1 April 2014
ABARES Outlook 2014
Great. Thank you. I’m going to have a quick chat with you this afternoon about one set of viewpoints about unlocking northern Australia’s agricultural development opportunities. That’s it. The north’s economy is growing in richness and complexity. It’s certainly not just agriculture. Tourism, mining, and defence are already really well-established and make a more than $25 billion contribution to the north’s GDP, which incidentally accrues at roughly twice the rate per capita than the rest of Australia.
I’d now like to put those industries aside though to focus on agricultural development, for which has a particular interest and capacity to unlock greater potential. So why focus on agricultural development? Because the potential opportunity is clear, well-established, and widely agreed. Productivity growth is required to offset the declining terms of trade faced by Australian agriculture.
And amongst other methods, this can be achieved by increasing production from existing agricultural land and by increasing the area available for agricultural production. And northern Australian has a role to play in both of those methods.
As those of you who’ve been here for the last couple of days will certainly know by now, global food demand may double by 2050, bringing with it that new markets and potentially higher process, particularly in Asia. Northern Australia’s proximity to these markets may provide it with a particular advantage.
It also makes sense to focus on agriculture because there’s a potential to add value by more intensively using the existing resource base. So what does that resource base look like? The definition of northern Australia I’ll use for these purposes is just the northern draining catchments. So if rain hits, it’s the stuff that runs north so that takes you basically from Broome across to the Western cape.
That definition of northern Australia comprises about 20% of the nation’s land mass. It receives about 26% of Australia’s annual rainfall. That’s about a million gigalitres every year. And it may have as many as 17 million hectares of soil that is potentially suitable for irrigated agriculture.
Despite that potential, northern Australia’s large scale agricultural successes have often occurred mainly in the beef industry, which supplies 30% of Australia’s beef trade. And in fact, if just this definition, the northern draining catchments was a country, it would be the sixth largest beef exporter in the world. So despite our supplying 30% of Australia’s beef trade, northern Australia currently supplies only about 2 1/2% of Australia’s irrigated agricultural area. So irrigated ag may well be northern Australia’s Cinderella industry.
What needs to happen for Cinderella to be taken to the ball? Well Cinderella’s wicked sisters are a lack of certainty and a lack of confidence. History has shown that capitalising on the north’s advantages has its challenges and uncertainties. And this erodes confidence which in turn can deter investment. So unlocking significant new investment in the north’s agriculture requires confidence about the scale of opportunities and the risks that attend them.
So where do those opportunities and risks lie? Because I’ve only got 10 or 15 minutes, I’m going to concentrate on six of those challenges and opportunities. And certainly, CSIRO’s work in the north, really since 1946, but most particularly in the last five or ten years has tended to suggest that there are six key uncertainties and challenges that must be understood and solved in order to provide the confidence to unlock investment across all of northern Australia.
So I’ll just tick through each of these six. Many current land and water tenures in the north pose significant barriers to agricultural investment. Northern Australian tenure systems are complex and unique in a national context. There are multiple and often overlapping tenures for the same piece of land.
Administrative arrangements relating to land tenure vary across state jurisdictional boundaries, potentially increasing transaction costs. And it’s important to know that the north has for tens of thousands of years and presently tends to run its affairs east and west, not north and south. And so crossing those jurisdictional boundaries is a common feature that businesses face.
There are new and emergent tenures or changes to tenure such as water and carbon for which tenure regimes are uncertain and continually evolving. So the complexity uncertainty surrounded with land tenure is a barrier to private investment in irrigated ag.
In response, governments are working to explore pathways for improvement that reduce complexity, improve the efficiency of regulation, and improve the effectiveness of land and resource planning. And again, we will have heard about that during the conference.
So second of the six, water. Across northern Australia as a whole, CSIRO has identified the capacity to sustainably double or triple the north’s irrigation area using renewable groundwater resources. The potential is significantly greater if surface water is included. But sustainably exploiting water resources requires more detailed knowledge of local scale water flows, additions, and losses. So a recent study that we’ve done, for example, shows that in some catchments around 90% of all of the water that falls evaporates.
Actually acquiring that detailed knowledge of local scale water flows, addition, and losses has historically been prohibitively expensive. So recently, we’ve developed and demonstrated methods for rapidly and economically quantifying water availability and identifying water storage options. Using these methods, we’ve recently identified the capacity to reliably store over 1,000 gigalitres in just two of northern Australia’s roughly 50 catchments.
