4. Australia
Support to agriculture
Australia’s support to agricultural producers continues to be among the lowest in the OECD, estimated at around 2% of gross farm receipts for the period 2017-19, with total support to agriculture (TSE) representing around 0.1% of GDP. Over time, the composition of the TSE has moved away from producer support (PSE) and the share of General Services Support (GSSE) in total support (TSE) has increased, from less than 10% in the late 1980s to 55% in 2017-19. The GSSE has consistently exceeded support to producers (PSE) since 2012.
Policy measures that conveyed market price support to producers were terminated in 2000 and, since that date, domestic prices for Australia’s main agricultural outputs have been at parity with world prices. Around 45% of support provided to producers was in the form of subsidies to input use in the 2017-19 period. Much of these subsidies were for upgrading on-farm water infrastructure and for concessional loans, including related to droughts and other adverse events. The bulk of the remaining producer support (about 40% of the PSE) is directed towards income smoothing programmes that address cash flow fluctuations, such as the Farm Management Deposits and income tax averaging arrangements. In addition, recourse to disaster payments has occurred in the recent period.
With approximately one-third of total public expenditure attributed to knowledge and innovation services, Australia has developed an extensive agricultural knowledge and innovation system. Public expenditure also funds inspection and control services, and support to develop and upgrade infrastructure, mostly hydrological, represents the bulk of the remaining expenditure on GSSE.
Main policy changes
In 2019, the main policy changes related to response measures to continued drought conditions. These consisted of extensions to concessional loans, direct payments and tax exemptions. New loans were made available and payback conditions of existing credit instruments were eased. At the same time, the network of farm financial counsellors was strengthened to improve farmer access to financial information and advice. Tax exemptions were extended and eligibility to income support for farm households was widened, with the payment amount increased and the application process simplified, and matched by a larger budget that can be further increased. Additional drought payments were available in specific areas and access to water was supported with rebated water rates and support to on-farm water infrastructures investments. Funding was secured for large-scale water infrastructure development.
Other developments included credit for farm transmission and new funds attributed to enhancing environmentally sustainable farm management practices. The mandatory code of conduct for the dairy sector was implemented to address market transparency and fairness issues. Support measures for small exporters’ access to foreign markets were prolonged and the Australia-Hong Kong, China Free Trade Agreement entered into force.
Assessment and recommendations
Australia provides low levels of support to its agricultural sector, and effort is focused primarily on improving the capacity of the sector overall to operate productively and sustainably.
Farm support is delivered through subsidised inputs, credits, and advisory and biosecurity services together with financial risk management tools. A decline in farm income may be compensated through ad hoc grants. Challenging farming conditions due to continued drought have seen increasing use of response measures such as concessions on credit, water rates, fodder transport subsidies and additional ad hoc payments. These contrast with the past approach aimed at strengthened farm resilience to drought as a normal farming condition and may encourage risk-taking by producers.
Research and development is a major component of general services provided to the sector, while extension and education services receive smaller funding. Further consideration should be given to these services as they facilitate knowledge transfer and innovation take-up by farmers.
Ensuring farm economic viability in the face of resource constraints – particularly with respect to water – remains the greatest challenge to Australia’s agricultural sector. Reforms have initiated water pricing mechanisms that help convey the scarcity of water to producers. Investments support better water use efficiency at both the farm level and in wider water management basins. These efforts may be undermined by recent support to the development of new sources of water in response to continued drought conditions. Policymakers should continue to evaluate future projects cautiously to ensure that they take into account longer-term climatic projections and do not incentivise maladaptive behaviour that may worsen conditions for the sector’s future.
Australia’s agricultural sector, as part of the land-based sectors, contributes to the country’s response to the 2016 Paris Agreement on Climate Change, including through a commitment to reduce the sector’s greenhouse gas (GHG) emissions by between 26% and 28% in 2030 compared to the 2005 levels, as defined in the Australian Nationally Determined Contributions (NDCs). Abatement subsidies are available through the Emissions Reduction Fund (ERF) and the sector’s emissions should be better informed by the release of a new version of the FullCAM modelling tool. Improved evidence offers an opportunity to develop a more systematic and sector-wide approach; in anticipation of future climate policies that may impact the sector to a greater extent than in the past.
