Factors that define agricultural competitiveness

Ideally, agricultural competitiveness assessments should be useful in identifying factors that provide Australian agriculture with a competitive advantage, and for guiding policy development and decisions about the application of limited resources to continually improve the sector’s competitiveness.

Competitiveness can simply be defined as:

[T]he ability of a firm (or a farm) to face competition and be successful. Competitiveness is the ability to sell products that meet the demand requirements (price, quality and quantity) and, at the same time, ensure profits over time that enable the firm to thrive. Competitiveness is therefore a relative measure. (1)

The Rural Industries Research and Development Corporation (RIRDC) commissioned the Australian Farm Institute (AFI) to conduct a project which defines the requirements for assessing the competitiveness of the Australian agricultural sector in world markets. The project involved a review of available literature on competitiveness. The purpose of the literature review was to define the term competitiveness in the context of Australian agriculture and to identify from available literature the factors that may be appropriate to incorporate in an index or scoring system.

The review found that methods used to assess competitiveness normally involve identifying the range of composite factors (fundamental drivers) that are understood to be significant determinants, and the relevant economic, social and environmental indicators that can best be used as a measure of these. However, while there is a growing body of knowledge and expertise associated with national competitiveness assessments, there is less knowledge and expertise associated with such assessments at the sectoral level – such as agriculture sector competitiveness.

The Organisation for Economic Co-operation and Development (OECD) is perhaps the only organisation to have attempted to develop an assessment of national agriculture sector competitiveness. (2) That research involved a study of agricultural competitiveness in the context of agricultural development objectives such as poverty alleviation, prosperity of small farmers, productivity growth and environmental sustainability. The OECD found that the best competitiveness scoring system was an approach that involves four composite factors including specific agricultural sector sub-factors, plus broader economy-wide governance, capital availability, and market factors.

This approach to assessing agricultural competitiveness was developed by the OECD to help policy-makers focus on the sectoral and economy-wide issues that require some improvement amongst developing nations, and it was acknowledged that the approach taken in the OECD work was ‘rudimentary’, but an important first step.

In the context of efforts to develop a relevant assessment process for the competitiveness of the Australian agriculture sector, there are a number of other insights available from the efforts that have occurred to develop competitiveness assessments of national economies. These involve the identification of critical factors thought likely to influence competitiveness, and then to utilise objective indicators for these in order to obtain valid and robust information about changes in those factors over time. Ideally, the significance of each of the factors or indicators should also be weighted on the basis of an objective and statistically valid approach. Although it is recognised that the limitations of data may make such a weighting approach problematical.

Based on the initial research, it appears likely that the combination of factors and weightings that are significant in assessing the competitiveness of agriculture sectors of developed nation economies will not be the same as those that are relevant to developing nation agriculture sectors. Ultimately, this means there will be a need to either only compare nations that are at a similar stage of development, or to construct the assessment process in a way that allows some variation in weightings allocated to nations at differing stages of development.

Another key lesson from earlier efforts in developing competitiveness assessments is that there is undoubtedly a need to change factors and indicators as learnings emerge. Hence, it is always important to retain some flexibility in the way an agricultural competitiveness assessment process is constructed.

Footnotes

1. Latruffe, L (2014), Competitiveness in the agricultural sector: measures and determinants, Farm Policy Journal, vol. 11, no. 3, Spring, pp. 9–17.

2. Diaz-Bonilla, E, KwieciƄski, A, Orden, D (2014), Enabling environment for agricultural growth and competitiveness: evaluation, indicators and indices, Organisation of Economic Co-operation and Development (OECD), Rep. No. 1815-6797, Paris, France.

Images:  Feral Arts, USDA, USYD

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