The Role of the Mining Sector in the Australian Agriculture System - Assignment Example

Economy (Author’s name) (Institutional Affiliation) Introduction The aim of this article is to analyse likely tendencies in crucial drivers of output with a view to proposing the rate of yield that is likely required to sustain the competitiveness of Australian agriculture both within the Australian economy and relative to the agricultural sector of other economies. The research question attempts to explain how the mining sector is gaining competitive advantage over agriculture in Australia. This is a very interesting concept since agriculture has a higher productivity growth than mining. Q1) Labour is an essential input into lamb production. In recent years relatively higher wages in the mining sector have drawn labour resources away from the agriculture sector, making it harder for farmers to attract and retain workers. (i) Using a model of marketing margin behaviour (similar to Figure 6.3 of the text book) illustrates and explains how a labour shortage would impact on the margin for Australian lamb. Primary demand is a retail level while derived demand is farm level. Lamb industry in Australia is a labour-intensive market. Macroeconomic conditions have led to a tight labour market and general staff shortages. Mining is responsible for soaking up all the labour. The ageing workforces also pose a threat to the maintenance of the pastoral livestock industries. The farms do not provide additional benefits such as housing to retain the employees (Lyon & Thompson, 1991) The difference in pay and other benefits are not significant in the attraction and retention of the employees. The difference of the work environments and lifestyle involved for the two sectors is significantly different. Pastoralists mainly work out in the field. They have been used to this environment for their entire life (Alston, 2010). Mining has an entirely different setup. The people are enticed to work in the environment. This trend has been the culprit behind the absorbing of farm industries to the mining sector. Both farm and retail prices are affected by a change in a marketing input. New services render the retail price higher. The cost of existing service increases and the farm and retail prices have to be adjusted (Chavas, 2002).The scale of the variations depends on the gradients of demand and supply curves. (ii) Explain whether the incidence of the change in the margin would be greater for farm prices or retail prices If demand is more rigid than supply, the magnitude of the price change will be higher at consumer level translating to higher retail prices. If supply is extra, rigid than the demand then the magnitude of the price change will be higher at producer level meaning a higher farm price. Mining will attract most of the workers that would otherwise be working in the farms. This will cause the demand of labour in the farms to be higher than the supply. The incidence of the change in margin would therefore be greater for retail prices. Q2) Assume that the Australian egg market is a perfectly competitive market. With the aid of diagrams illustrate and explain the economic incentives underlying the alleged actions of Australian Egg Corporation Ltd (AECL) outlined in the article. What is the likelihood that the alleged strategy by AECL to “artificially reduce the number of eggs on the market” would be successful in achieving its intended outcomes? Explain. (25 marks) Australian egg corporation Ltd has allegedly created a cartel to manipulate the prices of eggs for both consumers and organizations. The organization actively encouraged its members to reduce egg manufacture levels to dodge surplus that would affect eggs. The organization also held a crisis meeting to initiate plans on how to avoid an oversupply of eggs in the market. This action would cause the amount of eggs in the market to reduce. The result will cause a change in the market equilibrium towards a higher price. This result would prioritize those who receive the eggs based upon their ability to pay more. The artificial shortage creates would cause demand for eggs to exceed supply. The organization would achieve its intended goal because the availability of eggs would be minimal, and the demand for it in Australia is large. Egg consumption per capita has increased steadily over the past ten years. Consumers will be forced to squeeze in extra cash to cater for the increased expense of buying eggs. They could forego other products they consume that are not essential or reduce the quantity of eggs consumed (Byerlee, 2001) Q3) Write an essay summarising the key points of the paper by Mullen and Keogh (2013). (1,500 words) Concept of Productivity Farmers are more apprehensive in profitability of their occupation. Productivity is a chief constituent to the growth of profitability. (Alston, 2010) The author defines productivity as the proportion of the capacity of production to the capacity of inputs for a particular action. Productivity growth is the alteration in this proportion over time. In the scenario of a single input and a single output, the ratios are similar to the growth