Economics and Australian Vegetable Growers

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Economics and Australian Vegetable Growers
Address to 2009 Australian Vegetable Industry
Conference
Ian James Industry Data Economic Analysis
Vegetable Industry Economist
May 6, 2009
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Role of the vegetable economist

• To provide improved data on the industry.
• To assist the delivery of Vegevision 2020 by
  providing the economic expertise to assist the
  strategic imperatives identified.
• To educate growers on the broader economic issues
  impacting on their business.
• To provide the economic arguments to support the
  industry on major policy issues.
• To assist growers in raising productivity and
  improving the profitability of their business.

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Key Data Sets

• Domestic data
• Number of growers and location
• Crops grown
• Volume and value of production
• Plantings and yields
• Prices
• Trade data
• Imports
• Exports
• Areas of competitive threat
• Financial data
• Revenues and costs
• Profitability
• Rates of return on equity

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Economic Issues Facing Growers
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1. Impact of World Financial Crisis

• Serious stuff because credit is what greases the
  economy so the virtual freezing over of financial
  markets last year was always going to have an
  economic consequence.
• Authorities are acting appropriately pumping
  expenditure and money into the economy and
  attempting to ease credit restraints.
• Australia doing better than others but no longer
  an island.
• Full consequences yet to play out
• Credit tightening curbs expenditure.
• Large corporates with high debt go under.
• Structural weaknesses in the economy (hidden in
  good economic times) are exposed sending more
  businesses under.
• Small business supplying large corporates go
  under.
• Households go under through rising unemployment.
• Australia will not avoid pain but it will avoid
  Armageddon and the situation is not as bad as the
  early 1990s as business is better prepared.

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2. Australian Economic Outlook

• Confidence remains the key to the economy. Much
  of the present downturn can be attributed to
  greater caution rather than a collapse in demand.
• Large corporations have prepared for bad economic
  times by raising capital, slashing inventory,
  cutting production and putting expansion plans on
  hold.
• Unemployment will rise throughout the year in
  delayed response to the above and as the impact
  of the downturn sends some small business to the
  wall.
• Nonetheless consumer demand will hold up better
  then expected underpinned by low interest rates,
  cheaper petrol and government handouts.
• The economy will also benefit by increased
  government expenditure on infrastructure and
  ongoing incentives to business.
• Vegetable growers will ride through the year
  better than most other business although the
  consumer will be more price conscious and credit
  criteria will remain tight.

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3. Emissions Trading Scheme

• Economic modelling suggests that the introduction
  of an emissions trading scheme will have less of
  an adverse impact on profitability than in other
  agriculture industries.
• Greenhouse emissions from vegetable production
  are small and mainly associated with nitrogen
  fertiliser which in the case of vegetables is
  often added to water and injected below ground
  resulting in less emissions than surface
  broadcast fertilisers.
• The major impact on vegetable growers of an
  emissions trading scheme will be through
  increased input costs with estimates of an
  adverse impact on grower profitability of around
  4.
• This adverse impact could be offset by
  recognition of the beneficial impact of the
  sequestration of carbon in the soil as plants
  grow.
• The vegetable industry remains concerned that
  greenhouse accounting rules do not recognise this
  and denies the industry substantial credits that
  could be earned.
• We applaud the recent announcement of funding
  from the Federal Government to examine this issue
  but believe that more research is required.
  
  

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4. The Import Threat

• Imports of fresh vegetables remain low and
  generally of a counter seasonal nature.
• However the Chinese pose a potential future
  threat as they move resources into intensive
  agriculture.
• The biggest threat is to those vegetables where
  labour input remains high.
• However the more immediate threat is to growers
  producing for the processing sector.
• As the graph shows there is a deluge of imports
  entering Australia.
• Global sourcing of processed vegetables is here
  and likely to accelerate.

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5. Lack of Market Power

• Vegetables are dirt cheap and long term prices
  have not kept pace with other food and goods in
  the economy.
• Vegetable growers can provide endless supplies of
  vegetables at cheap prices.
• But often vegetable growers fail to cover costs
  of production with rising fertilizer, fuel and
  water prices.
• Vegetable growers operate in a classical
  economics free market where the market determines
  price.
• If anything vegetable growers are squeezed
  between a concentrated retail sector and near
  monopoly control over inputs.

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6. Market Access

• Increased exports are a key factor in the
  industry achieving the goals of its strategic
  plan Vegevision 2020.
• The industry remains concerned that while there
  is open access to vegetable imports that the same
  does not apply to our exports.
• We are particularly concerned at recent moves to
  exclude existing Australian exports from markets
  due to bio-security concerns.
• Nor are we happy with the bi-lateral Free Trade
  Agreements that Australia has signed. All too
  often they are not free with the removal of
  tariffs on Australian vegetable exports to be
  phased out over a long period of time or else
  maintained on the basis that the vegetable is a
  sensitive product.

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7. Water

• High quality water is a key economic input and
  essential to produce quality vegetables
  acceptable to the consumer.
• Vegetable growers are not opposed to new
  initiatives to increase the stock of water but
  insist that the water thus provided is acceptable
  particularly in regards to saline levels.
• We support the principle of consistency and
  unified management across all Australias water
  resources including but not restricted to the
  Murray-Darling Basin system.
• Vegetable growers are opposed to bureaucrats
  making decisions on water allocations based on
  industry pleading and believe that the market is
  the best decider of who gets available water.
• We support accelerated taxation depreciation for
  water based initiatives by farmers.
• .

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8. Bio-Security

• Bio security is a critical issue for the economic
  security of vegetable growers as globalisation
  and increasing cross border travel raises the
  risk of major disease and pest outbreaks.
• It is absolutely critical that Australia
  preserves its image of green, clean and
  responsible pest control.
• A bio-security plan is in place for the vegetable
  industry and the vegetable industry as a member
  of Plant Health Australia is a signatory to the
  Emergency Plant Pest Response Deed.
• This enables a quick response to an exotic
  disease or pest outbreak and provides for
  financial compensation to growers impacted by the
  outbreak through the imposition of a special levy
  on growers.
• The vegetable industry supports the general
  thrust of the Beale inquiry into bio-security and
  in particular the merger of Bio-Security
  Australia and the Australian Quarantine
  Inspection Service.

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9. Consumer Knowledge

• The fundamental economic underpinning of an
  efficient market is the assumption of informed
  consumers.
• To this end the vegetable industry fought long
  and hard to have country of origin labeling on
  vegetable products so that consumers know the
  source of the vegetable they are buying.
• This now applies to whole loosely displayed
  products.
• However the non inclusion of country of origin
  labeling on house brands is unacceptable as is
  the and /or clause regarding Australian and
  imported product on packaged vegetables.
• We have no issue in consumers choosing product
  from overseas in preference to Australian product
  but we strongly believe that the consumer needs
  to make an informed decision.

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10. The Marketing Challenge

• Vegetables are cheap and readily accessible.
• There is not a problem on the supply side -demand
  is the issue.
• At present only 10 of the population intake the
  recommended 5 vegetables per day, with the
  national average closer to 2 vegetables per day.
• Growing obesity and declining health provide a
  great market opportunity for the promotion of
  fresh vegetables.
• Despite go for five the message is not getting
  through to consumers especially the
  disadvantaged.
• Vegetables are not sexy.
• The vegetable industry needs to promote cultural
  change and needs to consider how to do this in
  conjunction with health authorities which have a
  vested interest in promoting vegetables.