Living Standards and Western Australian Agriculture in Regional Economic Development Perspective

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2 Living Standards and Western Australian Agriculture in Regional Economic Development Perspective Nazrul Islam July 31, 2009

3 Plan of presentation How WA agriculture is placed in the national, state and regional economies; Review some study findings on economy-wide contributions of agriculture; Highlight some statistics on the changes in regional farm business structure; and Broadly comment on the possible future of WA agriculture in the regional economic development context.

4 WA agriculture in the state and national economies Items (1) Value-added Exports Employment Share in the WA economy (%) (2) WA s share in Australian agriculture (%) (3) Note: WA s share in GDP is about 12 percent. The data are averages over five years to Column 3 represents WA agriculture s share in the national agriculture sector; e.g. for the value-added row, it shows WA agriculture s share in value-added of the national agriculture sector. Source: Islam (2008)

5 5-year average growth by industry sectors in WA: to WA ROA Growth rate % per annum Agriculture, forestry and fishing Mining Manufacturing All other sectors GDP/GSP Note: ROA: Rest of Australia Source: ABS various issues, Catalogue No

6 Index (base year 1987/88=100) 250 Output trends in broadacre agriculture: 1977/78 to Growth p.a. 1977/ /97 to to 2005/ /06 AUS = WA = W estern Australia Australia / / / / / / / /06 Source: Islam (2008)

7 Trends in TFP and TOT in WA agriculture: 1977/787 to 2005/06 Index (Base year ) = Growth (% p.a.) TFP = 2.02 TOT = Total factor productivity (TFP) 100 Farmers' terms of trade (TOT) / / / / / / / /06 Source: Islam (2008)

8 Long-run impact of R&D and rainfall on productivity a Per cent R&D effect 5 0 Rainfall effect Years a Generalised Impulse Response's of TFP to one S.E. shock in the Equations for RF and R&D Source: Salim & Islam (2008)

9 Flow-on impact (multipliers) Type-2A multipliers a Mean primary Agricultural industries Mean secondary agricultural industries WA mean Output Income Employment Value-added a Type-2A multipliers demonstrate the impact of a unit increase in output, income, value-added or employmentin the industries shown, on total output, income, value-added or employment in the WA economy. Source: Islam (2006)

10 Effects of 6.4% growth in agriculture Percent GSP (real) Employment Consumption (real) Imports Exports Source: Ahammad (2002)

11 Direct & indirect impact of 6.4% growth on GSP Indirect 60% Direct 40% A 6.4% growth in broadacre agriculture leads to A Direct in WA s real GSP.2% An overall in real GSP by about.5% Thus, an indirect contribution of about. Source: Ahammad (2002)

12 Impact of $1m expansion of ag. processing Items Real GSP ($ 000) Total Output ($ 000) Employment (Jobs) Impact 649 1, Source: Islam & Johnson (2003)

13 Mapping WA regions WA regions: RDC 1 WA SD: ABS 2 WA regions Combined 1. Kimberley 2. Pilbara 3. Central = (Gascoyne + Midwest) 4. South Eastern (Goldfield-Esperence) 5. Wheatbelt (Midlands + Upper Great Southern) 6. Great Souther (lower) 7. South West (includes Peel) 8. Perth Sources:

14 Population in regional WA: Great Souther (lower) Perth 7 WA Regions 27% Wheatbelt (Midlands + Upper Great Southern) South West (includes Peel) 10% South Eastern (Goldfield-Esperence) Central = (Gascoyne + Midwest) Pilbara 2% Kimberley 2% Source: DLGRD (2009)

15 Regional employment in WA: Great Souther (lower) Perth 75% WA Regions 25% Wheatbelt (Midlands + Upper Great Southern) South West (includes Peel) 10% South Eastern (Goldfield-Esperence) Central = (Gascoyne + Midwest) Pilbara 2% Kimberley 1% Source: DLGRD (2009)

