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CHINA, THE OECD AND AUSTRALIAN AGRICULTURE

There is a need to put the trade relationship between Australia and China into perspective. Particularly as far as food imports from China are concerned.

Australia is a major supplier of iron ore and other minerals as well as coal and gas to China. We are now as dependent on them as they are on us. Without this market we would be less well off than we are now, especially in Western Australia and Queensland.

In return we find in our shops an ever-increasing quantity of goods of all kinds, which have been made in China. This is called reciprocal trade. For some time Australia and China have been negotiating a Free Trade Agreement (FTA). If this occurs we cannot expect the volume of goods manufactured in China to decline.

A great deal has been said and written about food from China being imported into Australia. Some say the data published on the value of this food is wrong because China is using New Zealand, or the New Zealanders are using China, to get food into Australia. Our ‘Country of Origin’ (COOL) laws are a mess. In this instance, the country or origin for the food from China appears in Australia, to be food from New Zealand. We do have an FTA with New Zealand.

Can we expect the importation of food from China into Australia to decline? It would appear not. The following appeared in ‘China Today’ in June of 2010:

"The rise in some sectors has been so fast that it almost defies description," said Scott Rozelle, Cheung Kong Scholar and guest professor at Beijing's Renmin University of China. "Every two years China adds the equivalent of the vegetable production capacity of California. The cultivated area dedicated to fruit orchards is more than 5 percent, more than double the share of the next closest major agricultural nation, including the US, the European Union, Japan and India. There has also been a continuous and rapid rise in livestock and fisheries."

In March Premier Wen Jiabao announced plans to allocate 818.3 billion yuan for agriculture, farmers and rural areas, an increase of more than 93 billion yuan over last year, and said local governments would also increase their investment. He said the government would spend 133.5 billion yuan to subsidize agricultural production, a year-on-year increase of 6.04 billion yuan.

A couple of years ago it was estimated that just a 3% increase in horticulture in China would be sufficient to provide all Australia’s needs.

In October 2010, the Australian Food and Grocery Council and the consultancy firm KPMG got considerable publicity for a report that Australia was importing more food than it was exporting.

This report caused considerable anxiety within the Australian horticulture industry and Australian agriculture.

The report was seized upon by some of the mainstream and agricultural media, most notably the ABC. Emotions ran high with reports that Australia was being swamped by cheap, subsidized food from around the world, especially from China.

Was the sword of Damocles about to fall on Australian food production? Were we about to become dependent on other countries for our food?

The trouble was that the report was wrong.

In December of the same year ABARE set the record straight. Their report received no publicity that I am aware of. The belief is still out there that Australia is a net importer of food.

In the December edition of ‘Australian Commodities’ on pages 647 and 648 the bureau detailed in a small report the value of Australia’s food imports and exports for the previous two years. They also showed how export values are calculated:

“Australia’s food exports were valued at $28.1 billion on board ship in 2008–09, while the value of food imports was around $10.4 billion in the same year.

“Recent data show that exports and imports declined to $24.3 billion and $10.1 billion, respectively, in 2009–10.

“A significant proportion of Australia’s food exports consists of unprocessed or minimally transformed food products, such as wheat, coarse grains, oilseeds, live animals and fish and shell fish, that have relatively low unit values.

“In contrast to Australia’s food exports, the substantially and elaborately transformed products with much higher unit values comprise most of food imports.

“These substantially and elaborately transformed products accounted for around 93 per cent of the value of imports in 2009–10.”

In just a few words, ABARE summed up Australian food and for that matter, fibre exports if we think about it. It told us that little has changed since farming began in Australia.

We still do what we have always done. That is, we add little if any value to the food and fibre we produce for export.

We have witnessed the rapid and if not terminal decline in our food value adding industry, particularly in Tasmania and the Goulburn Valley.

As we all know and what a short examination of the food on supermarket shelves will confirm, we import, in the main, food that has been through a process of value adding.