Policy responses in relation to the COVID-19 outbreak
Agricultural policies
Farming, food and beverage production, livestock sale yards and wool auctions and those who support these businesses, including food markets and food banks, are identified as essential services and are exempt from indoor and outdoor gathering restrictions while adhering to social distancing and hygiene guidelines. Businesses are encouraged to consider online and remote alternatives. Furthermore, services that support agriculture are also exempt from state and territory border restrictions.1
The Australian Government made temporary changes to visa arrangements. Implemented from 4 April 2020, temporary work visas under three programmes for foreign workers in the agricultural sector may be extended by up to 12 months.2
Measures taken to support the continuity of Australian agro-food exports include COVID-19 related updates of the manual of importing country requirements (MICoR).3 Air cargo exporters of high-value perishable agricultural and fisheries products with established overseas customers benefit from a total air freight support budget of AUD 110 million (USD 75 million); identified products include premium red meat and seafood, dairy, and horticultural premium fruits and packaged salad or vegetables.4
While biosecurity and imported food requirements continue to apply to food imports,5 temporary arrangements are made to ease import requirements for imports that must be accompanied by certificates. Arrangements include accepting electronic copies of phytosanitary certificates (PCs) and health certificates (HC), when an original HC has been previously provided, in lieu of original paper-based documents. This temporary arrangement is currently foreseen until 1 July 2020 with any extension to be announced closer to the date.6 Stakeholders are also informed to expect delays in the import permit functions for processed plant-based stock feed.7
Consumer policies
Messages on food safety and food security are directed to public in general with the aim to reassure consumers on quality and quantity of available food.
Food and meal distribution institutions are attributed an extra AUD 120 million (USD 77 million) to cover costs resulting from the impact of COVID-19. Dedicated phone lines for older and vulnerable people have been strengthened to support their access to basic food and groceries.8
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to farmers (%PSE) has declined gradually over the long term. During 2017-19, support is estimated at 2.3% of gross farm receipts, well below the OECD average (Figure 4.1). The share of potentially most distorting support is low, and now represents a very small share of the already low PSE. Prices received by Australian farmers are on par with international prices, with only sugar producers receiving single commodity transfers (SCT) related to capital subsidies to reduce environmentally detrimental run-off (Figure 4.3). Overall, the value of farm support dropped by 14% in 2019 compared to 2018, largely due to lower expenditures in 2019 on relief measures in response to natural disasters. (Figure 4.2). Expenditures for general services (GSSE) have generally increased over time reaching their highest level in 2017. Since then, however, overall GSSE expenditure has declined, mostly due to lower expenditure on hydrological infrastructure (Table 4.1). Total support to agriculture as a share of GDP has declined significantly over time, with GSSE expenditure representing the majority of support since 2012 (around 55% from 2017-19).
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Australia has experienced consistent positive economic growth over the period under review, with low unemployment and inflation (Figure 4.4). Australia is the world’s 14th largest economy (in 2018) and the sixth largest country by land area, accounting for 12% of all agricultural land in the countries included in this report but only 0.5% of the population. The country’s GDP per capita is more than twice the average of the countries covered in this report (Table 4.2). While agriculture represents a small share in the economy, it contributes significantly to Australia’s total exports, making the country a key supplier to world markets for agricultural products.
Australia is an important producer and exporter of agricultural products, while the sector’s contribution to the economy and its trade has been falling over time, a trend that has continued in recent years. Australia’s agro-food sector is well integrated into world markets; imports are sizeable as are exports and the country is a consistent and significant net exporter. Processed goods for final consumption and further processing make up more than half (56%) of the country’s agro-food exports. Approximately three-quarters of Australia agro-food imports go to domestic final consumption and the remaining share (24%) is destined for the processing industry (Figure 4.5).
