Chapter 2
Land use
2.1
A key component of food production is the availability and productive
use of fertile agricultural land. Issues raised during the inquiry were focussed
on the following aspects of land use for food production:
- competing uses for agricultural land;
-
planning measures to maintain agricultural production;
- the cost of agricultural land relative to rates of return from
agricultural investment;
- changing agricultural land ownership arrangements; and
- foreign ownership.
Competing land uses
2.2
This inquiry elicited an important debate about the increasing demand
for, and use of, fertile agricultural land for purposes other than food
production. Concerns about competition for land and the effect on food
availability and price were typified by the following comment from the Western
Australian Farmers Federation:
...there is a lot of pressure on the hard stuff that we use
to produce the food, and that is land. The high productive land in this state
is being used for urbanisation, lifestylers and tree and wood production, and
if carbon trading gets up, that will only continue. The normal agricultural
pursuits are being pushed out into the drier, lower rainfall, much more
variable areas of the state. The writing is on the wall, but we seem to be completely
intransigent about putting in place systems and laws in this country that
protect the smaller farmers and agriculture in general.
Unless we do it, and very quickly, another 10 or 20 years and
people will go hungry. The price to produce the stuff is going to go through
the roof.[1]
2.3
This chapter explores concerns raised about the following competing
uses, potentially diminishing the land available for food production:
- urban encroachment;
- biofuels; and
- mining.
Urban encroachment
2.4
The land on the fringes of Australia's major cities has been an
important food growing area, due to the arable qualities of the land and the
proximity to consumers that ensures food freshness and minimal transport costs.
However, population growth and associated housing development in major cities
is encroaching into land previously used to provide food for their inhabitants.
2.5
The Planning Institute of Australia noted changing land uses around
Australian cities from food production to housing development:
Historically most early settlements have been established
close to productive land and most had market places for selling and
distributing food. Traditionally, large allotments also provided opportunities
for residents to grow their own produce. As towns and cities grew and new
settlements were created, these productive farming areas have been pushed
further out as development expanded. Now, increasingly many of the areas of
traditional farming at the fringes of our cities and towns are under pressure
for development for residential or related purposes.
Since 1945, the expansion of Australian cities has removed
more than one million hectares of rural land. If current trends continue, by
2021 Melbourne will have lost another 25,000 hectares of rural land to urban
development.[2]
2.6
The NSW Department of Primary Industries (DPI) also noted recent trends
affecting productive agricultural land:
In recent years, competition for agricultural land and water
resources has intensified due to increasing population pressures and associated
demand for urban and peri-urban development (particularly in coastal areas),
the growth of other resource-intensive industries and increasing public
concerns about environmental management. This competition for agricultural land
will continue to intensify due to demographic changes, such as population
growth, the ageing of the population and the migration of people from cities to
coastal and regional centres. It is therefore essential that planning
mechanisms reflect the range of values held by society generally, rather than
specific local interests.[3]
2.7
The DPI submission noted that agricultural interests are often
sacrificed for the amenity of new residents:
Encroachment of agricultural land by urban development and
subdivision leads to the potential for conflict between urban and lifestyle use
and agricultural activities. Tensions can result at the interface between
agriculture and residential or 'lifestyle' land uses that can have long term
consequences for farm productivity. New rural land owners may object to routine
agricultural practices, which may result in constraints being placed on farmers
in relation to the use of chemicals, noise, light spill, odours, appearance of
buildings and structures, clearance of vegetation, and access to water
resources. Farmers may experience problems with issues such as lack of weed
control and stray domestic dogs.[4]
2.8
Growcom indicated that, in Queensland, the loss of productive land is an
issue of major concern:
Increasing urban pressure on farming in urban fringe areas is
creating land use conflict and marginalising viable farming operations. The
pressures on farming enterprises includes meeting the environmental
expectations of the urban lifestyle community, who want the lifestyle of
acreage properties but are not prepared to accept that normal farming practices
need to be carried on around them. These landholders are often unaware of the
importance of minimising biosecurity risks, observing quarantine restrictions,
preventing the spread of weeds and maintaining essential farm infrastructure
such as fencing. At the same time higher land prices, land taxes and Council
rates induced by development and lifestyle investors make it increasingly
difficult for farms to remain viable or to further develop or expand to
maintain or improve productivity.[5]
2.9
The Victorian Farmers Federation expressed concern that the most fertile
agricultural land in Victoria is also becoming more popular for residential use
because of its amenity.[6]
The federation commented that, while planning guidelines require dwellings in
farming zones to be necessary for a farming operation, this requirement is
loosely interpreted by councils under pressure to fragment land for housing
development.[7]
2.10
The Urban Research Centre in the University of Western Sydney informed
the committee that an estimated quarter of the value of Australian agriculture
comes from peri-urban areas, with 40 per cent of the value of NSW vegetable
production coming from the Sydney region. They indicated that encroachment into
this land has not been properly addressed:
While there have been some notable exceptions, protection of
peri-urban land for agriculture in Australia has too often been haphazard. This
has resulted in agricultural land being lost to housing development.
