Productivity is defined as the ratio of output to input. For example, labour productivity can be measured as the ratio of total output to hours worked. Yield is a measure of land productivity.
ABARES preferred measure of productivity is total factor productivity (TFP), also known as multifactor productivity (MFP). This measure captures all outputs (such as crops, livestock, wool and dairy products) and inputs (labour, capital, land, materials and services) used in production. TFP is a better indicator of productivity because it has a more comprehensive coverage of inputs than other productivity measures.
ABARES has estimated TFP for broadacre agriculture industries since 1977-78 and for the dairy industry since 1978-79. We use the growth accounting method to aggregate outputs and inputs from individual farms to the industry level.
TFP is measured as the ratio of total output to total input. Output is measured as an aggregate index of crops, livestock, wool, dairy and other farm income; input is measured as an aggregate index of land, capital, labour, materials and services. We use the Fisher index when aggregating inputs and outputs. In the long term, TFP growth reflects changes in efficiency and technological progress. Short term variation in TFP can also be caused by other factors, such as changes in seasonal conditions. As such, caution should be used when interpreting year-to-year movements in TFP estimates.
Fisher index method
To measure TFP, total outputs (number of steers, tonnes of wheat, litres of milk etc) are compared to total inputs (hours worked, number of tractors, hectares of land, etc). Because the outputs and inputs are often measured in different units, they cannot simply be added up. So an index formula is needed to measure TFP. ABARES uses the Fisher index method to create the TFP index.
The Fisher index method uses the quantity and price of each output and input to create the TFP index. The quantity of each item is weighted by its price (or share of total value) before being aggregated. Although prices are used as weights to develop the index, TFP is not a measure of profit. It remains a volume or quantity measure of the relationship between output and input quantities.
ABARES uses the Fisher index method because this index formula satisfies more desirable mathematical (or axiomatic) properties than most other index formulas. This index can also represent a wide range of farming technologies and accords with some key economic assumptions and behaviours—such as cost minimisation, constant returns to scale and perfect competition. The Fisher index is well suited to handling the inputs and outputs recorded in ABARES survey data. For example, ABARES data contain many zero entries, which some other indexes (such as the Tornqvist index) cannot handle.
For more details on the Fisher index method see Gray et al. 2011 and Zhao et al. 2012.
TFP estimates for the broadacre and dairy industries are derived from data collected through ABARES farm surveys. The surveys cover approximately 1,600 broadacre farms and 300 dairy farms each year.
The ABARES surveys collect physical and financial information from farms. This data is transformed into categories of outputs produced and inputs used by each farm. The TFP index includes 13 farm outputs which are grouped under 3 broad product categories (crops, livestock, wool and other) for the broadacre industries, with an additional category for the dairy industry (fresh milk). The index includes 26 inputs, grouped into 5 broad categories (labour, capital, land, materials and services).
Data on the prices of outputs and inputs are sourced from ABS publications and ABARES Australian Commodity Statistics.
For more information on the variables see Zhao et al. (2012) and Gray et al. (2012).
ABARES reports on productivity for the broadacre and dairy industries. The broadacre industry includes non‑irrigated cropping, livestock and mixed livestock-cropping farms. These industries accounted for about 60 per cent of the total gross value of Australian agricultural production in 2014–15.
Industries are classified in accordance with the Australian and New Zealand Standard Industrial Classification (see Box). A farm is classified into a particular industry if more than 50 per cent of the farm’s receipts are generated by that enterprise. Farms that do not meet this criterion for any single enterprise are considered mixed livestock–crops farms.
Australian and New Zealand Standard Industrial Classification (ANZSIC)
Crops industry (ANZSIC06 class 0146 and 0149)—farms engaged mainly in growing cereal grains, coarse grains, oilseeds, rice and/or pulses.
Mixed livestock–crops industry (ANZSIC06 class 0145)—farms engaged mainly in running sheep or beef cattle (or both) and growing cereal grains, coarse grains, oilseeds and/or pulses.
Beef industry (ANZSIC06 class 0142)—farms engaged mainly in running beef cattle.
Sheep industry (ANZSIC06 class 0141)—farms engaged mainly in running sheep.
Sheep–beef industry (ANZSIC06 class 0144)—farms engaged mainly in running both sheep and beef cattle.
Dairy industry (ANZSIC06 class 0160)—farms engaged mainly in farming dairy cattle.
ABARES productivity measures currently exclude horticulture (vegetables, fruit, tree nuts, mushrooms, nursery and floriculture), other crop growing (sugar, cotton), deer and other livestock.
Key research reports
Sheng, Y & Jackson, T 2015, A manual for measuring total factor productivity in Australian agriculture, ABARES technical report 15.2, Canberra, October.
Zhao S, Sheng Y & Gray EM, 2012, Productivity of the Australian Broadacre and Dairy industries: concept, Methodology and Data, in Productivity Growth in Agriculture: An international Perspective, Editors: K.O. Fuglie, S.L. Wang, V.E. Ball, pp.73-107, CABI, Wallingford.
Gray, E, Jackson T, Zhao S, 2011, Agricultural Productivity: Concepts, measurement and factors driving it, ABARE-BRS report to RIRDC, report number 10/161.
Gray, E, Jackson T, Zhao S, 2011, Agricultural productivity: concepts, measurement and factors driving it (summary) ABARE-BRS report to RIRDC, report number 10/170.