April 9, 2014
High labour cost hurts Australia''s dairy and grain sectors
According to a Rabobank report, the cost of labour in Australia''s dairyindustry is now double that of the United States,while the cost of producing grain is higher than any other competitor.
The report sets out six major blockages to Australian agricultural production, including: rising production costs both on-farm and beyond the farm gate, international market access, logistics infrastructure, (in)efficiencies regulatory pressures, capital constraints, and product innovation and development.
Rabobank states that government and the industry have to work together to reduce costs and increase innovation and infrastructure.
Luke Chandler, general manager of food and agri-research at Rabobank, says the high cost of labour has to be addressed. "In the dairy sector, for example, the cost of production (labour) is 100% higher than the US. It doesn''t matter what sector you''re looking at, whether it''s grains, dairy, sugar, beef, we''re significantly more expensive than a number of our competitors around the world."
"That''s why we really need to be focussed on value markets who are prepared to pay a premium for the clean green image and the supply chain assurance that we can offer," he said.
Chandler says Australia''s cost of producing grain is the highest at US$146 a tonne, compared to Ukraine at US$136 a tonne. He says not only is grain production in the Black Sea and South American countries cheaper, the farmers also receive larger subsidies than Australian farmers.
The Rabobank report says subsidies make up 50% to 60% of Korean and Japanese farmers'' incomes. Farmers in the United States receive around 8% of their income from the government, Mexico receives 12%, Canada receives 14%, Brazil receives 5%, Australia receives 2.7% and New Zealand less than 1%.
Rabobank warns not only of trade distorting subsidies, but also the lack of government and industry investment in infrastructure. In Brazil, for instance, the Government is investing US$60 billion in improving rail links to ports, says Chandler. In Canada, rail freight for grain costs only half the price of Australia''s, as it takes only six trains to haul 60,000 tonnes to port, whereas it takes 16 trains in Australia.
Chandler says these are key reasons for pursuing the remaining eight Free Trade Agreements the Government has on its books. The seven existing ones make up 28% of the value of Australian trade, and the other eight make up another 45%.