Appropriate and Effective Intervention

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Dr Wendy Craik's talk from the Australian Agricultural & Resource Economics Society's event "Reframing the Food Agenda: Setting the Scene for Australia" held August 19, 2011

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Appropriate and Effective Intervention

  1. 1. Wendy Craik Commissioner Productivity Commission AARES Symposium, 19 August 2011, Adelaide Appropriate and effective intervention
  2. 2. Food security – Australia’s role <ul><li>A participant in global markets </li></ul><ul><ul><li>Exports and imports </li></ul></ul><ul><li>Critical factors </li></ul><ul><ul><li>Trade reform and market access </li></ul></ul><ul><ul><li>Evidence based, economy-wide, policy settings </li></ul></ul><ul><ul><li>Intervention based on market failure </li></ul></ul><ul><li>Benefits </li></ul><ul><ul><li>Competition </li></ul></ul><ul><ul><li>Choice/innovation </li></ul></ul><ul><ul><li>Business flexibility </li></ul></ul><ul><ul><li>Productivity growth </li></ul></ul><ul><li>Availability of food at least cost </li></ul>
  3. 3. The case for intervention <ul><li>Market failure: </li></ul><ul><ul><li>Government intervention can improve efficiency of resource allocation and promote economic growth </li></ul></ul><ul><ul><li>Benefits must exceed costs to broader community </li></ul></ul>
  4. 4. Interventions to improve efficiency <ul><li>Biosecurity </li></ul><ul><ul><li>Marine ballast </li></ul></ul><ul><li>Environmental externalities </li></ul><ul><ul><li>Nutrient runoff into the Great Barrier Reef </li></ul></ul><ul><li>Market power </li></ul><ul><ul><li>Rail transport </li></ul></ul><ul><li>Food safety </li></ul><ul><ul><li>Chemical residue </li></ul></ul><ul><li>Research and development </li></ul><ul><ul><li>Socially valuable, not otherwise undertaken </li></ul></ul>
  5. 5. Removing inefficient policies <ul><li>Trade barriers </li></ul><ul><ul><li>Lower tariffs for imported farm machinery </li></ul></ul><ul><li>Statutory marketing authorities </li></ul><ul><ul><li>Wheat </li></ul></ul><ul><li>Inefficient regulation </li></ul><ul><ul><li>Dairy </li></ul></ul>
  6. 6. Drought policy reform <ul><li>From ‘drought proofing’ to self-reliance </li></ul><ul><li>Ongoing structural change and adjustment </li></ul><ul><ul><li>Increased farm size </li></ul></ul><ul><ul><li>Shifts in enterprise mix </li></ul></ul><ul><ul><li>Exit of poorer performing farmers </li></ul></ul><ul><ul><li>Income diversification </li></ul></ul><ul><ul><li>Change in business models </li></ul></ul>
  7. 7. Water policy reform <ul><li>Development of water market </li></ul><ul><ul><li>Removal of trade barriers </li></ul></ul><ul><li>Simultaneous State allocation announcements </li></ul><ul><li>Risk assigned to beneficiary </li></ul><ul><ul><li>Carryover </li></ul></ul><ul><li>Improved infrastructure charging </li></ul><ul><li>Rebalance consumptive and environmental water </li></ul>
  8. 8. Benefits of policy reform <ul><li>Clearer market signals </li></ul><ul><li>Productivity improvements </li></ul><ul><li>Better risk management </li></ul><ul><ul><li>Reduced impact of drought by trading water </li></ul></ul><ul><li>More flexible businesses </li></ul><ul><ul><li>Diversification of inputs and outputs </li></ul></ul>
  9. 9. The dairy industry <ul><li>Was highly regulated and assisted </li></ul><ul><ul><li>Each state regulated differently to ensure stable domestic milk supply </li></ul></ul><ul><ul><li>Used price support, export subsidies, production quotas, trade restrictions, separated markets… </li></ul></ul><ul><li>Resulted in </li></ul><ul><ul><li>Distorted market signals </li></ul></ul><ul><ul><li>Higher prices for consumers </li></ul></ul>
  10. 10. Productivity improvements in dairy <ul><li>Pasture and irrigation practices </li></ul><ul><ul><li>Supplementary feeding </li></ul></ul><ul><ul><li>More efficient irrigation, water trading </li></ul></ul><ul><li>Technology adoption </li></ul><ul><ul><li>Animal genetics, soil testing, milking practices </li></ul></ul><ul><li>Increased milk yield/cow, labour productivity </li></ul>
  11. 11. NE Victorian dairy industry
  12. 12. Dairy and global food security Litres (billion) Source: Dairy Australia
  13. 13. Australian dairy industry product mix 2009/10 1999/00 Source: Dairy Australia
  14. 14. Economy-wide reform <ul><li>Broader economic reform is also important </li></ul><ul><ul><li>Infrastructure regulation </li></ul></ul><ul><ul><li>Workforce participation </li></ul></ul><ul><ul><li>Business regulation </li></ul></ul><ul><ul><li>Environmental management </li></ul></ul><ul><ul><li>Climate change mitigation </li></ul></ul>
  15. 15. Effective policy <ul><li>Evidence based </li></ul><ul><ul><li>Methodology matters </li></ul></ul><ul><ul><li>Good data essential </li></ul></ul><ul><ul><ul><li>Assessments of costs and benefits; counterfactual </li></ul></ul></ul><ul><ul><li>Expertise also essential </li></ul></ul><ul><ul><li>Evidence open to scrutiny </li></ul></ul><ul><ul><li>Evidence building takes time </li></ul></ul><ul><ul><li>Independence crucial </li></ul></ul><ul><ul><li>Receptive policy making environment fundamental </li></ul></ul><ul><li>Clear objective </li></ul><ul><li>Best policy instrument </li></ul><ul><li>Appropriate governance/institutions </li></ul>
  16. 16. The global food security challenge <ul><li>Policies to support lowest cost food production through competitive markets </li></ul><ul><li>Ongoing drive for productivity improvements </li></ul><ul><ul><li>Australia and other food producing nations </li></ul></ul><ul><ul><li>Technology development and adoption </li></ul></ul><ul><li>Ongoing policy reform </li></ul><ul><ul><li>Freer trade </li></ul></ul><ul><ul><li>Better natural resource management </li></ul></ul>
  17. 17. <ul><li>www.pc.gov.au </li></ul>

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