion over Basin Plan economics (and science).

Fri, 13 Apr 2012 02:30:00 GMT

As the consultation period for the Draft Murray Darling Basin Plan draws to a close, various interest groups are upping the ante in an effort to have their views heard and to influence the outcome. As is almost inevitable in recent times, a groups of scientists have banded together and are joint signatories to a submission expressing concerns about the adequacy of the proposals in the Draft Plan. The wording of the petition suggests the scientists are a bit confused when it comes to economic issues, and not even sure about the science.

As is usual, such petitions garner plenty of media attention (here, here, here), (but there is usually not much scrutiny of what the petition actually says. This is probably fortunate for the scientists, because the wording of the petition indicates they are not exactly sure what they want to say.

On the economics of the plan, the petition argues that "there are significant economic as well as ecological benefits for the nation with increased water recovery. A 2800 GL scenario was estimated to cost $542 million to irrigation but with estimated benefits of $3-8 billion for habitat ecosystem services, up to $1 billion for carbon sequestration, more than $330 million for aesthetic appreciation, $30 million for avoidance of damage and $160 million for tourism.

What the scientists appear to have overlooked is firstly, the estimated costs for irrigation are ANNUAL costs, but the projected benefits are the sum of the value of estimated long-term gains over many years. As pointed out in a previous post, this presents a highly distorted picture of the costs and benefits.

It would be much more valid to say that, over twenty years, the plan will cost the irrigation sector in excess of $10 billion, but will only deliver between $3 and $8 billion in benefits - hardly a good deal.

Secondly, however, it needs to be noted that the vast bulk of the benefits are intangible - the dollar values attributed to them are notional, and in many cases highly questionable - (see the previous post on this) and certainly will not be captured by those living in the impacted regions. In fact, as has previously been pointed out, the CSIRO scientists who calculated this value heavily qualified it, and were also quoted elsewhere as saying the Draft Plan allocated insufficient water to the environment would not result in environmental benefits.

Even on the issue of science, the subject the scientists would be expected to be strongest on, the wording of the petition indicates there is a great deal less certainty than the Plans promoters would have everyone believe. The scientists want "more detail on the environmental targets that will be met or not met by different water-recovery scenarios." The petition also states that "there is a need to clarify ... the links between hydrological and ecological variables." These and other comments suggest that the scientists are just as confused as everyone else about how the 2,800 GL of extra water the Plan specifies is needed for the environment has been arrived at.

Interestingly, the petition states that the scientists support the concept of 'adaptive management' whereby adjustments are made along the way depending on outcomes. But there is no mention of a need for improved monitoring and reporting of environmental outcomes - something that would be essential for such an approach, and that is sadly lacking at present.

As is probably obligatory, the petition also comments that the Plan does not adequately make provision for the effects of climate change on the future outcomes for the Basin. Perhaps there is a lack of understanding by the scientists that irrigation allocations each year depend on the amount of water available, and are not fixed. As such, adaption to any future climate change is already built in to the system. The comments in the petition also seem to be suggesting a view that environmental outcomes should be permanently secured and unchanging, irrespective of climate change. Exactly how this would be achieved is unclear.

A final point in relation to the climate change issue, however, is that if even the CSIRO concludes that predictions about the future effect of climate change on rainfall and runoff have a very high degree of uncertainty, its a bit much to expect the MDBA to somehow polish their crystal ball and know exactly what the climate change impact will be in the future.

Interesting how poor science persists, even after authors admit they were wrong.

Wed, 11 Apr 2012 01:28:00 GMT

In 2006, the Food and Agriculture Organisation (FAO) of the UN published a report called Livestock's Long Shadow which concluded that emissions from livestock production make up 18% of global man-made greenhouse emissions, which is more significant that the emissions associated with fossil fuel use in transport. Despite the authors of that report subsequently admitting there was a major flaw in the methodology used, the 'number' has persisted, and continues to appear - even in papers recently published in peer-reviewed scientific journals.

Livestock's Long Shadow is a much-quoted FAO report, the conclusions of which are frequently referenced in papers and articles that are critical of livestock production for a range of reasons. Radical animal welfare organisation such as PETA jumped on the information in the report with glee, as did various organisations promoting vegetarianism. Environmental groups also joined the bandwagon, with some such as the Worldwatch Institute even trying to claim that the FAO report was a vast under-estimation, and that the livestock sector was the source of 50% of global emissions, not just the 18% claimed by the FAO.

However, a number of researchers including Professor Frank Mitloehner have subsequently highlighted a major flaw in the methodology used by the FAO and others, in that they do not compare like-with-like in arriving at total emissions attributed to livestock. The estimates generally assume all livestock production first involves emissions associated with clearing and burning areas of forest to grow the feed, and then includes all possible emissions associated with livestock production including both direct livestock emissions (between 3 and 9% 0f global emissions according to the IPCC) and any indirect emissions assumed to be be associated with any possible transport, processing, refrigeration and related emissions. They then compare that number with only the direct (tailpipe) emissions associated with other activities such as transport, ignoring all the indirect and related emissions. The livestock estimates are also gross emission estimates, and ignore the fact that the carbon emitted by animals was in fact recently sequestered from the atmosphere through plant growth, and if this amount of recently sequestered carbon was deducted from gross livestock emissions, the net emission figure would be considerably less.

One of the authors of the UN report has since admitted that the initial analysis was flawed, (and here), and it was reported that the FAO would re-do the analysis, and issue a corrected report by the end of 2011. While the revised report is yet to appear, the relevant FAO webpage now states that livestock account for 9% of global anthropogenic emissions, not the 18% originally claimed (or the grossly exaggerated 50 + % used by some groups).

However, that has not stopped reference being made to the original data (and the exaggerated 50% figure) with news that a new paper soon to be published in a 'peer-reviewed' scientific journal makes the statement that "Reducing consumption of red meat could have significant environmental benefits, the paper says, citing estimates that as much as 51 per cent of the world's greenhouse gas emissions come from livestock farming." If such a statement has passed peer-review, there must be some real questions about the quality of the reviewers involved.

