Rural Affairs
Issue No. 11 - June/July 2003
The Facts of Farming Life
Agriculture is innovative. In most agricultural industries in most years, farmers and scientists will find new methods of producing more food or fibre for less cost. As knowledge of each new idea spreads, the same number of farmers will find themselves producing more in aggregate than they did the previous year. But if demand for the product does not increase to match the increased production, then product price will fall. In the long run, demand for increased agricultural production lags behind increases in agricultural productivity. Consumers do not eat more bread because there are more loaves of bread on the supermarket shelf. The result is a long-term real decline in the value of agricultural products
Get big or get out. Farm businesses cannot ignore the compression in their terms of trade. The traditional response of successful farmers has been to make sure they capture their share of the possible gains in business efficiency. Often these efficiencies can only be achieved by increasing the scale of business activity. Those who choose not to, or who are unable to pursue increased productivity will find that their farm becomes increasingly smaller in financial terms as the years progress. Eventually this farm will be purchased by the manager of a larger farm business.
The inevitability of fewer farms: Overall, the terms of trade pressures will ensure the number of farms will continue to decline, and fewer farms will produce more and more of the agricultural production of the country. In recent years there has been an average annual 1.5 per cent decline in the number of farm establishments in Australia. The pressures for change are more intense in industries with a history of innovation. In the past 25 years the volume of milk produced by Australian dairy farms has increased by 50 per cent. The number of dairy cows has hardly changed and the number of dairy farmers has decreased by 80 per cent. These trends are obvious not only in Australia, but in...
