2 March 2010 

Speech by the Hon John Kerin to the 40th Outlook Conference of ABARE

(E&OE)

I’ve been asked to say a few words about Outlook because I attended the first Outlook Conference. I’m also the only person of that small, near senile, cohort that ABARE could find that didn’t need a bed for the night or travel allowance. And I don’t charge for speeches; you’ll understand why at the end of this. I also worked in the BAE in the 1970’s and was the relevant Minister, allegedly responsible, for the organisation from 1983 to 1991.

The serious part of this speech will stress that there have been identifiable phases of Australian agricultural production and that, whatever the causes, the agricultural economics profession and the work of the Bureau has been necessarily ahead of national policy responses. The Outlook Conferences, and their seven regional outlook counterparts each year, have become a crucial communications forum to put Bureau projections and analyses before the widest audience and engage with and listen to their client base at a high level. We are now in a phase of agricultural production that, as ever, needs both research and policy responses.

Doug Anthony was the relevant Minister at the time of the first Outlook in early 1971. He opened the Conference and the mini-throng met in a couple of lecture rooms in one of the now oldest parts of the Australian National University. It was free and a handful of confused farmers, including me, as well as representatives of farm organisations turned up. I seem to remember that the farm evangelist, John White, from the NSW LGPA was there; evangelising. My recall is that the proceedings went over more than one day and that there was emphasis on commodity projections, farm performance, some broader economic analyses and a lot about the implications of the U.K. entering the Common Market.

Industry spokesmen gave their ideas on the state of their industries. I won’t name them as most are still alive. The meat bloke was concerned about synthetic meat ultimately making serious inroads into the US market for manufacturing beef. The egg spokesman was concerned about the “hideous monstrosity of interstate trade”. The tobacco industry person said that smoking will survive because it is safer and saner than anything likely to replace it. He was concerned that the cigarette companies were experimenting with cellulose, seaweed, herbs, lettuce, cabbage, tea leaves, coffee grounds and wood shavings as substitutes. I think he has died from lung cancer. And some fool from the oilseeds industry wanted to replace whale oil with local vegetable oils. This was at a time when margarine production was limited by quota due to the power of the dairy lobby.

Thank God for the NFF.

Stuart Harris was the Director and he and senior members of the Bureau were at the forefront of the agricultural economics profession. I probably owe more to Stuart Harris than any other person. There was a solid core of professional agricultural economists who made the organisation what it is and who were instrumental in creating its culture. I’m pretty sure that stalwarts such as Ivan Roberts, Max Lawrence and Graham Tie would have been at the first Outlook. There were quite a few New Zealanders in the organisation and a large contingent of Field Officers were very busy gaining as much economic/ financial and some social information as they could about our primary industries. A lapse in the Bureau’s judgment occurred when I was hired by it in April 1971. The place abounded with PhD’s in economics; I had, by accident, an economics major in an Arts degree- I figured they must be desperate. From my university studies I understood supply; it was a bit later that I learnt about demand; or demands!

I joined the Wool Marketing Section, working directly under my now long term friend, Bob Whan, and having bosses further up the chain such as Noel Honan and Dr. Geoff Miller. It was the start of a learning curve that continues to this day. Geoff Miller later became head of the Department and I know of no-one who knows more about agricultural policy than Geoff. There were some great characters in the organisation, some going back to when it was first set up after World War 2 by Sir John Crawford. There were a few alcoholics, not many sensitive New Age guys and a social club that worked; when ‘the wives’ came along and opened the beer. I once worked with a chap who could sleep at his desk with pen poised but at the slightest noise start writing again. Another colleague was a somewhat deluded, pot-sozzled, mathematical genius, who was writing a book on Australian pubs. He became so alienated that on his departure to a commune he presented his boss with a raw pig’s head complete with apple in mouth. Many officers came from farming backgrounds who had gained tertiary qualifications. This was also a characteristic in the Department I inherited in 1983; I doubt the situation still prevails today.

The only constant with any organisation is change, adapting to change and anticipating change. The quality of the government of any society depends in large part on the resilience and adaptability of its institutions. Reform of policy is always hard, really hard. It has been the crucial attribute of the Bureau, as a research agency, to inform policy and to have the capacity to freely publish as long as not actively advocating policy change or overt criticism of the government of the day. The task of the policy maker is to synthesise all the strands of evidence and analysis before him or her, not just adopt one-off pieces of work. Resilient policy cannot come from the often mis-informed or the whims of the ever disinterested public, no matter what your definition of democracy may be. Whether always understood by farmers and farm organisations, the BAE/ABARE and the Industries Assistance Commission (now Productivity Commission), which was set up by the Whitlam Government, have served our farm industries, our economic wellbeing and long term Government policy, well.

