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Connections: Farm, Food and Resource IssuesConnections is refereed by Glenn Ronan and Bill Malcolm. The name reflects its origins, its intentions and the medium. It is a joint product of the Australian Agricultural and Resource Economics Society (AARES) and The Faculty of Agriculture and Food Systems, The University of Melbourne. Connections is an extension publication, connecting material in farm and agribusiness, in marketing and management, in environment and resources.Connections - 2007Paper 83Forward Contracts - a risky business for graingrowersHugh WynterFormer farm management consultant and educator with over forty years experience and now an options trader. The current seasonal and market conditions for grains are causing a problem for those growers who, in the middle of this year, when crop conditions were excellent and prices attractive, committed part of their expected production to forward prices. Since then prices have continued to rise on the back of global demand and supply and in many areas rains have failed and yields are expected to be less than a few months ago. This has left those who have forward sold with the prospect of having to ‘washout’ their contracts at some cost. This is not the first time that this has happened. In 2002 similar events occurred. It is therefore timely to review the issues surrounding the practice of forward contracting for forward pricing, either through deliverable contracts or through derivatives such as swaps. Paper 82Beware a Carbon Theory of ValueJeff BennettIn the 19th century, Karl Marx argued that the value of goods and services was generated by the input of labour. A s we venture into the twenty first century, there is a real danger of falling into the trap again of giving trump status to one aspect of resource use. This time, the focus has shifted away from labour to the production, consumption and wealth creation process. Now attention is being devoted to a particular output of the process - carbon. Paper 81Biofuel ManiaBill MalcolmFrom an economic perspective, the current fashion for biofuels to help achieve something towards something called ‘sustainability’ seems ill-judged. At some point, economic sustainability becomes relevant. At present, unless heavily subsidized, biofuels only make economic sense if the feedstocks cost little and oil costs a lot. The prospects of achieving much towards the goals of reducing carbon-related pollution need to be established to justify a market failure/public benefit argument. Goals of replacing a cheaper energy source with a more expensive energy source in the name of self sufficiency makes no economic sense. The merit of ‘renewability’ of a resource to replace a resource in plentiful supply until technology makes it passé, is also dubious. This mania for biofuels might yet prove to be one more example, from many in Australia’s mixed economic history, of mercantilist interests masquerading as the national interest, and politics temporarily winning over economics. History is littered with plenty of examples of politics overwhelming economic sense, for a while at least. Fashions change, subsidies dry up, firms go bust. Economics wins, eventually. Paper 80Wheat industry grinds slowly on as single desk turns into FrankensteinProfessor Paul KerinThis article was published in the Australian 5/9/07 WEMA, formed by several state-based farm lobbies, is in total denial. The wheat export fiasco plumbed new lows last week. AWB confirmed it would not de-merge, the Wheat Export Marketing Alliance (WEMA) promoted an insipid single desk "plan", rebel Liberal MP Wilson Tuckey fired off another letter to John Howard and Agriculture Minister Peter McGauran rejecting a particularly important export licence application. These events raise red flags about the behaviours of AWB (yet again), WEMA and Mr McGauran -- and instil no confidence in current or future marketing arrangements. While the single desk is a silly concept, if we are going to have one we should have the best we can. A desk constructed from first principles wouldn't look anything like the model outlined by WEMA chairman Graham Blight. That Frankenstein is the product of constraints imposed through AWB's intransigence, our Government's ineptitude and WEMA's inability to raise funds. Paper 79The financial picture of farms in CanadaStatistics CanadaThe number of census farms1 in Canada continues to drop, according to data from the 2006 Census of Agriculture, declining 7.1% to 229,373 farms over the five-year period between the censuses (Table 1). This represents 17,550 fewer farms than in 2001. Yet the drop in farm numbers belies a sector — with some 327,060 operators according to the latest census — that continues to show resilience. The stability of the Canadian agricultural land base between 2001 and 2006, at 167 million acres, is one indication that agriculture continues to adapt. Adaptation is also seen as the number of larger farms, with gross farm receipts2 of $250,000 or more (at 2005 constant prices), have increased 13.8% since 2001 while those with less than $250,000 in receipts declined by 10.5%. Paper 78Faming in Canada's CMAs: Some farms do better around urban areaStatistics CanadaDoes proximity to urban areas favour certain farm types? It comes as no surprise that operations that often sell directly to consumers — nurseries and U-pick fruit farms for example — are close to population centres. Likewise, farms that require a lot of labour — horticultural-type operations — might tend to locate around urban areas where they can source the needed hands more readily. Farms that produce perishable products, such as fresh vegetable operations, might also want to be next to their client base, the better to speed food at its freshest to restaurants and markets. Conversely, crop farmers might find it frustrating to farm smaller parcels and navigate farm equipment on busy roads. Large operations with animals might want to locate farther