Protecting and preserving agricultural land close to the city
is important when we consider facing a future in which there is decreasing fuel
resources that drive current food systems and economies more broadly. The
production of food close to the city markets ensures access to fresh produce
that relies less on a fuel intensive distribution chain that requires both
refrigeration and long distance transportation of food.[8]
2.11
The Urban Research Centre argued that it is not realistic to shift food
production further away from cities, claiming that the spread of housing into
arable land may leave nowhere left to move to.[9]
2.12
VicHealth suggested that moving food production away from populated
areas risks food security:
The transfer of land from agriculture to housing increases
the food transport distances and increases the vulnerability of populations to
food insecurity if there are disruptions in the food supply chain [26]. Peri
urban regions comprise less than 3% of the land used for agriculture in five
mainland states of Australia, but they have historically accounted for 25% of
the total dollar value of agricultural production [28]. The rapid rate of urban
sprawl experienced in recent years has resulted in a significant loss of
productive agricultural land in per-urban areas.[10]
2.13
The Food Fairness Alliance (FFA) expressed concern about the capacity of
Sydney to sustain itself:
...it is important that biodiversity & sustainable
agriculture is protected in the Sydney Basin, with its fertile soil, access to
water, transport, & in close proximity to Sydney, to ensure that Sydney can
become a sustainable city nourished by a healthy fresh local food supply.[11]
2.14
The FFA submitted that perishable food grown close to the city is a key
component of its affordability for consumers.[12]
Biofuels
2.15
There has also been controversy about incentives to use productive
agricultural land for biofuels, where it was previously used for growing food. In
2008 global food prices skyrocketed, causing considerable social upheaval in
many countries and leading some governments to place restrictions on the
exportation of food. Part of the blame for this spike was attributed to subsidies
for ethanol production designed to reduce greenhouse gas emissions and reduce
dependence on oil.
2.16
In 2008 the Lead Economist of the World Bank Development Prospects Group
released a report on steep price rises in food commodity prices. The report
stated that although contribution of biofuels policies to the 130 per cent
increase in food prices between 2002 and 2008 was difficult to quantify
exactly, demand for biofuel was a significant contributor, more so than energy
and fertiliser costs. The report concluded that the US and EU-driven demand for
biofuels via subsidies and mandates reduced grain supply, distorted production
decisions and triggered price rises across grain types, exacerbated by the export
bans imposed by poorer countries in response.[13]
2.17
In Australia, the Commonwealth Government encourages ethanol production
by subsidising ethanol producers at a rate of 38 cents per litre.[14]
Significantly, NSW also imposes an ethanol mandate on fuel retailers, requiring
that two per cent of the total volume of petrol sold in NSW is ethanol.[15]
2.18
The Australian Lot Feeders' Association (ALFA) told the committee that
state government ethanol mandates will greatly effect local grain supply for
other users:
While Federal Government assistance and protection of the
ethanol sector is undoubtedly distortionary, of most concern is the combined
grain and food price impact of proposed State Government ethanol mandates.
Essentially these mandates will distort grain markets as they provide a
guaranteed ethanol related demand for grain which is disconnected to grain
supply. This discriminates against other grain users in the market place who
have to then pay inflated prices for residual grain supplies that may or may
not be available. Plainly speaking mandates will create a perpetual drought
with grain stocks indefinitely struggling to meet the food and fuel needs of
society. With Australia’s climate and hence crop production already inherently
variable, the onset of climate change as predicted within the draft Garnaut
report will lead to further pressures to meet such food and fuel demands.[16]
2.19
ALFA recommended that state and federal government subsidies for ethanol
be removed.[17]
2.20
Mr Geoff Ward predicted that biofuels would be primarily sourced from
grain feedstock, affecting food production. He said:
My estimate of the net grain needed as feedstock to fill an
E10 and a smaller biodiesel mandate in NSW could be about 1.4 million tonnes
annually.
