A Man Talking Sense on the Big Picture-Three NZ's

The NAB's February Agribusiness View contains an interesting article written by Simon Talbot, Chief Executive Office of the National Farmers’ Federation, noting that in 2014/15, farm gate income
increased by 8 per cent to $57 billion, and this is expected to rise to about $105 billion by 2030.

This prompted him to comment: "We need to establish the milestones that will enable agriculture
to double in size over the next 15 years.” He noted, however, that one of the biggest threats to
future growth is the lack of human capital.

“If we don’t attract the best people we’re going to struggle to realise our potential and, to do that,
we must make a shift from a drought mentality. Of course there are people who suffer terribly as a
result of drought and our hearts go out to them. The reality is that the vast majority of professional
farmers are engaged in highly productive, innovative agriculture and making good returns.

“People look at New Zealand and think how lucky they are to have such a benign climate, but one
thing the White Paper didn’t mention is that regarding prime agricultural land, Australia has the
equivalent of three New Zealands. We need to rebrand the industry to reflect that.”

Talbot believes these highly-productive areas should be given priority.“People have concerns about backing winners, but it’s not about supporting one area or another,it’s about thinking of ourselves as an agricultural nation and focusing on the most productive land first.

"At the moment, we’re treating agriculture as if the needs are the same across the country and
they’re clearly not. We’re very fortunate that Australia covers every climatic zone so we can grow
every kind of produce, but the different regions need to be managed in different ways.”

Talbot would like to see a deeper national conversation about Australian agriculture.
“For a long time we’ve been considered the poor cousin of other economic sectors, but that’s no
longer the case. Agriculture has the greatest uplift regarding generating wealth for the country and
I quite openly say we have some of the most productive farmers in the world.

"Now we need to listen to what the next generation of farmers wants and be ready to provide the
education and support they need.”

http://business.nab.com.au/agricultural-industry-receives-4bn-boost-15295/

Food for Thought

The Harvard Business Review recently ran an interview with Robert B. Shapiro, chairman and CEO of Monsanto, on the subject of sustainability.

Sustainable development is the term for the dual imperative—economic growth and environmental sustainability—that has been gaining ground among business leaders since the 1992 United Nations Earth Summit in Rio de Janeiro. 

As Shapiro puts it, “We can’t expect the rest of the world to abandon their economic aspirations just so we can continue to enjoy clean air and water. That is neither ethically correct nor likely to be permitted by the billions of people in the developing world who expect the quality of their lives to improve.”

The interview with HBR editor-at-large Joan Magretta, discusses how Monsanto has moved from a decade of progress in pollution prevention and clean-up to spotting opportunities for revenue growth in environmentally sustainable new products and technologies.

HBR: Why is sustainability becoming an important component of your strategic thinking?

Robert B. Shapiro: Today there are about 5.8 billion people in the world. About 1.5 billion of them live in conditions of abject poverty—a subsistence life that simply can’t be romanticized as some form of simpler, preindustrial lifestyle. 

As many as 800 million people are so severely malnourished that they can neither work nor participate in family life. That’s where we are today. And, as far as I know, no demographer questions that the world population will just about double by sometime around 2030.

Without radical change, the kind of world implied by those numbers is unthinkable. It’s a world of mass migrations and environmental degradation on an unimaginable scale. At best, it means the preservation of a few islands of privilege and prosperity in a sea of misery and violence.

Far from being a soft issue grounded in emotion or ethics, sustainable development involves cold, rational business logic.

Current agricultural practice isn’t sustainable: we’ve lost something on the order of 15% of our topsoil over the last 20 years or so, irrigation is increasing the salinity of soil, and the petrochemicals we rely on aren’t renewable.

Most arable land is already under cultivation. Attempts to open new farmland are causing severe ecological damage. So in the best case, we have the same amount of land to work with and twice as many people to feed. It comes down to resource productivity. You have to get twice the yield from every acre of land just to maintain current levels of poverty and malnutrition.

Now, even if you wanted to do it in an unsustainable way, no technology today would let you double productivity. With current best practices applied to all the acreage in the world, you’d get about a third of the way toward feeding the whole population. 

The conclusion is that new technology is the only alternative to one of two disasters: not feeding people—letting the Malthusian process work its magic on the population—or ecological catastrophe.

We don’t have 100 years to figure that out; at best, we have decades. In that time frame, I know of only two viable candidates: biotechnology and information technology. I’m treating them as though they’re separate, but biotechnology is really a subset of information technology because it is about DNA-encoded information.

How does biotechnology replace stuff with information in agriculture?

Shapiro: We can genetically code a plant, for example, to repel or destroy harmful insects. That means we don’t have to spray the plant with pesticides—with stuff. Up to 90% of what’s sprayed on crops today is wasted. Most of it ends up on the soil.

If we put the right information in the plant, we waste less stuff and increase productivity. With biotechnology, we can accomplish that. It’s not that chemicals are inherently bad. But they are less efficient than biology because you have to manufacture and distribute and apply them.

I offer a prediction: the early twenty-first century is going to see a struggle between information technology and biotechnology on the one hand and environmental degradation on the other. 

Information technology is going to be our most powerful tool. It will let us miniaturize things, avoid waste, and produce more value without producing and processing more stuff. The substitution of information for stuff is essential to sustainability. 