outside the city and forgo neighbours’ complaints about the smell. We might anticipate all of these things, but are they supported by Census of Agriculture data? Paper 77The Importance of Productivity Growth in Australian AgricultureJohn MullenIn an international context, Pardey et al. (2006) noted concerns that both productivity growth and investment in agricultural R&D are falling, particularly in developed economies, with implications for food security in developing countries reliant on technology ‘spillovers’, whose populations will continue to increase for several decades. Productivity in broadacre has likely grown at the rate of 2 percent per annum from 1953 to 1968 and a the rate of 2.5% since. In a companion paper, trends in productivity growth in Australian broadacre agriculture were reviewed. Paper 76R&D: A Good Investment for Australian AgricultureJohn Mullen and Leanne OrrWithin the Australian economy, productivity growth in agriculture has been around 3 times that in economy as a whole and has markedly outpaced the decline in the terms of trade facing farmers over the past 15 years. International comparisons are difficult to make but the evidence available suggests that Australian agriculture has performed well against the agricultural sectors of most other countries. Taken together, these trends suggest that productivity growth in broadacre agriculture has been at a rate likely to have made the sector more competitive relative to agricultural sectors in other countries, noting that the final outcome is also influenced by trade and farm support policies in these countries and by exchange rate conditions. Paper 75The National Plan for Water Security: Taking Over the Role of a Market?Tihomir Ancev and Willem VervoortThe proposed National Plan for Water Security, while representing a bold move in the direction of addressing water shortage problems, lacks some of these attributes and could be improved by taking into account economic arguments presented in this paper. In particular, the section of the Plan that addresses improving on-farm water use efficiency can benefit from further scrutiny, in the context of incentives currently in place and the distortion of those incentives under the proposed Plan. Paper 74A cure worse than the diseasePaul KerinThis article was published in the Financial Review 1/5/07. There is no point sticking to the single−desk notion. Paul Kerin suggests abolishing the veto altogether (ideally) or by vesting it with an independent party (not AWBI or a politician) empowered to make transparent licensing decisions on genuine public−interest grounds. Paper 73Bold leadership needed on AWB morassPaul KerinJohn Howard must stand up to the Nationals. The British government had some excuse for establishing such daft governance arrangements − no historical evidence demonstrating the daftness. Four centuries later, our government had no excuse. Its avoidable mistake galvanised the same toxic political forces that thwarted British attempts to rid themselves of their Frankenstein. Only bold, decisive leadership can wrench us from our morass. Paper 72Are there economies of scale in dairying? If so what is the most economic size?David A BecaTo determine whether there are likely to be economies of scale in dairying then there is a need to examine the variability of costs in the business. Paper 71Tri-Nations Revisited: Profitability Variations between the Average and the Best in South Africa, Australia and New ZealandDavid A BecaThis paper sets out to determine the differences between the levels of profitability in pasture-based dairying in South Africa, Australia and New Zealand. In particular the paper examines where the performance in the three countries differs as well as where it is similar. The comparisons are based on 2004/05 data analysed on an identical basis via the same software. The data is based on: 57 South African farms from Natal and Eastern Cape; and 298 Australian farms from Victoria, Tasmania and South Australia; and 372 New Zealand farms from throughout the country. Although there is no way to verify how representative the samples are of each industry as a whole, they are sufficiently large to provide a valid group for comparative purposes. In all three countries the farms are most likely to represent the top 50%-70% of farms rather than a true average, and as a result the group identified as the ‘Top 10%’ is most likely to represent the top 5%-7%. Paper 70The Public Interest in Resource RentJim Sinner and Jörn ScherzerResource rent is defined as a surplus value, i.e. the difference between the price at which a resource can be sold and its respective extraction or production costs, including normal returns. Reasons to collect resource rent include ensuring a return to the owner of a resource, avoiding inefficient allocation, and achieving ethical objectives. Rent recovery should not be confused with cost recovery. Cost recovery aims at recovering a variety of costs that arise from resource use, whereas rent is a return to the owner. Rent is best treated separately from externalities even though a negative externality can be seen as a reduction in rent realised by another user of the resource. Depending on their design, rent recovery mechanisms can therefore capture the value of externalities otherwise unaccounted for. Any rent regime has to take into account local circumstances and values (e.g. in New Zealand recreational access to public resources is traditionally free). Paper 69Dry Water : An economic evaluation of the National Plan for Water Security
The ‘big dry’ in Western Australia and southeast Australia has focused policymakers on what is wrong with water policies in Australia. Building on the 2004 National Water Initiative and an earlier vision to 'Secure Australia’s Water Future’, the Prime Minister, John Howard, on 25 January 2007 announced a major funding and policy initiative to help address the problems of too little water.
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