According to politicians on both sides, productivity is great, and we should always be seeking to improve it. Indeed without a resources boom, increasing our productivity is the only way we’re going to improve our standards of living.
So let’s talk about one of Australia’s productivity success stories: agriculture. According to the Productivity Commission’s most recent productivity update from last month, agriculture has been, since the late 1980s, the industry with strongest productivity growth, just ahead of financial services. Since the 1980s, the real value of our agricultural exports has, according to the PC, more than doubled. And while that export growth has happened, the agriculture workforce has fallen by 25%, meaning its share of the workforce has fallen from around 6% to 2.6%. Agriculture has done far more with much less. It’s a huge productivity success story, achieved in spite of that perennial enemy of agriculture, drought.
One of the best drivers of productivity growth is competition. The more suppliers of a product in a market, the more prices go down, meaning marginal suppliers are forced out, or forced to cut costs. It’s harsh on high-cost suppliers, but it’s good for consumers and for overall industry productivity. It’s also good for more efficient producers because they are then rewarded with higher prices as less efficient producers drop out.
Except, it turns out that the Coalition, which has a crony capitalist streak a mile wide, isn’t very keen on productivity growth if it affects one of their key support groups, farmers. While productivity growth might be good for the rest of us, the Nationals think agriculture is already too productive, thanks very much, and they want to stop the decline in the agricultural workforce and family farming. Indeed, last year’s agriculture white paper (that’s the one that ignored climate change) was all about propping up family farming. Indeed, it’s fair to say Barnaby Joyce and the Nationals don’t see the last 30 years as a story of massive success by the sector, but as a disaster because it has meant fewer (though more efficient) farmers and agricultural labourers — and thus, fewer Nationals voters.
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Which brings us to the present problems of the dairy industry. That industry — aside from the management problems of the Murray Goulburn co-op — faces exactly the same problem as iron ore and other commodities industries: a global oversupply is forcing higher-cost producers out. As Michael Pascoe correctly pointed out earlier this week, this was even a predictable outcome a couple of years ago. The result is lower prices for consumers, a more efficient sector, and, doubtless, heartbreak for farmers forced out of the industry.
But no one worries too much about miners forced out of that industry when higher-cost iron ore miners are driven out by low prices. Or coal miners forced out of work as coal mines shut down. Many of them live in rural and regional communities too. They’re expected to move on and get work elsewhere. In fact, today thousands of Australians will lose their jobs and will be expected to go and get a job somewhere else. And they will.
For the Nationals, however, that can’t be allowed to happen. The sector itself wants to make consumers pay to prop up less efficient producers with a dairy levy. That sort of idea used to get a good run in the Howard years (under the guise of “transitional assistance”), but for a government facing a difficult election, telling consumers they’ll be forking out more for a staple like milk is too much. Joyce is happy to promote an absurd public relations effort by Coles, which is releasing a new line of milk from which 20 cents a litre will go to an independent fund for Murray Goulburn dairy farmers.
In effect, Coles — which has been front and centre in driving down prices from suppliers like the dairy industry — is asking consumers to rip themselves off by paying more for milk. It’s nonsensical voluntary protectionism that at best only props up less efficient suppliers. More to the point, it’s simply PR for a company that knows its hard-driving tactics leave consumers with a bad taste in the mouth — but not bad enough for them to complain about the lower prices they enjoy.
Instead, Joyce has turned to another longstanding tool for propping up inefficient farmers, the concessional loan. Concessional loans are a rotten, grossly inefficient way to support farmers in difficult times. As the Productivity Commission explained in 2009, they simply encourage farmers to take on risks that they wouldn’t if they had to rely on commercial finance. But the Abbott government restored concessional loans as the centrepiece of its “drought relief” package in 2014, at a cost now of over a quarter of a billion dollars a year. Now Joyce wants to make access to concessional loans easier for the dairy industry.
That is, a measure intended to address drought will be used to address a glut of a product instead.
Labor is no better in all this: agriculture spokesman Joel Fitzgibbon has been savaging Joyce for his alleged failure to act over Murray Goulburn mismanagement and the problems of the industry. Labor of course loves to prop up industries when it can — just look at its efforts on manufacturing.
What gets forgotten in all this is, by propping up less efficient and higher-cost dairy producers, the real victims are more efficient, lower-cost farmers who have to compete with subsidised competitors for longer. And they have to endure for longer the low prices created by keeping suppliers who should exit the industry in it.
Productivity isn’t a good in and of itself — it should deliver benefits to producers as well. And protecting dairy farmers means farmers who done the hard work and made the tough decisions to improve efficiency get punished, not rewarded.