This Insights report describes the current state of Australian agriculture, with the aim of providing key information and statistics in one place. It covers eight key aspects of Australian agriculture: its role in the broader economy, trends in production, industry structure and productivity, climate change impacts and risk management, agricultural employment, government support, trade and impacts of the COVID-19 pandemic.
Agriculture's place in Australia
Australian agriculture accounts for:
- 55% of Australian land use (427 million hectares, excluding timber production, in December 2020) and 24% of water extractions (2,746 gigalitres used by agriculture in 2019–20);
- 12% of goods and services exports in 2020–21;
- 1.9% of value added (GDP) and 2.5% of employment in 2020–21 (Figure 1).
The mix of Australian agricultural activity is determined by climate, water availability, soil type and proximity to markets. Livestock grazing is widespread, occurring in most areas of Australia, while cropping and horticulture are generally concentrated in areas relatively close to the coast (Figure 2).
Agriculture accounts for over half of Australia’s land use so the sustainable management of this land is an important issue for both farm businesses and the general public.
There are many sustainable land practices that have become standard for Australian farmers (Coelli 2021). For example:
- many broadacre cropping farms retain stubble (85% of farms), minimise tillage (68% of farms) and optimise the use of (and reduce reliance on) pesticides or fertiliser (65% of farms).
- many livestock farms are using a variety of grazing management systems such as cell, strip or rotational grazing (61% of farms) and setting a long-term groundcover requirement (61% of farms).
Australia has a diverse agricultural, fisheries and forestry sector, producing a range of crop and livestock products (Figure 3). The gross value of agricultural, fisheries and forestry production has increased by 7% in the past 20 years in real terms (adjusted for consumer price inflation), from approximately $70 billion in 2001–02 to $75 billion in 2020–21 (Figure 4).
Drivers of growth in the value of output over the past 20 years vary by sector.
- In cropping, long-term falls in real prices have been offset by volume growth, as producers have improved productivity by adopting new technologies and management practices.
- In livestock, higher prices have been the main driver of growth (Figure 5), reflecting growing demand for protein in emerging countries and also some temporary factors, such as drought in the United States and disease outbreaks such as African Swine Fever in meat importing countries.
In 2019–20, there were 87,800 agricultural businesses with an Estimated Value of Agricultural Operations (EVAO) of $40,000 or greater in Australia (ABS 2021a). There were an estimated 55,700 broadacre and dairy farm businesses in 2019–20. Of these, 64% were classified as livestock farms, 26% cropping farms and 10% dairy industry farms. There has been a reduction in the number of farm businesses over time as average farm sizes have increased (Figure 6). There has also been a change in the mix of farm types, with more substantial adjustment in the cropping and dairy sectors.
Australian farmers have historically achieved strong productivity growth, increasing the volume of output produced from a given set of inputs. Agricultural productivity growth has been stronger over the long term than what has been seen in most other sectors of the Australian economy. It has also been comparable to farmers in other high income countries. This growth has been driven by improvements in technology and structural change.
Industry-level trends in performance are increasingly driven by the largest and most productive farms. Large farms – those with receipts above $1 million per year in real terms – have increased their share of total farm numbers from around 3% to 15% over the past 4 decades. While accounting for only 15% of the farm population in 2019‒20, large farms contributed to 72% of total farm income and accounted for 60% of the total value of output (Figure 7).
A range of factors has supported the increased share of large farms and while smaller farms are less profitable on average than their larger counterparts they compare favourably with the average Australian household, with comparable income, lower debt and greater net wealth (Chancellor & Zhao 2020).
As the number of farms has decreased, farm sizes have increased in terms of both total receipts and land area. Increased farm size has also supported improved productivity through several channels: access to better technology; better and more flexible labour management (which supports higher labour productivity); better knowledge management; and diffusion of better farm management practices. All these changes have been enabled by the deregulation of most agricultural markets and economy-wide microeconomic reforms.
Productivity growth is also essential for maintaining and improving international competitiveness. In past decades, it has served as a means of offsetting longer term declines in real prices received for farm commodities on global markets and declines in farmers’ terms of trade more generally (changes in prices received for outputs relative to prices paid for inputs). Increasingly, productivity growth is providing a means of offsetting the effects of a changing climate on agricultural production (Figure 8).
The impact of a changing climate presents different adaptation challenges for different agricultural industries, reflecting differences in location, agronomic systems and the different adaptation options available as well as their potential benefits. For example, broadacre winter cropping is very sensitive to changing rainfall patterns and since 1988-89 productivity growth in that sector has averaged 0.7% per year, despite challenging climatic conditions, including several periods of prolonged drought. When this climate variability is accounted for with a ‘climate adjusted’ productivity estimate, average annual productivity growth averages 1.2% per year. The difference in the growth rate of the two series reveals the additional productivity growth that has been required to offset the effects of the trend towards poorer climatic conditions. While the difference in annual rates appears small, the compounding effect over time shows a large difference in underlying sector performance.