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Over the 2007-16 period, total factor productivity (TFP) growth in Australia (2.5% per year) outpaced the world average (1.6%), driven by continued structural adjustment and the uptake of innovative technologies and practices in the sector (Figure 4.6). Average TFP growth slowed compared to 1991-2000 partly due to challenging climate conditions (Table 4.3). Water availability and competition with other sectors is a particularly limiting factor, which may be exacerbated by climate change.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
Australia’s agricultural sector remains strongly market oriented with domestic and international prices generally aligned. A number of sanitary and phyto-sanitary (SPS) measures are in place that restrict imports of agricultural products from certain regions.
Support to agriculture is delivered through a mix of direct budgetary outlays, concessional loans and tax concessions. Direct support is provided to upgrade on-farm infrastructure that aims to improve natural resource use and environmental management. Concessional loan schemes are used to incentivise investments in weather and market risks preparedness. Since 2018, the Regional Investment Corporation (RIC) administers farm business loans and support to States and Territories for water infrastructure projects. Farm preparedness is further strengthened through income stabilisation tools such as the Farm Management Deposits scheme and income tax averaging arrangements. Nonetheless, natural disaster payments and farm household income support occasionally are implemented during periods of hardship.
With a low level of direct government support to farmers, research and development programmes (R&D) are a major component of Australian support to agriculture, while a smaller portion of public expenditure goes to the development and maintenance of large infrastructures and inspection services, including pest and disease control activities. Industry and governments cost share the eradication of outbreaks, while trade related costs of biosecurity and food safety inspection services are covered by industry.
Rural research and development corporations (RDCs) are the Australian Government’s primary vehicle for supporting rural innovation. RDCs are a partnership between the government and industry created to share the funding and strategic direction setting for primary industry R&D, investment in R&D and the subsequent adoption of R&D outputs. A levy system provides for the collection of contributions from farmers to finance RDCs, and the Australian Government provides matching funding for the levies on eligible R&D activities, up to legislated caps.
The Australian Climate Change policy directed towards agriculture seeks to address both adaptation and mitigation while, at the same time, developing responses that maintain and enhance productivity, profitability and food security. The policy was reviewed in 2017 and implementation of review outcomes began in 2019.
Australia’s agricultural sector, as part of the land-based sectors, contributes to the country’s response to the 2016 Paris Agreement on Climate Change, including through a commitment to reduce the sector’s greenhouse gas (GHG) emissions by between 26% and 28% in 2030 compared to the 2005 levels, as defined in the Australian Nationally Determined Contributions (NDCs).
Australia’s “Direct Action Plan” supports whole of economy emissions cuts through government purchase of emission reductions by the Emission Reduction Fund (ERF). The ERF is a voluntary scheme, open to all sectors, to undertake emission reductions and carbon sequestration (capture and storage of carbon) projects that meet strict integrity requirements, including in relation to additionality. Under the scheme, landowners and farmers can earn alternative and additional income through the sales to the government or to third parties of generated Australian Carbon Credit Units. The scheme is amended periodically9 offering space for improving issues identified. These include the ability of the scheme to deliver additional carbon abatement relative to what may have occurred anyway (Burke, 2016[1]; Freebairn, 2016[2])) and for the funded projects to deliver on their intended reductions.
Trade
Australia’s agriculture is trade oriented with eleven comprehensive regional or bilateral free trade agreements in force.10 While imports of agriculture and food products, on average, face lower tariff rates than non-agricultural goods,11 a number of sanitary and phyto-sanitary (SPS) measures are in place that restrict imports of agricultural products from certain regions.
