Why has Australian agriculture productivity growth stalled?

Published 20150901

A recent study that the Australian Farm Institute carried out for the Rural Industries Research and Development Corporation identified that Australian agricultural productivity growth has stalled since 1997, and even taking into account the drought years from 2003 to 2010, shows no real signs of recovering to earlier levels. Unless reasons can be found for this, and productivity growth resuscitated, Australian agricultural competitiveness will decline and the sector will stagnate. Finding reasons for the productivity growth stall and ways to stimulate productivity growth in the future is a major challenge.

The research report prepared for the Rural Industries Research and Development Corporation (RIRDC) identified that since 1997, Australian agricultural productivity growth rates have effectively been at or close to zero, whilst the agricultural productivity growth rates of other comparable nations have been in the region of 1 – 3% per annum.

There are a range of different reasons different nations might experience different rates of agricultural productivity growth. Brazil, for example, has experienced several decades of cropping expansion as the central-west region has been converted from grazed shrublands to corn and soy crops. In New Zealand, there was a period of significant conversion of forestry areas to dairy production in the early 2000s that has boosted apparent agricultural productivity. However, even ignoring these examples and comparing Australia with nations such as Canada and the USA, it is apparent that both these nations have maintained upward agricultural productivity trends, while Australia has not.

One factor that is frequently raised is Australian levels of public investment in agricultural research and development. Comparisons are difficult due to differing statistical classifications and factors like exchange rates, however the raw data on public R&D investment that is available shows that US public sector R&D investment has steadily grown over the past twenty years, while Australian public R&D investment levels have remained static (see graph below). Given the known lag times between R&D investment and productivity growth (between 15 and thirty years), it is reasonable to suspect this may be a factor in the stalled productivity growth being observed in Australia.

There are a range of other factors that also need to be considered as possible causes. Australia’s uncertain regulatory environment for genetically modified crops has undoubtedly discouraged private sector R&D investment and the consequences are lagging rates of yield growth in major Australian crops compared to the USA – the exception being Australian cotton production which has had access to GM varieties since the mid 1990s, and has experienced world-leading increases in yields.

Major commodities produced in Australia are also substantially different to those in other developed nations, and are also subject to different production systems. Australia’s reliance on dryland cereals and pasture-based livestock production systems is substantially different to the corn and soy crop dominance of the USA, and the intensive livestock production systems that predominate there. A consequence is that Australian farmers use significantly less inputs, and therefore have less production control than their North American counterparts. Australia’s more variable climatic conditions and generally less fertile soils are also likely to be a factor. Australian farmers have also experienced a period of low profitability due to drought and high exchange rates, and this is likely to have reduced capital investment in new technologies to increase productivity.

Irrespective of the reasons for the lack of productivity growth in Australian agriculture over the last two decades, there is no doubt that unless this issue is addressed and ways found to resuscitate growth, the prospects of Australian agriculture gaining advantages from the Asian consumption boom are limited. 

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