Labour is a key input to Australian agriculture. Statistics from the latest Australian Bureau of Statistics (ABS) Labour Force Survey (LFS) (ABS 2021c) indicate that the Australian agriculture, fisheries and forestry sector employed 318,000 people on average over the 4 quarters to November 2021. However, the ABS LFS only focuses on the Australian resident civilian population and is therefore an underestimate of total agricultural employment due to the significant number (greater than 35,000) of overseas workers employed on farms who may not be captured in the LFS.
ABARES estimates that broadacre, dairy and horticulture farms account for over 88% of total agricultural employment in Australia and on average horticulture farms employ more workers per farm than other industries.
Variation in total employment on farms throughout the year occurs almost entirely through changes in the use of casual and contract labour. The total number of casual and contract workers employed on farms peaks in late summer and is at its lowest in late winter, reflecting the timing of relatively labour-intensive operations, such as planting and harvest. Horticultural farms tend to use relatively large amounts of casual and contract labour at key times of the year, while broadacre and dairy farms tend to use this kind of labour to a lesser extent and more consistently through the year.
The effects of COVID-19 on the Australian agricultural workforce have been most directly felt in the horticulture sector. ABARES survey data indicate that the total number of workers used by Australian horticulture farms declined by around 8% (11,000 workers) from 2019–20 to 2020–21 (ABARES 2021). Horticulture farms typically rely on a mix of overseas workers in their peak labour use period, consisting primarily of Working Holiday Makers (WHMs) and Pacific Australia Labour Mobility workers (Figure 9). Statistics from the Department of Home Affairs show there were 18,000 WHMs in Australia in January 2022, down 87% from 141,000 WHMs in January 2020. ABARES estimates that around 25–30% of all WHMs were employed in horticulture before COVID-19.
Australia exports around 72% of the total value of agricultural, fisheries and forestry production. Export orientation of each industry can vary by commodity type. Wheat and beef, which are large sectors, are more export-focused than dairy, horticulture and pork (Figure 10).
In real terms the value of agricultural exports has fluctuated between $40 billion and $60 billion since 2001–02 (Figure 11). Meat and live animals has been the fastest-growing export segment, growing 33% in value terms over the period, followed by horticulture up 31% and grains and oilseeds up 13%.
Global agricultural demand is growing strongly, reflecting rising per capita incomes as well as population growth, but export competition is also increasing. Asia is the fastest growing export region for the Australian agriculture, fisheries and forestry sectors.
- Exports to Australia’s eight largest markets in Asia increased by 27% to $28 billion over the 20 years to 2020–21 and accounted for 53% of the total value of agricultural, fisheries and forestry exports in 2020–21.
- China is Australia’s largest export market for agricultural, fisheries and forestry products, at $12 billion in 2020–21. Exports to China are worth about 3 times what they were in 2001–02.
- Asian demand is projected to continue to grow, reflecting population growth, income growth and urbanisation-led changes to consumption patterns, providing opportunities for exporters of high-value, high-quality agricultural and food products.
Australian agricultural producers manage significant variability, including a highly variable climate and volatile commodity prices. These factors generate substantial variation in farm output and incomes, greater than that experienced by farmers in most other countries and greater than that experienced by business owners in other sectors of the Australian economy (Keogh 2012).
In recent decades, Australia has seen a trend towards higher temperatures and lower winter rainfall, directly impacting industry performance. However, there is still much uncertainty over the long run impacts of climate change on Australian agriculture. Climate model projections provide some insight into the range of climate futures, and adaptation pressures, farmers may face.
ABARES has undertaken modelling to estimate the potential effects of deteriorating climate conditions on Australian farms (Hughes & Gooday 2021). This modelling estimates the impact on farm profitability under various climate scenarios called Representative Concentration Pathways (RCPs). The RCP8.5 scenario assumes limited curbing of global emissions. Alternatively, the RCP4.5 scenario assumes a more rapid reduction in global emissions1. As the analysis does not account for the offsetting positive effects of farm adaptation or technological improvement (or any changes in global commodity prices), the results are not projections of likely outcomes in 2050, but rather estimates of ‘adaptation pressure’: identifying which regions, sectors and farm types are likely to be under more pressure to adapt.
Average farm profits of Australian farmers declined by 22.6% under the recent climate scenario relative to historical climatic conditions (Figure 12). Simulated changes in average farm profits under the Future RCP4.5 scenario is projected to range from –31.9% to –2.0%, and for the RCP8.5 scenario is projected to range from –49.9% to –10.7%.
Cropping farms in western Australia are more heavily impacted than other regions under both future climate scenarios, mainly due to the more substantial projected declines in winter rainfall and the resulting effects on crop yield (Figure 13).
Projected impacts in the beef and sheep sectors under the RCP4.5 scenario remain relatively modest. For most scenarios changes in profit are smaller than those observed under the recent climate period. However, impacts in the livestock sector become much more significant under the RCP8.5 scenario due to the larger projected temperature increases.
Australian farmers have a number of effective strategies for managing risk, including maintaining relatively high levels of equity, liquid assets and borrowing capacity, using inputs conservatively, diversifying across enterprises and locations and earning off-farm income.
