Sherwin, R.A.

English

Research Papers in Economics

SOME  ASPECTS  OF  AGRICULTURAL
POLICY  IN  AUSTRALIA
R. A.  Sherwin, Agricultural Attache
Australian Embassy, Washington, D. C.
Before  discussing  government  programs  relating  to  agriculture  in
Australia I propose to refer to some of the features which determine  the
structure  of  agriculture  in  Australia  and  which  are  a  prime  factor  in
forming  government  policies  and  programs.
If Alaska is  excluded,  the  area of Australia  is  within  1 percent of
that of the United  States. It lies nearer to  the Equator,  and the climate
is  warmer  and  more  arid.  The  main  agricultural  differences  between
the two countries are due to such factors as:  ( 1  )  the quality and area of
arable  land  receiving  sufficient  rainfall  for  crop  production,  (2)  the
size  of the  domestic  market,  and  (3)  the  location of  the  countries  in
relation  to overseas  markets.
Largely  because  a substantial proportion  of the  country has  a  low
and  relatively  unreliable  rainfall,  pastoral  industries  rank  first  in  the
agricultural  economy.  Sheep  now  number  approximately  150 million,
while cattle  number  17  million. Crop production is limited to approxi-
mately  20  million  acres  annually,  of  which  nearly  half  is  planted  to
wheat.
Markets  have  also  been  a major factor  in shaping  the  structure of
Australian agriculture.  With  a  population of 9.8  million, the domestic
market  absorbs  only  about  40  percent  of  the  farm  production.  The
balance  is  exported,  mainly  to  Europe  and  Japan.  Australia  has  to
contend with a freight disadvantage  due to sheer distance in supplying
European  markets.  These  circumstances  have  required  that emphasis
be  on  those  commodities  for  which  a  long-term  demand  exists  and
which--we  can  produce  competitively.  This  has  favored  an  extensive
rather  than  intensive  type  of  agriculture.
THE  PLACE  OF  AGRICULTURE  IN  THE  AUSTRALIAN  ECONOMY
Australia produces  practically  all of the food and fiber it consumes.
In addition,  an average  of 60 percent  of its agricultural  production  is
exported.  This normally  represents  approximately  85  percent  of total
exports.  This  dependence  on  agricultural  exports  renders  the  Aus-
tralian  economy  very sensitive  to  fluctuations  in world prices for farm
commodities  and  to  variations  in  production  levels  arising  from  the
periodic  droughts which  affect large  areas  of Australia.
146In  the  post World  War  II  period  industry  has  developed  rapidly.
Factory employment  has increased  by 40  percent,  and factory output
is 75 percent  higher.  The population  has  risen from 7.6 million to 9.8
million,  including  1.2  million  migrants.
THE  ROLES  OF  FEDERAL  AND  STATE
GOVERNMENTS  IN  AGRICULTURE
In  1901  the  six  Australian  states  entered  into  a federation.  State
governments  retained responsibility for land policy and for agricultural
research  and  extension  for  production  and  domestic  marketing.  The
Federal  Government  assumed responsibility for matters relating to ex-
ports of agricultural products, overseas quarantine, and financial policy
of  an over-all  nature.
Agricultural  policy of the country  is coordinated by the Australian
Agricultural  Council,  composed  of  state  and  federal  Ministers  of
Agriculture.
With the increased  government  activity  in international  marketing,
powers  provided the  Federal Government have frequently been inade-
quate  to enable  it to  carry  out agreed  policies. In such  circumstances
state governments commonly  pass enabling legislation, for amendments
to the  constitution  are  particularly difficult  to obtain.
PRODUCTION  POLICIES
In the ten years up to  1950 the volume  of agricultural  exports had
increased  little,  and  it  was  clear  that sustained  Australian  economic
development required  an appreciable  rise in agricultural production to
meet  the  increased  domestic  needs  and  a larger volume  of exports  to
finance  additional  imports.
Following  a serious  decline in overseas  reserves  and the institution
of import restrictions  late in 1951,  the Australian Agricultural Council
defined a series of production aims providing for an increase  in produc-
tion  of 24  percent  and  an  increase  in exports  of 21  percent  over  the
levels  prevailing  in  the  three  years  ending  in  1939.  These  aims were
to  be  achieved  in five  years.  This decision represented  a  direct change