It is easy to find confectionary from the Netherlands and the United Kingdom; breakfast cereals and potato chips from the USA; cans of tomatoes from the EU. Some even say that some of the beef we export to the USA in boxes comes back to us in cans.

As ABARE stated, 93 per cent of our food imports had been elaborately and substantially transformed. That is ‘bureau’ speak for having had value added to it. Remember too, those numbers include food imports from China. So we are hardly being swamped by fresh Chinese fruit and vegetables.

There is another Government publication, which is worth a read. Food Statistics 2007 may now be a little out of date but it does give us a window on what countries we were importing food from in that year.

Examination shows that the total value being imported in 2007 when compared to 2009/10 remained at around $10b annually.

In 2007 we imported about 7% of our total food imports from China. I cannot be precise as the histogram is in 5% graduations.

It may come as a surprise but in the same year we purchased some 6% of our imports from Ireland, and before anyone even thinks it, the statistics do not include liquor. So that excludes Guinness and Irish whiskey from the numbers!

Imports from Thailand were about the same as those from Ireland.

Interestingly, imports from the United States were greater than those from China by about 2%, maybe a little more.

Imports from New Zealand, at about 18% of all imports gives some currency to the debate about Country of Origin Labeling (COOL) and as to whether China is using New Zealand as a staging point to re-package food for the Australian market.

So what is the ‘take home message’ out of all this?

Quite simply, the evidence is there for all to see. Over the last thirty years or more we have gradually and progressively given up on adding value to our farm produce both for export and far more importantly, for home consumption.

As the producers of food (and fibre) we have watched this happen. Let’s face it, we have allowed it to happen. It has gone. Other countries have filled the gap.

We have been left being nothing more than commodity producers for food exports and we have watched our share of our value added home food market decline and done nothing about it.

During the same period, successive Australian Federal Governments have complained to the rest of the world about the extent and the size of the subsidies they have paid to their farmers and to the exporters of food produced by those farmers.

All to no avail, the rest of the world maintained or increased subsidies.

So our politicians adopted another tack and they have succeeded in convincing us that there is something rather grand about being subsidy free farmers. ‘Clean and Green’. ‘The most efficient farmers in the world’, and so on and so on… It has been repeated so often over the years, that we now believe it to be true.

In my opinion, it is no good being the most efficient farmer in the world if you cannot make a profit.

In 2010 ABARE funded by the GRDC produced a report called Australian Grains.

Financial performance of grains producing farms, 2007–08 to 2009–10.

To the best of my knowledge this report, conducted by a federal government agency and funded by the GRDC, which in turn is funded by grain growers, received no publicity.

The lack of publicity is not surprising when the financial performance of all grain farmers is examined. Over the three years 2007/8, 2008/9, 2009/10 the percentage of growers showing a negative farm business profit is 50%, 60% and 61% respectively.

As far as the holy dollar is concerned the numbers are even more disturbing. Over the same three years all grain farmers showed a farm business profit of minus $1,500, plus $24,500 and minus $15,500.

The year 2009/10 was an estimate based on the average yield over time and the ABARE forecast price. As we all now know Mother Nature interfered with the economists view of the future. WA, our biggest grain-growing state, suffered a drought. For many on the other side of the country too much water at the wrong time played havoc with yields. So the numbers above will probably turn out to have been optimistic.

The OECD represents the 30 most industrialised countries of the world, including Australia, New Zealand and the U.S. and most members of the EU, but not China or Japan.

Farm subsidies in both the EU and the USA amounted to somewhere between 20% and 23% of farm receipts in 2010 according to OECD figures.

There has been little change over the last eighteen years. In the OECD, farm subsidies as a percentage of GDP have remained at about 0.35%.

Dollar values are hard to determine due to currency value fluctuations, but there is a new book out called ‘A Billion Dollars a Day’. So maybe that gives us some idea of what the rest of the world, including China, pays to their farmers to keep them in business. (I have it on order.)