B.t. Cotton. In ordinary soil, microbes known as B.t. microbes occur naturally and produce a special protein that, although toxic to certain pests, are harmless to other insects, wildlife, and people. If the destructive cotton budworm, for example, eats B.t. bacteria, it will die.

With products like B.t. cotton, farmers avoid having to buy and apply insecticides. And the environment is spared chemicals that are persistent in the soil or that run off into the groundwater.

The Roundup molecule has smart features that contribute to sustainability. It is degraded by soil microbes into natural products such as nitrogen, carbon dioxide, and water. It is nontoxic to animals because its mode of action is specific to plants. Once sprayed, it sticks to soil particles; it doesn’t move into the ground-water. Like a smart tool, it seeks out its work.

How do you react to the prospect of the world population doubling over the next few decades? First you may say, Great, 5 billion more customers. That is what economic development is all about.

That’s part of it. Now, keep going. Think about all the physical implications of serving that many new customers. And ask yourself the hard question, How exactly are we going to do that and still live here? That’s what sustainability is about.

Australian Agriculture

I don't think I have read a better "run-down" on Australian Agriculture. A real gem from Mick Keogh.
http://www.farminstitute.org.au/_blog/Ag_Forum/post/optimising-australian-agricultures-comparative-advantages/

Modern Agriculture

This article in the Sydney Morning Herald by well respected journalist Paul Sheehan, really "got up my nose". So much so I sent off the following letter to the Editor. Sadly he/she didn't see fit to publish it.
"Paul Sheehan's perception of modern agriculture is severely flawed  (''We'll reap what we deserve'', February 18).  Instead of relying on some credibility challenged CSIRO reports and a "tree-hugging" Bob Carr, he should go bush and talk to some progressive, science oriented, successful farmers."

Outlook Conference and Water

Last week I attended the annual Agricultural Outlook Conference in Canberra for the umpteenth time. I attended my first in 1975 and have only missed two or three since, so perhaps I have been to 40! One of my workmates once pointed out that nearly every year I would say that I wouldn't bother going, yet still went. Not because of the accuracy of forecasts! Who can do that? No one, climate and unforeseeable events make it impossible. But at least one can identify the factors that impact and thus gain better knowledge of how to deal with the risks and monitor changes as they occur. The other big attraction is meeting and mixing with friends with common interests-to use that hackneyed word-"networking".

Another attraction is that I enjoy going back to Canberra. I did most of my limited schooling there as a boarder at Canberra Grammar School, where my mother was the Housemother for Garran House, the junior boarders abode. After the premature death of my father our family had no home-so CGS was it. Most holidays I went home with school mates, mainly to the Miners family at Adaminaby, and I loved it. Horseback droving trips to the Kiandra snow leases, are experiences I will always treasure. When I left school in 1957 Canberra had a population of 27,000-a big country town with lots of VIP's. I knew every inch of the core area from the back of a pushbike. Whilst today it is so much bigger with a population around 380,000, much remains so familiar.

Five elements of the Conference standout. First the general optimism leading to the question of how well are we prepared to do our bit in meeting the demands from the fast growing middle classes of the "Near North".
Second, I much enjoyed a paper from the Australian Farm Institute's Mick Keogh on agricultural risk. Thirdly, the two papers from JBS Australia's (our major abattoir operator) executives brought home our increasing lack of competitiveness and general domestic cost pressures resulting from the appalling policies of the Gillard Government in respect to labour and so called 'climate change'. Fourthly, the rise of animal production (beef and sheep meat) as the most profitable enterprises at the expense of grain. And fifthly (no surprise), a reinforcement from the Murray Darling Basin Plan session that the Water Act (2007) and the Plan are so dreadfully flawed.

This MDB session disturbed me for a number of reasons-

• The opening graph showed no impact from the allocation system which dramatically reduced extractions during the recent drought. There was a broadbrush comment that MDB extractions were usually "around 10 to 11,000 GLS."
• There were many comments such as "recovering water" and "closing the gap" without it would seem an understanding that Government buying entitlements is simply changing ownership from the private sector to the Commonwealth Water Holder (CWH).

According to the ABS, during the most recent years of the drought the very effective water sharing plans for each of the Basin's rivers reduced extractions to-

(GL'S)

2005-06     7369
2006-07     4458
2007-08     3141
2008-09     3492
2009-10      3564
not around "10 to 11,000 GLS".


Water entitlements without allocations amount to 'phantom water'. An 'entitlement' only grants the holder a share of  'allocations' when there are any. The entitlements held by the CWH will apparently still attract allocations (when water is available) and nobody really knows what this new player (the Government) is likely to do with them. So we have a situation whereby before allocations are granted the water sharing plans call for a priority to 'critical human needs' and assessed environmental needs. Once these are met then allocations for'consumptive' use are made. So the CWH gets a second bite, presumably mainly for environmental needs and becomes a player in the water market. This gives rise to some interesting conflicts of interest.


It seems to me that if the assessed environmental needs are not covered adequately  under the water sharing plans, which I doubt, then it is those plans that should be changed. Not have the "dog's breakfast" that is now proposed.


I contend that the fact remains that we have confused the natural impact of a very severe drought with "ill-health" and invalidly blamed it on extractions. A situation which has been wonderfully and dramatically corrected in the time honoured manner by the flood flows of the last three years.


We should  repeal the Water Act and begin the process anew along the lines proposed by a former NSW Director General of Water Resources who has had extensive global experience in river management.