from  the laissez faire policy and was almost the first official  recognition
that  agricultural  production  policy  should be  an integral  part of  gov-
ernment  policies.
To  achieve  these  aims,  the  federal  and  state  governments  took  a
number  of  indirect  measures  to  encourage  agricultural  production.
Some  were:
1471.  The  elimination  of shortages  of labor,  supplies,  and equipment
for agriculture,  by insuring the labor and material requirements
of local  industries  and by  allocating import licenses  for supplies
which had to  be imported.
2.  Increased  expenditures  on  agricultural  education,  research,  and
extension.
3.  Taxation concessions for agriculture such as allowing tax deduc-
tions for land development  and making investments  in buildings
and equipment eligible for depreciation  over five years.
As  a  result of these measures,  good  weather,  and a  period of rela-
tively  favorable  prices,  between  1952  and  1956,  sheep  numbers  in-
creased from  117 million  to  139 million, and cattle numbers rose from
14.9 to  16.5 million. Improved pasture increased  8 million acres,  reach-
ing  a  total  of 28  million.  In  1956-57  an  additional  4.2  million  acres
were planted.  Fertilizer use on pastures has expanded on a similar scale.
Unfortunately,  a decline  in production  due to drought in  1957 was
accompanied  by  a  serious  fall  in  the  level  of  world  prices,  and  farm
incomes  fell  approximately  30  percent  in  1957-58.  Export income  fell
20  percent  compared  with  the  previous  year.
MARKETING  POLICIES
For  a  long  time  the  Federal  Government  has  required  that  many
of the products exported should comply with certain standards  of qual-
ity,  packaging,  and labeling.  It provides for  inspection  at the  point of
shipment,  and  maintains  inspection  services  at  licensed  processing
works.
State  governments  have  all  adopted  legislation  enabling  producers
to form  co-operatives  or boards  to  develop  and control  the  marketing
of their products. The government  exercises control  to prevent the mar-
keting  policy  of the  organizations  from  exploiting  the  consumer.
Partly  because  the  economy  could  not  sustain  the  financial  com-
mitments which  would be  involved,  the government  has  avoided price
guarantees  or subsidies.  However,  it has been willing to help producers'
organizations  which  desire  to stabilize  returns  for their  products  and
on  a  number  of occasions  has  provided  a  floor  price  guarantee  for  a
limited  quantity  of the  produce  exported.
Such  stabilization  schemes  have  usually  attempted  to  equalize  ex-
port  and  domestic  returns  and  often  provide  for  establishment  of  a
stabilization  fund  through contributions  in periods of higher prices for
use  in supplementing  returns in  periods of low prices.
148Following  is  a  brief  description  of  the  principal  stabilization
schemes  in  operation:
WHEAT. Now entering  its third five-year period, the wheat stabiliza-
tion  scheme  provides  for:
1.  A home  consumption  price of  wheat  not  less  than  the  cost of
production,  which  is assessed  at  $1.62 for the  1958-59  season.
2.  The  Commonwealth  Government  to  guarantee  the  payment of
the  cost of production  up to  100 million bushels  exported.
3.  A  Commonwealth  contribution  only  if funds  are  not available
in the stabilization fund to make up any deficiency  in the returns
received on this quantity.
4.  A  stabilization  fund supported  by  a  tax limited  to  16.7  cents  a
bushel  when  average  export  realizations  exceed  the  assessed
cost  of  production.
To date  the stabilization fund has been  able to meet any deficiency
of  returns  in the  export  quantity  covered  by the  guarantee.  The  Aus-
tralian  Wheat  Board  markets  the  crop.  The  majority  of the  members
of  this Board  are producers'  representatives.
DAIRY  PRODUCTS.  The  Federal  Government  guarantees  producers
a  price  which  is closely  related  to  assessed production  costs for butter
and cheese sold on the domestic market plus an  additional  20 percent.
Since export realizations  have  usually been below the guaranteed  price
level,  the  deficiency  covered  by  government  subsidy  in  the  last  three
years  has been  at the rate of 30 million dollars.  Some of the  subsidy is
used to  reduce  the price of butter and cheese  on the  domestic market.
MEAT.  In  1951  the Australian Government  entered  into an  agree-
ment  with  the  United  Kingdom  Government  for  the  purchase  of the
