More from less: The permanent race for advantage

Australian agriculture is strongly export oriented, exporting around 70% of production, with relatively low levels of government support (Jackson et al. 2020). Ongoing productivity improvements have been – and will continue to be – crucial to maintaining profitable and competitive farm enterprises, and to the goal of lifting the value of agricultural output to $100 billion by 2030 (NFF 2019).

Net farm income has increased more rapidly than output value, reflecting productivity growth and more efficient use of inputs, including labour. On-farm employment, including work by farm owners, has fallen by one quarter (25%) over the past three decades, while the gross value of agricultural production has risen one quarter (26%) and value-added by three quarters (74%) respectively, see Figure 7. Much of this productivity growth has been driven by increases in farm scale (discussed below), improved genetics and varieties, and continuous innovation in management practices.

These broad trends are expected to continue, along with their implications for rural industries and regional communities.

Increases in farm size account for at least half of broadacre agricultural productivity growth over the last three decades (Sheng et al. 2015, ABARES calculations 2020). Increased farm size supports improved productivity through several channels: supporting access to better technology; diffusing better farm management practices; and enabling improved knowledge and labour management (Jackson et al. 2020). These changes have been supported by deregulation of agricultural markets and economy-wide microeconomic reforms. The shift towards fewer, larger farms has also been crucial for maintaining farm household incomes.

While smaller farms are less profitable on average than larger farms, farm households on smaller farms still compare favourably to the Australian population as a whole, with comparable income, lower debt, and higher net wealth than the average Australian household. Although new business models are emerging, the family farm remains the most common ownership structure in Australian agriculture. Other opportunities for agricultural productivity growth include improving commercialisation and uptake of our R&D investments; ensuring regulation is as efficient as possible; strengthening supply chains; and enhancing labour availability and skills (see Resources and further reading below and Grey et al. 2014).

Global food supplies and consumer access has improved dramatically over the last 70 years, driven by increased physical productivity and crop yields – particularly as a result of the Green Revolution (Pingali 2012).

These trends are set to continue as the application of new technologies and management practices improve potential yields, including through deployment of genetically modified (GMO) crops incorporating genes for pest, herbicide, and disease resistance (Atici 2014). There are also many non-GMO technologies for achieving improved yields and profitability, including through reducing farm inputs and management costs (Hajkowicz and Eady 2015). New varieties and practices can also reduce environmental pressures, including chemical use and water demand, highlighting the role of innovation in promoting sustainability (Herrero et al. 2020).

Closing existing yield gaps – the difference between potential and actual output – could lift global output of wheat and rice by around 50% and rice and soybeans by 30% or more (Hajkowicz and Eady 2015). This would boost ‘catch-up’ productivity growth in emerging and developing agricultural producers (see Figure 7 above), where yield and productivity gaps are larger than in advanced countries.

Improved yields, expansion of agricultural land, increased trade, and more efficient transport and supply chains have together resulted in long run falls in real commodity prices (see Figure 10), and substantial benefits for consumers. Whether this trend continues will depend on whether increases in supply can continue to outpace increases in demand associated with population growth and rising average incomes (see Section 1.5 above).

Global increases in incomes and resource use will expand the range of issues consumers and governments care about, reflecting the satisfaction of more basic needs and the increased sense of agency and control often associated with higher incomes (see Consumer attitudes and expectations will continue to evolve). Along with rising environmental concerns, this will continue to shape trade and market access, consumer preferences for different products, and expectations around natural resource management.

Several markets and countries already limit specific technologies or practices, such as prohibiting GMO food crops or banning certain livestock management practices. Regulations of this kind appear more likely to increase than decrease over coming decades, reflecting rising incomes and more fractal politics – risking additional constraints on productivity growth, but also offering new producer opportunities or improved environmental outcomes in some cases.

Competitiveness and access is also affected by the level and nature of producer support in destination markets. While many high-income nations have shifted to less distortionary forms of domestic support and agricultural protection over recent decades, many emerging economies have increased their levels of support – including some of the most important markets for Australian agricultural exports (see Figure 9). This risks a tug-of-war between increasing demand for food in emerging economies – requiring increased imports over time (see Demand for high quality food will continue to grow strongly) – and their increasing willingness to support domestic producers.

Geopolitical tensions and a potential slide towards domestic populism in some countries (see Seven giants will pursue their individual interests) will increase the risk of trade wars – where agricultural trade is likely to be caught in the cross fire.

Delivering the intent of the Sustainable Development Goals (SDGs) will require global increases in the quality and quantity of food, to improve nutrition and food security, while reducing or reversing land clearing for agriculture and irrigation-related stress on freshwater systems (UNEP 2015, IRP 2019). This could help protect the quality and productivity of natural assets and systems that underpin agricultural production, but may also limit the quantity of land and water available for agriculture in some countries.

ABARES Snapshot of Australian agriculture (Jackson et al. 2020) provides a useful summary of Australian agriculture, and its context and contributions. The Snapshot also summarises key issues in agricultural productivity and competitiveness (including the role of farm scale), and how farmers manage significant price and climate variability.

Previous ABARES research (Grey et al. 2014) finds several decades of policy reform have lifted agricultural productivity growth and improved on-farm risk management, through removing policies that insulated farmers from market disciplines and discouraged resource reallocation to the most efficient farmers, along with more general economy-wide reforms. However, as Australia now has relatively low levels of producer support, there is limited scope to further improve agricultural productivity growth in this way. Instead, the main opportunities for productivity growth involve continuing innovation by producers and all participants in agrifood supply chains, and allowing farm consolidation and the reallocation of resources between different producers and industries. Government has important ongoing roles in supporting the rural research, development and extension system (EY 2019, DAWE 2020; DAWE website 2020); reducing unnecessary regulatory burdens; and improving labour availability and skills.

Pingali (2012) reviews the achievements and impacts of the Green Revolution, in which substantial investments in crop genetics and agricultural systems delivered a three-fold increase in crop output from 1966, with only a 30% increase in the area of crop land. Investment levels, and benefits achieved, have declined since 1990, prompting calls for renewed efforts to improve food access and security through agricultural research and institutional reforms (see Herrero et al. 2020).

Greenville (2020) reports that previous trend reductions in trade distorting support has stalled in recent years, while support and protection has been increasing in many emerging countries (see Figure 9 above). This constrains global agricultural production and trade, costing Australian agriculture an estimated $8-10 billion a year in forgone exports, and reducing global food security.

See references