I have serious doubts of the wisdom in centralising control in Canberra. The former MDBC/Ministerial Council approach with all the tensions and debates between the States that water management inevitably involves, was once held up around the world as an example of how to do water management properly.

Uncertainty

A quote worth remembering-
"Perhaps more than any other parts of the Australian economy, farmers understand uncertainty. They live with uncertainty about rainfall and growing conditions. They live with uncertainty about the costs of their key inputs. And, of course, they live with uncertainty about the world prices for their outputs. It is this ability to deal with uncertainty that is one of the strong and enduring characteristics of the Australian farming sector."
Philip Lowe, Assistant Governor (Economic), Reserve Bank of Australia.

Live Cattle Exports

I am deeply concerned at the turmoil caused in Northern Australia by the suspension of the live cattle trade to Indonesia.

Nobody would condone the animal cruelty witnessed in the Four Corners programme. And nobody would contend that what we witnessed was representative of the whole Indonesian abattoir scene. The cruelty must be stopped, but to do that by suspending the entire export trade is surely using a sledgehammer to crack a nut and creating more problems than it solves.

What we are now witnessing is a Government reacting to an extreme television expose stirred up by animal liberation extremists, with apparently no understanding or real concern for the massive impact upon northern Australian beef producers,Indonesian farmers and all of the ancillary services which support Northern Australia's major agricultural industry, at the height of their selling season.

Industry experts, many of whom have visited Indonesian abattoirs, say that they have never witnessed such cruelty. Whilst any cruelty is unacceptable,there is no doubt the Four Corners producers dug deep and hard to find footage to meet their chosen angle.

Industry experts also say that it would be a relatively simple matter to immediately make export sales conditional upon ultimate slaughter in Australian approved abattoirs only. The Indonesian President has personally advocated this solution.

Most of the Australian public would not know of how exports of weaner cattle to Indonesia have in recent years dominated the beef industry in our North. Station programmes,transport (road and shipping), marshalling yards,feed production etc. all represent significant investment and employment to service this trade. At the Indonesian end,local investment in feedlots, abattoirs and small farmer production of feed for the feedlots, all represent very important economic activity and employment for a developing country.

If our Government has any real concern for human and animal welfare, rather than pandering to noisy extremists,it would immediately move to resolve this matter now,not in six months time.

(This post, minus the fourth and fifth paragraphs, was published as a letter in The Australian on 14th June.)

Australian Agriculture

I recently wrote a paper on investment in Australian agriculture. This what I wrote:-

"Australian Agriculture Investment

Background

• ·         To the nations considerable advantage farming and grazing production of Australia’s major bulk commodities is dominated by family farmers.
• ·         These family farmers bid the price of land to levels where returns on funds invested are very low. In these circumstances it is extremely difficult for conventionally funded, publically listed companies to compete.
• ·         An important element of ‘wealth creation’ comes in the form of capital gain on land and more recently water licenses.
• ·         As the best land is tightly held, successful operators seldom realise the capital gains in cash terms, but they are nevertheless “real”.
• ·         A key feature of Australia’s climate is massive rainfall variability.
• ·         The major commodities most suited to Australia’s production base are dependent on very price volatile international markets.
• ·         This volatility largely stems from supply side factors, particularly weather.
• ·         There has recently been significant international recognition of the probability of demand increases for food and some large international players have been positioning themselves accordingly. However, there is little evidence of Australian institutions so acting.
• ·         Given all these features of the industry, if significant capital is to be raised it needs to come from “institutions” who have a long term focus from a wealth creation perspective and are able to withstand rainfall and price volatility.
• ·         This price and rainfall volatility can be cushioned by a commodity and geographical spread and the judicious use of pricing mechanisms-derivatives and forward physical sales.

Sources of Capital

• ·         Recent investment in Australian agriculture has come largely from overseas sources-Macquarie Fund, Terra Firma, Eastern Australian Agriculture, etc. An exception has been the recent WA super fund Westscheme investment in RM Williams Agricultural Holdings.
• ·          From a narrow nationalism point of view it would seem unfortunate if something as quintessentially Australian as broad acre agriculture was not seen as an area for investment by our local institutions.
• ·         A significant proportion of Australian savings are now in superannuation funds. These funds have very little exposure to Australian Agriculture.
• ·         These type of investment vehicle funds are better able to take a long term earnings perspective and accept ‘wealth creation’ in the form of unrealised capital gains. The AMP’s long term investment in Stanbroke Pastoral Company is a good example of the returns to be earned.

Management

• ·         A serious deterrent to institutional investment in Australian Agriculture has been concern with securing competent management.
• ·         The industry’s appeal as an investment area has been tarnished by “too-clever-by-half” tax driven ventures often proposed by entrepreneurs of dubious repute.
• ·         Thus, it would seem that any investment proposals chances of success would be enhanced if assets and management (including a prospective C.E.O., Chairman and independent Directors) could be “packaged” with an investment offering."

J 

Remember, farmers feed us all

Remember, farmers feed us allPaul Myers
April 3, 2009
If there's one industry in Australia that needs some decent PR, it's agriculture.
There are 175,000 farmers who feed Australia and contribute significantly to global nutrition. But they have lost the hearts and minds of the people who depend on them. Their status has sunk to an all-time low, and they are now regarded, variously, as environmental vandals, cruel managers of livestock and economic opportunists.