The latest figure available for OECD countries, which is an estimate, is a staggering US$281 billion in agricultural subsidies for 2008. OECD subsidies increased in 2009.

What can we do about all this?

1. Give every politician, irrespective of party, a great big reality check or a kick in the pants or both. That includes BJ. Make them look at the numbers and come down off their opportunistic soapboxes. Then make them look again in case they don’t understand.

2. Give every so-called farm leader the sack for not revealing as I have, what is only the tip of the iceberg regarding the poor financial health of Australian agriculture.

3. Stand by for China to get serious.

Replies to This Discussion

Permalink Reply by Colin J Ely on February 1, 2011 at 7:54pm

In The Australian today was a story from an investment adviser that Agriculture was the next big thing to get into.

Permalink Reply by Bob Stewart on February 1, 2011 at 8:44pm

Roger, this is great. A fascinating read.

It has been a constant observation in my 22 years in Asia that the 25 million extra souls to our North every 3 months (U.N) will occupy a bit more of their own paddy and arable food lands reducing the local capacity to produce the extra quantity of food. Does that have an impact on the reasons behind the large purchase of our farmlands? I think so.

.......Because those extra 25 million will grow up in their societies, better educated, a little more affluent and will not accept a life of stoop labor in the paddy. The demand for beef, as measured by the live trade not so much lamb except to the Middle East, and bread and breakfast food grains with milk products. These signal a cultural change.

I have long been an advocate to phase out the live trade within 2 years and in respect to the buy up of our food lands, a 20% withholding tax on export values as a means of recovery on all foreign owned farm lands where product is at present shipped to the parent.

........Because I see the need to shift rapidly from being the Mother Lode for the rest of the world that is expanding by another 2.9 billion extra consumers within 35-40 years (U.N.) to a value added provider. The key to that situation is energy. Hence the call shared by Gen Cosgrove for nuclear power. We do not have enough energy for a shift to processed finished product. "The next big thing to get into" (The Australian)

Bob Stewart

Permalink Reply by Rowell Walton on July 17, 2011 at 3:53pm

Roger, a real good read, the play with statistics...and how much agricultural production do we export, so what choices do we have with policy.

Roger the theoretical reason is Engles law, a Ben Rees storey, what to do about it is debated, EU wrote into its constitution a caluse which required it see its farmers shared in the growing economy...read did ok like everybody else, the method used may have been inapropriate as it led to mountains of food, the US uses its own method and Australia had our own version for a time till consecutive governments unwound it and left us exposed to the worse effects of Engles Law.

If you want a party which wants to adress this come join me and Bob Katter at the Australia Party, we intend to make a difference.

We are among the forgotten people and we need a party that is determoned to select candidates and build a party for change.

Good to see your still at work,I had some exteral shock mate, I am one of the larger graingrowers you mentioned above, the numbers are real for me and we added a large shock with the flood which surprised us all with its extemes in 2010. We cannot grow grain unless something happens, the idea the world will run out of food is so much crap it makes me ill, just pay us a profit and we can do the job. am surprised this ABARE or for that matter GRDC info was not printed in the mainstream...not really i suppose.

Come join the main game...make a difference..rw

Permalink Reply by Bob Stewart on July 17, 2011 at 6:33pm

Is the Main Game yet to be played out?

The following is from one of the side courts and is relevant to the Greens "all renewables by 2020" mantra, biofuels being one of them. I record it here for information of the reader just in case Gillard cannot continue without the Greens.

The University of Illinois ongoing biofuels study estimates that the world has more than 702 million hectares of marginal land suitable for growing biofuels. The researchers assessed land around the world based on its soil quality, slope, and regional climate. They added degraded or low-quality cropland but ruled out any good cropland, pasture, or forests; they also assumed no irrigation. They came up with the surprising total 2.7 million sq. miles of marginal land that could be available for switchgrass or other biofuel crops.

