Phillip Glyde, ABARES, Part 2 - 'Outlook for Australia's commodity sector'

Uploaded by Abaresoutlook2011 on 20.03.2011

What you can see there is that roughly 2/3 of productivity growth
by our estimates, came from Pubic Research Development and Extension.
They're the blue and green sectors there. The green sector there shows a
3rd of the productivity growth we enjoyed over that 55 year period
came from spill ins from innovations and
technology from overseas. That's the benefit
of the research that we pick up when we adopt that technology.
Another roughly a 3rd, comes from the Public Investment in Research
Development and Extension in this country. And finally another 3rd,
comes from other factors such as the things I mentioned earlier on, the macro economic conditions,
the external factors, but also importantly from the investments
that the farm sector makes itself in our Research Development and Extension.
It's also very interesting to note the very significant role that extension plays in the
Australian experience there. 14% are roughly about 1/2
of the gain that we have got from Research Development and Extension has actually come
from the extension part. Which we think is quite significant,
Little bit of a detour, and I'm sorry about this, in to a bit of theory or abstraction
at least any way. Really just wanting to explore this question of
incentives for productivity growth. The production fontier there simply
trying to show that you can combine inputs to produce a certain amount of
outputs, but after a while diminishing return sets in
it's hard to put inputs with known techology. The best farms in the country
that little blue dots sitting on that production frontier.
They're the leaders, they can't improve their production any way, they're right at the
edge of the frontier. What a new innovation does is enable that
production frontier to move out so that the same farm can produce more
from the same amount of input. So we use less inputs to produce the same amount.
What we have found in our research though is that
not every farm is sitting on that first production
Frontier. And what we have actually found is that it's quite easy,
well maybe not easy, but it is possible for farms to catch up to improve
their productivity, by simply catching up with the best farms.
I guess the key message from our research is that over the last 30 years
the difference between the best farms and the average farms has been widening.
The gap has been widening. The average farm
has been falling behind the best farms at a rate of about 0.3%
a year for each of the last 30 years.
Clearly something's happening. Clearly there's some incentives
that aren't being taken up or some disincentives for movement.
Some of those disincentives might be things like
farm size, slower rates of structural adjustment in the
sector. Aging farm managers, there has been a whole lot of thing that have been
postulated and there's reasons for that. Another factor that might be playing
a role, though, is uncertainty. And the uncertainty
that is created by the multiple reform agenda’s that are currently
facing the farm community. Don't get me wrong, these lists
are the reformist I've got there are absolutely essential. They are in place
to try and improve productivity in each of those sectors. However,
there's a lot of them going on at the moment, there's a lot of them
being developed, and there is a lot of debate about those. During
this sort of time, we can expect that it is hard for farmers to invest,
when they are not sure about what the price of water will be. They're not sure about
water allocation. They are not sure about the direction that the Australian Government is heading in
relation to drought reform at present. We are not really sure what's going to happen in the Dohar Round.
We don't know what that's going to do. And we are not really sure what the price of carbon will be
in the longer run. So just as floods and
cyclones have meant that farmers have had to divert their
investments into getting back on their feet. And certainly you can do the same thing
in terms of long run investment. We think it's very important
for farm industry leaders and Governments to lead the sector through these reforms.
They are essential they have to be done. They hold the prospect as to really significant
games in our productivity growth. And it's really important for us to think clearly
about where these reforms are going and how important they might be to the long run.
So that's it. I might just reiterate the conclusions.
The floods and cyclones have had a devastating effect
and profound effect on individuals on farm business and on communities.
To knock the gloss off what would have been a crack of a year.
But despite this we are still forecasting higher farm production and exports
and in the near future we can see a considerable scope for optimism. Commodity
prices will remain relatively high in the short term and with the replenishment of our irrigation
storages and improvements in our soil and moisture profiles,
we think there is some room for optimism.
The message I am trying to deliver is that productivity growth is
the only insurance policy that Governments and industry, should be pursuing at
this time. As we contemplate the long run consequences and policy
reposes we might make to increasingly severe
weather events. Also wanted to
make you aware of the new ABARES research that underlines the importance of
Research Development and Extension, and to contemplate that,
as Governments move forward, to consider the response the Productivity
Commission, enquiry into the Research and Development Corporations.
And how we might go forward with our research policy over the next 20 years.
The final observation is that our necessary but
perhaps uncertainty creating an overlapping policy
reform agenda may be undermining some of our short term productivity performance.
I'd like to thank you for listening. I really hope that you enjoy the conference.
I encourage you all the attend the subsequent sessions
that will go into all of what I have just said in much more detail. Thank you for your patience.