 In my time as Minister the leadership of the organisation performed by Andy Stoekel, Rob Bain, Terry Larkin and Brian Fisher was outstanding. Not that I always agreed with them. Rigorous economic analysis doesn’t always coincide with political possibility, particularly if the Government of the day doesn’t have a majority in the Senate. I note the current Government now has to deal with the accidental Fielding and the Delphic Xenophon! I only had the ‘All Things to All Men Democrats’ to deal with on issues such as their advocacy of windmills on pushbikes to save energy. Perhaps this is still a good alternative to a ‘BIG NEW TAX ON EVERYTHING’? or ‘A GREAT BIG CON ‘?

Tony Burke gets it pretty easy, these days. Replacing two Ministers and one Parliamentary Secretary, he only has to deal with a 10-12 year drought, a drying out Murray Darling Basin, the implications of the Global Financial Crisis, a coming Global Food Crisis, a high exchange rate, floods in our North, bushfires in our South, rising bio-security threats, Alan Jones’s discovery of property rights and natural resource management policies under the sway of the ACF. He’s doubly blessed with accelerating Climate Change because most farmers regard it as a gigantic conspiracy by mad scientists. Although our fisheries are in trouble, sea-level rise is not a problem due to the fact that the excess water will run off the edges. Fisher-persons tell me they can’t see any evidence of the sea having risen when they are out to sea.

Agricultural policy and the profession of agricultural economics has always adapted to changes occurring in Australia, which is often instigated by seasonal conditions and domestic policy settings,  but more often by international economic and trading conditions, which bounce back on Australia.

 I’ve seen many changes in my lifetime and, as I have said, one can look at these in terms of phases. The first phase in my experience was post World War 2; the Long Boom. I started farming in 1952 and the 1950’s was a time of relatively high world commodity prices due to food shortages following the War. I thought it odd that we were exporting eggs to Britain at less than the domestic price and that we were paying a Home Consumption Price for wheat that was above the world price; but this was all a bit beyond me and my peasant views. I remember in 1955 that fellow orchardists were receiving very good prices in the UK from shipping it Gravenstein apples; they were edible, just. It was quite a bit later on that the Tasmanian apple industry virtually collapsed due to the UK market closing.

The emphasis at this time in the agricultural economics profession was essentially about production economics. This was at a time when production was the be all and end all; bulldozers were in ready supply.  

Like most industries, agriculture faces declining terms of trade; therefore increased productivity was and is crucial. Farming has never been an easy occupation but there have always been plenty of volunteers, even though exits always exceed entrants. The real net farm income of producers or the sector has not risen all that much; there’s just been fewer farmers, increased capitalisation and a shifting emphasis on product-mix as farmers have adapted to changed conditions. Unlike the shameless merchant bankers, farmers actually have to produce a tangible good, not some ‘pixie dust’ product that no-one understands. As an aside, the Executives of some US and UK merchant bankers only pick up $10,000,000 a year in bonuses; that’s only $27,400 a day; but it does help with the little extras. I noted the other day that we now have more people employed in banking and finance than in primary industry. Be warned.

Certainly up to 1965, and well beyond in many cases, Government, particularly State Government, emphasis was on opening up more land, building dams and giving out more irrigation licenses. There was a subsidy for clearing and government incentives and requirements to clear more land. Governments may be able to be criticised in hindsight for garnering votes with policies so directed but there wasn’t much opposition to the urge to produce more by the farmers or by the society in general. I’ve noted that there’s still not much diminution in the desire to clear more land and produce more; it’s basic. The Australian and State Governments had developed, if not perfected, just about every subsidy and protection measure known to Humankind, except for some of the more imaginative recent one’s dreamed up by the Eurocrats.

The protection banner never disappears and it still occurs in Australian political dialogue by those into populism and the short term; I won’t name the current Queensland suspects. It was only by picking up a smattering of university education that I woke up to the long term policy problems with McEwen’s ‘protection all round’ policy approach.