in crop harvest per hectare or growth in animal produce per hectare. In the situation of numerous inputs and many outputs, crop yield and animal produce are partial measures of productivity. They are insufficient indicators of productivity when measured at an entire farm level. An improvement in a single type of crop may not essentially show a shift in the productivity for the whole farm. Total factor productivity aims to include all the inputs and outputs in a bid to measure efficacy. The idea of total factor production is to compute quantity and price index over an exhaustive classification of inputs and outputs (Bernard & Jones) Issues Surrounding Measurement of Productivity Natural associations including leftover effects connected to soil fertility weed, disease control, and economic relationships link harvests and cattle enterprises together (Byerlee, 2001). This relationship proves that changes in profitability alter input and output ratios. Confining focus to inputs and outputs linked with a single crop entity or livestock entity provides only a partial measure of unabridged farm productivity. The accessibility and quality of statistics on inputs and outputs is a main problem for the measurement of productivity. The key shortcoming is that the use of natural resources in agricultural production like water is not entirely accounted for. Production losses like soil fertility are consumed while inputs such as fertilizers reflect in the measures of output both for the farmsteads causing the degradation and for the farm houses suffering from the externalities Farming actions can outcome in negative and positive results. Full costs from farming are not included in the prices of inputs and outputs, hence a deviation in the benefits of individual farmers and society. Farming activities uphill could, for instance, reduce the quality and quantity of water used for farming purposes by other farmers downhill. Old-fashioned measures of total factor production adequately represent the incentives facing farmers. Some of the efficacy gains may come from exploiting un-priced natural resources and hence from society perspective, the gains in affiance are much smaller than from the farmers perspective and vice versa for when the selected farming activities enhance environmental factors. Historical Trends ABARES conducted research for many years for broad acre agriculture, encompassing the extensive grazing and cropping industries. Majority of the broad acre farms in Australia jointly produce crop and livestock products. Total factor production is measureable at an entire farm level.TFP for Australia broad acre agriculture tripled from an index of 100 in mid nineteenth century to 288 in early twentieth century. The regular yearly rate of TFP progress over the period was 1.9% per annum, averagely 0.5% per annum lower than the long-term rate previously reported. There has been a pause in growth of TFP since 2000owing to the severity of the drought conditions. The growth rate during this period was negative one point two percent. A further reason for this downward trend was the slowdown in public investment in research and development. As the TFP grew, terms of trade index declined from three hundred and fifty-five to one hundred at a rate of 2.2% per annum over the same period (Chavas, 2002) The frequency of drop in terms of trade was 2.6% per year from mid-19th century to late 19th century, but over the epoch since 1990 to 2009, it slowed to 1.1% per year. The rates of productivity growth for the corresponding periods were two point five percent to zero point one percent. It appears likely that because the drop in terms of trade has counterweight growth in TFP, there has been a minor alteration in the viability of the Australian agriculture sector. Climate Change The author jagged out that unless climate inconsistency is correctly accounted for, the degree of technical efficacy was likely to be exaggerated. After being attuned for climate change, the total factor production is less variable. Upon decomposing their adjusted TFP and technical change, broad acre agriculture propagated at a yearly speed of 1.53% with a diminution in practical affiance of 0.31% offset by a gain in scale and mix of affiance (Gopinath,1997) Since the beginning of the twenty- first century, Climate attuned TFP has grown at a speed of 0.24%.Technical change, another hand has grown relatively stronger at a rate of 0.4% per annum. Farmers experiencing climate risk have to strategize for a variety of possible conditions other than the ones that ultimately occur (Campbell, 1973) The witnessed speed of growth is lesser than what might be probable if farmers were confident about pending seasons. There is a huge uncertainty about the extent of climate change, and how the change will affect the level of agriculture. Rainfall patterns are dissimilar with some regions experiencing higher amount of rainfall than others do. Areas that experienced more rainfall had the capacity of soil moisture drop due to high rates of evaporation. The impact of climate change not only alters the capacity to produce but also the demand and supply of agricultural inputs and