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Reflections on Regional Futures: Adjustment and Change in Agriculture and Regions Wendy Craik Productivity Commission Digital Rural Futures Conference Toowoomba, June 25 2014 Productivity Commission Drivers of change in Australia • • • • • • Technological changes Consumer behaviour Demography Global shocks and transformations Natural resources discoveries Government policy − cuts in assistance − end of marketing schemes − floating of dollar But rural sector is resilient Productivity Commission 2 Agriculture has continued to grow, but not as a share of the economy 40 8 35 7 2011-12 $ billion 30 6 25 5 20 4 15 Volume of output (LHS) 3 10 2 5 1 0 0 Productivity Commission Agriculture share of GDP Share of GDP (RHS) 3 There has been a trend toward larger, more productive farms 200 600 190 Total area of farms (RHS) 180 Farm numbers (LHS) 400 160 150 300 140 130 120 Million ha Thousands 170 500 200 100 110 100 Productivity Commission 0 4 Agricultural productivity growth has historically outperformed other sectors Productivity Commission 5 Mining has grown strongly in real terms, and as a share of the economy Productivity Commission 6 Mining productivity has fallen sharply in recent years, but complications… Productivity Commission 7 Resilience : mining boom vs 1970s rural commodities boom Average Weekly Earnings Consumer prices Unemployment Productivity Commission 8 Mining boom has created pressures, but has benefitted regions Productivity Commission 2012: • Reductions in regional unemployment rates • Increases in wages and salaries across all SLAs • Significant employment increases in areas such as Pilbara and Kimberley • But benefits of boom not evenly shared, and some transitory costs in boom areas (for example, higher rents) Productivity Commission 9 Risk management strengthens resilience Coefficient of variation 0.6 0.5 0.4 0.3 0.2 0.1 0 Australia Estonia Wheat Productivity Commission Germany Barley Italy United Kingdom Oilseeds 10 OECD: 3 ‘layers’ of risk 1. Normal risk: variation – prices, production and weather 2. Catastrophic risk: disease outbreak – wide area 3. Marketable risk: hail damage, some variations in market prices including insurance and futures Productivity Commission 11 Managing risk 1. Drought Support Productivity Commission 2008 • > 30% of Australia EC declared in a given year • some areas declared 14/17 years • terminate EC interest rate and transactionbased subsidies • public funding to research, development and extension for preparation, management recovery • learning to manage, climate variability • design income support for farm households Productivity Commission 12 Managing risk 2. Water trading produces benefits • Allowing water to shift to its most valued use increases productivity and overall output. • NWC (2010) found that between 2001 and 2006, the value of agricultural production in the southern MDB increased by nearly 2 % despite a 14 % reduction in water use over the corresponding period. • Also estimated that water trading in the southern Murray Darling Basin increased Australia’s GDP by more than $220 million in 2008–09 Productivity Commission 13 Managing risk 3. Supply chain efficiency critical • Approx. 60% agricultural production exported • PC 2010 – Wheat Export Marketing – access to port terminal facilities − Wheat exporters with port terminal operations could favour own trading − PC supported port access test for 5 year period then abolish, voluntary code of conduct − Legislation: voluntary code replaced by mandatory code or default access test Productivity Commission 14 Managing risk 3. Supply chain efficiency Productivity Commission 15 Managing risk 4. Need for better infrastructure decisions • Government investments in infrastructure should be transparently and rigorously evaluated • Cost–benefit analysis • Public consultation • Reporting of decisions • High costs associated with poor project selections, projects with larger expected net benefits are displaced Productivity Commission 16 Managing risk 5. Regional development policies are often ineffective • Grattan Institute (2012) • Markets are usually efficient at ensuring activity takes place where efficient • Subsidies often just redistribute activity around, but minus the value of the subsidy and the associated tax to pay for it Productivity Commission 17 Managing risk 6. Government assistance for adjustment • General social safety net • But ‘beyond normal’ changes − policy induced − region facing loss of major employers • Assistance − compensation, property rights − for new investment − capacity building • Australian Government total adjustment assistance $1b in 2011-12 Automotive (TCF, PMV largest) Rural industries Productivity Commission 18 Regional areas need to harness competitive advantages RAI Competitiveness Index • Large regional centres competitive with major capitals for technological readiness, business sophistication, infrastructure, essential services • Inner regional centres can leverage human capital, infrastructure and essential services and innovation • Outer regional centres and remote can build on their labour market efficiency, institutions and natural resources Productivity Commission 19 OECD: common factors in performance of successful regions • High performing regions: strong infrastructure, education, innovation and economies of agglomeration, geographic characteristics • Greater growth: mobilisation of local assets and resources − independent of national government support • Underperforming regions: bottlenecks and unique characteristics − Infrastructure, human capital, business environment, innovation, economic diversity, demography Productivity Commission 20 How do we build resilience? • Strong and effective leadership • Removal of impediments to adjustment/adaptation • Build on strengths • Appropriate allocation of decision making • General social safety net • Efficient infrastructure • Human capital • Geographic characteristics Productivity Commission 21 Questions www.pc.gov.au Productivity Commission 22