Due to excessive subsidisation and protection in the Northern Hemisphere, by the late 1960’s the world was running into agricultural surpluses. We were losing 10,000 dairy farmers a year despite the cream subsidy, quotas were placed on wheat production and a Deficiency Payments Scheme was introduced for the wool industry, which was always adept at getting around Government policy. The realities and politics of any time during any phase of the nature of primary production always under-estimates the historical circumstances in what is adopted. The overall policy response by the Liberal Country Party Government was to move more to rural adjustment schemes and to support farmers in ways other than by subsidisation. I had the idea that the Outlook Conferences were instigated at this time by Doug Anthony and the Bureau to try to explain to farmers what was going on and the problems of the external environment. Doug became Minister in late 1967 and the Government started to develop markets other than Britain, particularly Japan to stress diversification and the importance of scale.

The Whitlam Government didn’t cope well with the external economic environment marked by the collapse of the Bretton Woods Agreement, the first of the oil shocks (one aspect of which was Japan closing down its beef imports overnight), world inflation followed by stagflation and the UK’s entry into the Common Market. It did introduce more sensible support measures, emphasising production efficiency and diversification. Ken Wriedt did well and the joy of being an ALP Primary Industry Minister is that you can’t lose votes; but I think I succeeded in doing that.

The 1970’s were not an easy time to be a Minister for Primary Industry. The Fraser Government in some ways had a ‘Farmer Cabinet’. The National Party was still strong and Anthony, Nixon, Sinclair and Hunt were all powerful players. I’ve always believed that Anthony was ahead of his Party but that his electoral support was so rusted on that reform was and is hard to give effect to. I had a lot of time for all of them, particularly Peter Nixon, even though I’ve always had doubts about economic populism and social reaction as policy fixes. The Bureau was very active in the 1970’s, effectively drawing on a far more market based approach to agricultural policy. The 1982-83 drought and the then world economic recession dragged the Fraser government down. Our parochial media prevents it from being generally understood that on economic matters what we do in Australia is only ever marginal. Our population is so small and as we export such a high proportion of our production, from the most variable climate in the developed world, we are doubly vulnerable.

The Green Paper on Rural Policy under the auspices of Stuart Harris, in May 1974 clearly indicated the changes needed in agricultural policy.  Although some woolly thinking on tariff compensation for farmers was around at the time, the agricultural economics profession and the BAE’s advice to government was consistent in the period 1968 (earlier with respect to dairy industry policy) to the early 1980’s. Reform of agricultural marketing was essential, the natural resource base had to be taken into account, agricultural research and development had to be re-invigorated and reforms in the overall economy were essential. The world had moved on from any idea of certainty as we entered the first ramifications of globalisation and the mis-taken idea that all markets are neutral. One hopes that the GFC has put paid to that notion? One hopes that we better understand ‘bubbles’ whereby household wealth in Sydney grew by 50% in 2004 simply because of inflating house prices due to people having borrowed more to exchange mortgages. The eco-system services that farmers produce do not appear in any established market place.

In 1977 I was involved in horticulture in the Bureau. I had asked a survey team going to the Huon Valley in Tasmania to try to gain some idea of the social conditions of impoverished apple producers. In profane terms I was subsequently advised by a Field Officer that ‘few of the hoons have new sin-bins from which to woo the fair sex’; or words to that effect. He had no observation of the kind of pre-prandial libations used in such wooing, so I didn’t think we could compose a sin bin index of social wellbeing of lasting value.

The 1970’s and 1980’s represented the phase of re-adjustment, re-assessment and deregulation in agricultural economic analysis and policy responses.

Luckily, I became Minister in March 1983 and all our many problems were solved. I inherited the blueprint of the Balderstone Report, the drought broke, the Government embraced overall economic reform and there was clear agricultural economic and scientific consensus on what needed to be done. As part of Phil Lynch’s ‘Razor Gang’ staffing in the Bureau had been cut by the Nats by twelve per cent, but the core remained. There was a majority of State ALP Agricultural Ministers, all of whom were parochial but none of whom could lose many farmer votes. They only fought me tooth and nail on a few dozen issues, each. I became more aware of the strengths and weaknesses of the States and the differences between them, not always comprehended by the Commonwealth bureaucracy. Perhaps thinkers are always separated from doers?

