Productivity drivers

​The scope for lifting productivity varies across farms and industries depending on how well farmers are currently performing and how they respond to changes in the external environment.

Productivity is affected by on farm drivers such as farm size, management skill and the financial capacity to invest in new technology.

Productivity is also affected by external factors that are not under the control of farmers. These factors include seasonal conditions, technological progress, government policy, market conditions and access to infrastructure.

For more information about the drivers of productivity growth, click on the buttons below.

On farm drivers

Farm Size

On average, the size of Australian farms has expanded over the past four decades. The number of large farms has increased while the number of small and medium farms has declined.

ABARES has found that larger farms tend to be more productive than smaller farms.  This may be because large farms benefit from economies of size, where the average cost per unit of output declines as the size of the operation increases because fixed costs are spread more thinly.

Large farms may also be relatively efficient because the developers of new technologies are likely to direct their efforts towards satisfying the needs of larger farms, and because large farms typically have the greatest financial capacity to invest in innovation.

Farm population and average farm size, all broadacre industries, Australia 1977–78 to 2014–15
This graph depicts farm population and average farm size, all broadacre industries in Australia from 1977-78  to 2014-15.
Source: Xia et.al. 2017
Note: dse is dry sheep equivalents

Key research reports

Xia C, Zhao S, Valle H, 2017, ‘Productivity in Australia’s broadacre and dairy industries’, in Agricultural Commodities: March quarter 2017, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Sheng Y, Davidson A, Fuglie K, Zhang D, 2016, Input Substitution, Productivity Performance and Farm Size, Australian Journal of Agricultural and Resource Economics, Vol. 60, Issue 3, pp. 327-347, 2016

Jackson T & Valle H 2015, ‘Profitability and productivity in Australian beef farms’, in Agricultural Commodities: March quarter 2015, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Jackson T & Martin P, 2014, ‘Trends in the size of Australian farms’, in Agricultural Commodities: September quarter 2014, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Sheng, Y, Zhao, S, Nossal, K & Zhang, D 2014, Productivity and farm size in Australian agriculture: reinvestigating the returns to scale, Australian Journal of Agricultural and Resources Economics, vol. 59, issue 1, pp. 1–23.

Sheng,Y, Zhao S, Nossal K, 2011, Productivity and farm size in Australian agriculture: reinvestigating the returns to scale,Conference paper prepared for the Australian Agricultural and Resource Economics Society 9–11 February 2011, Melbourne, Victoria

Management skill

Management skills plays a key role in productivity growth. Managers require a broad range of knowledge and skills to maximise profits given uncertainty about seasonal conditions and prices. The capacities of managers and other workers are related to factors such as age, education, training and health.

The best managers are more likely than others to make use of information and change production systems when doing so is advantageous. These changes include altering organisational structure, reallocating resources between enterprises and changing the scale and scope of production.

Key research reports

Nossal K & Lim K, 2011, Innovation and productivity in the Australian grains industry, ABARES research report 11.6, Canberra, July.

Nossal K & Gooday P, 2009,Raising productivity growth in Australian agriculture, ABARE Issues and Insights, Canberra.

Zhao, S, Sheng, Y and Kee, H 2009, ’Determinants of total factor productivity in the Australian grains industry’, Australian Conference of Economists, Adelaide, 28–30 September 2009

Financial capacity

Many of the ways to achieve productivity growth are costly, such as purchasing more efficient equipment or making changes to farm practices. ABARES farm survey results indicate that farms which are more profitable are generally more innovative, potentially reflecting their greater capacity to invest in new technologies.

Key research reports

Xia C, Zhao S, Valle H, 2017, ‘Productivity in Australia’s broadacre and dairy industries’, in Agricultural Commodities: March quarter 2017, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Nossal K & Gooday P, 2009,Raising productivity growth in Australian agriculture, ABARE Issues and Insights, Canberra.