Domestic policy developments in 2019-20
Two new concessional loans programmes were launched in 2020, to be delivered through the Regional Investment Corporation (RIC).12 The AgriStarter loan offers a maximum amount of AUD 2 million (USD 1.4 million) over a period of 10 years to farmers who purchase, take a controlling stake or undertake succession arrangements of a farm business. The Small Business Drought Loans (AgBiz Drought loan) is available in specific geographic areas to small businesses that directly provide primary production related goods and services to farm businesses, for a maximum amount of AUD 500 000 (USD 350 000) over a period of 10 years. Drought concessional loans are available to farmers that operate a drought management plan. From January 2020, RIC Drought loans benefit from a two-year no repayment interest-free period, three-year interest only period, followed by principal and interest over the remaining five years.
The second phase of the National Landcare Program was deployed for the period 2019-23. Total funding for the programme is AUD 1 billion (USD 700 million) for the period 2017-23, of which AUD 134 million (USD 93 million) supports the development and uptake of best practice management through the Smart Farms Program (Agriculture) and AUD 450 million (USD 312 million) goes to Regional Land Partnerships.13 The Agriculture Stewardship Package14 adds a further AUD 34 million (USD 24 million) over four years to the Landcare programme in support of agricultural biodiversity, including the pilot testing of a certification scheme.
Drought conditions continued in 2019 that aggravated farming conditions. A number of measures targeting affected farmers were added to the portfolio of available support at national and local levels. The Drought Response, Resilience and Preparedness Plan, released in November 2019, outlines the government’s response measures. The government eased eligibility and application process to the farm household allowance payment and increased the amount available to AUD 365 million (USD 254 million) of public expenditure that can be further increased (Department of Agriculture, 2019[3]). Additional direct support is also available through the Drought Community Support Initiative, which has a budget of AUD 65 million (USD 45 million) (FY 2018-19 and FY 2019-20). With regard to concessional credit, the government added flexibility to loan repayment. The Rural Financial Counsellors Service supports farmers’ capacity to understand their business options, including applying for government programmes and loans with a budget of AUD 77 million (USD 54 million) from FY 2016-17 to FY 2019-20. Investments for improved on-farm water access is supported through an investment rebate scheme with a total envelope of AUD 50 million15 (USD 35 million) FY 2018-19 to FY 2020-21. Predetermined volumes of water at rebated rates in 2019 through 2021 are available to farmers connected to the southern Murray–Darling Basin.16 Foregone tax income related to fodder amounts to AUD 75 million (USD 52 million) and pest and weed control to AUD 25 million (USD 17 million). From 1 July 2020, AUD 100 million (USD 70 million) supports drought resilience projects each year through the Future Drought Fund.
Farmers in areas affected by wildfires that have occurred since 31 August 2019 can access grants of up to AUD 75 000 (USD 50 000) to assist in their emergency clean-up efforts. From January 2020, low interest loans for up to AUD 500 000 (USD 348 million), with varying amounts and duration for working capital or larger investments have also been made available.17 A two-year interest free and repayment free period applies to these loans.
Long-term water infrastructures developments are also supported with AUD 3.5 billion (USD 2 billion) from FY 2015-16 to FY 2025-26. In addition, central and regional funding support large scale water infrastructure investments with AUD 70 million (USD 49 million) from FY 2019-20 to FY 2023-24. Local government initiatives deployed include AUD 10 million (USD 6.5 million) on a “Drought Resilience Fund” for South Australian farmers.
Farmer access to information is also strengthened through the FarmHub, with AUD 770 000 (USD 535 000) over FY 2018-19 to FY 2020-21 and improved weather information collection (AUD 80 million (USD 56 million) over FY 2019-20 to FY 2041-42) and dissemination.
The mandatory dairy code of conduct came into force on 1 January 2020.18 The code applies to supply contracts drawn after that date and regulates business relationships between farmers and processors, including banning retrospective reduction of farm gate milk price. The code is under the authority of the Australian Competition and Consumer Commission (ACCC) and provides for a dispute resolution process. It replaces the voluntary Code of practice for contractual arrangements between dairy farmers and processors in Australia in place since 2017.