 I also had the advantage of trusting the Department and knowing that many from the Bureau had moved to it and into the Industries Assistance Commission, thus establishing a different, more economically relevant policy ‘club’ than what had prevailed up until 1972. Modesty prevents me from outlining all that occurred during my period as Minister from 1983 until 1991. You can all buy the book if Neil Inall and I ever finish it before books disappear or I cark it. But please understand I didn’t do it all on my own and the Bureaux and Department should get the credit, or blame, depending on your point of view.

When I became Minister for Primary Industries and Energy from 1987 on I had minerals and energy added to agriculture, fisheries and forestry. Graeme Evans had the task of integrating two Departments and taking in parts of the commodity areas in the Department of Trade. New fields for economic analysis arose. The BAE became the Australian Bureau for Agriculture and Resource Economics and I had also already established the Bureau of Rural Sciences and set up a Rural and Provincial Affairs Branch to deal with agricultural science and social issues in rural Australia, respectively. Outlook was able to address the many mining and energy issues

But then in mid 1991 I suddenly became Treasurer, inherited the Recession we had to have and Keating’s Budget, told the truth twice too often and forgot the ‘s’ in an acronym, which buggered me and the economy for at least ten years until Peter Costello saved it; so I’ve read. Paul Keating has another version.

 In the late 1980’s and into the 1990’s the challenges for the Bureau and policy were stylised by a phase of more emphasis on global and resource challenges with an increased emphasis on trade. Work by the Bureau on EC, US and Japanese agricultural policy was instrumental in backing our trade negotiations during the Uruguay Round. Land and water became more of an issue for analysis. The Bureau has adapted to changed technology, engaged in contracting and outsourcing, anticipated arising issues as well as keeping up a lot of its ‘bread and butter’ work such farm financial projections and commodity analysis, as well as engaging in more cerebral economic analysis and statistical techniques. From the 1990’s in to the two thousands, the sciences have had to be taken more into account in analysing policy options, particularly where natural processes and resources, e.g. water, land management, fisheries and forestry analysis and policy is concerned. In the two thousands there’s been a lot of research on the implications of accelerating Climate Change for agriculture. There’s been a constant pressure to merge the Bureau with the Bureau of Rural Sciences. I’m opposed to this if the freedom to independently publish goes.

Knowing a bit about how politics and public administration works, I won’t be too critical about changes in recent years though I wouldn’t have unstitched some aspects of agricultural marketing and research and development that had been put in place, not that review and change isn’t always essential. Function is always more important to review than simply placating the idiocies of the inexorable pressure exerted by the Fiscal Fiend. For example, a mish-mash of public, corporate and private agricultural research and development corporations doesn’t help in addressing cross sectoral issues.

What realities do we face now? I’m no longer at the ‘pointy end’ of agricultural policy but as a less than innocent bystander, there are many matters that concern me with respect to Australia’s agricultural future. We all know that world food supply is going to be a priority issue.

I could never be accused of being an agricultural fundamentalist or populist or enthusiast, nor a Malthusian for that matter. However, the phase of agriculture we are entering, leads me to believe we are not taking near term future challenges seriously nor preparing for what may be foreseen. We may be allowing opportunities to be missed. Our food exports peaked in 2001-2 and we now import about $5 billion’s worth of food p.a.. This means we are consuming much more of our production than in the past. And yes, I accept a lot of this is due to the run of droughts we have had in the past decade.  

While it’s fine to say that the key issues are now bio-security, natural resource management and trade access, it seems to me that there’s a need for a re-emphasis on the infrastructure and underpinnings of agriculture to, particularly to get the message across to our growing dominant city populations, regard productivity gain as absolutely essential and examine the reality of the coming world scene. The relationship between water, energy and food and research, education and extension support is part of a continuum. Primary producers, to my mind, need to constantly understand that they exist in a social and environmental setting as well as a production one. I’m heavily in favour of the adoption of environmental management systems as a way of inducing thoughtful management at farm level. I don’t know what happened to the 2002-3, five year, $25m incentive scheme to push EMS.

We need to think beyond the immediate and the next ‘crisis’. We may need to be examining supply instead of thinking it’s just going to happen, even if we only examine resilience. Policy settings always need to be re-examined as the situation changes, e.g. I’m not sure that dairy deregulation has been all that it was cracked up to be- for the industry or consumers.