How times and attitudes have changed. Fifty years ago farmers (or more so, graziers) were at the top of the social and economic pecking order. It was a status symbol just to belong to a farming family, or to have relatives on and connections to the land.
Not now. In a world where the lines between perception and reality are blurred, all types of farming are viewed as being bad, and taking water to grow food and fibre is worse. Using fertilisers, herbicides and pesticides is untenable.

The farming community seems incapable of overcoming this negativity, incapable of working out how to make a public argument that sustainable food production is a national and global necessity.

A good starting point would be abandoning the word agriculture. Agriculture is no longer sexy. It is widely seen, inaccurately, as an outdated industry with anachronistic low-tech practices - one that the best young minds are increasingly avoiding.

Producing food and fibre may be a simplistic way of describing what farmers do, but there is an astonishing gap between what the public thinks of as farming and maximising food production.

Many farming critics don't seem to understand that inhibiting farmers' capacity to produce food limits the global supply, increasing the need for imports, making scarcer food more expensive and taking food away from those who need it more.

That arrogant disconnect is far graver than whatever environmental irresponsibilities farmers may or may not practice.

The planet has more than 6 billion people, but only enough for five. By 2050 9 billion people - the vast majority living in cities and towns - will compete for scarce food produced from less agricultural land than we have available now. Nutrition has to come from somewhere, and farms seem an obvious choice for continuing to meet that need. But the prospect of widespread food shortages does not, apparently, engender any greater understanding of the vital role of farming in the future of both the planet, and humanity.

Some of us who live in the developed world - with full bellies and ready access to cheap, wholesome food - are among the strongest critics of modern farming, yet many don't look beyond their next meal. Certainly not in Australia, and Sydney in particular, where planned urban developments will remove three-quarters of the Sydney basin's food production capability. It is a significant capability, still, and removing it means a lot of poultry, eggs, Asian vegetables, fruit and specialty crops will have to be produced elsewhere and transported, or not grown at all.

Agriculture - or whatever it should be called - urgently needs to start talking to its customers, not just to itself and governments. It needs to explain what's right, sustainable and good, and why. Not doing so threatens Australia's future food supply.

Take, for example, the way the federal and NSW governments trashed the reputation of responsible riparian pastoralists when they bought Toorale station in western NSW last year. Government and environmental spin machines went into overdrive to convince us the purchase was necessary "to restore water flows to the Darling River".
Not true. Farmers can take water from regulated rivers like the Darling only when there are certain flows and river heights downstream. They can't, and don't, take water when there isn't enough. Until recent rain, little water had been extracted by Toorale or nearby properties for years.

When farmers are allowed to take water, either so much flows that there's virtually no "return of water" to the river, or it spills out on to floodplains (where it is available for productive agricultural practices) and some returns to the river naturally. The lack of water in rivers is more because of the lack of rain than farmers taking the water, although water has been over-allocated on the Murray.

When properties like Toorale store water in the wet times, river flows are much better than when there are marginal amounts of water available.

Toorale is to become a national park, and will not be cared for like a private property. Within a few years it will be overrun by weeds and feral animals, to the detriment of the property, the neighbours and everyone.

The property has been taken out of production to satisfy an agenda that doesn't pass scrutiny. It was a $24 million stunt.

But it may be the policy blueprint for future food and fibre production and, as such, is an ominous signal that producers will ignore at their peril. A vocal minority can quickly sway a debate, as happened with mulesing, a debate the wool industry comprehensively lost.

The same outcome threatens the next big-ticket issues: carbon trading and genetically modified foods. Farmers will lose this battle if they don't take the initiative and sell it to the people they feed. The world will lose. We need it to eat, prosper and survive. Extreme views about agriculture are biting farmers hard, but losing control of the food production imperative will be disastrous for everyone. Farmers may have lost some battles, but the planet can't afford them to lose the war.

Paul Myers, a freelance journalist, is a former editor of The Land and an Australian trade commissioner in Canada.

Speech to World Hereford Conference 2004

World Hereford Conference 2004
J D O Boyd

COMMERCIAL REALITIES IN
MODERN AUSTRALIAN AGRICULTURE
Thank you for this opportunity to speak to such a distinguished audience on a subject close to my heart.
I would like to give you a broad picture of the agricultural "environment" (climatic, political and economic) in which I am involved, and provide you with an overview of its commercial realities.

I run a large-scale family farming business for UK owners, with investment spread across cotton, sheep, wool, cattle and dryland arable farming (grain, pulses and oilseeds).
These properties extend from Longreach in the central north of Queensland, west to the Channel Country and Cunnamulla, and to Bourke and Coonamble in western NSW.

I propose to discuss
• The vagaries of the Australian climate

• Recent trends in Government involvement in the agricultural sector

• Our export dependence, and its inherent price volatility

• Some characteristics of the sectors with which our Company is involved

Climate Vagaries
One of our most popular poets of old wrote:
"I love a sunburnt country a land of sweeping plains,
Of rugged mountain ranges, of droughts and flooding rains,"

Australia is almost as large as the USA (Alaska excluded); is 50 per cent larger than Europe, and 32 times larger than the UK. It’s 3680km north to south and 4000km east to west.
It’s the lowest, flatest, driest developed country on earth. Mean elevation is a touch over 200 metres. About 80 per cent of the continent has median rainfall of less than 600mm per year.
Two-thirds of the continent is arid or semi-arid, where it rains less than 50 days per year.
Seasonal air temperatures vary from 50 degrees centigrade (with surface temperatures embracing 80 degrees) down to below zero.