It just goes to show that even so-called scientists are not above using incorrect data if it suits them when it comes to pushing a particular barrow, or trying to get publicity!

The Murray-Darling Basin Plan will deliver $8 billion in benefits, or virtually no benefits - according to the CSIRO!

Thu, 05 Apr 2012 04:29:00 GMT

The latest report released by the Murray Darling Basin Authority, in which the CSIRO assesses the potential ecological and economic benefits of the environmental change that it is assumed will arise from the diversion of 2,800 GL of water from irrigators, highlights how back-to-front the whole Basin Plan process has been - and continues to be. This information (or a better version of it) should have been the start of a process - not tacked on afterwards as an afterthought!

The MDBA has released the CSIRO report "Assessment of the ecological and economic benefits of environmental water in the Murray–Darling Basin" which provides the results of analysis that aimed to firstly, estimate the environmental improvement resulting from the diversion of 2,800 GL of water from irrigators to the environment, and secondly, to put an economic value on that environmental improvement.

The end result should be some assessment of the benefits to the community of the proposed Basin plan, which can be compared with the proposed cost in terms of lost irrigation output. In effect, this should provide the information necessary for a Cost-Benefit analysis of the proposal. The information should also be able to be used to adjust the plan, so that the community generates maximum benefit from the resources of the Murray Darling Basin. As noted - this information should be the starting point of a policy discussion, not an afterthought.

The value of this information is heavily dependent on the quality of the analysis, but unfortunately, even a quick reading of the 250 pages of the report gives the impression that there are major shortcomings. The following extract from the Executive Summary provides an example;

While the costs of recovering 2800 GL/year of water for the environment have been estimated by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) as an annual AU$542 million reduction in the gross value of irrigated agricultural production across the Basin in the long term, there are a number of expected benefits of recovering 2800 GL/year of water for the environment. The economic value of benefits under the 2800 scenario relativeto the baseline scenario is dominated by habitat ecosystem services. The additional Basin-wide value of enhanced habitat ecosystem services – arising from floodplain vegetation, waterbird breeding, native fish and the Coorong, Lower Lakes, and Murray Mouth – is worth between AU$3 billion and AU$8 billion under the 2800 scenario relative to the baseline scenario.

Not surprisingly, the $8 billion figure became the headline (as was undoubtedly the objective), but there was precious little media scrutiny of the underlying assumptions, or even what the actual figure meant.

Upon closer examination, however, it is evident that the cost of the proposed reduction in irrigation water is expressed as an annual value ($542 million) but the benefits appear to be expressed as the sum of the long-term, multi-year values. A less than careful reader would compare the costs to the benefits, and assume the change is good value, without realising the two numbers are not comparable.

Digging further, (Table 6.20 in the report) it becomes evident that the vast bulk of these $3-$8 billion benefits come from just two sources - the increased value of native vegetation along the Murray River, and a calculated increased in the environmental value of the Coorong.

The increased value of the native vegetation along the Murray River appears to incorporate an assumed carbon sequestration value (between $120 million and $1 billion) despite the fact that the vast bulk of the vegetation is in conservation areas, which cannot be used to generate tradable carbon credits. What also appears to be assumed is that the rate of increased growth of the trees is linearly related to the amount of extra water - which would be a biological first if this was actually the dose-rate response obtained!

The assumed increase in the value of the Coorong is also interesting. The highest benefit value calculated (Scenario 1) is $7.6 billion (again a long-term economic benefit estimate rather than an annual value) - and this figure is obviously virtually all of the $8 billion headline figure of environmental benefits. But almost simultaneously with the releases of this report, the Goyder Institute has also released a report on the adequacy of the proposed Basin Plan. That report (of which the CSIRO was also listed as an author) concluded that the current Basin Plan proposal (labelled the BP2750 scenario);

Overall, there are important benefits identified under the BP2750 scenario that has been analysed, however, for much of the area of the floodplain environmental assets that require medium to high flows, the environmental water requirements are not met. Thus, the ecological character of the South Australian environmental assets, as defined in current water management plans, is unlikely to be maintained under the BP2750 scenario.

This means that in the MDBA report the CSIRO is saying there will be large environmental benefits from the Basin Plan proposal that will be worth $8 billion for the community (and using this as the headline figure), but in the Goyder Report the CSIRO is saying that the Basin Plan proposal will not improve environmental outcomes, and will therefore not provide much in the way of environmental value to the community! No wonder the community is confused!

What is clearly evident from these reports is that there is an enormous amount of uncertainty about the 'science' behind the 2,750 - 2,800 GL figure that has been proposed, and how the environment will respond to the change in water flows. As the CSIRO report notes (p196), the analysis has used an assumed linear response for a number of environmental values, but this is unlikely to be the case.

This fundamental weakness in all the analysis to date should be sufficient to convince policymakers that a cautious, one-step-at-a-time approach should be the preferred option, and not the approach that is currently proposed.

Are we running out of food - or is food Australia's big export opportunity?

Mon, 02 Apr 2012 11:35:00 GMT

Over recent days, a number of media stories have appeared involving a CSIRO researcher who is quoted as claiming that Australia could become a net importer of food - and have no surplus wheat to export by 2070, if climate change is not urgently addressed. Unfortunately, given the timing of the comments, the lack of supporting research and the political nature of the associated discussion, it is hard to see these comments as anything other than advocacy - which damages the CSIRO 'brand' and also damages respect for science more generally.

In an interesting juxtaposition, Minister Joe Ludwig today released the most recent food industry statistics compiled by ABARES, highlighting the performance of the Australian food industry and the agriculture sector over the past twelve months, and its strong export performance.

Perhaps not surprisingly, the statement from a CSIRO researcher claiming that Australia could be a net importer of food by 2070 and have no export surplus of wheat to export by that time was always likely to attract media attention - which it did (see here). A closer examination of the media report and the CSIRO website does not reveal any specific new research or modelling that the statement is based on, and main thrust of the subsequent comments reported relate to the setting up of a new Global Sustainable Development Council by the UN. The associated media coverage also indicates that the timing of the comments and the associated meeting is related to a forthcoming UN climate change conference.