It would have been difficult to meet this mandated demand for
grain in three of the last six years in NSW. If biofuel mandates had been in
place existing grain end-users would have been affected to a greater extent and
food price inflation more pronounced.[18]
Mining
2.21
In its second interim report the committee examined specific concerns
about proposed mining on the Liverpool Plains area of NSW. The committee heard
evidence that food producers in that region are deeply concerned about the
potential effects of mining development on their land and concluded that the
Liverpool Plains should not be subject to mining activities, due to its fertile
and drought resistant characteristics and food producing capacity.[19]
2.22
The committee also notes concerns about potential mining in Queensland's
prime agricultural regions. AgForce argued that latent exploration permits signify
a threat to vast areas of the state's agricultural land, warning that existing
agricultural producers are potentially unaware of, and vulnerable to, mining
interests:
...we have very much a sleeping giant here. Some of these
exploration permits of upwards of 50 years old. Indeed, we actually have
landholders who are not even aware that there are exploration permits already
granted over their properties. Indeed, because of the variations of some of the
gas and petroleum resources, rather than mineral resources, you can have
multiple permits over your property, depending on the different extraction
methods or different items as well.[20]
2.23
AgForce noted the need for a balanced approach:
...there will be many of our members and members of other
farming organisations around the country who would welcome the opportunity to
realise there is a huge asset under their property and may offer them the
opportunity to realise on that. We do not want to restrict the trade; we do not
want to restrict the opportunities. What we do want to do is make something
sustainable, equitable and, in the long run, manageable.
...
At the moment it is the opposite; it is not a choice. It is
the right of a mining company; it is not the choice of a producer. [21]
2.24
From the perspective of our food producing capacity, AgForce told the
committee that good agricultural land could be lost for good:
...the removal of this good agricultural quality land to an
open cut system, regardless of whatever indemnities or bonds get put in place
for remediation of those systems afterwards, a lot of studies are now coming
back to say that it will never get anywhere near the productive capability it
once was.[22]
Planning measures to maintain agricultural production
2.25
The committee received a number of suggestions for planning mechanisms
to be used to maintain existing agricultural land for the purpose of food
production. The Planning Institute of Australia noted the importance of
planning to ensure continuing food production, including:
...identifying land suitable for food production that should
be protected from more intense development and promoting a range of initiatives
to support community participation in food production, as is increasingly the
case in some parts of Europe through urban micro-farming, edible backyards and
productive streets.[23]
2.26
The Planning Institute recommended:
Areas of productive land should be mapped and this should be
used as the primary spatial planning constraint for urban containment so as to
protect and enshrine productive land as the most valuable to the any urban
areas survival.[24]
2.27
The Victorian Farmers Federation advocated protecting the most
productive agricultural land from encroachment to maintain efficient and quality
food production systems.[25]
VicHealth recommended that:
An agricultural overlay is needed in Planning Provisions to
protect productive land from further urban development'.[26]
2.28
The Urban Research Centre (URC) expressed a similar view, arguing that
better planning is required to enable housing and food production around cities
to co-exist:
The current failure to plan for the co-existence of
agriculture and housing in peri-urban areas arguably only delays the
inevitable. If such planning is done now, however, the co-existence of farms
and housing can be managed to ensure best outcomes – environmentally, socially
and economically. While there is still land available governments have the
opportunity to plan for the protection and preservation of urban agricultural
land. [27]
2.29
The URC that tools be developed to map and assess food producing land on
the urban fringe and make appropriate zoning decisions, as well as exploring
alternative agricultural options within cities such as rooftop gardens and
backyard production.[28]
Food Chain Intelligence also recommended that consideration be given to using
hydroponics to cultivate horticultural products on the roofs of large
commercial buildings.[29]
2.30
The DPI indicated that, although some regulatory approaches are being
adopted in NSW to address land use conflict, local solutions may in some cases
be the preferable approach:
The nature of land use conflict means that local solutions
are often appropriate, and in many cases it is more effective to address this
issue in non-regulatory ways. [30]
2.31
Dr Estrada-Flores of Food Chain Intelligence recommended that a minimum
quota of arable land dedicated for food production (as opposed to biodiesel
production) be established and enforced.[31]
Dr Estrada-Flores argued that food production should take precedence:
...in terms of financial aspects for a grower, if I get more
money out of biodiesel then I will produce for biodiesel. If I get more money
for food production I will produce food. It is just natural...the best crops
should be reserved for food production because that is a primary necessity.
