Labour, technology and capital
Productivity in Australian agriculture has come largely as a result of a decrease in labour use and an increase in technology and capital. While productivity growth in Australian agriculture was strong in the 1990s and 2000s, growth has slowed during the past decade as large gains made through new on-farm technology and uptakes during that period haven’t been replicated. In the past five years, productivity growth has on average declined 0.7 per cent per year - compared with strong growth of 3.5 per cent in the previous five years.
ANZ’s report, AgTech - Advance Australian Agriculture, explored the role of agtech in growing the Australian industry. It highlighted that in order to reach the $A100 billion target by 2030, the industry would need to achieve productivity growth of 3 per cent per annum as well as continue to attract increasing levels of new capital into the industry.
A recent review of the modelling shows this challenge remains, with productivity growth of 3 per cent still required, as well as 2 per cent capital growth per annum to reach the $A100 billion target. While this appears to be a significant challenge, it is by no means unprecedented for the Australian industry to improve productivity by an average of 3.5 per cent - given the right circumstances.
The agtech report also found since 1995-96, 62 per cent of increases in productivity can be attributed to consolidation leading to greater access to technology. Meanwhile, for every 1 per cent increase in capital in the agriculture industry, there is a 1.5 per cent increase in technology-based productivity gains.
The progression of Australian agriculture into a $A60 billion industry has seen significant structural changes - particularly the overall decline in the number of farming enterprises and the rise in the number of large broadacre farming enterprises.
The rise in large farms - or farms with a turnover of more than $A1 million - can partly be attributed to increases in commodity prices. The ongoing trend towards fewer, larger farms is a major driver of increased industry production.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) farmer survey finds larger farms tend to be more profitable and productive across broadacre farming.
The largest 10 per cent of farms produced just under half of total output and the smallest 50 per cent produced just over 10 per cent in the three years to 2017-18. Larger farms are also generally more profitable, with the average rate of return for the smallest 10 per cent of broadacre farms at -1.6 per cent compared to a return of 9.3 per cent for the largest broadacre 10 per cent.
Achieving the $A100 billion industry target based on ongoing farm consolidation implies the need for a continuing reduction in farm numbers. On trend, the number of broadacre farms in Australia is set to decline by 16,800 by 2030.