The contrast between the Minister's statement - a politicians statement supported by data and statistics, and the statement by the CSIRO researcher, which did not providing any supporting data or research, is quite stark, and highlights the risks scientists and research institutions take when stepping over the line between science and advocacy.

The CSIRO researcher could rightly be accused of alarmism, and of utilising his position and the reputation of his employer to achieve a political outcome.

That is not to say the claims by the researcher are necessarily wrong, but in the absence of supporting research and data, they simply cannot be tested or considered by others, and therefore amount to advocacy rather than science. At the same time, they also create the perception that the CSIRO, rather than being an objective and reliable source of credible scientific research, is also prepared to allow its name and reputation to be utilised for advocacy purposes - to the long-term damage of that organisation's reputation.

Perhaps someone in the CSIRO needs to think about the longer-term implications of the organisation adopting an advocacy role - especially in an era of constrained government revenue!

New reports the quickest way to get media attention - irrespective of their quality.

Thu, 29 Mar 2012 01:30:00 GMT

There have been a number of instances recently of advocacy groups releasing new 'reports' which have gained significant and largely uncritical media attention and undoubtedly assisted the cause they were targeted at, but a closer look at the contents of some of those 'reports' shows they are targeted at gaining media attention, rather than providing new information, and raises questions about the quality of media scrutiny.

There have been two recent incidents of media stories based on new 'reports' released by advocacy groups, one being a report by the Australian Conservation Foundation on the relationship between housing prices and healthy rivers, and the second being a report by the World Wildlife Fund on the impact of the use of the pesticide Diuron on the Great Barrier Reef.

In both cases the reports received 'useful' media attention. ( see here, here, here for the ACF report, and here for the WWF report.)

However, closer scrutiny of these reports highlights that they were of questionable value as 'news' items. The WWF report provided a reasonable review of research into the risks associated with the use of Diuron but did not provide any new information, while the ACF report was seriously flawed and had major deficiencies, (some of which have subsequently been corrected). None of the shortcomings of these reports were discussed in the media coverage.

In the case of the WWF report, the document provides a review of previous scientific reports about the detection of pesticides including Diuron in the waters of the Great Barrier Reef, and some discussion about the possible risks of pesticides to the reef environment. There is no new information provided in the report, and the matters discussed are all the subject of current expert review by the Australian Pesticides and Veterinary Medicines Authority (APVMA). The report presumes a causal link between pesticide residue detection and threats to the reef environment without providing supporting information, although concedes there is considerable uncertainty about the persistence of the chemical (between 5 and 370 days half life). The extent to which the WWF report was newsworthy is an open question, although it's timing was obviously planned to coincide with APVMA's announcement about whether or not the suspension of Diuron would be extended.

In the case of the ACF report, it purported to show that house prices in river valleys considered to have 'healthy' environmental conditions grew by 21% over the five years to 2010, while house prices in 'unhealthy' valleys grew by 11.5%. The inference was that this was confirmation that action to improve the health of rivers (by diverting water away from irrigators) would benefit house prices and regional economies, not damage them as has been claimed by irrigation groups.

The ACF report contains a host of major flaws. Perhaps the biggest one is that the analysis is not based on house prices at all, but on the value of new housing development approvals (as the ACF had to make clear in a subsequent 'revision'), the inference being that these are a proxy for house prices and a reflection of regional economic strength. A major assumption is obviously that the quality of the river environment is a key factor in the buoyancy of the housing market in an area, an assumption that is so ludicrous it is amazing that an organisation such as the ACF would associate its 'brand' with the claim.

When it is realised that large centres such as Toowoomba and Wagga Wagga are included in the analysis, and the analysis completely ignores other factors affecting housing demand such as the impact of mining developments or other industries on demand for housing, (all the 'healthy' valleys included in the analysis are in northern NSW and Queensland where mining development has been occurring, while the 'unhealthy' valleys are in the Riverina where no such development has occurred), the weakness of the analysis becomes starkly evident.

The report also argues that the growth in the average value of new house approvals over the period from 2006-2010 is further evidence that proposed reductions in irrigation water have not affected house prices, because it argues, it was well known during this period that some reductions in water entitlements were likely. Given that actual announcements about potential Murray Darling Basin water entitlement cuts were not made until AFTER this period, the assertion is clearly ridiculous. It also ignores other factors that may have impacted on the value of proposed new houses - such as as very obvious changes in the cost of labour and materials over the period, which simply made new houses more expensive to build!

These two cases highlight how easily uncritical media attention can be to obtain based on the release of a new 'report', and shows that the media should perhaps be a little more questioning when presented with such reports.

Henbury carbon project questions remain.

Mon, 26 Mar 2012 00:46:00 GMT

There has been further discussion about the Henbury Station carbon farming project, under which the Australian and Northern Territory Governments are working with a commercial organisation to run a business that generates income from carbon sequestration. Unfortunately, the discussion has not helped to clarify some of the key questions associated with the project.

ABC TVs Landline program ran a segment in its most recent edition on the Henbury Station carbon farming project, which has been discussed in some earlier blog posts. (see here and here). The program canvassed both sides of the discussion on this project, and helped to clarify some of the uncertainty surrounding the proposal, but left many questions unanswered.

Earlier announcements by Ministers appeared to indicate that the carbon credits would be generated via a reduction in the number of cattle, and therefore a reduction in emissions associated with those cattle (each head of cattle produces between 2-3 tonnes of CO2-e emissions per year). However, it has been pointed out that this may not be acceptable under the Carbon Farming Initiative, because the issue of 'leakage' will arise (someone down the road increasing cattle numbers to replace those destocked).

Subsequent discussion seemed to indicate that native vegetation or tree regrowth (once cattle are removed) might be the source of carbon credits, but the CFI rules also seem to rule out this option, because there is existing timber cover on the land (seemingly confirmed by the Landline footage) which would mean it is ineligible to be considered a carbon sink forest, given the need for a project area to be free of trees on 1 July 2007 to be eligible.

