There has been a lot of angst in recent years about the affordability of housing in Australian cities.
Indeed, while the skyrocketing house prices are good for homeowners, it is a diabolical problem for the economy and society in general.
The same is happening with the prices of farmland, and it also blocks new farmers.
For some strange reason, experts are heralding the huge increase in land values ââas an indicator of resilience in the sector rather than an indication of underlying structural problems.
Rural Bank’s 2021 Australian Farmland Values ââreport shows that commodity prices have not kept up with the growth in farmland prices since 2017. This is a bit of a mistake because, in reality, commodity prices have not kept up with rising production costs. , including the land, for decades.
In my opinion, experts downplay the problems of soaring farmland prices on the basis of deeply flawed notions.
For example, Regional Investment Corporation chief executive Bruce King says (mortgage) risks are lower in agriculture, highlighting this year’s beef, canola and grain prices and the earning power of farmers. farming lands.
âI think that is reflected in the price of the underlying land, so maybe this decoupling is not quite to the same extent or consideration that you envision in an area of ââthe housing market where you’re comparing salaries that, while they “will influence what people are able to buy, are not necessarily an outcome or a by-product of the underlying asset,” King said.
First of all, farm income is not regulated like wages. Using a short-term commodity price as a guide to debt servicing is a blatant misrepresentation of the long-term profitability of a declining industry..
The prices of raw materials are seasonal at best and the land debt is ten-year. Australian farmers are exposed to some of the most volatile market conditions with some of the lowest levels of structural support in the OECD.
In addition, climate change is a real and permanent disruptor. It keeps its promise to increase the frequency and intensity of extreme weather events.
The floods that hit last month are just another example that reinforces the growing risk facing the agricultural sector.
Simply, farm income is much more volatile / risky than non-farm wage income. It is utter nonsense for the head of a rural finance organization to suggest that farm mortgages are less risky than real estate mortgages or should even be compared in the same context.
Land prices continue to soar, but this is not an indication of improving profitability or the resilience of the agricultural sector.
It reflects a real decoupling between agricultural land activity and agricultural production activity. And that will precipitate a necessary structural adjustment that has the potential to be very destabilizing for both companies.
Kodak was founded in the 1880s. In 1981 sales topped $ 10 billion. In 2012, Kodak filed for bankruptcy.
The Kodak story is a spectacular example of what happens when managers fail to recognize the importance of changes to their operating environment and to adapt early to the disruption that follows.
We must constantly assess what is going on around us and what it might mean for our future. After all, we don’t want to be used as a case study on management failure in the future.
I am a farmer, but I am also a businessman. The biggest business investment I have – beyond my mind – is the land I farm. I am not a âbigâ farmer and now my desire for expansion is heavily tempered by the outlook for the sector.
My perspective differs considerably from that of the people many traditionally turn to for advice or assurances of what to expect. It’s a little terrifying that my industry seems to be moving forward the way Kodak usually works.
I know not everyone is a farmer. You may ask why you should care. Indeed, my worries may seem to be more related to, or about, an industry that swings from boom to boom at lightning speed and usually has a hand to ask for help.
It is increasingly evident that geopolitical stability increasingly depends on food security, which relies on functioning agricultural supply chains, before and after the farm.
It is increasingly important that the trade and political structures surrounding agriculture in this country are adapted to the needs. A viable agricultural sector is a social imperative in a world increasingly affected by food insecurity.
Two weeks ago the grain industry was heading for record profits and this week huge proportions of the New South Wales crop are underwater. This, on the back of years of drought.
Despite all this, farmland prices continue to skyrocket and farmers are apparently buying machines frantically.
So is there a problem or not?
Well, I think so. I also think there are serious issues with the way experts talk about the current situation and what it means.
Like it or not, further destabilization in the agricultural sector is bad for everyone and a well-informed and solid conversation is urgently needed to reassess the trade and public policy parameters around agriculture in this country. .