outputs. Were it for TFP to remain growing at a frequency of two percent per year, then the effect of climate change projects to be very small, but if the frequency of technical change is as low as 0.4% percent per year then climate change is likely to primarily counterbalance any progress that rises in TFP. Trends in Productivity and Prices International comparison of agricultural productivity growth relates to competitiveness. With other sectors of the economy remaining unchanged, increased productivity within a sector lower output prices. Productivity progress is vital to the routine and globally competitiveness of Australia’s agriculture sector. The author pointed out that productivity growth is vital to the country’s standard of living. A nation should export goods and services that it is moderately more prolific in creating while exporting goods that it is relatively less productive in producing (Gopinath, 1997). The opportunity cost in an economy perspective is the value obtained from the employment of factors of production in producing goods in another sector of the economy. The idea is for the agronomic division to use accessible factors of production more commercially than other segments of the economy. The challenges posed for other sectors of the economy when one sector grows rapidly are evident. Quick growth in the mining area in Australia hints to an appreciation of the Australian currency and a weakening in the price taker in most markets (Gregory, 1976). Appreciation of the dollar effects in a fall in price of agriculture products such as wheat. This change in relative prices of dealt and non-traded goods is echoed in a drop in the comparative terms of trade between agriculture and mining. The shift in prices hence affects the profitability of agriculture (Groot & Cline, 1993). Role of Investment in Research and Development Investment in agronomic research and development in Australia has made a noteworthy influence to the productivity growth.(Mullen & Cox, 1995) estimated that from mid-1953 to 1988,the frequency of revenues from public venture in R&D had been in the directive of fifteen to forty percent. The analysis confirmed long intervals of the order of thirty-five years from the instigation of research and when its impact becomes small. Dominant high rates of return to research provide a strong support for the long-standing theory that there remains some mark of underinvestment in agrarian research in Australia. Despite the strong set of results from investment in research and development, public support for research has been on the decline since 1970s. Impact of maintaining research and development at various rates has been accessed. Maintaining it at 3.1 percent of the gross value would cause the total factor of production. The level of investment in agriculture is shared at a prescribed rate (Lyon & Thompson, 1991) Conclusions The paper has assessed the rate of productivity that is essential in the period to 2030 for Australian agriculture to stay competitive inside both the Australian economy and comparative to the agricultural segments of other countries’ economies. A range of factors encompassing its growth in productivity influences the competitive edge of Australian agriculture and the terms of trade, it faces. The uncertainty about the above factors makes it difficult to evaluate with any degree of sureness the rate of productivity growth should be aiming. (Gopinath, 1997) References Alston, J. M. (2010). Persistence pays U.S. agricultural productivity growth and the benefits from public R & D spending. New York: Springer. Bernard, A. B., & Jones, C. I. (1996). Productivity across Industries and Countries: Time Series Theory and Evidence. The Review of Economics and Statistics, 78(1), 135. Byerlee, D. (2001). Sense and sustainability revisited: the limits of total factor productivity measures of sustainable agricultural systems. Agricultural Economics, 26(3), 227-236. Campbell, K. O. (1973). The State Marketing Board: Relic Or Prototype?*. Australian Journal of Agricultural and Resource Economics, 17(3), 179-188. (2013). Challenge for Australian Agriculture. The future Productivity and Competitiveness, 3, 1-26. Chavas, J. (2002). Chambers, Robert G., and John Quiggin. Uncertainty, Production, Choice, and Agency: The State-Contingent Approach. Cambridge UK: Cambridge University Press, 2000, 373 pp. American Journal of Agricultural Economics, 84(3), 872-874. Gopinath, M. (1997). Agricultural competitiveness: The case of the United States and major EU countries. Agricultural Economics, 16(2), 99-109. Groot, P. D., & Cline, W. R. (1993). The Economics of Global Warming...International Affairs (Royal Institute of International Affairs 1944- ), 69(2), 371. Lyon, C. C., & Thompson, G. D. (1991). Model selection with temporal and spatial aggregation: alternative marketing margin models. St. Paul, Minn.: University of Minnesota, Institute of Agriculture, Forestry and Home Economics. AGRIBUSINESS. (n.d.). ACCC alleges egg producers formed 'cartel'. Retrieved August 23, 2014, from http://www.theland.com.au/news/agriculture/agribusiness/general-news/eggs-in-one-basket-accc/2700018.aspx Read More