External drivers

Seasonal conditions

Climate variability (fluctuations in temperature, rainfall and other conditions) is one of the main determinants of farm productivity. For example, generally above average rainfall between the late 1970s and mid 1990s increased cropping yields and pasture growth, boosting productivity growth. In contrast, adverse seasonal conditions during the 2000s contributed to a slowdown in productivity growth.

Australian farmers manage climate variability by adjusting their production systems as circumstances change, and by adopting new technologies and management practices. Ongoing growth in Australia’s agricultural productivity over time indicates that farmers have successfully adapted to climate variability and the challenges it creates for production.

Average climate effect on productivity levels, cropping farms, Australia 2000–01 to 2014–15
This map depicts the climate effect on productivity levels in cropping farms in Australia from 2000-01 to 2014-15 with the range of effect indicated by a colour percentage range.
Note: Climate effect is relative to the period 1914–15 to 2014–15.
Source: Hughes et al. 2017

Key research reports

Hughes, N, Lawson, K & Valle, H 2017, Farm performance and climate: Climate-adjusted productivity for broadacre cropping farms, Canberra, April.

Sheng, Y, Mullen, JD and Zhao, S 2011, A turning point in agricultural productivity: consideration of the causes, ABARES research report 11.4 for the Grains Research and Research and Development Corporation, Canberra, May

Hughes, N, Lawson, K, Davidson, A, Jackson, T and Sheng, Y 2011, Productivity pathways: climate adjusted production frontiers for the Australian broadacre cropping industry, ABARES research report 11.5, Canberra

Hughes N, Lawson K, Davidson A, Jackson T & Sheng Y, 2011, Productivity pathways: climate-adjusted production frontiers for the Australian broadacre cropping industry, Conference paper prepared for the Australian Agricultural and Resource Economics Society 9–11 February 2011, Melbourne, Victoria.

Technological progress

Technological progress is the key driver of long term productivity growth. In turn, the underlying determinant of technological progress is investment in research and development (R&D), which delivers new technologies and knowledge.

R&D conducted in Australia and overseas is responsible for almost two thirds of average annual productivity growth in Australia’s broadacre agriculture sector (Sheng, Gray & Mullen 2010).

Public investment in R&D has contributed significantly to agricultural productivity growth in Australia. ABARES estimates that every dollar invested in public R&D generates around 12 dollars of benefit within 10 years (Sheng et al. 2011).

Key productivity-enhancing technological developments in Australian agriculture include higher yielding plant varieties, more pest and disease resistant crops, better livestock genetics and superior planting and harvesting techniques.

In addition to the rate at which new technologies become available, the willingness and ability of farmers to innovate also has a fundamental effect on productivity growth.

Key research reports

Jackson T & Valle H 2015, ‘Profitability and productivity in Australian beef farms’, in Agricultural Commodities: March quarter 2015, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Jackson T & Martin P, 2014, ‘Trends in the size of Australian farms’, in Agricultural Commodities: September quarter 2014, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Gray, EM, Oss-Emer, M and Sheng, Y 2014, Australian agricultural productivity growth: past reforms and future opportunities, ABARES research report 14.2, Canberra, February.

Sheng, Y, Mullen, JD and Zhao, S 2011, A turning point in agricultural productivity: consideration of the causes, ABARES research report 11.4 for the Grains Research and Research and Development Corporation, Canberra, May

Sheng, Y, Mullen, JD and Zhao, S 2011b, Public investment in R&D and extension and productivity in Australian broadacre agriculture. Conference paper prepared for the Australian Agricultural and Resource Economics Society 9–11 February 2011, Melbourne, Victoria

Nossal K & Lim K, 2011, Innovation and productivity in the Australian grains industry, ABARES research report 11.6, Canberra, July.

Sheng Y, Gray EM, Mullen JD, 2010 Public investment in R&D and extension and productivity in Australian broadacre agriculture, Conference paper prepared for the 16th World Productivity Congress and 2010 European Productivity Conference at Antalya, Turkey, November 2010.

