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In fact, after mass starvation in two devastating world wars, the European Common Market, now the European Union (EU), was formed to bring peace and food security to Europe. To that end, over the period 2021-27, the EU budget of €1,100 billion is devoting €365 billion to agriculture and another €392 billion to regional development. (Note: in addition to this regular budget, the EU also has an another €750 billion for pandemic recovery.)

Broadly speaking, the EU’s aim is for farmers to produce about 110 per cent of Europe’s food needs, while selling the heavily subsidised surplus onto the world market, regardless of the push by free traders for a “level playing field” in global agricultural trade.

For many nations, food security easily trumps global free trade in agriculture. Production above domestic needs to the export market is regarded as a bonus for many of their farm sectors.

To further underscore this, the OECD estimates that globally, agricultural subsidies averaged $US842 billion a year in 2021-23. Recent geopolitical instabilities and conflicts are likely to reinforce that approach to national food security.

Stark illustrations of this point are Donald Trump’s planned wide-ranging tariffs, as part of his rebuild America plan, and how India and China slap on tariffs or embargos without warning, either to placate their own farmers – in the case of India – or to punish Australia economically for political reasons in the case of China.

Yet, in anticipation of an agricultural free trade bonanza, Australia long ago virtually eliminated its subsidies, tariffs and other supports for farmers. Indeed, DFAT, DAFF and ABARES continue to boast that, after only New Zealand, Australia has the lowest level of support for farmers in the developed world and that Australia should be seen as the example for the rest of the world to follow in abolishing supports for farmers.

As the rest of the world had not followed Australia’s example, perhaps it is time Aussie farmers reconsidered prioritising the “pot of gold” on world markets.

How Much is Really Exported?

Today, it is not clear what proportion of Australian agriculture is exported, but in the early 2000s there was evidence from at least four sources that the primary market for farmers was the domestic market, with exports accounting for less than a quarter of farmgate production.

The controversy was ignited in 1999, when Dr Mark McGovern, then at the School of Marketing and International Business at the Queensland University of Technology, provided extensive research to show that 22 per cent of agricultural product was exported, as measured from the farmgate, or 24 per cent was exported, as measured from the factory gate.

Backing his analysis, McGovern cited the OECD in Figures (1998) export data for 29 countries, which showed Australian agricultural exports at 22 per cent.

He exposed the extraordinary ABARES methodological flaw in claiming Australia exported 70-80 per cent of agricultural output. ABARES compared “total output of raw and processed food and fibre exports with total output value of (raw) product at farm gate”. Thus,

• chilled meat exports are compared with live animals valued at farm gate;
• cheese exports with bulk milk; and
• biscuits with bulk grains.

In statistics, percentage calculations are only valid if they compare “like with like”. Comparing the value of processed product (e.g. wine, cheese, biscuits) with the farm gate value of a raw product (e.g. grapes, milk, wheat) is described as “comparing apples and oranges”, and delivers no meaningful calculation.

Indeed, News Weekly elaborated on this point in 2014, using data from the DAFF/ABARES publications. As part of calculating the percent of agriculture exported, DAFF and ABARES put the value of wine exports over total value of grapes at the farm gate, implying that 274 per cent of wine production was exported  – an impossible and absurd result, unless Australian winemakers can use alchemy to turn water into wine!

Further, McGovern’s study showed that of 53 rural sectors, as measured at the farm gate, only:

• 7 export more than 50 per cent of the value of their production; and
• 5 export more than 25-50 per cent of their product.

McGovern concluded: “Not knowing to whom you are selling is probably one of the greatest commercial mistakes that an industry could make. This will be compounded if the government acts when similarly informed … such is the case with Australian agriculture”.