A further option then mentioned (including on the Landline program) is that the project will generate credits from soil carbon. There are two issues with this - the first is that soil carbon credits are not acceptable under international carbon accounting rules, and the Government has stated that they will therefore not be able to be sold into the Australian mandatory carbon market at $23/tonne. This means they will only be able to be sold into the voluntary carbon market, at prices that range from virtually nothing to $2-$3 /tonne - a level unlikely to cover the project operational costs. The second issue is that available research highlights it is extremely difficult to achieve measurable positive changes in soil carbon levels in arid areas - in fact annual changes due to seasons and events such as bushfires cause dramatic fluctuations that completely mask longer term trends. In addition, even if these are able to be controlled, long-term Australian grazing management trials have thus far indicated no discernible change in soil carbon levels.

This leads to the conclusion that the only feasible way in which this project might generate positive cashflows is either if the Government steps in and 'buys' non-compliant carbon credits associated with changes in biodiversity etc., or if the rules of the existing CFI are somehow changed so that carbon credits arising from this project are somehow recognised in the mandatory carbon market.

In either event, it is hard to see the outcome being one which increases confidence in the integrity of Australia's fledgling carbon market.

It also begs an interesting question. If the biodiversity values of the land involved are so good after at least one hundred years of management as a cattle business, why is there a need to destock the land and convert it into a conservation area?

"Asian food bowl" role will take industry and government effort, not just talk.

Thu, 22 Mar 2012 03:01:00 GMT

It is reassuring to hear senior government Ministers starting to recognize the potential role that Australian agriculture can play in the future as a supplier of agricultural products to Asia, but the reality is that saying it won't necessarily make it happen - there will be concerted efforts required by industry and government in order for the opportunity to be realised.

Over recent weeks Trade Minister Craig Emerson has been talking up the potential of Australian agriculture to develop into the "Food bowl of Asia" as Asian middle class consumers change their dietary intakes and switch to higher protein diets. It is reassuring to hear senior Government Ministers making such comments, as this potential has been identified for some time (see the Australian Farm Institute 2007 report) and there has been a real concern that the current mineral resources boom has blinded policymakers to the longer-term potential for agriculture.

Fortunately, the potential for Australian agriculture is apparently recognised by Ken Henry, who has been given the task of preparing a White Paper on Australia's future as part of the Asian Century. The Issues Paper associated with the White Paper process also makes mention of the potential opportunities that are likely to emerge.

However, the reality is that taking advantage of these opportunities will take action, and not just words. As is starkly evident from the Indonesian live cattle export incident, Australia's role as a reliable supplier of food to Asia is not secure, and will require considerable effort to consolidate. Australian agriculture and agribusiness organisations will need to invest in the development of deep business and cultural ties with Asian business counterparts, secure in the knowledge that Australian governments will not suddenly change policies and destroy the value of that investment.

It will also be essential that supply chain costs and inefficiencies are seriously tackled in Australia with both infrastructure and policy changes. Policies such as the carbon price or paid maternity leave schemes add costs, and potentially make Australian farm products uncompetitive, and water and landuse policies that constrain agricultural flexibility limit future development potential. Removing resources from agricultural research and development (as proposed by the Productivity Commission) is also a short-sighted and illogical position. Finding ways to reduce transport and shipping costs will also be critical.

The list of real, positive actions that could be taken to better position Australian agriculture for the Asian century is long, but the real fear is that the "Asian Food Bowl" concept is just a useful lever to engage in political debate about issues such as overseas investment in farmland, rather than signaling a real, concerted and sustained determination to take actions to make the potential a reality.

This issue will be part of the topic of the 2012 John Ralph Essay Competition. This year's topic is: 'Is it feasible for Australia to become the food bowl of Asia, and if so, what policies or actions are required by industry and/or government to make this a reality over the next 15 years?'

More information on the John Ralph Essay Competition 2012 here.

A stark reminder of the need to be competitive in global grain markets - and minimise transport costs.

Mon, 19 Mar 2012 08:03:00 GMT

The latest announcement by the State Grain Authority of Egypt (the worlds largest wheat buyer) of the results of its most recent grain tender are a very harsh reminder of the need for Australian grain supply chains to be acutely efficient if Australian grain is to remain competitive in global markets.

The Egyptian State Grain Authority has announced the results of its latest wheat supply tender, with Canada and Argentina capturing the bulk of the sale volumes available, and a matter of just two dollars per tonne separating the successful and unsuccessful bidders. What is also evident from the announcement is that there are plenty of suppliers lining up, giving lie to the 'world running out of food' messages that have been promoted by some international agencies and commentators over recent years.

The results of the tender highlight how competitive global grain markets are, and serve as a stark reminder of how critical it is that supply chains from farm to export destination are as efficient as possible. The importance of supply chain costs, in particular, are highlighted in the most recent research report released by the Institute, which identifies that in the grains industry, transport costs from farm to export destination can be equivalent to more than 40% of the farm-gate value of the product.

Meanwhile, industrial action is again heating up on the Australian waterfront, raising the spectre of increased port costs and delays that will further diminish Australian grain competitiveness ......

Foreign farm ownership debate lacks grey shades.

Thu, 15 Mar 2012 00:27:00 GMT

There has been renewed debate about overseas ownership of Australian farm land over recent days, and unfortunately it has descended into a fight between those in the black corner (ban foreign ownership) and those in the white corner (no foreign ownership restrictions or scrutiny), without any shades of grey in the discussion. This is unfortunate, because a more rational position on this issue is likely to be found in the grey area.

The debate was sparked by comments by Trade Minister Craig Emerson, who has renewed the suggestion that Australia could become the food bowl of Asia. He opined that this would require foreign capital to achieve, and suggested the Opposition was opposed to any foreign investment, a comment reinforced by a recent opinion piece posted on the ABCs The Drum website.

