Stewardship incentives – commentary and critiques

STEWARDSHIP COMMENTARY

This page is reserved for responses to the June 2018 discussion paper From Red to Black to Green and other supplementary material.


Jock Douglas AO – 7 July 2018

“Your concept is excellent and deserving of trial application at the very least. Continuous improvement in land management has to be in the mindset of the landholder. Regulation is needed for the bottom line of environmental protection but to achieve a widespread environmental management improvement activating, an ongoing reward system will be the key factor for achieving continuous positive landholder responses.”


Ben Rees B. Econ.; M. Litt. (Econ.) – economist and farmer, Dalby – 10 June 2018, updated 25 June 2018

Engels Law In Australia: The Evidence

 

 

 

 

 

Compiled from ABS Publication 5206 , Table 8 Household Final Consumption Expenditure (HCFE)

  • Data is from September 1959 to March 2018
  • Data is original and in current prices

Empirical evidence of Engel’s Law in Australia challenges contemporary rural policy which is based upon ‘supply creates demand’; or, Say’s Law of Markets. Consequently, agricultural production must operate under either increasing returns to scale or constant returns to scale. Two centuries of empirical evidence provided by Engel’s Law analysis confirms that agriculture operates under the Law of Diminishing Returns; or, decreasing returns to scale.

The significance of returns to scale is overlooked in agricultural policy. If increasing or constant returns to scale prevail in the real world, then the policy of economies of scale would be successful. However, because decreasing returns to scale apply in the real world, returns to scale are limited by the Law of Diminishing Returns. In other words, at some point, there is a maximum level of output where marginal costs equal marginal returns. Beyond that point, further production becomes unprofitable.

Because Engel’s Law pertains both domestically and internationally, globalised free trade cannot prevent agricultural sectoral decline over time as economies grow and mature. Under globalisation, free trade is simply political spin. In reality trade agreements are either bi-lateral or multi-lateral in which case parties to agreements quietly continue to protect important industries and sectors.

In 1929, The Brigden Report had this to say about industry protection:

It is quite certain that without a tariff it would have been possible to have obtained a larger national income per head- but for a considerably smaller population. The maximum income per head for Australia would probably be obtained by reducing it to one large sheep-run with the necessary subsidiary and sheltered industries and a few rich mines- and a population of 2 million”. (p.70).

At the time of publication of the Brigden Report; the Australian population would have been approximately 6.3 million. Essentially Brigden is saying that industry protection made possible a more equitable distribution of income which allowed Australia to support a larger population than possible under free trade. Industry protective instruments structured an industrial base sufficient to employ a workforce drawn from a population base three times that possible under free trade. Brigden goes on to criticise free trade (laissez faire economics) on the grounds of distribution of economic welfare.

“…the policy of laissez faire in any country allows the natural inequalities of capacity, and the acquired or inherent inequalities of property, to operate to the fullest extent to the diminution of welfare”. (p. 93).

In the twenty first century, it is time agricultural policy recognised the real world which has prevailed since 1856 when Engel first postulated his Law. A constructive debate on the role of agriculture and distribution of income in the twenty first century is long overdue.

Brigden Report, The Australian Tariff, An Economic Inquiry, Melbourne University Press, 1929.

Explanation of scale

There are three returns to scale: increasing returns which generally applies only to public enterprises; constant returns to scale which is rare; and declining returns to scale, the general picture of industry in the real world.

Decreasing returns to scale underwrites the Law of Diminishing Returns when maximum efficiency in production is reached as marginal costs equal marginal revenue. Beyond that point, marginal costs are greater than marginal revenue which means average costs also run ahead of average revenue. Consequently industry becomes inefficient and uncompetitive. A common cause is over-capitalisation as producers try to contain costs and lift profit from economies of scale derived from applied technology.


Ben Rees – 30 June 2018

I recently came across my previous submission on the Agricultural Competitiveness White Paper Rural Australia: Anatomy of Policy Failure, February 2014.


Charles Nason “Banoona” 14 July 2018

Not just sheep and cattle

I would suggest that the issue of kangaroos be addressed as they can also contribute to over-grazing and landscape degradation. Old surveys suggest population densities in the Maranoa vary from to 2 ( in the west) to 4 ( in the east ) acres per kangaroo, and in the past 10 years this could be at least by 50% more as the reds have migrated east due to dry conditions.

My calculations on water use suggest they probably contribute to 50% of total grazing pressure in a dry time. Kangaroos are a little like trees, producers are not against their presence, only when it impacts on their bottom line. Exclusion fencing is simply a reaction to poor management of our natural resource within the landscape.

Remember that the marsupial fences marked on leases from the late 1800s were exactly that: to control roos not dingoes!

Producers destock in anticipation of drought, but the broader society does not.

The old concept of being paid agistment fees for kangaroos has much merit – simply an extension of the stewardship payments concept . It might just cause society to really think how many ‘roos it really wants and possibly encourage effective ways in harvesting this potentially valuable resource.

As Graeme Webb writes in The Belly of the Beast : “To conserve something you need to create value for it”.