Funds attributed to the Emissions Reduction Fund were increased to AUD 4.6 billion (USD 3 billion) with an addition of AUD 2 billion (USD 1.4 billion) from the Climate Solutions Fund19 available to farmers for projects relating to land and water quality improvements and adaptation to drought.
On 25 October 2019, Australian agriculture ministers agreed to a work programme to deliver a co-ordinated national approach to supporting agriculture to adapt to climate change and manage emissions. The work programme is to be implemented through ongoing collaboration between jurisdictions and is defined by four priority areas: deliver information and tools for better decision and climate risk management, drive research and innovation to support adaptation and mitigation, strengthen market opportunities and business models to build resilience, and prepare for increasing biosecurity risk. A Climate Change Task Group has been established to oversee delivery of the work programme.
Following the 2017 review of the Australian Government’s climate change policy, in March 2019 the government amended the baseline of the Emissions Reduction Fund Safeguard Mechanism. From April 2020, a new version of the Full Carbon Accounting Model (FullCAM) is to be available that should improve accounting of Australia’s national greenhouse gas emissions for the land sector. The FullCAM is also to be used for calculations under the ERF. An amendment of the ERF’s Carbon Credits (Carbon Farming Initiative) Rule 2015 is under development that should improve project continuity by allowing their transfer to new proponents.
The Department of Agriculture, Water and the Environment was established on 1 February 2020, bringing together the Department of Agriculture, and the Department of the Environment and Energy (Environment portfolio). At the same date, the climate change function of the Department of the Environment and Energy was transferred to the Department of Industry, Science, Energy and Resources.
Trade policy developments in 2019-20
Australia’s trade policy seeks further market opening through multilateral, bilateral and regional trade agreements. The Australia-Hong Kong, China Free Trade Agreement entered into force on 17 January 2020. At this date, custom duties were eliminated for all goods including food and agriculture, while special provisions apply to imports into Australia. On 11 February 2020, the Peru-Australia Free Trade Agreement (PAFTA) entered into force. At this date, most duties on food and agricultural goods were eliminated and the elimination of remaining duties is scheduled during the subsequent four-year period.
Since the conclusion of negotiations in January 2018, the CPTPP has entered into force on 30 December 2018 for Australia, Canada, Japan, Mexico, New Zealand, Singapore and 14 January 2019 for Viet Nam. The agreement contains a number of provisions on agriculture, with expanded market access for a range of products in the various member countries, including reduced Japanese beef tariffs; new access to dairy products into Japan, Canada, and Mexico; and the elimination of all tariffs on sheep meat, cotton, and wool (DFAT, 2018[4]).
Australia also concluded negotiations for several other agreements in 2018 that have yet to enter into force. These include the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) and the Pacific Agreement on Closer Economic Relations (PACER) Plus.20 These agreements are expected to advance economic integration between the signatory countries in addition to improving market access. The agreements secure tariff reductions or new quotas for some of Australia’s most important agricultural exports, including beef, sheep meat, dairy, and sugar (DFAT, 2020[5]).
Australia is currently engaged in seven other FTA negotiations. These include two individual bilateral FTA negotiations with India and the European Union. In addition, there are five plurilateral FTA negotiations underway – the Gulf Cooperation Council (GCC), the Environmental Goods Negotiations (undertaken in conjunction with 45 other WTO member countries), the Pacific Alliance Free Trade Agreement, the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Trade in Services Agreement (TiSA) (DFAT, 2020[5]).
Support measures are designed for small exporters to overcome market access barriers and costs associated with exports registration. In 2019, the Package Assisting Small Exporters (PASE) was extended for four years to 2022 with a total budget of AUD 5 million (USD 3 million).