Exactly what the Opposition's policy is on foreign ownership remains unclear at present, with Senator Joyce highlighting that it is a concern among his constituents in a recent opinion piece, but not offering a view on a policy response.

A key issue in this debate is access to accurate information about the extent of foreign ownership. As has been identified in earlier posts, this is a critical deficiency in the current debate, and the results of the limited survey work that has been done are seriously misrepresented by either side of the argument.

Lost in all this debate is the fact that nations such as the USA and New Zealand maintain a register of foreign land ownership, (as does Queensland in the case of urban residential real estate) which does not constitute a restriction, but which does provide a transparent picture of both the extent of, and trends in ownership of land by overseas interests. This enables both those nations to engage in informed and accurate discussions about the extent of foreign ownership of farm land, but does not amount to regulations - which are dealt with independently of the requirement to register foreign ownership.

As noted earlier, one of the greatest ironies in the recent ABARES report on foreign farm land ownership was the fact that the current Queensland Real Estate register provided perhaps the only accurate data in the entire report - yet the authors still refrained from recommending that such a register be maintained.

How refreshing would it be if Australian politicians and commentators dropped the simplistic "black" vs "white" positions on this issue, and instead were prepared to recognise that a shade of grey (a register of foreign land ownership) might in fact be a first step to better inform the debate and to ensure it remains fact-based rather than opinion based.

Foreign ownership of farm land will be one of the issues discussed at the forthcoming Australian Farm Institute conference on the future management of Australian farm land (details here)

Farming subsidies much easier than battling droughts and floods!

Sun, 11 Mar 2012 23:27:00 GMT

Some farmers in the EU are certainly well ahead of their Australian counterparts when it comes to finding ways to make money without having to worry about the vagaries of droughts, floods and commodity price fluctuations, if a recent report by the BBC is to be believed.

The report prepared by the BBC Panorama program claimed this week that UK investors can now buy 'subsidy rights' to inactive land, which they rent from farmers. It seems that the end result is that the investor receives the annual subsidies from the EU, without actually having to do anything with the land. Sure beats trying to grow crops amid floods and droughts!

Why the fascination with 'local' foods?

Thu, 08 Mar 2012 00:54:00 GMT

Amid all the debate currently underway about the US Farm Bill, the EU's Common Agricultural Policy, and a future food policy in Australia, there is frequent reference to the benefits of consuming food produced 'locally' or 'sustainably'. Exactly what these terms mean and why they might be a benefit is very unclear, and highlights how little objective data is available about these issues.

Few consumers would understand that eating something produced on the other side of the world could easily be more environmentally friendly that eating something produced just down the road. That is not to say there is anything wrong with having a preference for local food, but consumers need to be clear about why they choose it, and environmental factors are not a valid reason.

In the debate about the future of the US Farm Bill, there has been contributions from a wide range of interest groups. Most recently, the Union of Concerned Scientists has proposed that the US Farm Bill should, among other things, promote the consumption of "local" food, seemingly based on the assumption that this is better for the environment. Given the claim by the Union of Concerned Scientists that the "UCS combines independent scientific research and citizen action to develop innovative, practical solutions and to secure responsible changes in government policy, corporate practices, and consumer choices." the promotion of 'local foods' on environmental grounds seems questionable, and is certainly not supported by available scientific data.

For example, research by Lincoln University in NZ several years ago compared meat and dairy products from NZ and the UK, with the aim of identifying the differences in their environmental footprint, from the perspective of UK consumers. Using identical methodology and comparable products;

The report found that the UK uses twice as much energy per tonne of milk solids than NZ, even including the energy associated with transport from NZ to the UK. This reflects the less intensive, lower input production system in NZ compared to the UK. The energy used in producing lamb in the UK is four times higher than the energy used by NZ lamb producers,even after including the energy used in transporting NZ lamb to the UK.

In other words, UK consumers would dramatically reduce the environmental impact of the food they consume by eating lamb and dairy products from New Zealand, not by consuming 'local' foods.

The same situation arises in trying to define what foods are "sustainable" - an issue that has arisen in relation to the forthcoming publication of dietary guidelines in Australia. Various advocates are suggesting sustainability should be a factor included in dietary guidelines, and this should result in products like red meat, dairy and fish having lower recommended intakes because they are produced less 'sustainably'.

However, as the Lincoln research and other data shows, the extent of variation in the environmental footprints of different production systems for beef or dairy, for example, can be greater than the difference between the average environmental footprints of different food product categories. It is possible, for example, that the environmental footprint of range-fed beef produced in northern Australia could be less than the environmental footprint of glasshouse reared tomatoes, grown in a controlled environment with high levels of nitrogen fertiliser.

This makes the concept of somehow classifying food products on the basis of their sustainability or environmental footprint almost laughable - but this is obviously something that doesn't trouble the objective scientists involved in the Union of Concerned Scientists.

Will Bob Carr change his tune on vegetation compensation?

Mon, 05 Mar 2012 00:32:00 GMT

The appointment of former NSW Premier Bob Carr to the Senate and the Foreign Minister role has generally been hailed by the media as a positive for the Australian Government, although there are many in regional NSW who are less than enamoured with the former Premier because of his management of native vegetation and regional issues generally in NSW. In what could be an interesting irony, the former Premier will be required to revisit those issues in his role as Foreign Minister, and to advocate a very different approach.

Bob Carr became Premier of NSW as a result of the ALP winning the NSW election in March 1995. One of his first acts as Premier was to implement SEPP-46, a regulation that banned the clearing of native vegetation on farmland in NSW. This was enacted without any warning for landholders, and despite enormous controversy, was further consolidated via the NSW Native Vegetation Act in 1997. Overnight, landholdings that farmers had purchased and were intending to develop for agriculture were rendered virtually worthless, and in spite of decades of disputation, those landholders were never compensated for the losses they incurred. This was despite both Parliamentary and Productivity Commission inquiries recommending that landholders should be compensated for the costs imposed on them to achieve public benefits. The matter is currently the subject of a High Court case being pursued by Peter Spencer, who came to national prominence through his hunger strike aimed at bringing attention to the issue.

