CHINA, THE OECD AND THE HEALTH OF AUSTRALIAN FARMING.

By Roger Crook.

There is a need to put the trade relationship between Australia and China into perspective. Particularly as far as food imports from China are concerned.

Australia is a major supplier of iron ore and other minerals as well as coal and gas to China. We are now as dependent on them as they are on us. Without this market we would be less well off than we are now, especially in Western Australia and Queensland.

In return we find in our shops an ever-increasing quantity of goods of all kinds, which have been made in China. This is called reciprocal trade. For some time Australia and China have been negotiating a Free Trade Agreement (FTA). If this occurs we cannot expect the volume of goods manufactured in China to decline.

A great deal has been said and written about food from China being imported into Australia. Some say the data published on the value of this food is wrong because China is using New Zealand, or the New Zealanders are using China, to get food into Australia.

Our ‘Country of Origin’ (COOL) laws are a mess. In this instance, the country or origin for the food from China appears in Australia, to be food from New Zealand. We do have an FTA with New Zealand.

Can we expect the importation of food from China into Australia to decline? It would appear not. The following appeared in ‘China Today’ in June of 2010:

"The rise in some sectors has been so fast that it almost defies description," said Scott Rozelle, Cheung Kong Scholar and guest professor at Beijing's Renmin University of China. "Every two years China adds the equivalent of the vegetable production capacity of California. The cultivated area dedicated to fruit orchards is more than 5 percent, more than double the share of the next closest major agricultural nation, including the US, the European Union, Japan and India. There has also been a continuous and rapid rise in livestock and fisheries."
In March Premier Wen Jiabao announced plans to allocate 818.3 billion yuan for agriculture, farmers and rural areas, an increase of more than 93 billion yuan over last year, and said local governments would also increase their investment. He said the government would spend 133.5 billion yuan to subsidize agricultural production, a year-on-year increase of 6.04 billion yuan.
A couple of years ago it was estimated that just a 3% increase in horticulture in China would be sufficient to provide all Australia’s needs.
In October 2010, the Australian Food and Grocery Council and the consultancy firm KPMG got considerable publicity for a report that Australia was importing more food than it was exporting.
This report caused considerable anxiety within the Australian horticulture industry and Australian agriculture.
The report was seized upon by some of the mainstream and agricultural media, most notably the ABC. Emotions ran high with reports that Australia was being swamped by cheap, subsidized food from around the world, especially from China.
Was the sword of Damocles about to fall on Australian food production? Were we about to become dependent on other countries for our food?
The trouble was that the report was wrong.
In December of the same year ABARE set the record straight. Their report received no publicity that I am aware of. The belief is still out there that Australia is a net importer of food.
In the December edition of ‘Australian Commodities’ on pages 647 and 648 the bureau detailed in a small report the value of Australia’s food imports and exports for the previous two years. They also showed how export values are calculated:
“Australia’s food exports were valued at $28.1 billion on board ship in 2008–09, while the value of food imports was around $10.4 billion in the same year.
“Recent data show that exports and imports declined to $24.3 billion and $10.1 billion, respectively, in 2009–10.
“A significant proportion of Australia’s food exports consists of unprocessed or minimally transformed food products, such as wheat, coarse grains, oilseeds, live animals and fish and shell fish, that have relatively low unit values.
“In contrast to Australia’s food exports, the substantially and elaborately transformed products with much higher unit values comprise most of food imports.
“These substantially and elaborately transformed products accounted for around 93 per cent of the value of imports in 2009–10.”
In just a few words, ABARE summed up Australian food and for that matter, fibre exports if we think about it. It told us that little has changed since farming began in Australia.
We still do what we have always done. That is, we add little if any value to the food and fibre we produce for export.
We have witnessed the rapid and if not terminal decline in our food value adding industry, particularly in Tasmania and the Goulburn Valley.
As we all know and what a short examination of the food on supermarket shelves will confirm, we import, in the main, food that has been through a process of value adding.
It is easy to find confectionary from the Netherlands and the United Kingdom; breakfast cereals and potato chips from the USA; cans of tomatoes from the EU. Some even say that some of the beef we export to the USA in boxes comes back to us in cans.
As ABARE stated, 93 per cent of our food imports had been elaborately and substantially transformed. That is ‘bureau’ speak for having had value added to it. Remember too, those numbers include food imports from China. So we are hardly being swamped by fresh Chinese fruit and vegetables.
There is another Government publication, which is worth a read. Food Statistics 2007 may now be a little out of date but it does give us a window on what countries we were importing food from in that year.
Examination shows that the total value being imported in 2007 when compared to 2009/10 remained at around $10b annually.
In 2007 we imported about 7% of our total food imports from China. I cannot be precise as the histogram is in 5% graduations.
It may come as a surprise but in the same year we purchased some 6% of our imports from Ireland, and before anyone even thinks it, the statistics do not include liquor. So that excludes Guinness and Irish whiskey from the numbers!
Imports from Thailand were about the same as those from Ireland.
Interestingly, imports from the United States were greater than those from China by about 2%, maybe a little more.
Imports from New Zealand, at about 18% of all imports gives some currency to the debate about Country of Origin Labeling (COOL) and as to whether China is using New Zealand as a staging point to re-package food for the Australian market.