bulk of the export surplus of beef, mutton, and lamb over a period of  15
years.  The  agreement  provided  for minimum  prices  to be  negotiated.
The  scheme  was  designed  to  stabilize  export  prices,  encourage  invest-
ment  in  meat  production,  and  insure  more  regular  supplies  for  the
United  Kingdom  market.  The  agreement  has  already  encouraged  a
greater output  of beef.  During the  last two years the  United Kingdom
Government  has  made substantial  deficiency  payments  to compensate
for the  depressed  prices on the  U.  K. market.
SUGAR.  This is probably  the most highly organized industry  in Aus-
tralia.  Under federal  and state  legislation  the domestic price  of sugar is
stabilized,  and an embargo  is maintained  on imports. Exports are mar-
keted under  the  International  Sugar  Agreement  and the  British  Com-
monwealth  Sugar  Agreement.  Domestic  and  export  realizations  are
149equalized,  and growers  are  paid the resulting  price.  Production  is con-
trolled by allocating quotas to each sugar mill, which in turn gives each
of its  growers  an  "area  assignment."  Sugar  producers  in  this  area  are
paid the equalized  price,  and sugar producers  outside  this area are paid
a  nominal  price.
DRIED FRUITS.  The marketing of dried  fruits is fairly highly organ-
ized through growers'  co-operatives and state marketing boards. Quotas
are allocated for marketing at agreed prices on the domestic market, and
returns are equalized  with those  from overseas  sales.
OTHER  COMMODITIES.  With cotton and tobacco, Australian produc-
tion  is only  a  small  part  of domestic  consumption,  and  imports  are  a
substantial  item in the balance of payments problem. More direct incen-
tives have been provided to encourage production for the establishment
period of these industries.
Wool growers have consistently  refused to enter into any marketing
or price stabilization  arrangements and have concentrated on the public
auction  system  of selling.
GOVERNMENT  INTEREST  IN  OVERSEAS  MARKETS
As  Australian  agricultural  exports  have  such a  vital  influence  on
the whole economy, continued access to the world's agricultural markets
on a fair competitive basis is highly important to the country.
We  view  with concern  the  continuing  growth  of surplus  stocks of
some agricultural  products, acquired at prices in excess of world market
prices  and  subsequently  disposed  of  at  substantially  reduced  prices
which we could not hope to match.  Australian policy has endeavored  to
insure  that these  surplus commodities  are marketed  in such  a manner
that  they  will  not  interfere  with  the  normal  trade  of  other  exporting
countries.
As  a  consequence  of  the  growing  restriction  to  normal  forms  of
international  trade,  Australia  in  the  last  two  years  has  considered  it
desirable  and necessary  to  enter into a  number of bilateral  agreements
in  an  attempt  to  preserve  its trade  in some  of its  traditional  markets.
These  agreements  are  variable  in  form,  but  their  main  purpose  is  to
recognize  the  fair  minimum  share  of  the  import  trade  which  each
country can expect to obtain.
The Australian problem is similar in many ways to that experienced
by  the  Southeast  Asian  countries.  We  have,  in  the  last  18  months,
experienced  a  fall  in  wool  prices  of  34  percent,  butter  28  percent,
metals  35  percent,  and  meat  16  percent.  Unless  these  price  levels
recover  or some  countervailing  increase  occurs  in export  income  from
150other  sources,  our  present  policy  of  relaxing  import  restrictions  may
have to be reconsidered.  This, in very general terms, explains Australia's
interest  in  international  trading  relations  and  our  concern  for greater
stability  in world prices for primary products.
VALUE  OF  EXPORTS  OF  RURAL  ORIGIN
Commodity
Wheat
Barley,  oats,  and  rice
Sugar
Fruits  (fresh,  canned,  and dried)
Wool
Meats
Dairy  products
Other  (including eggs)
TOTAL  EXPORTS  OF  RURAL  ORIGIN
TOTAL  AGRICULTURAL  PRODUCTION
EXPORTS  AS  PERCENT  OF
TOTAL  PRODUCTION
1954-55  1955-56  1956-57  1957-58
(est.)
Millions
$  146.7
31.3
69.8
68.5
825.8
124.0
86.0
79.9
1,432.4
2,288.5
$  148.2
37.4
55.3
68.9
790.2
116.4
94.0
85.3
1,396.1
2,398.1
$  183.0
39.4
64.5
52.4
1,126.9
96.5
90.7
87.3
1,740.9
2,700.9
$  94.0
25.9
78.4
64.0
886.5
98.5
56.4
81.7
1,387.9
2,246.4
62.5  58.2  64.4  61.7
151

SOME ASPECTS OF AGRICULTURAL POLICY IN AUSTRALIA

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