Three of six, soil. A scarcity of detailed soils information in northern Australia has made it difficult to estimate potential agricultural productivity. In most places northern Australia, there are not soils maps. Makes it difficult to plan agricultural developments. It’s also made it difficult to establish priority locations for irrigation development across the north.
The cost of acquiring reliable soil and agricultural productivity estimates has often proven an insurmountable barrier to investors, both public and private. Again, I think there’s good news. We’ve been able to develop and demonstrate methods for rapidly and economically making high precision soil maps and to convert those into land suitability maps that tell you what types of crops and what types of irrigation methods are suited to different places. So again, using those methods, we’ve recently identified and mapped over 10 million hectares of at least moderately suitable agricultural soils in just two of the roughly 50 northern draining catchments in northern Australia.
Agricultural production. Investment is enhanced by access to quantitative opportunity and risk assessment. That’s usually how markets work. Trial and error is prohibitively costly and inherently risky method for quantifying the potential and risk of agricultural production. It’s simply too variable over space and time to do agricultural production estimates physically.
Instead, we can combine water, soils, and climate information to estimate agricultural production using world leading simulation models. These enable us to identify production potential and risk at local and regional scales enabling private and public investors to understand the scale and location of risks and rewards in terms of agricultural production. Again, using these methods, we have been able to identify the opportunity to reliably produce crops with a gross margin of more than $100 million per annum in just two of the more than 50 northern draining catchments.
So number five of the six areas where uncertainty might be inhibiting investment and quite possibly the most important of the six that I’m going to talk about is markets and business structures. The relative use and limited scale of northern agriculture obscures visibility of larger market opportunities. And that, in turn, deters on and off farm investment in the north.
A growing number of businesses are working to identify market and trade opportunities and options that are likely to foster long term growth in on-farm operations and supporting off-farm infrastructure. They’re currently being assisted by work that’s being done with industry and in partnership with organisations like ABARES, CSIRO, state governments, RIRDC, and Regional Development Australia. There’s an emerging view that niche markets are the cream and that financial sustainability requires that they’re underpinned by a substantial layer off commodity based cake.
The picture that’s emerging also suggests that appropriate markets and business models limit agricultural development more than the biophysical challenges of the north and the uncertainties that I’ve already mentioned around water, soils, and agricultural production potential.
Finally, transport. Under-developed transport infrastructure and long distances have presented a consistent challenge to development of the north. Long distances increase the cost of accessing inputs and selling outputs, as well as reducing the mass quality and value of outputs. Cost and distance to market paradoxically reduce the north’s natural advantage of proximity to Asian markets.
By way of example, transport costs often comprise up to 35% of the value of northern Australia’s livestock. Recent analysis in the Flinders and Gilbert catchments of north Queensland have shown the proximity to processing facilities such as mills and gins can make the difference between competitive and uncompetitive agricultural industries. Finding least cost pathways in the north by smarter use of existing infrastructure or by developing new infrastructure is key to unlocking value in the north.
As Minister Truss announced this morning, we’ve recently developed tools that provide a holistic understanding of the pinch points and best bet short term strategies to reduce transport costs using the available transport infrastructure in the north. Those same tools can also be used to identify infrastructure investments that achieve the greatest strategic benefits at the lowest cost. That’s all very nice, but a step change in transport logistics will require a systematic analysis of the north’s value chains so that infrastructure can be located and configured to create structural efficiencies that currently don’t exist.
So capitalising on the advantages and prospects for northern development is not, as history has shown, without its challenges. There’s a number of social, economic, regulatory, and biophysical opportunities and barriers to the growth of irrigated ag in northern Australia. Unlocking significant new investment in irrigated ag requires confidence about the scale of opportunities and the risks that attend them.
CSIRO and others have developed the tools for rapidly assessing development opportunities and the costs and benefits of exploiting them. They’ve most recently proven in the Flinders and Gilbert catchments of northern Australia where the possibility of reliably adding up to 30% to the stock of northern Australia’s irrigated agricultural area has been identified. So the opportunity remains to apply these tools and approaches across all of northern Australian to help identify development sweet spots, opportunities, and risks. Thank you.
Courtesy of ABARES Outlook 2014
1 April 2014