Liquid assets are important for agricultural businesses in complementing farm household income (farm cash income plus off-farm income) when dealing with periods of low income, such as during drought. These funds are also often used as working capital to finance post-drought crop planting and herd and flock rebuilding. Many broadacre farms have substantial holdings of liquid assets relative to farm household income (Figure 14) that makes them well placed to withstand short term downturns in income, although there is wide distribution across farms.
In addition, many farms are using land management practices aimed at increasing drought resilience. Specifically, de-stocking early in low rainfall periods to preserve groundcover (68% of farms), improving soil water retention (64% of farms) and increasing fodder and grain storage (58% of farms) (Coelli 2021).
Lending to the farm sector in recent years has been supported by continued growth in agricultural land values and comparatively high farm equity. For example, ABARES farm survey data show that the farmer-estimated average value of broadacre and dairy farms (on a per hectare basis) increased by around 3% in 2019–20. However, the average equity ratio across this group of farms – that is, the ratio of owned capital to total capital – was largely unchanged (Figure 15).
Well-managed farms are better prepared for droughts and other risks, such as global price shocks, and not all farmers in regions affected by drought experience economic or financial hardship. For example, over the past 20 years an average of 46% of broadacre farms generated more than $50,000 (in real terms) in farm cash income in a given year. But this proportion varied substantially with seasonal conditions and prices. In the 2006–07 drought year, just 33% of farms generated more than $50,000 income, whereas 52% of farms managed to do so in the 2019–20 drought year.
The RCP8.5 scenario assumes limited curbing of global emissions, such that CO2 concentrations reach around 540 ppm (parts per million) by 2050. Alternatively, the RCP4.5 scenario assumes a more rapid reduction in global emissions – peaking by 2040, and CO2 concentrations reaching around 485 ppm by 2050.
Government support of Australia's agricultural sector is very low compared to the 37 member countries of the Organisation for Economic Co-operation and Development (OECD) and other major emerging agricultural producers (Greenville 2020). The average level of support (as a share of gross farm receipts) for all countries was 15.1% between 2018 and 2020, compared to Australia at just 2.5% (Figure 16).
Australia's national competition policy and pro-competitive reforms have resulted in lower agricultural support over time. These reforms have been consistent with Australia's obligations to the World Trade Organization. Government support for agriculture is primarily via investments in sector capacity, such as research and development. Tools such as farm management deposits and income tax smoothing help farms manage risks that can arise from Australia's variable climate.
Australia’s reform experience shows that deregulating the agriculture sector and removing distorting forms of support spurs overall sector growth, increasing participation in global markets and the contribution that agriculture makes to the rural and national economy.
Over the past 15 years, Australia's trade agreements have provided access to new and growing markets, and have supported the competitiveness of our products abroad (Duver & Qin 2020). There are only a few of Australia’s major trading partners where a preferential trade agreement is not yet in place. These include the European Union, India and the United Kingdom. Negotiations with these trading partners are underway.
The existence of multiple agreements provides options for exporters and reduces the risk associated with exports being concentrated in relatively few markets. However, some commodity exports remain highly concentrated (Figure 17). This may be driven by prices or the composition of the global supply chain such as the location of processing capacity. For example, in 2020–21, exports of wool to China, a processing hub, accounted for 90% of total Australian wool exports.
The pursuit of Free Trade Agreements (FTAs) with new partners will remain of key importance to Australia's future trade agenda, as will the ongoing review and upgrade of existing FTAs to ensure they continue to support our competitiveness.
COVID-19 has been a major event for Australia’s economy. However, the agricultural sector demonstrated an ability to adapt (Greenville, McGilvray & Black 2020). Because food is an essential good, overall demand has not fallen significantly. What has changed since the pandemic began are the types of foods being demanded. Demand has shifted away from high-value products typically consumed in the hospitality sector (e.g. wine and seafood) to foods consumed at home.
Disruptions to domestic and international food supply chains early in 2020 were resolved quickly, allowing agricultural trade to remain resilient through the pandemic. International food processors continued to operate and demand Australian products as inputs.
More recently, COVID-19 has disrupted international container and air freight routes, resulting in higher costs and increased transit times. Australia exports to a range of international markets using bulk carriers, containers and air freight. Freight costs for bulk and container freight increased during the first half of 2021, which contributed to higher prices for agricultural commodities. These higher costs are unlikely to have a strong influence on demand for most Australian agricultural products since other exporters are facing similar price increases (Figure 18).
One of the continuing challenges of COVID-19-related travel restrictions has been the reduced availability of farm workers from overseas. Horticultural and meat processing industries have been most affected by the reduced number of overseas workers. The result has been increased costs of production and potentially lower horticultural production, as some producers have found it difficult to secure harvest labour.
Alongside COVID-19-related disruptions to trade, agricultural exporters have faced changes in international trade conditions. Duties introduced by China on imports of Australian barley and wine have resulted in a realignment of Australian export destinations. Exporters have so far proved adept at diversifying into new markets. Access to alternative markets ensures that exports continue, although not necessarily with the price premiums found in the Chinese market.
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