Getting Big and Getting Out: Government Policy, Self-Reliance and Farm Adjustment

‘Adjustment’ is a relatively benign sounding word used by economists to describe the entry and exit of firms from industries undergoing some sort of structural change. In the case of farming, this process has seen a significant decrease in the total number of farms in Australia — from 189,400 in 1970 to 124,975 in 1990. Economic changes at both theglobal and national level have raised serious questions about the ability of some farmers to compete in international markets and to earn adequate incomes. Terms of trade (the ratio of prices received relative to the cost of production) have been in decline since the 1950s, placing constant pressure on farmers to increase productivity in relation to labour and capital by expanding landholdings and increasing the intensity of production. In order to finance these productivity gains farm indebtedness has increased dramatically; rising from $9.5 billion in 1977-78 to $15.4 billion in 1992-93, and thence to $21.6 billion in 1997-98 in real terms. Yet average rates of return on investment in agriculture are extremely low and are unlikely to increase without substantial structural change. In fact, lifting the average return on investment in agriculture from its current 1.05 percent to a ‘modest’ 5 percent would require unreaslistic price rises for agricultural commodities of some 23.2 percent. The important point to note, however, is that not all farms earn such low rates of return. Australian agriculture has seen increasing polarisation between small and large farms, with the top 20 percent of broadacre enterprises producing over half the output and earning favourable returns on investment. This is reflected in a phenomenon called the ‘disappearing middle’. Between 1994-95 and 1997-98 the number of farms turning over less than $300,000 dropped by 12 percent, while the number of farms turning over $300,000 or more increased by 30 percent. As Table 1 shows, the most dramatic decreases were evident among middle-sized farms rather than among the very small who have more capacity to augment farm earnings with off-farm income.