The approach in NSW under Carr was distinctly different to that under Premier Peter Beattie in Queensland, who held off blanket bans on vegetation clearing for a considerable period, worked in consultation with landholders, and eventually ensured those most affected received financial compensation.

One of the major public benefits generated from the bans on land clearing was a reduction in Australian greenhouse emissions (more than 80 million tonnes per annum), and it is widely recognised that this is the only reason Australia has been able to meet its emission target under the Kyoto Protocol, which was to limit national emissions in 2012 to 108% of national emissions in 1990.

Fast forward to 2012, and Australia now has legislation in place to limit greenhouse emissions and create an emissions trading scheme. One of the key ways in which it is envisaged that Australia will be able to meet its emission target of a 5% reduction from 2000 level emissions by 2020 and an 80% reduction by 2050 is to import carbon credits - up to 400 million tonnes per year, according to Treasury modelling (as can be seen in the following graph from updated Treasury modelling which shows (black line) projected net emissions to 2050 including overseas abatement).

What is interesting about this so-called "overseas abatement" which Australia will be so dependent on to achieve future emission targets is that it is likely to include carbon credits created under the "Reduced Emissions from Deforestation and Degradation scheme" (REDD), which involves actually paying landholders in overseas locations not to clear vegetation.

As Australia's Foreign Minister, Bob Carr may well be involved in international diplomatic efforts to encourage the adoption of the REDD scheme in order to generate the international carbon credits that Australia will be so dependent upon to reach future targets.

Carr is likely to be required to publicly advocate for a policy that involves compensating overseas landholders for foregoing the opportunity to clear trees from their land and develop it for agriculture, so Australia can import the resulting carbon credits, despite steadfastly maintaining for the past decade and a half that there was absolutely no justification for compensating NSW landholders for losses associated with regulations that banned clearing of trees.

In effect it will mean Australian taxpayers paying landholders overseas not to clear trees, while Australian landholders who have been forced by regulation to retain trees will not have the same opportunity - because the presence of existing regulations makes them ineligible!

The irony will not be lost on those landholders of NSW who are still struggling with the continuing mess associated with Native Vegetation laws in NSW, which are again subject to yet another review.

Doomsayers doomed.

Tue, 28 Feb 2012 21:36:00 GMT

Over the past few years as global agricultural commodity prices have soared and commodity stocks declined, quite a few commentators have gained prominence forecasting the demise of humankind as we know it, predicting a future dominated by famines and wars over land and water, as humans struggle to produce sufficient food to survive. Global commodity reports and data released over the last few weeks suggests that - to paraphrase Mark Twain - predictions of the demise of humankind appear to have been a little premature!

Commodity report out of Europe and North America over recent weeks highlight that, given the right price signals and a reasonable season, farmers around the world will respond with increased production and very quickly rebalance the supply-demand situation back to more normal levels.

This was starkly highlighted in a recent USDA forecast, which, while predicting stronger agricultural commodity prices in the longer term, projected a 19% fall in corn prices in 2012-13 due to high production levels. It was also evident in recent wheat stock estimates that indicate stocks have reached record high levels.

Unfortunately, it seems the innate human fascination with imminent doom mean that the media latch onto any doomsday predictions without question (recent examples also include climate change, and the death of inland rivers in Australia) often resulting in ill-considered policies that cause as much damage as the problem they aim to fix.

Perhaps the most obvious recent example in Australia was the 'dryland salinity' crisis of the early 2000's, which was predicted to destroy 17 million hectares of Australian farmland and make most of inland Australia almost uninhabitable within thirty years. While it went largely unnoticed, the most recent "State of the Environment" report published by the Commonwealth Government Department of the Environment did not even mention the word 'salinity' and in fact reported improving trends in many land management indicators - which went completely unnoticed by the media.

It seems the doomsayers who made a living from whipping up fear about the salinity 'crisis' might have moved on to other issues!

The end of the family farm - or just the usual cyclic trend?

Sun, 26 Feb 2012 22:39:00 GMT

Economists are once again predicting the end of the family farm, and suggesting that the future of Australian agriculture belongs firmly with corporate farming. The end of the family farm has been predicted in the past, yet the model prevails. Is there anything different this time?

Business advisory group KPMG has released it's assessment of the future of agriculture in Australia, and concluded that demographic trends and likely booming future demand will inevitably mean the rise of corporate agriculture, and the demise of the family farm. Certainly, the global demand side projections noted by KPMG have been noted elsewhere over the past five years (see the Australian Farm Institute study of the implications of increased protein demand in Asia), and the decline in the number of young people taking up careers in agriculture has also been well documented, but precisely why this might mean an increase in corporate-style agricultural businesses is unclear.

As has been noted in the past, the history of corporate agriculture in Australia is one of booms and busts. At different times there have been large corporate organisations directly involved in farming in Australia, with the tendency being that corporate interest increases during periods when prospects look bright, but then declines at other times. It has also been noted that corporate entities tend to buy up land when land prices are high, spend a lot of money improving the holding, and then sell very well improved farms cheaply when times get tough. This is of course an over-simplification, and there are many very well managed corporate farm businesses that are managed by people who understand the vagaries of the agricultural sector in Australia and are in the industry for the long haul.

The prediction of corporatisation is an oversimplification because it ignores the diversity of agricultural production across the nation. While some sub-sectors seem suited to corporate management (northern cattle and broadacre cropping in some regions) the mixed livestock and more specialised horticulture and dairy sectors are dominated by family-scale operations, and it is hard to see that changing given the need for close management and the efficiency of family operators relative to corporate businesses.

An additional difficulty in predicting the 'corporatisation' of farming is that the term is very ill-defined. Does 'corporate' mean a business owned by a shareholder or overseas company, or does it mean ownership by a family grouping in some form of company structure? Certainly, the latter is becoming more common as different business structures evolve, but many of these remain family owned and operated farms.

