Productivity growth must be unlocked to drive profitability
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Productivity growth must be “unlocked” to drive profitability and competitiveness in Australian agriculture – Rabobank

June 30, 2015

Declining growth in public R&D spending, access to technology and an ‘enabling’ policy environment are three of the critical factors which must be addressed in order to ‘unlock’ future productivity growth in the Australian food and agribusiness sector, according to a newly-released report.

In its flagship 2015 research report Unlocking productivity growth in the Australian and New Zealand food & agribusiness sector, agri banking specialist Rabobank says it is crucial that productivity growth be reignited to both drive farmer profitability and ensure Australian agriculture remains globally competitive over the coming decades.

The report says the rising cost of production over recent years has eroded the competitive position of Australian agriculture in the world market and turned a spotlight on the slowing productivity growth in the Australian ag sector.

Reviving this growth is a “particularly pressing issue”, the report warns, given the rise of emerging low-cost food and agricultural export competitors from regions such as South America and the Black Sea.

At an individual enterprise level, productivity gains will also be critical to drive future profitability and sustainability for farmers and other businesses throughout the food and agriculture supply chain, it says.

Slow down

Report co-author Rabobank analyst Georgia Twomey says, similar to many other high-income nations, Australia has seen a slow-down in agricultural productivity growth in recent years – going from an average per annum growth of 2.9 per cent in 1991-00 to 1.4 per cent in the decade 2002-11, below the world average of 1.7per cent1.

“This trend has typified productivity growth in many other high-income nations, while low to middle-income nations have seen an acceleration in productivity growth,” she says.

“Brazil for example – one of Australia’s major competitors in export markets in beef and sugar and a country with abundant untapped natural resources – has dramatically lifted agricultural productivity, particularly since the turn of the millennium, as R&D has grown rapidly and the scale of industry has expanded. The USDA reports productivity growth in Brazil has increased from an annual average of 2.6 per cent from 1991-2000 to 3.4 per cent in the decade 2002-11.

“Australia’s challenge will be making the most of any under-utilised land and water resources that exist, while driving productivity growth through the entire supply chain.”

The Rabobank report – which examines the challenge of agricultural productivity growth at a global, national and individual farm level – says, to address the slowdown in Australia, steps must be taken to reverse the decline in R&D spending, provide access to technology and ensure an enabling policy environment for innovation.

Research and development (R&D)

The slow-down in public R&D spending may have particularly negative competitive implications for Australia’s agricultural industries, the report says, due to this country’s relatively unique agricultural production systems.

“The risk is the slow-down in our own R&D spending puts Australian producers at a disadvantage to international competitors,” says Ms Twomey, “R&D in the northern hemisphere, undertaken by both public and private institutions, is for the most part based around production systems that differ from what is prevalent in Australia, so developments to improve productivity overseas are usually not applicable here.”

The challenge, the report says, is for Australia to ensure a policy environment that is as attractive as possible for private sector investment in agriculture, while also maintaining public sector investment, in order to ensure productivity gains in its production systems do not fall behind.

“And while boosting research and development is essential, it needs to be focused on generating a competitive advantage relative to other food and agriculture exporters,” Ms Twomey says.

Access to technology

Also imperative is ensuring farm businesses have the needed ‘access paths’ to adopt existing technological innovations, according to the report.

“Digital agriculture in the form of precision farming, big data, sensor technology and drones presents unchartered potential for productivity gains and improved management practices,” Ms Twomey says. “But for the most part, the adoption of these technologies requires connectivity, particularly as they provide real-time information in a mobile format. The challenge in adopting these technologies for the agricultural community will be ensuring that regional areas have adequate connectivity, making the opportunity to improve productivity through the use of these technologies a viable business option.”

Policy environment

The report – which examines a number of real-life business case studies of agricultural productivity growth – says it is at the individual farm and business enterprise level though where the “rubber hits the road” in terms of innovation.

“It is essential that governments and industry bodies create an enabling policy environment that encourages innovation to harness productivity-enhancing opportunities from the adoption of new technologies, management practices and business models,” it says.
1 USDA ERS, 2014

Rabobank Australia & New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 115 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 41 countries, servicing the needs of approximately 10 million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia & New Zealand is one of Australasia's leading rural lenders and a significant provider of business and corporate banking and financial services to the region's food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.

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Jess Webb
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