As an example of temperature extremes, from April to October in 1923, Marble Bar in the north west of Western Australia recorded 161 consecutive days (over five months) with temperature exceeding 100 degrees Fahrenheit.

Rainfall is irregular and unreliable. Evaporation is high. Less than 1 per cent of the agricultural land is irrigated. Only one-fifth of divertible water resources have been developed.
While just over 60 per cent of the land mass is used for agricultural pursuits, about 84 per cent of the population live on 1 per cent of the continent, along the south east and east coast.

Soils are subject to erosion and waterlogging, and generally deficient in phosphorous, nitrogen and some trace elements. Large areas are subject to salinity and acidification.

But with these resources, we manage to house 20 million people, 26.4 million head of cattle, 95.6 million sheep, and around three million pigs, and crop around 20 million hectares of grain, plus cotton, winegrapes, sugar, etc.

Australia is the world’s largest exporter of wool, sheep and cattle, exporting around 6 million sheep and up to 1 million cattle annually.
We started our livestock industries in 1788 with just 6 cattle and 29 sheep imported from the Cape Colonies and later from India.
Live cattle exports began in 1844 and live sheep exports a year later in 1845.
Herefords were first imported in 1826 and first crossed with Zebus in the Northern Territory in 1931. In the late 1930s, some nine-tenths of the blood of NT cattle were Shorthorns, with some Hereford and Aberdeen Angus.
By the late 1990s, 50 per cent of northern cattle were of Brahman blood, and most of the remainder Brahman derived.
The resurgence of live cattle exports after the second world war, and the foundation of the modern live cattle export industry, comprised the export of Herefords to the Philippines in 1954-55.

There are around 70,000 grazing and broadacre properties, including 39,000 that grow wool and run sheep (including 8000 that specialise in prime lamb production), with about 40,000 properties running cattle.

One characteristic common to all sectors is the dominance of the family farmer. Among beef producers for example, only 1 per cent of all properties are owned by publicly listed companies.
Thus the top 20% of family farmer’s "set the pace" in Australian agriculture, battling price volatility, the long-term downward trend in commodity prices, and the continual challenge to improve productivity.

In far-western Queensland we own a famous old property called "Thylungra". A colourful Irishman called Patsy Durack first settled this property and his granddaughter wrote a well-known Australian pastoral classic titled "Kings in Grass Castles".
The book takes its name from a quote attributed to Patsy Durack when he heard that he and his compatriot graziers were being referred to as "Cattle Kings". He apparently said in his Irish brogue.
"Cattle Kings ye call us, if we be kings then we are Kings in grass castles that may be blown away upon a puff of wind …"
So quite early our pastoralists recognised the transitory nature of kingship or in other words, were already aware of the inherent climatic variability.

There are two words that loom large in developing strategies to deal with variability: "flexibility" and "conservation".
Flexibility, to adjust to ever changing conditions (but not over-react), and conservation to "put away" in the good times against the certain knowledge that they will not last. Cash, feed (in various forms), and water each lend themselves to conservation.

Government Involvement
Australian agriculture has a history of extensive Government involvement.
Statutory marketing arrangements, closer settlement schemes, extensive regulation and subsidisation, coupled with tariff regimes for secondary industries that had a deleterious impact on rural exporters, were features of the past.

With a small domestic market, farm product prices were generally set by global supply and demand shifts, yet costs were set in a closeted Australian economy.
However, over the past 25 years we have seen great change. The Australian dollar has been floated, assistance to manufacturing industry wound back, statutory marketing arrangements largely disbanded, and much regulation reversed.
As a consequence we have a much more flexible, innovative, competitive, globally exposed agricultural sector.

Albeit, a sector that in the last few years has suffered low prices from depressed global economies and has weathered the worst drought in our recorded history.
Assistance to Australian agriculture is now amongst the lowest in the world (See graphs)

Cotton
The Australian cotton industry is a prime example of an industry that has survived and prospered from the withdrawal of Government intervention.
Once highly dependent on Government support, the cotton industry has now eschewed Government intervention, particularly in marketing, and has adopted a relentless and open-minded pursuit of technological excellence.

Its research effort has been world class, as has been the sharing of information. So much so that yields have increased some 40% in the last 15 years and over one third of the crop is now genetically modified for insect and weed resistance, with a consequent dramatic drop in chemical usage.
Australia is the world’s fourth largest exporter.
Over 95% of production is exported in its raw state and is renowned for its quality.
Major markets are in Asia-Indonesia, Japan, Thailand, South Korea and Taiwan, with the occasional foray by China.

In quantitative terms (not value) Australia actually produces more cotton than it does wool.
(I should mention that in the last two seasons we have had dramatically reduced quantities (50%) as a consequence of drought. But, this is surely a temporary aberration.)

The number of farmers is quite small with about 1300 growers, and the industry is mostly geographically concentrated in eight river valleys in northern NSW and Queensland.
The marketing system is a delight from a producer’s perspective, with considerable volatility and the ability to fix prices forward when they are strong.