This issue will be the subject of a forthcoming Farm Policy Journal, in which a range of experts in Australia and from overseas will discuss this question from a range of different perspectives.

ACCC still looking for dobbers!

Tue, 21 Feb 2012 22:22:00 GMT

The Head of the Australian Competition and Consumer Commission (ACCC) Rod Sims has again called for those who feel they have been unfairly treated by major corporations in concentrated markets to come forward and report it to the ACCC, and has even suggested some degree of anonymity for 'whistleblowers" who would otherwise lose their business the minute they complained.

In a speech to the Australian-Israel Chamber of Commerce, Rod Sims discussed the problem of concentrated markets in Australia. He stated;

"Australia has many concentrated markets. This is partly a function of our geography – the sheer size of the country and the distance from other markets. Indeed, most market sectors are dominated by two to three main players, and in a few sectors there is only one dominant player.These sectors in particular are ones that need to be watched carefully to ensure that there are not mergers or arrangements that substantially lessen competition, or where the obvious market power is not misused to prevent or damage competition.

Some sectors have been the focus of considerable community interest, such as fuel and supermarkets. There are intense public concerns which I hear about daily. For example, there are concerns about co-ordinated price movements in fuel, and the way supermarkets may deal with their suppliers or increase their selling of home brands. The ACCC has not yet formed the view that there are breaches of the Act occurring; but our priority in 2012 will be to determine whether or not there are breaches in these important sectors."

Subsequent media reports (see here and here) suggested that the speech indicated that the ACCC was going to more closely scrutinise arrangements between Supermarkets and their suppliers. However, a close reading of the comments attributed to Mr. Sims presents a slightly different picture, as the following quotes highlight:

If people have concerns, come to us with the evidence. It is all very well for some of the industry representatives and others to talk about behaviour that is going on there, but we need evidence....... They can come and talk to us confidentially and if we can get a number of people talking to us confidentially and we can build up a picture then we can take action in a general sense rather than doing it in a way that exposes that individual.

In other words, someone has to bring all the evidence to the ACCC, and if there are multiple examples of other aggrieved suppliers bringing forward similar evidence, then the ACCC might investigate further.

However, as pointed out recently in the Farm Institute newsletter, this is a meaningless threat for two reasons. Firstly, under the legislation there is a need to prove that the unconscionable conduct or predatory pricing has been undertaken for the purposes of lessening competition, with the ACCC somehow required to determine the intent of the action, and not just whether it occurred or not. Secondly, in concentrated markets, virtually all the market information that is necessary to make a judgement on the fairness or otherwise of actions is held by the major corporation, and there is no way a small-scale individual supplier could ever provide enough information to support action by the ACCC.

Australian competition law empowers the Minister to impose price monitoring in concentrated markets - a practice that is a standard arrangement in both the USA and Europe - and this is the only way there is ever likely to be any evidence available of illegal practices (if they are in fact occurring). Meanwhile, Australia's largest tomato grower has just been placed in administration, amid suggestions that recent Supermarket pricing policies for fruit and vegetables and contract arrangements may have been one of the reasons for the failure of the business.

Farm Bill debates heat up.

Sun, 19 Feb 2012 06:11:00 GMT

The debate about the future of the US Farm Bill has stepped up a gear over the past two weeks, with President Obama releasing budget proposals that would cut agricultural expenditure, and lawmakers shaping up to support or oppose some of the proposals it contains.

The US Farm Bill, the main piece of legislation that determines the structure of farm subsidies and support programs for the next five year, is due to be renewed during 2012. The debate has been kicked off in earnest (after a false start last year) as a result of President Obama's budget proposals. The budget proposes $32 billion in cuts over ten years, with a reduction in direct subsidy payments to farmers, and a scaling back of the government subsidy provided for crop insurance premiums. This has been opposed by various members of the relevant Agriculture committees in Congress, although is broadly supported by a range of other advocacy groups, and the removal of direct payments also appears to be supported by the American Farm Bureau, the largest farmer lobby group.

The Farm Bill debate will take some deft manoeuvring by US farm groups. It is widely recognised that farmers already receive substantial indirect support from US Government biofuel mandates, which result in biofuel production using more than 40% of total US annual corn production. US Farm incomes have been at all time high levels over recent years, making it hard to justify continued subsidies while the rest of the US is struggling economically. At the same time, lawmakers are going to have to deal with the US Government deficit sooner rather than later, and the Presidential and Congressional elections due at the end of the year also create a charged political atmosphere for the debate.

The nature of current US farm subsidies (which are largely decoupled from farm production) means they have less negative impacts on Australian farmers, except in some markets (such as beef and grains) where US and Australian product is occasionally in direct competition.

A tale of two dollars

Tue, 14 Feb 2012 23:37:00 GMT

Commentary in the US media at present about the state of the US agriculture sector paints a very rosy picture of the situation, with persistently high prices and resulting high levels of farm income. The picture from an Australian perspective is a bit different, with the high Australian dollar deflating prices, and prospects of interest rate rises and a Chinese recovery leading to suggestions that the $A will go even higher, further reducing agricultural export prices.

For several years now, the USDA and other US media have been observing very impressive results for US agriculture, with record high farm incomes recorded over recent years. While the latest USDA forecasts released this week indicate an anticipated reduction in 2012 from the record high farm income levels of 2011, the forecast is still well above long term averages. This is leading to record high crop plantings, as a combination of ever-increasing feed demand from China and high biofuel demand driven by a persistently high oil price (biofuels now account for more than 40% of the annual US corn crop).

The picture from an Australian perspective is, however, a little less rosy - especially for those involved in selling into export markets. The following graph highlights this for wheat prices. During the 1990s decade the $A was valued at an average of $US0.72, and wheat prices in Australia were considerably higher in $A than $US prices received by US farmers. Since the 2007 commodity price spike, however, the $A has been a parity or above the $US value for much of the time, deflating the $A price received for export wheat. The same situation applies for other farm exports.