But the Illinois team didn’t, apparently, factor in a 2010 Stanford University study that found plowing new cropland anywhere in the world would sharply increase the level of greenhouse gases in the atmosphere. Plowing would release massive amounts of soil carbon —mostly as nitrous oxide, a greenhouse gas with 300 times more impact than CO₂. The Stanford conclusion was that the 6.6 million square miles of lands not plowed because of the higher yields from the Green Revolution prevented the release of greenhouse gases equal to one-third of all the industrial gases emitted worldwide since 1850!

Modern farming—with it’s nitrogen fertilizer, pesticides, no-till herbicides and high yield seeds— the most effective anti-greenhouse-warming project ever implemented by mankind. It is, in fact, the only human project that has ever forestalled a major increase in human-emitted greenhouse gases. Europe, for example has not reduced its greenhouse emissions at all since 1997 despite the Kyoto Treaty.

If we consider both studies valid, there is a problem not only of understanding, All this untouched biofuel land if it were to be plowed , the Stanford soil carbon figures tell us, this would be the worst aggravation of greenhouse gases ever. Stanford says in effect we should plow only as much cropland as we urgently need for human food, and leave the rest to wildlife.

The Illinois paper did note a class of low-impact, high-diversity perennial grasses that could be overseeded on the existing grasses without plowing (not included in the 702 M hectare estimate). Unfortunately, the perennial-grasses ethanol yields are dismal. Plus, harvesting costs would be very high. Factoring in the cost of road-building and the highway fuels needed for transporting the harvest, it is hard to see that there would be a net gain in fuel, and there would certainly be a net loss to wildlife.

All of this focus by the Greens on biofuels is understandable as alternatives, perhaps urgent alternatives, to fossil fuels. Current U.S. and EU ethanol mandates to produce these fuels have already produced two huge food-price spikes in the past three years, causing political unrest around the world. Japan says it has spent $78 billion on biomass projects in the past six years—with no measurable impact on its global warming emissions.

Let’s remember that the world’s temperatures have officially increased by a net of only 0.2 degrees over the past 70 years. Even that warming assumes we actually believe the “adjusted” temperatures in the “official” records kept by James Hansen’s NASA and the discredited University of East Anglia. Having produced the seriously flawed computer modeling predictions of flooding of coastal communities, islands disappearing into the Pacific and the North Pole getting too hot for Polar Bears that led to the failure of Copenhagen.. Climate change was replaced by global warming in turn replaced by greenhouse gases and now back to climate change with Ministerial status.

Let’s burn our newly-abundant natural gas and perhaps coal seam gas and more development of the hot rocks instead of the biofuels, put nuclear higher on the wish list, start leaving coal in the ground until a cleaner use is found for it and don't get too augasmic about solar or wind power to energize the grid..Let the marginal timbered lands remain untouched.

Respectfully.

Source:

Ximing Cai, “Land Availability for Biofuel Production” Published on Civil and Environmental Engineering at the University of Illinois (HTTP://cee.illinois.edu)

Roger, a real good read, the play with statistics...and how much agricultural production do we export, so what choices do we have with policy.

Roger the theoretical reason is Engles law, a Ben Rees storey, what to do about it is debated, EU wrote into its constitution a caluse which required it see its farmers shared in the growing economy...read did ok like everybody else, the method used may have been inapropriate as it led to mountains of food, the US uses its own method and Australia had our own version for a time till consecutive governments unwound it and left us exposed to the worse effects of Engles Law.

If you want a party which wants to adress this come join me and Bob Katter at the Australia Party, we intend to make a difference.

We are among the forgotten people and we need a party that is determoned to select candidates and build a party for change.

Good to see your still at work,I had some exteral shock mate, I am one of the larger graingrowers you mentioned above, the numbers are real for me and we added a large shock with the flood which surprised us all with its extemes in 2010. We cannot grow grain unless something happens, the idea the world will run out of food is so much crap it makes me ill, just pay us a profit and we can do the job. am surprised this ABARE or for that matter GRDC info was not printed in the mainstream...not really i suppose.

Come join the main game...make a difference..rw