There are a number of competitive merchants (both local and international firms) always in the market and prepared to carry the quality risk, whilst they are able to offset their price risks by way of back-to-back contracts or on the very liquid New York futures market where most of the world’s supply and demand is concentrated.

Wool and Sheepmeat
Wool is to Australia as cotton is to the US. It is probably our oldest industry and deeply embedded in Australian culture.
"Australia rides on the sheep’s back" is an expression known to everyone of my generation. How things have changed.

The current Australian sheep flock of 95.6 million is at its lowest level since 1947-48. The flock has fallen by one-third over the past decade alone. We had more sheep in 1890 (97.8 million) than we do now.
More than 50 per cent of the sheep in Australia are grazed in just two States: NSW and Western Australia. Australia produces some 70% of the world’s apparel wool.

Over the last 40 years, wool's share of the world textile market has dropped from 10% to just under 3% of a total market which has tripled over the same time, with most of the growth going to synthetics.

Australia's finer apparel wools continue to hold substantial shares of niche markets like men's suits, jackets, women's outer wear and, amidst wild fluctuations, command a price premium (three to six times cotton and synthetics).
They need to, as the product is much more expensive to grow and to process. Its niche market positioning now makes apparel wool a specialist market product and less a commodity.

The industry has had a history of extensive collective action and considerable Government intervention, particularly in marketing. This has resulted in a lack of innovation and a poor productivity improvement record. Real effort is now being made to change this.

Australia used to convert about 25% of the clip into tops. However, competition from China has reversed this trend, and now 40 to 50 per cent of greasy wool production is exported to China, with the balance going to a range of markets from the Far-east to Europe.

The wool production/processing chain is long and complex with many changes of ownership, and it is notoriously difficult to get a clear picture of the state of the industry.
Historically, there has been almost no sharing of price risk along the processing pipeline, with the majority of growers' wool sold at spot auction when it is ready for delivery. Processors are thus fully exposed to price risk.
The prices for different types of wool vary considerably, with the price differentials also subject to considerable change, depending on ever changing supply and demand levels for particular categories.

Climate, rainfall, and vegetation variations, to a large extent, dictate the type of wool that can be grown in a particular area. Whilst scientists are now questioning this conventional wisdom, it is deeply embedded in the industry psyche.

The industry is fragmented, with over 40,000 growers and an average clip size of fewer than 50 bales.

Over the last twelve years the industry has laboured under the weight of a massive stockpile, which was slowly sold in competition with newly produced wool.
This stockpile was the result of some excessively aggressive intervention in the market by a statutory empowered grower body (hobbled by Government edict and agro-political infighting) which was insufficiently flexible to adjust to a dramatic demand change in the early 90’s when Russia withdrew from the market. In recent years China (including H.K.) has emerged as the dominant buyer of raw wool and the largest final consuming country.

Over the years of low wool prices, sheepmeat sales, whether direct or indirect, have been the major driver of sheep prices.
For most Merino sheep, wool prices, along with seasonal conditions, have historically been the major influence on prices.
Around 66 per cent of all mutton produced is exported, as well as about 32 per cent of lamb production, hence our vulnerability to global market access, prices and currency changes.

Beef
With 26.4 million cattle, Australia has half the Argentinian herd, one-quarter of the herd in the US and China, and about one-sixth the herd in Brazil.
Between 1976 and 1984 the herd fell about 10 million to 19.4 million, but most of that decline has now been recovered, although it has taken 20 years to achieve.

But Australia is the world’s largest beef exporter, with two-thirds of its production exported to major markets such as the USA, Japan, Korea and Canada.

The industry has made good productivity gains, turning off younger animals at higher slaughter weights than in the past.

Whilst there is a growing feedlot industry (about 27 per cent of cattle slaughtered are from feedlots), the major proportion is grassfed, thus low cost.
The relatively low cost of land and transportation, together with recent improvements in abattoir productivity, means that the industry is now highly competitive in world terms.
It also has the great advantage of Australia’s high disease-free status and high food safety standards.

Trade barriers to export growth remain extensive, particularly in Europe, but are progressively being reduced in Japan where per capita consumption remains tiny compared with western nations.

The industry is widely dispersed throughout Australia, with most of northern Australia being cattle dominant (now mostly Bos Indicus breeds), but at quite low stocking rates (one beast to 37 hectares in parts of the Northern Territory).
Two-thirds of all cattle reside in northern Australia. Queensland is the largest cattle producing State, holding 40 per cent of the national herd, almost double the number of cattle grazed in New South Wales.
Queensland runs about 11.5 million cattle and has been a major producer since the late 1800s, when the herd jumped from less than half a million head in 1860 to almost 7 million by 1895.

Prices in recent years, with the help of the weak $A, have been attractive to Australian producers. They are determined by a range of factors, including the production cycle in the US and the rate of turnoff relative to slaughter capacity in Australia. The latter is largely dictated by variations in seasonal conditions.

As mentioned earlier, Australia exports more live cattle than any other nation, with the major markets being Indonesia, Egypt (until this year), the Philippines and Malaysia.
Around 80 per cent of live cattle exported are from northern Queensland, the Northern Territory and the north west of Western Australia. We export from 17 ports to 22 countries.

Grain, Oilseeds and Pulses ("Dryland Winter Crop")
Dryland (non-irrigated) cropping in temperate Australia is dominated by the production of wheat. In the areas Clyde currently operates this includes high protein wheat (prime hard) which allows a degree of differentiation and which can attract significant premiums.