The double whammy for Australian farmers is that the relatively high current prices are stimulating extra grain production internationally, which is likely to increase stocks and keep a lid on grain prices in the future. While the high $A has made machinery, fertilisers and fuel cheaper in $A terms, Australian farmers still have to be profitable to afford these.

If the $A was currently at $US0.72, wheat prices in $A terms would be above $350 per tonne, instead of their current $230-$250 dollar range. Just think of that next time someone tells you the mining boom is benefiting all Australians!

Is the DAFF mission statement symptomatic of broader government changes?

Sun, 12 Feb 2012 10:37:00 GMT

Try matching the following government departments with their mission statements;

A. Australian Department of Sustainability, Environment, Water, Population and Communities	1. We provide leadership on food, agriculture, natural resources, and related issues based on sound public policy, the best available science, and efficient management.
B. Australian Government Department of Climate Change and Energy Efficiency.	2. We enhance Australia’s economic prosperity by improving the strength, competitiveness and sustainability of the Resources, Energy and Tourism industries through the provision of high quality policy advice and program delivery services for the Australian Government.
C. US Department of Agriculture	3. Advancing a sustainable Australia: our environment, water, heritage and communities.
D. Australian Department of Agriculture, food and fisheries.	4. To improve Australia’s wellbeing by contributing to effective national and global responses to climate change, including the necessary transformation of the Australian economy.
E. Department of Agriculture and Agri-Food Canada.	5. We work to sustain the way of life and prosperity of all Australians
F. Australian Department of Resources, Energy and Tourism.	6. The Department provides information, research and technology, and policies and programs to achieve an environmentally sustainable agriculture, agri-food and agri-based products sector.

If you were pretty certain about them all (* answers below) except for one, then you have joined the list of people confused about why the Australian Government Department of Agriculture, Fisheries and Forestry would propose a new Mission Statement that completely avoids any reference to agriculture, forestry and fisheries.

The issue has been the subject of media comment in recent days, and has certainly created the impression that the Australian Government Department responsible for agriculture, forestry and fishery programs is reluctant to be identified with, or seen to advance the interests of those sectors.

The proposed change is consistent with some wider changes in the Canberra bureaucracy over recent years, yet at the same time at odds with the increasing involvement of the Australian Government in a whole range of areas that were previously State Government responsibilities, and that therefore require more specialised expertise within the Canberra bureaucracy.

During the Howard administration, and certainly more so since that time, senior Departmental personnel in Canberra have increasingly been 'insider' appointments, with virtually all new senior Departmental personnel having 'central agency' (Treasury, Prime Minister and Cabinet) experience, but not necessarily experience related to the agency they manage. Presumably, this creates a culture of strong loyalty to the central agencies, and indeed there is a widely held view that the only way to advance to a Canberra leadership position is to have 'done your time' in at least one of the central agencies.

At the same time, however, the Australian government has increased its direct involvement in policies (and the implementation of those policies) in areas of the economy that were previously State Government responsibilities. Health, education, water and the environment are four obvious areas where this is the case, and carbon policy also means Australian government involvement in a whole range of industries and activities in which the there was not a great deal of Commonwealth involvement in the past.

The result is a 'generalised' bureaucracy, which is increasingly required to deal with very specific areas of industry activity. The inevitable consequence seems likely to be an increase in the pink batts, school building and live cattle export type episodes. In each of these cases the bureaucracy and/or its political masters were not sufficiently familiar with the industries they were intervening in due to lack of experience and corporate history, and the results were somewhat predictable.

Something will eventually have to change. Either the Canberra bureaucratic culture will have to be changed to one that values industry experience and knowledge, or the Australian Government will have to withdraw from a wide range of areas where it has recently assumed responsibility. Which of these will eventuate is unclear at this stage, but hopefully the dilemma will be resolved before too much longer.

Answers:

A-3, B-4, C-1, D-5, E-6, F-2

Do Australian competition laws protect farmers and small businesses?

Wed, 08 Feb 2012 10:30:00 GMT

Much has been made about the dominance of the Coles-Woolworths duopoly, their possible anti-competitive behaviour towards suppliers and the reluctance of the ACCC to intervene and protect farmers and small businesses.

In the Australian Farm Institutes quarterly newsletter just released, the In My View column features the thoughts of two prominent Parliamentarians on Australian competition policy as it affects farm businesses. Senator Nick Xenophon calls for a Supermarket Ombudsman to oversee and act as an independent referee between retailers, suppliers and producers while Senator Colbeck believes it’s time for a comprehensive review of the regulatory framework to ensure it remains effective. What is your view?

When everybody says it's time to invest - does that mean its time to sell?

Mon, 06 Feb 2012 01:24:00 GMT

One of the tried and true adages of investment is that if everyone agrees that something is a sure bet, then the chances are that it's time to sell! Hopefully this adage will be proved wrong in the case of agriculture, which suddenly seems to be the hot tip as a good investment. Perhaps this is because a lot of other investment classes are looking pretty uncertain at present.

Emphasising the renewed interest in agriculture as an investment class, The Economist has this week run a big feature on the state of agriculture in the UK. Of particular note is the fact that farm land prices have jumped 14% in the UK over the past year, as investors look to land as a more secure investment than some other potential investments, and farmers who have experienced good returns over recent years use their extra cash (and equity) to buy more land.

In a similar vein, The Sydney Morning Herald Business Section has run a major story on the renewed investor interest in Australian agriculture, as major investment funds channel both Australian and internal money into investment vehicles specialising in agricultural production and related assets.

Based on available data, it is hard to see land prices in Australia moving upward to the extent seen in the UK. In fact, there are many in Australia who believe there is a lot of land that could potentially come onto the market in the next two years as banks tighten up their rural lending policies in the face of increases in the wholesale cost of funds.

That said, all those Australian workers who have experienced a 30-50% or more drop in the value of their superannuation investments based on the costly recommendations of their 'advisors' must be wondering why those advisors have studiously ignored agriculture as an investment vehicle for the past decade - especially when the best performers in the agriculture sector have continued to post gains in excess of 10% per annum, while the share market has headed in the exact opposite direction.