Challenges ahead for agricultural stocks

08/10/2009 - 00:00

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Population expansion, water shortages, and degradation of land fertility will elevate agriculture to a position of global strategic importance over the next two decades.

Challenges ahead for agricultural stocks

THERE are many challenges to the future of agricultural production within Australia. This is no different to any other period in history.

The challenges for Australian agriculture vary little to the challenges of Roman agriculture during Hadrian's rule or British agriculture at the time of Waterloo. The scale and technology may have changed and although it is unwise to expect historical lessons, and failures, to serve as definitive comparisons, there are a number of enduring themes and challenges for agricultural production that can be identified.

• Access to new plant genetics and technologies.

• Access to productive, arable land.

• Transport and infrastructure systems.

• The general provision of domestic and societal security.

How Australia cumulatively addresses these challenges will determine the extent to which it is able to produce future agricultural surpluses.

Potential trajectories

Within Australia there is no certainty in the direction of agricultural production. Grain yields, on a tonnes-per-hectare measure, are not guaranteed to increase without continuous investment.

Internationally, average yields vary from around 8t/ha in the UK to less than 1t/ha in undeveloped regions. Furthermore, many semi-arid areas of the world are only now reaching yields that England achieved in the 1850s.

While part of this difference is due to more favourable conditions, technology plays a crucial role. The possibility of alternative scenarios for Australian grain yields needs to be considered because without any investment in new varieties and adaptive agronomy, they would most certainly fall.

Access to new technologies

As the evolution of the access to new wheat genetics has shown, there is a need to continuously seek new varieties and crops. Investment in research and development provides the basis for responding to future and unforeseen circumstances related to new environmental challenges, disease and demands on quality attributes of the grain.

Australia has benefited from earlier work in this area, however, if the current genetic library is not refreshed, yields will start to decline as pathogens start to successfully target existing genetic varieties and the vagaries of climate change reduce the ability to produce grain.

Novel genes 'hidden' in the genome have the potential to modify the performance of crop plants and directly affect Australian industries relying on this crop. It is critical that the integration of diverse genetic data sets be readily accessible to breeders and decision makers, from the detail of genome structure, to measuring the performance of the plant in the field.

New data visualisation capabilities, now available through high-performance computing, allow the linkage of sophisticated genome activity to breeding programs through the application of fast diagnostic procedures. Web-based innovations embodied in widely available facilities, such as Google, provide the foundations for integrating laboratory-based diagnostics and field-based selection of plants to produce the next generation of varieties. However, without appropriate legislative frameworks and funding, the current genetic stock may not be adequately replenished to deal with future challenges.

Competition for land

Traditionally, there has been a significant interaction between the relative cost, the value of land, and its produce, and sea transport costs. In many ways, agriculture is as much about logistics as the specific act of growing a crop. Yet it is access to arable land, with an ability to divert surpluses to markets, which represents a key driver of agricultural economics.

In present-day production of agricultural plant and animal produce in Western Australia, access, via sea transportation to the African, Asian and Indian subcontinent regions, is a significant advantage. Nevertheless, within Western Australia, or any other agricultural zone, there is no guarantee that arable land will be available for agriculture that produces basic commodities or even is used for that purpose.

The economics of expanding population centres and economic diversification away from agriculture will mean that competition for land will always favour higher-value activities. The economics of viticulture and other activities means that land in and around cities - which is often fertile river plains - now faces a similar fate. The growth of urban centres and land economics that do not favour production of bulk commodities is very much a current trend.

Such was the concern of access to arable land that the South Korean conglomerate Daewoo, in 2008, made a decision to develop 1.3 million hectares of land in Madagascar, as part of a 99-year lease to secure land for the future supply of food.

Thus, as in previous periods of history, in the coming century there will be competition within nations, primarily driven by economics, for arable land. The more interesting and open issue could be the competition for arable land between nations. As in the case of South Korea, this may manifest as economic competition, however, it does lead to the issue of an increasing need for protection of transport routes and also more direct military-based competition for control of transport-routes and potentially arable land.

Transport and infrastructure

There is often a narrow focus on the production of food to the detriment of the transport and infrastructure systems that deliver food to the site of consumption.

In the early days of the settlement of Australia, when there was a lack of internal infrastructure, there were periods when Californian and Chilean farmers were able to land grain in Melbourne more cheaply than from farms 50 kilometres inland.

From a high transport cost position, which contributed to a high overall cost of grain, Australia has now become one of the lowest-cost grain producers. This has been due to major investment in a suite of long-life infrastructure systems. The evolution and investment in railway and other infrastructure led to the rise of Australia as a major surplus grain producer as it opened up new land and made grain production in inland zones commercially attractive.

After successive periods in which the colonies, and then states, invested in internal infrastructure - which pushed the cost of producing grain as well as the cost of transporting grain down - there has been a long period in which investment in capital infrastructure has been neglected.

The Western Australian south-west infrastructure network is a good case study as it is predominantly focused on the delivery of grain to ports for export. Current infrastructure includes 197 receival points and four export grain ports serviced by 3,350 kilometres of narrow gauge and 500km of standard gauge rail networks, as well as a heavy haulage road network. This infrastructure handles between 10mt and 15mt of grain each year with 60 per cent by rail and with 80 per cent bound for export (through ports).

Based on short-term economic considerations, it makes sense to place a greater reliance on road networks. Rail networks are expensive and have pay-offs over decades rather than years. However, in the short to medium term, greater use of road networks is costly. In terms of efficiency and variable costs, rail transportation uses 1.5 to two litres of diesel per tonne of wheat transported, compared to 9L for road transport.

As the trend towards reduced investment in long-term rail infrastructure continues, there could be a change in the economics of producing grain in outlying areas, especially if transport costs rise through the cost of diesel increasing or a shortage of trucks.

Security and movement of goods

The general provision of domestic and societal security to support food supply chains and the aggregation of consumer markets should not be taken as a given.

While piracy in the Horn of Africa and in the Strait of Malacca have increased the cost of transport through higher premiums and longer alternative routes, a much broader breakdown of security should not be considered an impossibility.

Over time, a society can become heavily dependent on a long, complex logistical network that it cannot control or influence. These societies are very vulnerable in times of conflict. Furthermore, this places a great deal of strain on the resources of a society.

Conclusion

It is important to note that, particularly in Western developed nations, there has been a tendency to think the conditions that support significant agricultural surpluses will continue forever. This is far from being a given.

- Rudi Appels is Professor of Molecular Breeding at Murdoch University. Perth-based Andrew Pickford works in the area of policy and strategy. This is an edited extract from Future Directions International's Occasional Paper 5: The Strategic Importance of Agricultural Innovation, A case study of wheat.

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