I don’t know if and when a global food crisis will come, or what the reality of more variable climate change is going to be, but it is clear that cost pressures and input resource security is going to be more of a threat to our farmers. Phosphates, fuel, oil-based chemicals and fertilisers are either becoming or are more limited and prices are rising or oscillating. Combating land, water and weed problems is not going to lessen nor is the economics or commerce of farming going to become less of an issue; no matter how much consolidation of holdings takes place. If regionally based natural resource management and Landcare is strangled, policy makers will need to be sure about what will replace the current under-funded approach; we’ve tried just about everything else.

The really serious aspect of all this is that all government agricultural agencies are being cut down, agricultural research and development is lessening, agricultural education is slimming down quite rapidly at tertiary level and physical infrastructure is being under-invested. This is at a time when we are facing unprecedented agricultural production and environmental challenges.

One cannot say that staff numbers in the Commonwealth Department have been cut by that much. Once minerals and energy were taken out in 1998-99, the numbers in DAFF shrank to 3069, remained low for some years but have risen to about 4,800 today. However, please remember that AQIS has always had, and still has, well over 2,500 people employed in the Department throughout Australia and mainly cost recovered. The Bureau has shrunk to about 120 people from 280 in 1990-91. There are many reasons for changes in the way DAFF’s assets are distributed and the organisation is run. Numbers are not as important as the fact that policy solutions gain from the knowledge, experience, passion and vision by all those administering and implementing it. While there have always been staffing changes provoked by budgetary restraints, knowledge, particularly corporate knowledge, and data sets are often, detrimentally, lost. What is more worrying is the decline in people engaged in the State Departments of Agriculture at both quantity and quality level. The growing city population demands on State Governments are enormous. Some people point to the fact that a concentrating industry such as agriculture still has a large number of people in the public sector providing support and services to it with the private sector becoming more involved. I believe the need is still there and that challenges and opportunities need to be addressed.

With respect to tertiary education in agriculture, while enrolments in non-University establishments tend to be holding up, they are not in the universities. The Australian Council of Deans of Agriculture, with Jim Pratley heavily involved as co-ordinator, is documenting the decline and working to rectify the situation. Time doesn’t allow me to document the very alarming situation. Fifty per cent of our agricultural scientists and academics will retire over the next five years. We need more than twice the number of agricultural graduates to that being produced now. The need is for about 2000 graduates p.a.; we are producing 800 and declining. Post graduates are scarcer than hen’s teeth due to the stipend situation and short-term contract employment. In 2008, 7,618 agribusiness jobs for graduates were advertised. If tertiary qualified people in our industry were at level pegging with other major industries, we would need 7,000 graduates p.a. When one queries the universities about this they simply point to declining demand by enrolees. The image of agriculture and community ignorance is part of the reason. The universities also have to adjust to the fact that funds were massively cut in the late 1990’s and that they have become dependent on foreign students.

Finally, you won’t be surprised when I say that my biggest concern is with respect to RDandE. There is currently much angst, review, inquiry and conference activity on this crucial concern. There’s a major conference being put on by the Australian Institute of Science and Technology in this city next week. Australian agricultural productivity growth peaked in Australia in 2003. The most recent paper I have seen on this is by John Mullen of Charles Sturt University, formerly of the NSW Ag. Dpt. The Bureau has revised downwards its estimate of long term productivity growth since 1953 to about 2% per year. Of real concern is that productivity growth in broad-acre agriculture has declined in the ten years to 2007 by minus 1.4% per year. Detailed examination shows that the decline is not just due to seasonal conditions but that public investment in research has been stagnant since the 1970’s. Multi-factor productivity growth for cropping specialists rose by 4.8% per year from 1980 to 1989 but has fallen by minus 2.1% per year since 1998. It is beyond the grasp of some central Departments in this city that expenditure on R&D is investment, not a cost. Again time doesn’t allow me to say more, but anyone closely associated with this knows that the evidence is clear. I’m pleased that the CSIRO launched its Sustainable Agriculture Flagship last month. The CSIRO estimates that between now and 2050 we need to produce as much food and fibre as the world has up to this time. I’m also encouraged by what Minister Burke said in support of R and D at the National Press Club in December last year.

However, the phase of agricultural production we are now entering and the challenges we face requires some re-dedication to policy and a re-invigoration of passion, leadership and vision. We can depend on the Bureau, but I’ve decided, as I’ll be one hundred and twelve, I won’t give the after-dinner speech for your eightieth Outlook Conference- even if you offer to pay me.

Thank You

[ENDS]