Get bigger and get used to almonds and cotton paying big for water

ABARES: Ag's $100b goal means paying more for water, scaling up and accepting change

Agribusiness
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Farmers have done a lot to lift productivity and exports, but business as usual is not good enough says ABARES boss.

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Farms will have to get much bigger and farmers must get used to paying much more for water, regardless of whether Australian agriculture actually reaches its $100 billion production goal in 10 years.

The often contentious and increasingly water-thirsty almond industry will also be important to lifting overall farm productivity, says Australian Bureau of Agricultural Resource Economics and Sciences boss, Dr Steve Hatfield-Dodds.

However, he also felt $100b was an "ambitious target".

"Part of the reason it's ambitious comes down to recognising our past good luck," he told this week's national ABARES Outlook conference.

"Global price trends have been very favourable for livestock in recent decades and those increases have accounted for about 90 per cent of the rise in Australia's nominal agricultural values in 20 years."

The nation's recent roller-coaster ride of seasonal successes and setbacks, and the drier, hotter climatic challenges ahead also provided some obvious hurdles to farming's productivity ambitions.

While we all hope prices stay favourable, getting to $100b requires hard work and tough choices - Steve Hatfield-Dodds, ABARES

Drought-depleted national livestock numbers and low water reserves in waterways, farm dams and major storages were current challenges.

They reflected a long-running trend of drier conditions undermining farm profits, particularly for croppers in the past 20 years.

Future rainfall and climate variability would challenge and change farm sector investment decisions, also impacting on regional economies.

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ABARES tipped farm production to be worth $59b this financial year - down from $62b in 2018-19.

More heavy lifting ahead

"While we all hope prices stay favourable - and ABARES considers this likely for livestock for a few more years - getting to $100b requires hard work and tough choices," Dr Hatfield-Dodds said.

Farmers had already done a lot to lift productivity and keep exports competitive, but business as usual was not good enough.

Dr Steve Hatfield-Dodds

Dr Steve Hatfield-Dodds

Continuing the trend towards larger farms and getting more bang for our buck from water would be key drivers of future productivity and crucial to achieving the National Farmers' Federation's $100b goal.

Those drivers could also come at the expense of long-time irrigation-based industries and traditional family farm production agendas.

Although it was a complex task to manage resources in Australia's agriculturally-rich Murray Darling Basin, and the water market was difficult-to-understand, trading mechanisms had ensured precious water was managed more efficiently.

Water trading works

Water trading adds about $150 million to agricultural output in the southern Murray Darling Basin,according to ABARES calculations.

That rises to $600m in dry seasons which happen about two years in 10.

A recent boom in tree crop plantings, particularly almonds, in the southern basin, made them important to farm industry growth.

"Water markets have unlocked more and more new opportunities and people are willing to bid for water to take advantage of those opportunities," Dr Hatfield-Dodds said.

It's brilliant. The water market is working and we're getting better value from what's available, and it benefits entitlement holders. - Steve Hatfield-Dodds

Moving from old water use patterns, including addressing "historically over-allocated" regimes, could be disruptive, but there were real benefits in a healthy and efficient working river system.

"It's what puts food on the table, and keeps industry profitable," he said.

"Water's expensive because it's rising in value in dry and wet years.

"However, people will never pay more to buy water than their profits can cover.

"It's brilliant. The market is working and we're getting better value from what's available, and it benefits entitlement holders."

Acknowledging his comments were "probably provocative" to some agricultural communities, Dr Hatfield-Dodds said it was unfortunate and inevitable rising water demand and costs compounded pressures on some farms and commodity sectors.

Stressed households

These stresses on farm households and communities had to be acknowledged by policy makers and responded to.

Since 2006 demand had risen for water for almond, cotton, pasture hay crops, and to a lesser extent cereals and fruit, while water for grapes, vegetables, dairy cows, rice and pastures growing red meat had declined.

"A lot of industries must innovate, or adapt," he said.

"People can get in real trouble if they assume the future will be a continuation of the past.

"This will not be the case in irrigated agriculture, or elsewhere."

Similarly, rather than be distracted by farming's inevitable year on year seasonal variations, farmers had to keep working on increasing the scale of their businesses.

The future will not be like the past - Steve Hatfield-Dodds

"Since 1990, increased farm scale has accounted for more than two thirds of the growth in average real broadacre farm income," Dr Hatfield-Dodds said.

"Indeed, without that greater scale it is not clear if farming would be financially attractive."

Getting bigger pays off

Structural and agricultural market reforms in the 1980s and '90s, although often hotly contested and uncomfortable, had set the stage for three decades of sustained export growth.

The biggest enterprise expansion had been in the cropping sector, but it was important for other sectors to consolidate, too, and persist with innovation.

Farm consolidation helped spread the benefits of better management practices, and many technologies and capital equipment enabled greater economies of scale.

"The future will not be like the past," he said.

"We must anticipate, innovate and collaborate to stay ahead of the curve."

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The story Get bigger and get used to almonds and cotton paying big for water first appeared on Farm Online.

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