Transcript
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Australian agriculture has a challenge.
No, I’m not going to talk about drought, supermarket duopolies, unfair global agricultural trade or labour shortages — although all of these are definitely challenges for the sector.
The challenge I want to talk about today, however, is the agricultural productivity challenge.
The Australian agricultural sector was previously a world-beater in productivity growth, with the entire broadacre sector experiencing annual productivity growth rates of just under 2% for much of the 1980s and 1990s, a performance that was close to the best sectoral performance in the entire economy.
The millennium drought checked productivity growth in the first decade of the 2000s and there has been some recovery since that time, but over the last decade, according to ABARES, broadacre agriculture productivity has only averaged around 1% per annum, and doesn’t show any sign of improving.
The difference between 1% and 2% annual productivity growth may not seem a major issue, but at 2% annual productivity growth the sector would reach its $100 billion output target by 2040 all else being equal, whereas at 1% annual productivity growth it will take the sector until 2062 to achieve $100 billion, some 22 years later.
Lower rates of agricultural productivity growth mean international competitiveness may decline; the sector could be less successful domestically in competing for markets, investment capital and labour; and there may be slower economic growth in the national economy and in particular in non-urban regions.
In the past, Australian agriculture was able to increase output, despite low productivity growth, by expanding the amount of land and water resources utilised by the sector.
That option is no longer available, and in fact the amount of land and water resources available to the sector has declined significantly in recent decades, and is predicted to shrink further.
Consequently, a key focus of efforts to increase the annual value of agricultural output in Australia must be on improving agricultural productivity.
Digital agriculture opportunities
The widespread adoption of digital technologies by agricultural businesses is potentially one of the most important ways to stimulate improved rates of productivity growth.
Australian farmers have already demonstrated a readiness to adopt digital technology, and to adapt it to the Australian farm environment.
The adoption of GPS systems in seeding and harvesting machinery, in combination with advanced digital monitoring systems, has enabled broadacre crop farmers to convert from paddock to square metre management, with associated increases in input efficiencies, and in some cases in yields.
Similarly, in horticulture, digital technology is enabling previously unimaginable levels of management precision — even down to individual tree monitoring — enabling significant improvements in water use efficiency, yield, and disease control.
In the livestock sectors, electronic animal identification, in combination with remote sensing and automated weighing and drafting systems, has enabled significant improvements in feed conversion ratios, growth rates and livestock quality and uniformity.
All these developments and many more are still in their early stages, so there is an enormous amount of work to do before these technologies and information systems become mainstream, and the potential productivity gains are realised right across the sector.
The advantages that digital technology can bring are not limited to the farm, of course, and in fact some of the biggest gains in value are likely to be generated from the adoption of digital systems that extend seamlessly through the supply chain from farm to consumer.
This is particularly the case given that some of the best avenues Australian agriculture has available to increase the value of output involve targeting higher value and premium markets.
The beef industry is a good example of this. Twenty years ago the main market for export beef was the hamburger market in the USA. Now we are seeing strong growth in the high value end of the beef market including chilled prime cuts and Wagyu beef exports to Asia.
However, consumers in premium markets are much more demanding, especially in relation to information about the provenance and credence attributes of the products they are purchasing.
Fortunately, Australian supply chains are well placed to provide this information as part of the ‘product’, and digital technologies provide opportunities to supply product information at low cost, as well as creating opportunities to guard against food fraud.
The potential additional value that digital technologies can bring to Australian agriculture was the subject of some detailed economic analysis recently by the Centre for International Economics.
The economic analysis was part of a larger body of collaborative research funded by the Australian Government’s Rural R&D for Profit program, which involved all fifteen Rural Research and Development Corporations, and was coordinated by the Australian Farm Institute.
That research estimated that the potential additional value able to be generated due to the deployment of digital agricultural technologies was $20.3 billion in current dollar terms, which would mean an additional 20–25% gross value of agricultural production annually.
This estimate does not include a value of some of the indirect benefits achievable, such as:
- improved environmental outcomes due to better land and water management
- likely reduced greenhouse emissions intensity, and
- the potential for the sector to attract some of the best young minds by providing challenging and exciting new career opportunities in the ag-tech sector.
Digital agriculture challenges
While it is essential to understand the potential that digital technologies provide for the Australian agricultural sector, it is also important to understand that this potential will not be achieved unless a number of impediments and challenges are overcome.