Then in May 2000, a group of twelve – including McGovern, leading economists, representatives of the ABS, rural interests, and others – met at Brisbane’s old Customs House to deliberate on McGovern’s findings. In what became known and The Customs House Agreement, the ABS presented their own data that supported McGovern’s findings, asserting strongly three key points that all agreed on at the meeting, namely that:

1. direct exports were 22 per cent of the gross value of production for the reference year 93/94;
2. direct exports and the first round roughly accounted for about 25 per cent of exports; and
3. the ABARE and NFF (80 per cent) export figure has no basis in fact.

Concluding comments in the summary statement of the meeting stressed that the findings of Dr McGovern’s research were self-evident.

Later, in 2002, Associate Professor Guy West, then a senior lecturer and member of the Regional and Urban Economics Research Unit at the University of Queensland, reassessed McGovern’s findings. His study confirmed the McGovern, OECD and ABS figures, saying that the “obvious abnormalities … should have been cleared up a long time ago”.

West went on to say that the ABARE figure is “clearly unsupportable, and simply defies both economic logic and national accounts data. The national-account ‘consistent’ figure of 22 per cent in 1993-94 or 19 per cent in 1994-95, advocated by McGovern, is certainly consistent with national accounts data and is appropriate for what it is intended, as a measure of the direct value of goods and services leaving the farm gate and destined for the export market.”

Damaging Policies

In economics, farmers are said to be price takers, not price makers. Large numbers of farmers sell undifferentiated products (like wheat, eggs, chicken meat) to a small number of processors and then mainly onto just two supermarkets. Hence, supermarkets and megamerchants have overwhelming market power to set the farmgate price.

Or, farmers sell onto corrupt world markets, where the prices of agricultural products are artificially low because many large food-producing countries provide subsidies (as described above) and tariffs to support their farmers, while using other ingenious non-tariff barriers to restrict food imports.

Based on the 70 per cent export claim, and a misplaced belief the world was heading towards a level playing field in agricultural trade, the 1990s saw bipartisan competition and free trade policies put in place to increase competition between farmers to make them more efficient, productive and export competitive. It was anticipated that farmers would greatly prosper by selling more into global agricultural markets.

A major part of this strategy was the deregulation of the marketing agencies and other farm arrangements, which for decades prior had given farmers some market power to negotiate prices to processors and supermarkets, and on global markets.

Deregulation was achieved under the bipartisan National Competition Policy (NCP), started by Paul Keating in 1992 and continued under the Coalition government of John Howard.

As the Australian Competition and Consumer Commission (ACCC) explains, NCP involved the federal government paying $2.4 billion to the states and territories over a decade (1995-2005) to deregulate many sectors of the economy. Annual payments were conditional on the states completing the annual NCP schedule. Failure to do so would see states, having forward-planned NCP payments into their budgets, suffering significant budget shortfalls.

In part, NCP involved deregulation of 14 areas of agriculture including: agricultural and veterinarian chemicals, bulk handling (single selling desks for wheat, barley and sugar), dairy, fisheries, food regulation, forestry, grains, horticulture, mining, potatoes, poultry, quarantine, rice, sugar, and veterinary services.

Because this strategy regarded the domestic market as relatively unimportant, an attitude set in that there was little serious concern for curbing the market power of Australia’s supermarket duopoly to dictate farm prices.

It appears that from the perspective of policy makers, the duopoly’s downward pressure on farmgate prices was quietly seen as a means to drive farm efficiencies, productivity and cost cutting, making Aussie farmers more competitive in their “primary market”, the export market.

Also, if the domestic market was relatively unimportant, then there was little point restricting food imports, even highly subsidised products being “dumped” into Australia: that is, sold below the cost of production. Again, it seems the unstated attitude of policy makers was that this would increase pressure on farmers to become more efficient in order to expand their access to the more profitable export markets.

Hence, there was little incentive to apply anti-dumping rules to stop dumped products undercutting Australian farmers in their own market. Nor was there any incentive to do what other countries do, use non-trade barriers to help give Australian farmers priority access to their home market.

The State of Agricultural Production