HI5003 Economics for Business: Australia Agricultural Reform Report

This report provides an economic analysis of agricultural reforms in Australia, focusing on the shift towards a free market approach. The introduction highlights the importance of the agricultural sector for economic growth and its role in supplying raw materials. The report evaluates a news article on the topic, discussing the essence of the story, which centers on the minimal government intervention in Australia's agricultural sector compared to other OECD countries. The analysis then delves into economic theories, contrasting regulated and unregulated markets, including the effects of minimum price support and the efficiency of free markets. The report recommends ensuring a minimum supply of food crops and government investment in agricultural productivity. The conclusion emphasizes the benefits of a free market strategy combined with improved farming technology. The report includes an introduction, analysis of economic concepts, and recommendations, and references relevant literature.

Running head: ECONOMICS FOR BUSINESS
Agricultural Reforms in Australia
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction................................................................................................................................2
Essence of the Story...................................................................................................................2
Economic theories and Concept.................................................................................................3
Agriculture with a regulated market......................................................................................3
Agriculture with unregulated market.....................................................................................4
Recommendation........................................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................7

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Introduction
Agriculture or primary sector is the basis of growth in any economy. Without
ensuring stable food supply, no nation can focus on industrial development. Apart from
delivering food, agricultural sector also works as suppliers of raw materials for agro based
industries. This is the reason nation always focuses on the reform of agricultural sector. The
paper analyzes the reform or agro policy in Australia. In most of the nation, reform includes
active government intervention to secure the interest of farmers. However, in Australia
though significance given to this primary sector but the approach is slightly different. A
published news report focusing on this aspect is evaluated in light of economic theories and
implication.
Essence of the Story
Growth and development of primary sector is usually subject to government support
and intervention. Government offers huge subsidy to motivate the farmers. Minimum price
support policy is also common for agricultural products. Common Agricultural Policy (CAP)
is a policy designed by European Union to guide its member nation towards a developed
agricultural sector. Under this, scheme farmers receive allowance or subsidy for continuing
farming (Queensland Country Life 2017). Farmers in Ireland and United Kingdom are largely
benefitted from this kind of subsidy. Apart from direct subsidy, different learning program
for improving productivity of agro products have been conducted by the government and
farmers eagerly participates in those programs. CAP also covers areas such as promotion and
marketing of product, sustainable development of rural areas and at the same time protect the
environment (Swinbank and Daugbjerg 2017).

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The scenario is quite different in Australia. Here, the agricultural sector is left alone.
The government intervention is second lowest for Australia among the OECD countries
(Tangermann 2015). The sector is believed to perform the best in the market environment.
The farmers Australia is continuing their operation without any direct support from the
government. The farmers not only meet the domestic food demand but also managed to
produce enough so that excess can be exported. Australia earns significant amount of foreign
exchange from its agro exports. This gives confidence to the policymakers for leaving the
sector independent.
Economic theories and Concept
The evaluation of agricultural reform policy of adapting a free market strategy needs
analysis of both a regulated and unregulated free market situation.
Agriculture with a regulated market
One common form of agricultural support is setting a minimum price for the
agricultural products. The market scenario with minimum support price is described below
Figure 1: Market with government support price

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(Source: As created by the Author)
P1 is the unregulated price in the market. The minimum price is set above the
equilibrium price. In the new price Q1 quantity is demanded whereas Q3 quantity is
supplied. Therefore, as seen from the figure, at this price there is a greater supply, exceeding
its demand as shown in the diagram. This excess supply has to be purchased by government
to ensure high income to the farmers. This is an inefficient policy it adds additional burden to
government budget and results in fiscal deficit.
Considering the consumers side, their sufferings is two folds. First, they face a high
price for food crops. Because of relatively inelastic nature of crop demand, they have to
continue purchasing even with a high price (Botterill 2016). This hurts the demand for other
products. On the other hand, to purchase the excess supply government often highly taxed the
citizens. This reduces their disposable income and may create trouble for making even a
nominal purchase (McLachlan 2013)
Agriculture with unregulated market
Free market is independent of government regulation. The demand and supply forces
work efficiently with pricing mechanism. There is neither excess supply nor excess demand.
Optimal price and quantity are determined independently (Van Zanten et al. 2014). When
there is no need of government intervention then the government can utilizes its resources to
other needed sector of the economy. In addition, here food crops are available at an
affordable price. People are able to make purchase from other goods when they free from the
burden of unnecessary high price or high tax rate.

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This is the situation that Australian agriculture experiences. The market alone is
efficient in maintaining profitability in the food market and allows the farmers a stable
income (Keohane and Olmstead 2016). This does not mean the nations with agricultural
support always run with inefficiency. In countries like UK or Ireland, despite of a subsidized
agricultural sector farmers still giver active responses to the market price. Hence, the policy
decision of whether to keep a regulated agricultural market or unregulated free market
depends on the specific structure of the economy (Cai 2015).
Recommendation
Agriculture in Australia has maintained is stability relying on free market forces. A
disadvantage of the free market policy is that sellers value their own interest much here. In
doing so, if the farmers increase the production of cash crops because of economic
importance then common people may suffer with food shortage. This possibility needs to be
considered by the policymaker. While leaving the market unregulated the minimum, supply
of food-crops should be ensured.
Another area where the government can intervene is increasing the productivity of the
agriculture. Land is the main input in agricultural production. Given limited supply of land,
increase in productivity is the only way of increasing supply of agricultural product.
Government should make investment to help the farmers purchasing advanced equipment.
Training program can be arranged to provide the farmers training about advanced farming
techniques.
Conclusion
The analysis made above concludes that Australia is in support of free market reform
policy for its agricultural sectors. CAP support policy often runs with inefficiency in terms

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increasing food prices for buyers and increasing deficit in government budget. Unregulated
market in Australia is free from these shortcomings. However, some aspects still need
government support. In contrast to direct subsidy or minimum price support indirect
assistance can be made by making investment in innovative technologies, arranging training
programs for farmers. Free market strategy with improved farming technology is the most
desirable state of agriculture in the nation.

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References
Botterill, L.C., 2016. Agricultural policy in Australia: deregulation, bipartisanship and
agrarian sentiment. Australian Journal of Political Science, 51(4), pp.667-682.
Cai, X., 2015. Minimum prices in a model with search frictions and price posting. Economics
Letters, 135, pp.61-64.
Keohane, N.O. and Olmstead, S.M., 2016. Introduction. In Markets and the Environment (pp.
1-10). Island Press/Center for Resource Economics.
McLachlan, R., 2013. Deep and Persistent Disadvantage in Australia-Productivity
Commission Staff Working Paper.
Queensland Country Life. (2017). Ag system differences an interesting study. [online]
Available at: http://www.queenslandcountrylife.com.au/story/4841904/ag-system-
differences-an-interesting-study/ [Accessed 18 Aug. 2017].
Swinbank, A. and Daugbjerg, C., 2017. The Changed Architecture of the EU’s Agricultural
Policy Over Four Decades: Trade Policy Implications for Australia.
Tangermann, S., 2015. Are past OECD analyses of agricultural policy reforms relevant to
current policy and market settings?. Issues in Agricultural Trade Policy, pp.25-68.
Van Zanten, B.T., Verburg, P.H., Espinosa, M., Gomez-y-Paloma, S., Galimberti, G.,
Kantelhardt, J., Kapfer, M., Lefebvre, M., Manrique, R., Piorr, A. and Raggi, M., 2014.
European agricultural landscapes, common agricultural policy and ecosystem services: a
review. Agronomy for sustainable development, 34(2), pp.309-325.

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