So what is the ‘take home message’ out of all this?
Quite simply, the evidence is there for all to see. Over the last thirty years or more we have gradually and progressively given up on adding value to our farm produce both for export and far more importantly, for home consumption.
As the producers of food (and fibre) we have watched this happen. Let’s face it, we have allowed it to happen. It has gone. Other countries have filled the gap.
We have been left being nothing more than commodity producers for food exports and we have watched our share of our value added home food market decline and done nothing about it.
During the same period, successive Australian Federal Governments have complained to the rest of the world about the extent and the size of the subsidies they have paid to their farmers and to the exporters of food produced by those farmers.
All to no avail, the rest of the world maintained or increased subsidies.
So our politicians adopted another tack and they have succeeded in convincing us that there is something rather grand about being subsidy free farmers. ‘Clean and Green’. ‘The most efficient farmers in the world’, and so on and so on… It has been repeated so often over the years, that we now believe it to be true.
In my opinion, it is no good being the most efficient farmer in the world if you cannot make a profit.
In 2010 ABARE funded by the GRDC produced a report called Australian Grains.
Financial performance of grains producing farms, 2007–08 to 2009–10.

To the best of my knowledge this report, conducted by a federal government agency and funded by the GRDC, which in turn is funded by grain growers, received no publicity.
The lack of publicity is not surprising when the financial performance of all grain farmers is examined. Over the three years 2007/8, 2008/9, 2009/10 the percentage of growers showing a negative farm business profit is 50%, 60% and 61% respectively.
As far as the holy dollar is concerned the numbers are even more disturbing. Over the same three years all grain farmers showed a farm business profit of minus $1,500, plus $24,500 and minus $15,500.
The year 2009/10 was an estimate based on the average yield over time and the ABARE forecast price. As we all now know Mother Nature interfered with the economists view of the future. WA, our biggest grain-growing state, suffered a drought. For many on the other side of the country too much water at the wrong time played havoc with yields. So the numbers above will probably turn out to have been optimistic.
The OECD represents the 30 most industrialised countries of the world, including Australia, New Zealand and the U.S. and most members of the EU, but not China or Japan.
Farm subsidies in both the EU and the USA amounted to somewhere between 20% and 23% of farm receipts in 2010 according to OECD figures.
There has been little change over the last eighteen years. In the OECD, farm subsidies as a percentage of GDP have remained at about 0.35%.
Dollar values are hard to determine due to currency value fluctuations, but there is a new book out called ‘A Billion Dollars a Day’. So maybe that gives us some idea of what the rest of the world, including China, pays to their farmers to keep them in business. (I have it on order.)
The latest figure available for OECD countries, which is an estimate, is a staggering US$281 billion in agricultural subsidies for 2008. OECD subsidies increased in 2009.

What can we do about all this?
1. Give every politician, irrespective of party, a great big reality check or a kick in the pants or both. Make them look at the numbers and come down off their opportunistic soapboxes. Then make them look again in case they don’t understand.
2. Give every so-called farm leader the sack for not revealing as I have, what is only the tip of the iceberg regarding the poor financial health of Australian agriculture.
3. Stand by for China to get serious.
Ends
Roger Crook.