Connectivity
First and foremost, especially in such a sparsely populated nation such as Australia, is the challenge of connectivity. Almost without exception, these digital technologies require constant or at least regular internet connectivity to achieve their full capability.
This is a particularly vexing issue for much of regional Australia. Some progress has certainly been made over recent years in improving connectivity to the farm, but there is still a long way to go before connectivity across the farm is improved to the standard required.
The ACCC examined the issue of regional connectivity in its review of the potential declaration of mobile telephone roaming, in 2017.
The issue under investigation in that instance was whether a decision to ‘declare’ mobile telephone services and thereby require the owners of mobile telephone infrastructure to allow competitors to access that infrastructure would improve mobile telephone coverage, and hence internet connectivity, in regional Australia.
We concluded that such a declaration was unlikely to improve access to mobile telephone services, as it would remove the incentive for the major mobile telephone providers to invest in more infrastructure, even though it may have improved competition in areas that currently have coverage.
The Australian and State Government’s 'Black Spot' programs, in combination with the deployment of the Skymuster satellite service still appears to be the best available option to increase regional access to the internet — at least to the farm.
Internet access ‘across the farm’ is in some respects a greater challenge, although the emergence of several technologies that enable the development of private regional-scale or farm-scale fixed wireless networks provides some potential.
These are certainly adequate to support low-data IOT applications, although of limited utility for high-volume data applications.
Ensuring that these systems can interface seamlessly with existing mobile telephone and internet services remains a challenge, and both governments and the private sector could play helpful roles in addressing this.
Inadequate support services for such systems are a continuing challenge in some regional areas, with farmers understandably reluctant to invest while there is a significant risk they will be left with redundant systems in a few years’ time, or with systems no-one can repair.
Interoperability
A second issue that presents a continuing challenge is limited interoperability of different systems and applications. This is an important issue from a number of perspectives.
Firstly, the nature of digital technologies operating at the farm level is such that the data and insights that can be generated become more valuable as subsequent years of data are accumulated. This means that the longer a farmer operates with a proprietary system, the greater the potential ‘lock-in’ to that system, with associated loss of competition, and constraints on new entrants into the market.
Secondly, the issue is also important when it comes to decisions about which machinery and implements are purchased. The decision to buy a particular brand of tractor has the potential to also mean that the farmer will have less choice when it comes to purchasing implements, if different brands of implements are not compatible with the data and control systems of the tractor.
Fortunately, the emergence of third party monitoring and data systems may provide continuing competition for the digital systems offered by the major machinery manufacturers, providing a solution for this problem in the cropping sector, even if it does mean a plethora of screens in the tractor cab.
The issue is not as evident in the livestock sectors, given the less complex technology systems and the standardised approach being taken to electronic livestock ID systems.
The emergence of an agriculture-wide digital platform that accommodates a variety of different systems and enables easy integration of data could reduce some of these concerns, and also reduce the risk of inadequate support services and unsupported orphan systems.
Governments and their public-sector agencies have a role to play in facilitating adequate interoperability, for example by ensuring appropriate digital access to public datasets.
Portability
Data portability is a key challenge for farmers, many of whom operate multiple enterprises and by necessity are likely to engage with a range of different digital systems.
The ease with which data can be transferred from one system to another without degradation is important both to enhance adoption, but also for ongoing farm efficiency.
There are also some parallels with current developments in the wider economy, including the mandating of an open banking regime.
The objective of this Government initiative being progressed by the ACCC is to provide bank customers with the ability to efficiently and conveniently access specified data about them and requires banks to give customers more control over their financial data, and it includes a requirement on banks to seamlessly transfer data to accredited third parties on request.
The aim is to remove some of the friction or inertia created by data access constraints, and facilitate greater competition in the finance sector.
The next sector in which this initiative will be implemented is the energy sector.
While there are no plans to include agriculture in this regime at present, the principals involved will likely be expanded in the future, with potential implications for those involved in the ag-tech sector.
The use of data restrictions by digital agriculture service providers to prevent farmers moving to a competitor provider could also amount to a breach of Australian competition laws, or breach recently enacted unfair contract terms laws, and the ACCC has powers to seek penalties or impose correction orders in such cases.
