Productivity Commission Digital Rural Futures Conference Toowoomba, June Reflections on Regional Futures: Adjustment and Change in Agriculture and Regions Wendy Craik Productivity Commission

2 Drivers of change in Australia Technological changes Consumer behaviour Demography Global shocks and transformations Natural resources discoveries Government policy −cuts in assistance −end of marketing schemes −floating of dollar But rural sector is resilient

Productivity Commission3 Agriculture has continued to grow, but not as a share of the economy

Productivity Commission4 There has been a trend toward larger, more productive farms

Productivity Commission5 Agricultural productivity growth has historically outperformed other sectors

Productivity Commission6 Mining has grown strongly in real terms, and as a share of the economy

Productivity Commission7 Mining productivity has fallen sharply in recent years, but complications…

Productivity Commission8 Resilience : mining boom vs 1970s rural commodities boom Consumer prices Average Weekly Earnings Unemployment

Productivity Commission9 Mining boom has created pressures, but has benefitted regions Productivity Commission 2012: Reductions in regional unemployment rates Increases in wages and salaries across all SLAs Significant employment increases in areas such as Pilbara and Kimberley But benefits of boom not evenly shared, and some transitory costs in boom areas (for example, higher rents)

Productivity Commission10 Risk management strengthens resilience

Productivity Commission11 OECD: 3 ‘layers’ of risk 1.Normal risk: variation – prices, production and weather 2.Catastrophic risk: disease outbreak – wide area 3.Marketable risk: hail damage, some variations in market prices including insurance and futures

Productivity Commission12 Managing risk 1. Drought Support Productivity Commission 2008 > 30% of Australia EC declared in a given year some areas declared 14/17 years terminate EC interest rate and transaction- based subsidies public funding to research, development and extension for preparation, management recovery learning to manage, climate variability design income support for farm households

Productivity Commission13 Managing risk 2. Water trading produces benefits Allowing water to shift to its most valued use increases productivity and overall output. NWC (2010) found that between 2001 and 2006, the value of agricultural production in the southern MDB increased by nearly 2 % despite a 14 % reduction in water use over the corresponding period. Also estimated that water trading in the southern Murray Darling Basin increased Australia’s GDP by more than $220 million in 2008–09

Productivity Commission14 Managing risk 3. Supply chain efficiency critical Approx. 60% agricultural production exported PC 2010 – Wheat Export Marketing – access to port terminal facilities −Wheat exporters with port terminal operations could favour own trading −PC supported port access test for 5 year period then abolish, voluntary code of conduct −Legislation: voluntary code replaced by mandatory code or default access test

Productivity Commission15 Managing risk 3. Supply chain efficiency

Productivity Commission16 Managing risk 4. Need for better infrastructure decisions Government investments in infrastructure should be transparently and rigorously evaluated Cost–benefit analysis Public consultation Reporting of decisions High costs associated with poor project selections, projects with larger expected net benefits are displaced

Productivity Commission17 Managing risk 5. Regional development policies are often ineffective Grattan Institute (2012) Markets are usually efficient at ensuring activity takes place where efficient Subsidies often just redistribute activity around, but minus the value of the subsidy and the associated tax to pay for it

Productivity Commission18 Managing risk 6. Government assistance for adjustment General social safety net But ‘beyond normal’ changes −policy induced −region facing loss of major employers Assistance −compensation, property rights −for new investment −capacity building Australian Government total adjustment assistance $1b in Automotive (TCF, PMV largest) Rural industries

Productivity Commission19 Regional areas need to harness competitive advantages RAI Competitiveness Index Large regional centres competitive with major capitals for technological readiness, business sophistication, infrastructure, essential services Inner regional centres can leverage human capital, infrastructure and essential services and innovation Outer regional centres and remote can build on their labour market efficiency, institutions and natural resources

Productivity Commission20 OECD: common factors in performance of successful regions High performing regions: strong infrastructure, education, innovation and economies of agglomeration, geographic characteristics Greater growth: mobilisation of local assets and resources −independent of national government support Underperforming regions: bottlenecks and unique characteristics −Infrastructure, human capital, business environment, innovation, economic diversity, demography

Productivity Commission21 How do we build resilience? Strong and effective leadership Removal of impediments to adjustment/adaptation Build on strengths Appropriate allocation of decision making General social safety net Efficient infrastructure Human capital Geographic characteristics

Productivity Commission22 Questions