The Australian industry has been notable for its productivity achievements, particularly over the last 15 years when productivity growth has averaged 4% per annum, compound. Major contributing factors have been: -
• the advent of larger scale machinery, allowing country to be worked very quickly after rain, taking full advantage of surface moisture;

• the development of moisture seeking and conservation methods, including minimum till, which has allowed arable farming on a large scale to move into lower rainfall areas once regarded as suitable for grazing only;

• developments in the understanding of root and soil diseases and how they can be contained by the use of rotational crops, which can also contribute to soil nutrition;

• the advent of "precision agriculture" utilising global positioning systems (GPS) to precisely carry out farm operations with minimum wastage (overlap) and containing soil compaction.

Future developments will be the use of soil mapping and variable rate applications so that fertilizer and weed controlling chemicals can be applied to different parts of a paddock on an "as needed" basis.

Australia is usually the world’s second largest wheat exporter (after the US), with 16% of international trade in 2002. Its main markets are the Middle East, Indonesia, Japan and South Korea. China is an occasional substantial buyer.

The marketing system is dominated by AWB Ltd, the former Australian Wheat Board, which has a monopoly over wheat exports.
This monopoly is coming under increasing pressure with the domestic market freed up in recent years and the flexibility in the marketing of oilseeds and pulses demonstrating to growers that "big brother" is not necessary.
A significant disadvantage of the export monopoly was the insulation from competitive pressure that the monopoly gave to the transport and storage system participants. There is now increasing price pressure on these sectors, which will increase as the system is further deregulated.

General: Exports and Volatility
You will have noted the export dependence-
Cotton over 95%
Wool (including early processed) over 95%
Wheat over 80% (??)
Beef around 65%
With wool, cotton, beef and wheat Australia is a major world exporter, the largest for wool and beef the second largest for wheat, and the fourth largest for cotton.

With cotton, beef and wheat only a small proportion of world production is actually traded internationally.

The biggest producers are generally also the biggest consumers, so only small changes in the supply/demand balance in the major producing countries can have a huge impact on volumes traded internationally and thus on the world price. This is a recipe for price volatility.

The unreliable rainfall means that there can be periods where lack of rain for grazing pasture, dryland arable farming, and water for irrigation can create quite impossible conditions for profitable operation.
Throw this in with volatile commodity prices and a long- term adverse cost/price ratio and the challenges facing Australian farmers are significant!

Corporate Farmers
Except in circumstances where they can acquire large amounts of capital that are not available to even the bigger family farmers, or where they can command technology that is otherwise difficult to acquire, there is little room for corporate farming operations.

With the industry dominated by family farmers who are generally more focused on asset growth than annual returns on shareholder funds, conventionally funded corporations find it very difficult to compete.
Family farmers simply bid the price of land to a level where the returns necessary to competitively service equity capital investment are simply not achievable for corporations.

This problem, combined with the inconsistency of returns flowing from the variability of seasons and prices, has resulted in a consistent exodus of corporations from Australian agriculture over the last 25 years.

Marketing
We believe that the Australian cotton marketing system described earlier should be a model for Australian agriculture.

By quite clearly separating the functions of pricing and physical delivery, living with volatility becomes much easier.
Often prices can be fixed when markets are strong providing there is a longer period in which the price can be established.
This is best done before "harvest", as afterwards cash imperatives often demand quick action.
Care needs to be taken that unbearable production risks are not incurred.
The existence of a liquid futures market is an enormous benefit.

We are now selling our wool in the same way we sell our cotton, utilising a mixture of forward physical sales and derivatives.

Conclusion
I have attempted to provide, from a farmer’s perspective, a broad overview of the conditions under which Australian agriculture operates.

I have attempted to describe some domestic economic changes of recent decades, which I believe place the general industry in a strong position to grow.

I have further attempted to give you a broad picture of the particular agricultural sectors-cotton, wool/sheep, beef and arable farming- with which my Company is involved.

Finally let me say that it is my view that there are substantial market opportunities ahead for agriculture, in the growing markets to our north, and particularly in China.
However competition will always be intense and individual enterprises will need to adopt a long term view, be clear on defining the business they are in, and be in a position to quickly adopt and apply relevant technological developments.

Droughts and Flooding Rains

Monday 03 November, 2008

WRITING INSPIRED BY A FLIGHT OVER WESTERN NSW FLOODWATERS IN February2008[1]

“Droughts and Flooding Rains"- and not much in the middle.
A trip by road across Northern NSW last week and a flight in a light aircraft over the flooded Warrego, Paroo and Cuttaburra Creek, reinforced how Dorothea Mackellar got it so right. Australia is indeed a land of massive variability with quite extraordinary recuperative power.

Country that only a few months ago looked like the face of the moon after the worst drought in Australia's short recorded history and from which many said it would take years to recover, now looks magnificent. Waving natural perennial grasses, in some cases literally up to the top of fences, has replaced the bare dirt. The seedbed in this country must be huge. Depending on soil temperatures when water is added particular seeds germinate and dominate. Wetlands spring to life and areas like the Cuttaburra Basin have to be seen to be believed. Tens of thousands of acres covered in shallow water from the western Queensland rains. Bird life is fabulous although an encounter with a flock of pelicans heading west at 5,500 feet can give some anxious moments in a little aircraft. How do they know where the water bodies are? Better still, the lift in country people’s spirits after seven long years of drought1 is truly remarkable. It may not rain dollars, but it certainly rains hope, joy and confidence.

