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.
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.
• 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
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,”
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.
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.
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.
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.
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.
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.
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.
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.
Assistance to Australian agriculture is now amongst the lowest in the world (See graphs)
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.
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.
(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 marketing system is a delight from a producer’s perspective, with considerable volatility and the ability to fix prices forward when they are strong.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
Throw this in with volatile commodity prices and a long- term adverse cost/price ratio and the challenges facing Australian farmers are significant!
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.
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.
We believe that the Australian cotton marketing system described earlier should be a model for Australian agriculture.
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.
I have attempted to provide, from a farmer’s perspective, a broad overview of the conditions under which Australian agriculture operates.
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.