The Australian Bureau of Agriculture and Resource Economics is one of Australia’s most important research institutions. In an era of rocketing oil prices and climate change, it provides a key input into the development of government policy on issues as diverse as infrastructure, long-term sustainable agriculture, and halting and reversing the growth of our carbon emissions.
Based on its record, however, ABARE continues to be one of the most seriously flawed institutions within the entire Public Service. Further evidence of this emerged during the week in Estimates hearings.
ABARE regularly forecasts the world price of oil. Tricky stuff, admittedly, and anyone who could forecast it accurately in recent years wouldn’t be working for ABARE but making billions on the stockmarket. But the extent to which ABARE has refused to accept the ongoing increase in the oil price is truly remarkable.
Here’s the comparison of the actual oil price – not even including the most recent spike — and ABARE’s predictions since 2004:
Nor has ABARE learnt from its consistent errors. In March this year, it predicted that West Texas crude would be US$86 a barrel this year, and US$82 next year.
Yesterday – for the handful of people who aren’t aware — it was nearly $130.
Christine Milne quizzed ABARE about their consistent failures on oil at Estimates this week. The response of ABARE head Phil Glyde was simple and staggering – it’s not their job to be right about the oil price, merely to explain how they arrived at the number. Everyone else can then make up their own minds using the same assumptions that ABARE has employed.
Glyde insists that ABARE’s current prediction that the price of oil will fall back into the $60+ range over the next five-six years accurately reflects the likelihood that more oil will be discovered.
So, we can all relax. No peak oil, says ABARE. Just a Pollyannaish assumption that there’s plenty more black gold waiting to be tapped. In Glyde’s view, “there is no physical limit to supply over the next 30 years… it is as simple as that.”
When asked if ABARE ever considered the views of groups who did not share his optimism about limitless oil, Glyde replied “we have dealt with them to the extent that we disagree with their view that there is a physical limit to oil availability between now and 2030. When we come to that conclusion we sort of, if you like, dismiss the view that they have.”
This is the mob who are paid to “provide rigorous and independent economic research analysis and forecasting” to the Government.
Nor is oil the only area where ABARE has been a tad optimistic in its forecasting.
Last year they had to revise their forecasts for wheat, barley and canola down more than once, having initially assumed the drought would disappear. “Big winter crop on the way,” ABARE cheerily declared in June last year, predicting a 37m tonne crop. Four months later they had revised their estimate back – having already done so once — to 18m tonnes.
Which is odd, because they’d had to do precisely the same thing to their crop forecasts in 2006.
At some point you wonder whether the concept of learning from one’s mistakes means anything to ABARE.
It isn’t just forecasting where ABARE has an irredeemably optimistic streak.
In early May, in a report entitled “Economic impact of GM Crops in Australia”, ABARE claimed that the benefit of Australia adopting GM canola, wheat, soybean, maize and rice would be approximately $8.5b.
Crikey is agnostic on the advantages or disadvantages of GM crops. But there’s a couple of problems with ABARE’s argument. Most inconveniently, GM wheat and rice aren’t even available yet. And, under questioning by Greens Senator Rachel Siewert in Estimates, some of the assumptions employed by the report were revealed by ABARE to be rather on the heroic side.
In particular, the report was based on assuming every single farmer in the country immediately switched – right now, in 2008 – to GM crops. Including non-existent GM wheat and rice.
When challenged, ABARE admitted that the report was entirely hypothetical. However, that didn’t stop Philip Glyde from declaring in a press release that “delaying GM uptake means we are forgoing significant economic benefits for regional Australia.”
ABARE’s consistent errors and unreal modelling have a common theme. They all promote a business-as-usual approach to agriculture and resource management, as promoted by large corporate interests in agriculture and resources. This approach assumes away issues major sectoral interests would rather ignore, like climate change, resistance to GM crops and peak oil.
In themselves, they represent, at best, consistently poor research and modelling. But they are not without real world consequences, because they form the basis of long-term government policy.
In part 2 next week, we’ll explore the origins of ABARE’s profoundly flawed approach, its role in supporting the Howard Government’s denial of climate change and what needs to be done to fix it.