A week later we find the metropolitan press having a field day with negative propaganda from the likes of Professor Richard Kingsford, a well-known bird lover (nothing wrong with that), who has for years viewed irrigation as the root of all evil. Kingsford maintains a constant vendetta against man’s activities without ever recognising the social and economic benefits that can be derived from conserving a portion of our massively variable rainfall without inflicting unacceptable damage upon the environment.

Whilst it would be easy to become paranoid, it is truly alarming to see the lowest rainfall and run-off in our recorded history2, not being accepted as the primary cause of drastically reduced river flows. There must be something in man’s psychological makeup that makes it much more satisfying to blame human activity for what are predominantly natural events.

We seem to hear nothing but total blame for the low flow levels in our rivers being attributed to “irrigation extractions and mis-management”. We even have new members of parliament stating in their maiden speeches that one of their objectives is to “fix our rivers”. As though all we need to do is to reduce extractions. The dynamism of our rivers and the fact that water flows away and needs constant replenishment if flows are to be maintained, seems to escape most commentators, including some leading scientists.

Malcolm Turnbull has used the analogy of a bathtub to explain this widely held misunderstanding. People seem to view the rivers as a stationary tub that continues to hold water providing it is not bucketed out. The true analogy is, of course, a bathtub with the tap running and the plughole open. Some extractions will reduce the out flow (and this is what needs to be regulated), but whilst the tap remains “on” (read rain) the tub will continue to carry a stream. Our problem of the last several years has not been extractions from the moving bath flow, but the fact that God turned the tap off!

In fact, over the last several dry years, if in NSW there were no dams in the hills which feed our western and south-western flowing rivers, and thus no irrigation, the flows in our rivers would have been worse, sooner. The impact of the dams is to spread the flow time wise and keep it running for longer.

Future
Australia’s rainfall and run-off variability is notorious. The Darling River at Bourke, with its enormous northern and eastern catchment, has an annual average flow of 2.5m.megalitres. The spread around the average is huge. It ranges from zero (i.e. no flow whatever for 12 months), to 12m. megalitres (24 Sydney Harbours). If man is to live and prosper with this enormous variability, which the climate change scientists tell us is going to become even more variable, then two principles need to dominate our thinking. We need to conserve in times of plenty and build flexibility into our planning.

Conservation can take many forms, for farmers it can mean saving cash, saving feed (ground cover, grain and/or hay) and it can certainly mean conserving water.Take for example the recent very damaging NSW North Coast floods and think about the fact that we did not conserve a single megalitre. After such a dry period, surely an indictment upon this generation.

Some water stored high in the mountain catchment could have mitigated flood damage and provided water for future use on either side of the mountains. We are not talking about diverting rivers, rather we are suggesting water conservation that reduces flood damage and accepts our need to live with rainfall variability.

Flexibility can be achieved in many different ways. As has recently been recognised by the likes of Professor Peter Cullen, the growing of annual crops like rice and cotton, as distinct from permanent plantings, can mean that when water is unavailable no crop is planted. These crops are thus well suited to our variable river flows. (Cullen previously stated that “in a dry country like Australia we shouldn’t be growing thirsty crops like rice and cotton” and this statement has been “parroted” across the country, particularly in our cities.)

We clearly need more dams to put the conservation principle into practise. Given its long-term impact such expenditure can be amortised over very long periods. These dams need to incorporate large outlets to let small and medium flows pass when there are real downstream needs. Thus further applying the flexibility principle.

Given the massive variability of our rainfall and run-off patterns, it is extremely difficult to codify in black letter regulation, rules to deal with all eventualities. Rather our rivers need to be managed “adaptively” taking account of the massive variability, and balancing the often competitive social, economic and environmental needs.

It certainly makes little sense to deal in absolute whole numbers (e.g. the Murray Darling Basin Cap) when there is such huge variability. Rather the control mechanism should surely be based on variable percentages of flows rather than fixed numbers.

In fairness to our regulators, the “cap” was never intended as a long-term measure, but rather it was a short term initiative to gain some “breathing space”, whilst longer term measures were devised and introduced. However, as with many temporary taxes, they have a tendency to become fixtures!

Rural and regional Australia needs employment creating industries. Economically sustainable industries suitable for remote areas are difficult to identify. On our inland river floodplains, irrigation is a natural, if secure water can be added to complete the mix of excellent alluvial soils and ample sunshine.

This particularly applies if we are going to improve the living standards of indigenous Australians. It has been demonstrated that, self-respect, behaviour and health all improve where regular employment is available and taken up.

Thus there can be very considerable national savings as people are freed from their dependence on welfare and these savings should be factored in to the economic justification for water conservation investment.
David Boyd
04.03.2008.
For accompanying photos view http://picasaweb.google.com/davidboyd11/BackInBusiness?authkey=IPOIyT8cjXs

1] The immediate Bourke area of the Bourke Rural Lands Protection Board was drought declared in August 2001 and the declaration was not lifted until February 2008.

2 “The two year period to November 2007 recorded the lowest ever inflow to the Murray River. Inflows during this period were 43 per cent lower than the previous record low, which occurred at the end of 1938.” Prime Minister 04.03.08