Has growth in productivity in Australian broadacre agriculture slowed?

Is productivity growth in agriculture slowing?

There is some concern that productivity growth in Australian agriculture may have slowed as has occurred in the agricultural sectors of other developed economies. In Australia, a decade of poor seasonal conditions caused the estimated total factor productivity of broadacre farms to be quite volatile, and has made it difficult to discern from simple descriptive statistics whether productivity growth has slowed and, if so, the causes of the slowdown. A particular concern is that any slowing in growth may arise from a slower rate of technical change associated with (at best) stagnant public investment (in real terms) in agricultural research (Mullen 2007).

ABARE estimates for broadacre agriculture suggest that productivity growth has slowed in the 10 years to 2007. During this period, the TFP index peaked at 288 in 2000 and was second highest in 2006 at 276 (figure b). Trends in productivity growth have not been even across industries within broadacre agriculture (table 2). For cropping specialists, the estimated TFP grew at the rate of 5.8 per cent from 1980 to 1994 but declined at the rate of -2.1 per cent a year for the 10 years to 2007. For this period, TFP for all broadacre agriculture fell at the rate of -1.4 per cent a year. There is less evidence of a slowing in TFP growth for beef and sheep specialists, and Nossal et al. (2009) speculated that productivity growth among sheep specialists, usually ranked the lowest of the industry groups, might finally be catching up.

2 Growth rate of TFP for broadacre agriculture, 1978 to 2007 (%)
	All broadacre	Cropping	Mixed crop -livestock	Sheep	Beef
1980 to 1989	2.2	4.8	2.9	0.4	–0.9
1985 to 1994	1.8	4.7	3.2	–1.7	3.1
1989 to 1998	2	1.9	1.4	–1.2	1.6
1994 to 2003	0.7	–1.2	0	3.4	1
1998 to 2007	–1.4	–2.1	–1.9	0.5	2.8
1978 to 2007	1.5	2.1	1.5	0.3	1.5
Source: Nossal et al. (2009).

Reasons that productivity in broadacre agriculture may be slowing include:

• fewer research opportunities
• unfavourable climate
• reduced investment in R&D.

With respect to the argument that ‘all the big gains have been made’, research agronomists still seem confident there are practical research opportunities and opportunities for farmers to grow crops more efficiently. For example, Angus (2001) argued that trends in Australian wheat yields showed little signs of slowing down (figure d).

Andrews and Angus (World Wheat Book, in press) noted:

‘Despite the new technology, the mean yield is only 2.0 ton(ne) per ha, about half of the water-limited potential… Further research will be needed to increase yield closer to the water-limited potential. The gains are most likely to come from tactics that enable crops to take advantage of the more favorable seasons in the variable climate, and concentration of inputs on the parts of farms with the highest yield potential.’

With respect to climate⁶, the annual rainfall anomaly for the Murray-Darling Basin (figure e) published by the Australian Bureau of Meteorology shows the annual deviation in rainfall from average annual rainfall between 1961 and 1990. While the timing of rainfall remains a critical factor in agricultural production, there have now been eight consecutive years of below average rainfall. If farmers are using inputs in expectation of a normal season but a dry season eventuates, then TFP falls. In addition, farmers’ expectations about seasons may now be more conservative such that they are operating on a less efficient part of the production function. This is an area for future research.

Mullen (2010b) describes how the data on R&D investment have been assembled from Australian Bureau of Statistics (ABS) sources. R&D expenditure is attributed to research providers, rather than funders. As a result, expenditure by state departments of agriculture or universities, for example, includes funds obtained from rural RDCs. Attention is focused on farm production research and investment in R&D. Fisheries and forestry R&D is not included.

Total public expenditure on agricultural R&D in Australia has grown from $140 million in 1953 to almost $830 million in 2007 (in 2008 dollars). Figure f shows expenditure growth was strong to the mid-1970s. There has been little growth in expenditure since that time although there was a spike in investment (nearly $950 million) in 2001. Likewise, agricultural research intensity, which measures the investment in agricultural R&D as a percentage of agricultural GDP, grew strongly in the 1950s and 1960s, but has been drifting down from about 4 to 5 per cent annually of agriculture GDP in the period between 1978 and 1986 to about 3 per cent a year in recent years (compared with 2.6 per cent a year in developed countries). In the analysis below of trends in broadacre TFP, investment in R&D in broadacre agriculture has been derived as a proportion of this total public investment in agricultural R&D.

Although there have been many discussions in previous literature on the relative role of climate and R&D in affecting agriculture productivity, no attempt has been made to empirically assess the relative contribution of the influences of climate (poor seasonal conditions) and investment in R&D. In the following section, the adjusted cumulative sum square (CUSQ) index (one of the structure change analysis approaches) is used to examine the stability of the TFP index for Australian broadacre agriculture between 1953 and 2007 and the contribution of factors like climate and R&D investment to changes in trend.