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TicTac – 26/04/2013

ABA TicTacs

In recent days I have received the usual wad of e-mails, two caught my eye. The first was investing in agriculture and what great prospects agriculture held for investors. The second was farmers living in a fool’s paradise.

The investment advice was the first and it appears profits in agriculture are just heating up. The paper makes compelling arguments. We are not making any more farmland and their argument is that demand is outstripping supply.

In 1981, only 3 billion people in the world and every person had 40 acres of arable ground to feed them. Today with 6 billion people to feed we find there’s only 25 acres per person, this equates to 37% decline in our rural ground.

Record global population and lack of agriculture ground, steady decline in production from present farms, biofuels are taking the place of food crops and then we have soaring demand from a growing middle class in places like India and China.

Food prices have started to rise, farms in the US are the changing hands at record prices. Importation of food into China has continued to grow. Meat consumption per capita has increased by 150% since 1980. India exported 5.6 million tonnes of wheat in 2003 five years later India imported 6.5 million tonnes of wheat.

The other article that is referred to farmers living a fool’s paradise makes some real sense. Agriculture in Australia generally must be one of the most unprofitable pursuits undertaken by Australia’s. Although farms are notoriously capital and labour intensive we see on a regular basis fruit rotting on the trees. Farmers are not able to get a market a price above the cost of production. These orchards have taken years of hard labour and vast amounts of cash to establish.

Fruit is not alone, vegetable producers on a regular basis have to plough produce back into the ground because there is a glut. These gluts are often caused by overseas product flooding the Australian market with cheap product that can be subsidised or not grown under the specifications that Australian retailers put out for Australian growers. Chemical testing and QA standards are essential for Australian producers wanting to supply large supermarkets. However, it seems different rules apply to imports.

Dairy farmers with unbelievable hours receive a pittance for their milk. It is fascinating to watch Senate enquiries into the milk situation, these enquiries and nothing more than a farce.

Cattle prices gone through the floor some of the lowest we have seen for 30 years and yet we seem cost regulation green and red go through the roof and we see some of the bigger Cattle barons talking about going to Indonesia to actually get live trade going again. One wonders why we pay such large marketing levies. Producers talk about the Australian dollar tariffs imposed by overseas countries. All these factors combined are driving a generation of families from their land. In Queensland producers are battling debts that are unsustainable with our low prices. In normal circumstances the banks would have moved in and sold a lot of producers up however nobody is prepared to buy into something that is a loss-making proposition. Some producers talk of getting 80 cents/kilogram for cattle and then getting a bill in the vicinity of $170 per beast for transport. A great way to lose money! Aust. Farm debt 2003 $31 bill. 2012 farm debt $66 bill.

Supermarket duopoly has huge effects on producers’ fuel, milk, liquor, fruit, meat and vegetables. This duopoly has many aspects however one of the worst is there spin department who spin out figures and facts that don’t stand up to basic scrutiny. For example, parliamentary enquiries into supermarkets say producers get between half and two thirds of the retail dollar. The ACCC are quite happy to believe that the producer gets 53% of the end retail dollar. It costs 14% to kill & bone and 30% to pack and retail out. Some of these facts have been proven to be completely fictitious and still ACCC refuses to act.

The ACCC simply say that the meat industry from gate to the plate is very complex and would be extremely difficult to

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identify who gets what, which and how. They go on to talk about how they have consulted industry over their findings. The main problem seems that people they consult with have a vested interest in keeping margins where they are. If the ACCC was really interested in getting to the truth they can consult with independent people to actually do a trial for the gate to the plate on a series of product. Perhaps, they could employ a university that is completely neutral, so that we could find where the truth really lies. As it stands now, decisions and legislation are being formed on fictitious information.

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