Standards that apply to exports of livestock, the Australian Standards for the Export of Livestock (ASEL), are reviewed every three years to ensure that the standards remain fit for purpose and reflect the latest science. The most recent review was completed in 2019 and a new version of the ASEL (ASEL version 3) is expected to be released for implementation in 2020. With regard to imports, offshore pre-shipment inspections (OPI) of horticultural fresh produce for human consumption from New Zealand and the United States will no longer be conducted from 1 May 2020 and consignments will need to go through on-arrival verification.21
References
[1] Burke, P. (2016), “Undermined by Adverse Selection: Australia’s Direct Action Abatement Subsidies”, CCEP Working Paper 1605, Crawford School of Public Policy, The Australian National University, https://doi.org/10.2139/ssrn.2783542.
[3] Department of Agriculture (2019), Australian Government Drought Response, Resilience and Preparedness Plan, http://agriculture.gov.au/drought-preparedness-resilience.
[5] DFAT (2020), Australia’s free trade agreements (FTAs), https://www.dfat.gov.au/trade/agreements/Pages/trade-agreements (accessed on 30 March 2020).
[4] DFAT (2018), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), https://www.dfat.gov.au/trade/agreements/in-force/cptpp/Pages/comprehensive-and-progressive-agreement-for-trans-pacific-partnership (accessed on 30 March 2020).
[2] Freebairn, J. (2016), “A Comparison of Policy Instruments to Reduce Greenhouse Gas Emissions”, Economic Papers: A journal of applied economics and policy, Vol. 35/3, https://doi.org/10.1111/1759-3441.12141.
Notes
← 1. https://www.agriculture.gov.au/coronavirus/food-agriculture.
← 2. https://www.employment.gov.au/seasonal-worker-programme; https://www.dfat.gov.au/geo/pacific/engagement/pacific-labour-mobility/Pages/default.
← 3. https://www.agriculture.gov.au/export/micor.
← 4. https://minister.infrastructure.gov.au/sites/default/files/documents/fact_sheet_-_air_freight_assistance.pdf.
← 5. https://www.agriculture.gov.au/coronavirus/import.
← 6. https://bicon.agriculture.gov.au/BiconWeb4.0/ViewElement/Element/Alert?elementPk=1299586; https://bicon.agriculture.gov.au/BiconWeb4.0/ViewElement/Element/Alert?elementPk=1292850.
← 7. https://bicon.agriculture.gov.au/BiconWeb4.0/ViewElement/Element/Alert?elementPk=1296462.
← 8. https://www.health.gov.au/sites/default/files/documents/2020/04/assistance-with-food-and-meals-for-older-australians-impacted-by-covid-19.pdf.
← 9. Last updated in April 2019 https://www.legislation.gov.au/Series/F2015L00156.
← 10. These include with New Zealand (ANZCERTA 1983), Singapore (SAFTA 2003), Thailand (TAFTA 2005), the United States (AUSFTA 2005), Chile (AClFTA 2009), the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA 2010), Malaysia (MAFTA 2013), Republic of Korea (KAFTA 2014), Japan (JAEPA 2015), the People’s Republic of China (ChAFTA 2015), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP 2018).
← 11. https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/NZ_E.pdf.
← 12. https://www.ric.gov.au/.
← 13. http://www.nrm.gov.au/national-landcare-program.
← 14. https://www.agriculture.gov.au/about/reporting/budget/sustaining-future-australian-farming.
← 15. https://www.agriculture.gov.au/water/national/on-farm-infrastructure-rebate.
← 16. https://www.agriculture.gov.au/water/mdb/programs/basin-wide/water-for-fodder.
← 17. https://www.raa.nsw.gov.au/disaster-assistance/special-disaster-loan-bushfires.
← 18. https://www.legislation.gov.au/Details/F2019L01610.
← 19. https://www.environment.gov.au/climate-change/climate-solutions-package.
← 20. PACER Plus has been signed by Australia, New Zealand and nine Pacific island countries (Cook Islands, Kiribati, Nauru, Niue, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu).
← 21. https://bicon.agriculture.gov.au/BiconWeb4.0/ViewElement/Element/Alert?elementPk=1295562.
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