Carberry, P, Keating, B, Bruce, S and Walcott, J 2010 Technological innovation and productivity in dryland agriculture in Australia, A joint paper prepared by ABARE–BRS and CSIRO, Canberra, July.

Government policy

Reforming agricultural input and output markets and reducing the impact of regulations on farmers have also contributed to productivity growth. For example, the removal of marketing and price supports during the 1980s and 1990s contributed to productivity growth in the broadacre and dairy industries.

Past policy reforms have led to the amalgamation of farms, better risk management and changes in the mix of agricultural commodities produced. ABARES work shows that past reforms have encouraged the reallocation of resources from less efficient farms to more efficient ones.

Key research reports

Sheng Y and Jackson T 2016, Resource reallocation and productivity growth in the Australian Dairy industry, impactions of deregulation, ABARES technical report .

Sheng, Y, Jackson, T & Gooday, P 2016, Resource reallocation and its contribution to productivity growth in Australian broadacre agriculture, Australian Journal of Agricultural and Resource Economics, vol. 61, issue 1, pp. 56–75.

Sheng, Y, Jackson, T & Davidson, A, 2015, Resource reallocation and its contribution to productivity growth in Australian broadacre agriculture, ABARES technical report 15.1, Canberra, April.

Gray, EM, Oss-Emer, M and Sheng, Y 2014, Australian agricultural productivity growth: past reforms and future opportunities, ABARES research report 14.2, Canberra, February.

Ashton D, Cuevas-Cubria C, Leith R and Jackson T 2014, Productivity in the Australian dairy industry: pursuing new sources of growth, ABARES research report 14.11, Canberra, September.

Gray E, Leith R, Davidson A, 2014, Productivity in the broadacre and dairy industries, in Agricultural Commodities: March quarter 2014, Australian Bureau of Agricultural Economics and Sciences, Canberra.

Gibbs, C, Harris-Adams, K & Davidson, A 2013, Review of Selected Regulatory Burdens on Agriculture and Forestry Businesses, ABARES report to client prepared for the Department of Agriculture’s Agricultural Productivity Division, Canberra, November.

Gray, EM, Oss-Emer, M & Davidson, A 2013, Looking beyond the farm gate: Closer vertical coordination along value chains as a means of improving farm performance, ABARES Science and Economic Insights report, Canberra, April

Morey K 2013, Technical efficiency of irrigated dairy producers in the Murray-Darling Basin, Conference paper prepared for the Australian Agricultural and Resource Economics Society, Sydney, New South Wales, 5–8 February 2013

Market conditions

Competition between farms encourages the adoption of productivity-increasing innovations. For example, competition in international markets puts downward pressure on output prices, which provides a strong incentive for Australian farmers to reduce input costs.

Key research reports

Nossal K & Gooday P, 2009,Raising productivity growth in Australian agriculture, ABARE Issues and Insights, Canberra.

Infrastructure

Maintaining adequate access to infrastructure makes an important contribution to long-term productivity growth. Rail and road networks give farmers access to markets, while communications infrastructure is increasingly important for accessing market information, adopting innovations and improving management skills and knowledge.

Distribution of infrastructure input costs for the agriculture, forestry and fishing sector ($4.2 billion), 2008-09
Figure shows the distribution of infrastructure input costs in 2008-09 for the agriculture, forestry and fishing sector (mainly road transport, and transport, postal and storage services).
Source: Nguyen et al. 2013

Key research reports

Nguyen, N, Hogan, L, Lawson, K, Gooday, P, Green, R, Harris-Adams, K and Mallawaarachchi, T 2013, Infrastructure and Australia's food industry: Preliminary economic assessment,  ABARES research report 13.13, Canberra, November.

Nossal K & Gooday P, 2009,Raising productivity growth in Australian agriculture, ABARE Issues and Insights, Canberra.


Last reviewed:
13 Oct 2017