Biodiesel is not exactly a necessity.[32]
Returns on agricultural investment
2.32
The committee heard that in recent years the price of agricultural land
has increased considerably, despite declining terms of trade. One consequence
of this has been that farmers are, to varying degrees, converting some of their
equity to debt. Currently farmers may therefore be making a reasonable living income,
and their land values rising, however, there is concern that rates of return on
capital investment are well below other commercial endeavours. This suggests
that, over the longer term, land price rises may not be sustainable and,
without improved returns, some farm debt positions could deteriorate.
2.33
Mr Charles Burke of AgForce told the committee that lifestyle is an
important consideration for many landowners, which means that land often remains
used for food production despite relatively poor returns on investment:
I am a fourth generation producer on our property, and we
have this discussion all the time. Our country is worth more as real estate
than it is to run cattle on. But we are still making an income that is
sustainable for us and is adequate for our needs. We choose to do what we do
because added to the economics there is a lifestyle choice in that.[33]
2.34
The Western Australian Farmers Federation (WAFF) indicated that land
prices reflected eternal optimism amongst farmers that seasonal conditions
would improve to boost future returns.[34]
Mr Michael Norton, President of WAFF, also suggested that banks are reluctant
to 'sell up' farmers for fear that resulting property price falls would affect
their overall agriculture portfolios.[35]
2.35
The Victorian Farmers Federation (VFF) agreed that current land values
are predicated on improved conditions:
We would have to be concerned in the long term if the current
weather patterns hold or got worse about the underlying asset value. At some
point the capacity for agriculture to continue to source finance when the
annual returns are not there will dissipate. If they cannot source finance to
operate their businesses obviously you start to see a large number of ‘for
sales’ and there will be incredible pressure on the land values.[36]
2.36
The VFF indicated that the banking sector was unconcerned at this stage
about shrinking land values, but equity problems may create a snowball effect:
Generally the equity levels in agriculture are quite high and
of course as you suggest that is underpinned by land value. A return to good
seasons would see those land values shored up even for a couple of years, but
obviously we are concerned that if you did see a number of farmers reach a
sensitive threshold where they can no longer source finance because there were
concerns about increasing debt levels and forced sales occurred ... you may see
some significant losses in equity and you might end up with a snowballing
effect which would obviously be of grave concern.[37]
2.37
The committee also heard evidence about the effect of agribusiness
managed investment schemes on land prices. The effects of tax incentives for
managed investments is examined in Chapter 3.
Alternative ownership arrangements
2.38
Another consequence of rising land prices unmatched by rate of returns is
that young farmers are faced with borrowing costs to enter the industry that
exceed what can be made from farming. The Tasmanian Institute of Agricultural
Research explained:
The age of farmers is rising to the point where in other
industries most would be retired. The entry of newcomers is restricted by costs
of entry due to the need for large scale farms to be efficient in the existing
systems and to the small proportion of the total food value that returns to
growers.[38]
2.39
Consequently, alternatives to the traditional family farming business
structure are becoming more prevalent as an effective and efficient way to
bring capital and expertise together in the agricultural sector. Mr Burke from AgForce
suggested that alternatives to these existing ownership structures will become
more common:
I think we are seeing a generational shift within
agriculture. Certainly in discussions that I have regularly with the banking
sector, it is certainly looking and encouraging people to view alternative
ownership systems. Once upon a time, if you wanted to farm a piece of dirt, you
went and put a huge noose around your neck and bought it. I think there are a
lot of people now who are the average farmer age of 57 or 58 who perhaps have
not got somebody coming along in the next generation who want to take it on.
Traditionally, those people would have sold that block of land, realised the
asset and then taken off. Now those people might view it as an asset because of
its capital value. It is still appreciating as a capital asset and they are
looking at alternatives in how to use it. We might see more leasing and we
might see more sharecropping or share-farming arrangements. I certainly think
that needs to be explored.[39]
2.40
The VFF noted that there are few agricultural industries where people
can enter 'from scratch' without coming from a farming family whose land is passed
on. VFF suggested that, consequently, there would be an expansion of leasing
and share farming arrangements in the cropping sector to enable generational
refreshment.[40]
They did not consider, however, that corporate farming would become more common
than the traditional family farm model:
...even though there has been quite a lot of commentary in
the media over the last probably 10 years about corporate farming, I still
believe that the majority of agriculture in Australia will remain in family
farm hands. That is the culture of the industry and I suspect it will stay that
way. There will undoubtedly be large investments made by non-family farmers,
but I think the majority of agriculture will still operate on land and systems
conducted by family farms which may by their very nature be corporate in size
and structure anyway. [41]
2.41
VFF further commented that the profit incentive for farmers provided
through the family farming structure increased the chance of long term capital
appreciation and proper stewardship of the land.[42]
2.42
Kondinin Group Ltd (KGL) commented that farming viability required economies
of scale of production and new ways of attracting capital to achieve it:
Farmers over the last five or six years have seen quite an
upward swing in terms of land values and the amount of capital employed in
running a farm. There has been a lot of consolidation and farms have been
growing, but now there are real capital constraints on farmers being able to
swallow up neighbouring farms or grow to an efficient scale. That is an area
that as a nation we really need to have a proper look at and we need to ask: is
there some opportunity for large-scale collaborative investment schemes that
could be put in place that do not necessarily mandate but have a function of
investment into restructuring agriculture, both from the point of view of a
sound investment and the point of view of restructuring our industry at a
landholding level and at a supply chain level?[43]
2.43
KGL suggested a unit trust investment scheme in which unit holders would
provide the capital investment for agricultural enterprises.