Data rights
The issue of data rights is important from a number of perspectives, and farmers’ willingness to adopt digital technology will ultimately be determined by the level of trust they have in the security and integrity of their data, both of which are determined by the data rights specified by system providers.
The ACCC has just completed a major inquiry into the digital platforms, principally Google and Facebook, and many of the troubling issues identified in that work arise from poorly defined user information or data rights.
This is, in part, enabled by lengthy, complex and deliberately vague user agreements that few if any customers read, let alone understand, which can result in customers failing to appreciate the ways in which data about them is used, or actively exercising controls available to them in relation to that use.
The use of customer information for advertising, one of the key ways in which major platforms monetise user information, is probably less of an issue in relation to digital technologies in agriculture.
However, in many respects it is more important for customers of digital agricultural companies to have a very clear understanding of the rights they hold over their data, as that data often includes key production and business information that is critical to future business operations, and also for compliance and reporting requirements.
It is essential to maintaining a competitive market for digital agricultural technology services that user agreements are expressed in very clear and unambiguous language, that data rights are spelled out unambiguously, and that as a matter of principle, that there should not be unnecessary barriers preventing farmers moving their data to another service provider.
Public and private sector cooperation
A final issue I think is worthy of consideration in relation to the development of digital agriculture in Australia is the respective roles of the public and private sectors in research and development and commercialisation.
I think there are two risks associated with these developments that all involved need to be aware of.
The first risk is the belief that the rise of digital agriculture somehow lessens the need for public sector agricultural R&D.
I don’t think this is the case at all, and I believe most of the entrepreneurs in the digital agricultural space would be of the same view.
When the Productivity Commission conducted their 2011 inquiry into rural research and development corporations, they considered the level of public and private sector agricultural R&D investment in Australia. Some of the ensuing discussion concerned the role of public investment in agricultural R&D, and whether allowing this to decline would result in private sector investment increasing.
Private sector organisations argued that, for a nation like Australia with production systems that are different to those in the northern hemisphere, it was important to maintain public R&D investment.
These companies argued that public investment in agricultural R&D in Australia is complementary to private sector investment, rather than competitive, and that the public sector doing basic and applied research ensures that there is a steady stream of new opportunities for private sector organisations to develop into marketable systems and technologies, and to deliver to farmers.
Further, the fundamental market failure associated with basic and most applied agricultural R&D remains, with the potential for knowledge spillovers meaning the private sector may underinvest, or only invest in specific areas with a high chance of commercialisation.
Many digital agriculture systems provide new ways to apply the insights gained from agricultural R&D to decisions made by farmers and others in supply chains, but they still rely on R&D outcomes as a fundamental input into the system.
The second risk is that public sector agricultural R&D agencies not recognising the appropriate point at which to hand the results of their work to a private company to develop commercial technologies.
While I can understand the attachment a researcher may have to a particular development that has been a singular focus for perhaps ten or more years, commercialisation is best left to those private sector organisations with the relevant expertise.
My personal view is that public sector agricultural R&D agencies and universities in Australia are actually quite poor at transitioning R&D insights into commercialised products and services that are ready for adoption by farmers.
There is room for significant reform in this regard, starting with reducing the complexity and timescales associated with negotiating public and private sector collaborative research efforts, and removing some of the administrative deadweight that discourages cross-sectoral collaboration.
No doubt the legal advisors involved all imagine the complex agreements they are crafting are necessary to secure a future revenue stream similar to that arising from the development of Wi-Fi or GM cotton, but in reality these are extremely rare examples, and to craft all contracts on that basis is irrational.
The number of times I have heard of R&D projects that are completed before the contract has been agreed is ample evidence of the need for reform.
Conclusion
In conclusion, digital technologies hold much promise for agriculture, and provide new opportunities to facilitate improved productivity, which will be critical for the continued growth of the sector into the future.
Digital agriculture also brings with it some new challenges, which require concerted attention from government, from regulatory agencies such as the ACCC, and from the private sector, if these challenges are to be overcome.
A flourishing digital agriculture sector will require ongoing public-sector agricultural R&D, and better models of collaboration between the public and private sector R&D systems.
And perhaps, most importantly, digital agricultural developments are likely to facilitate faster changes to the ‘normal’ way of doing things, meaning that all involved will need to respond much more rapidly than was the case in the past.
Thank you.