16 GSP ($141.4b) share in regional WA: Wheatbelt (Midlands + Upper Great Southern) Great Souther (lower) 2% Perth 71% WA Regions 29% South Eastern (Goldfield-Esperence) 5% South West (includes Peel) 10% Central = (Gascoyne + Midwest) Pilbara 5% Kimberley 1% Source: DLGRD (2009)

17 GVAP share in WA regions: Perth 9% WA Regions 91% South Eastern (Goldfield-Esperence) Central 7% Pilbara 0% Wheatbelt (ML & UGS) 44% Kimberley Lower Great Southern 15% South West (includes Peel) 10% Source: ABS various issues, Catalogue No. 7125

18 Changes in broadacre farm business in WA Number of farm business 10,000 8,000 6,000 4,000 More than $400,000 $200,000 - $400,000 $100,000 - $200,000 Less than $100,000 Future scenario 2,000 0 Average (1990 to 1998) Average (2000 to 2008) Source: ABARE, AgSurf

19 Agriculture in a simple regional economy Gross Regional Product Consumption Business (e.g. Farming/Downstream) Activities Imports Investment Exports Government

20 Concluding comments WA agriculture out performs its counter parts in other Australian states - despite adverse effects of market and climate change. Continued R&D investment is important to offset the likely adverse effects of climate change. Farm business structure is changing towards greater economies of scale. The trend of declining farming population will impact regional communities. Integration of post-farm activities within regions of comparative advantage could be a solution.

21 Useful References: ABARE (2009). AgSurf ABS (2007) Regional Population Grow th Statistical local area, Page/ ?OpenDocument. Ahammad, H. (2002). A CGE Approach to Measuring the Sectoral Contribution to an Economy: An Application to Western Australian Agriculture, RURDS, Vol 13, 3, pp , November. DLGRD (2003). Indicators of Regional Development in Western Australia Department of Local Government and Regional Development, Government of Western Australia a.gov.au/publications/docs/indicatorsregiondev_fullversion.pdf (accessed 20 June, 2009). DLGRD (2007). Indicators of Regional Development in Western Australia - Supplementary Report 2007, Department of Local Government and Regional Development, Government of Western Australia a.gov.au/publications/docs/indicatorsregionaldevsuppreport2007.pdf (accessed 20 June, 2009). Islam, N. (2003). Living Standards and Western Australian Agriculture: Research Overview and Key Findings, ISBN , Department of Agriculture WA, South Perth, May. Islam, N. (2004). A General Equilibrium Analysis of Agricultural Exports Grow th on the Western Australian Economy, R. Kingw ell (ed.) Research Papers: Economic Services Group and Regional Economists, ISSN , ISBN , Western Australian Government Department of Agriculture, March, mp2004_05.pdf Islam, N. (2008). Characteristics and Performance of Western Australian Agriculture, DAFWA, Unpublished mimeo. Islam, N. and P. Johnson (2003). Agricultural Processing and the Western Australian Economy, ISBN , Department of Agriculture WA, South Perth, February. Pannell, D.J. and Kingw ell, R.S. (2004). Economic trends and drivers affecting the grain belt of Western Australia to 2035, Future Broadacre Agricultural Landscapes Conference, June a.edu.au/u/dpannell/ dp0407.htm (accessed 20 June, 2009). Porter, M. E. (2003). The Economic Performance of Regions, Regional Studies. Vol. 37, 6&7, pp , August/October. Pow el, R. (1998). Agriculture and the Economy, Centre for Agriculture and Regional Economy, ell.htm?print=1 (accessed 20 June, 2009) Salim, R. and N. Islam (2008). Exploring the Impact of R&D and Climate Change on Agricultural productivity grow th: The Case of Western Australia, DAFWA, Unpublished mimeo. Sen, A. (1985). The Standard of Living, The Tanner Lecture on Human Values, Cambridge University, March 11 & 12.