2.44
AACL Ltd discussed their business model with the committee, whereby investors
provide capital to existing farmers to produce a crop on their behalf.[44]
AACL Ltd explained:
Our business model is based on a share-farming concept, where
we bring together investors and existing farmers—by and large, family owned
farming operations—and they enter into a relationship to grow grain over a
period of time. The investor provides the money; the farmer provides the farm,
the infrastructure and the expertise to do it. The farmer actually grows the
grain on behalf of the investor, and the investor carries the production risk
and the price risk. The farmer is actually contracting, providing services and
putting his infrastructure into growing the grain. So the farmer is providing
almost exclusively a service there, but he does have a profit share
opportunity. We set, with each farmer, something called a target value, which
is a minimum return back to the investor above which the farmer shares in any
outperforming.[45]
2.45
AACL further explained that the farmer gains access to no-risk capital
that offers 'a form of multi-peril insurance', and investors diversify their
risk by having the grain from contracting farmers pooled.[46]
2.46
The committee notes that a prominent alternative ownership structure
that has emerged in recent years is managed investment schemes (MIS). Due to
the significant interest in this issue the committee discusses MIS and their
effects on agricultural production in the following chapter.
Foreign ownership
2.47
Finally, the committee briefly explored the prospect of foreign
ownership of Australian agricultural land, particularly the existing regulatory
approach to major foreign land acquisitions.
2.48
The Foreign Investment Review Board (FIRB) informed the committee that investment
in agricultural land by foreign investors is generally exempt from the
requirement to notify the government in accordance with the Foreign
Acquisitions and Takeovers Act 1975. Only if the acquisition exceeds 15 per
cent of a business or corporation whose Australian interests are valued above
$231 million, or where the investment is made by a foreign government or their
agency, is it subject to scrutiny from the Australian Government to establish
whether any national interest concerns are raised.[47]
2.49
The committee notes that incremental purchases exceeding the threshold
amount in aggregate are not required to be disclosed. The committee also notes
that in some countries the distinction between foreign governments and companies
is not necessarily straightforward.
Committee view
2.50
Land available for agriculture is declining across the globe as
expanding populations inhabit fertile land that could otherwise be devoted to food
production. Although this problem is not as severe in Australia as it is in
countries with a smaller land mass, urban encroachment is nonetheless affecting
the capacity of Australian producers to grow food in the areas in which it is
demanded, which in turn affects its quality and affordability. Competition for
fertile land from mining and biofuels also threatens to reduce Australia's
productive capacity.
2.51
The committee recognises that it is difficult for governments to dictate
to landowners the purpose for which their land must be used, particularly when
agricultural production may not presently be the most profitable possible use.
However, Australian governments need to give serious consideration to
mechanisms for protecting our most fertile agricultural land from alternative
uses in the interests of our long term productive capacity and food security.
2.52
The committee also notes the marginal viability of agricultural
production and the difficulty for potential young farmers to enter the sector,
due to high land prices which combine to leave agricultural production
vulnerable to structures that are less desirable than traditional family
farming. Corporate farming models have the advantage of attracting extra
capital to agriculture, though there are questions about the availability of
labour and long term stewardship of the land. More significantly, though,
Australia risks foreign companies, many with close ties to their home
governments, purchasing substantial strategic interests in Australian land
without needing to be vetted for national interest concerns. Australia needs to
be careful that Australia's productive capacity is not undermined by foreign
interests producing food on Australian land that is not intended for trade, but
for direct supply to countries that have not managed their own food security
needs.
Recommendation 1
2.53
The committee recommends an audit be undertaken to establish the extent
of foreign ownership of commercial agricultural and pastoral land, and
ownership of water, in Australia, with particular emphasis on ownership by
sovereign and part-sovereign-owned companies.
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