Report: Market Structure and Trade in Australian Agriculture (HC1072)

This report provides a detailed analysis of the Australian agricultural industry, examining its market structure, supply and demand dynamics, and the impact of various factors. The report begins with an introduction to the agricultural sector in Australia, highlighting its significance and the factors influencing its performance, such as climate, consumer preferences, and technological advancements. It then delves into the market structure, exploring how market conditions, including consumer demand, technology, economies of scale, and government policies, shape the industry. An empirical analysis, supported by simulated data and figures, illustrates the effects of trade policies on the supply and demand of agricultural products, specifically vegetables and fruits. The report concludes by summarizing key findings, emphasizing the influence of economic and market conditions, including inflation, tariffs, competition, and interest rates, on agricultural productivity. The report also discusses the impact of trade policies and government regulations on the sector's performance, as well as the law of demand and supply.

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Economics and International Trade
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Table of Contents
Introduction..............................................................................................................................................2
Description of the Market structure...................................................................................................3
Empirical Analysis..................................................................................................................................6
Figure1: Simulated Demand and supply for Vegetables and Fruits...................................6
Conclusion...............................................................................................................................................7
Appendix: News Article..........................................................................................................................11
Introduction
The report provides a brief and comprehensive description of the agricultural
production industry of Australia (National Rural Reporter, 2019). It describes the market
structure of the industry, changes within the market conditions say the supply and
demand of the agricultural products in the country and finally provides a conclusion.
Australia is one of the prominent countries considered the best agricultural producers in
the world. However, in past years the industry has experienced some abnormalities like
a decline in demand and supply of its products brought about by various reasons such
as; climate, tastes and preferences, arising of substitutes, high costs of production,
attitudes toward the commodity, culture and religions and so many more (Jackson et al,
2018). The agricultural sector of Australia is composed of 58% agriculture land use,
59% water extraction areas, 14% products and services exported out of the country, it
contributes approximately 2.7% of the country’s Gross Domestic Product and also
provides about 4% employment opportunities for the citizens (Lewis and Witham, 2012).
The factors determining the agricultural stand of Australia include; soil type, market
share, climate changes and water used for agriculture. The dominant section of
agriculture in the country is livestock farming well as crop growing and horticulture are
practiced on a smaller scale just around the coast. The sector of agriculture is the
backbone of Australia’s economy and for many centuries, sheep and wheat are the
dominant products on market (Hughes, 2019). The country is currently the main
exporter of meat, grains and wool throughout the world. Generally, the exports of
agricultural commodities in Australia are less than the imports implying an excessive
production.

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Description of the Market structure
The agricultural structures of Australian farms rely on market conditions. These
market conditions enable people to see the best managers of the largest farms in
operation. The sizes of the farms increase over time in form of both land area and total
receipts (FAO, 2009). However, increased size of the farm has yielded the improved
productivity using different channels:
Consumer demand; this includes tastes, preferences and perceptions of the
customer that affect the prices and quantity of agricultural commodities. Potential
customers tend to reduce the quantity demanded for products in case they do not meet
their expected quality and quantity. In turn, the industry has to reduce the prices with an
aim of getting back its market. On the other hand, if the products meet consumer
satisfaction then quantity demanded will increase and prices will have to rise. However,
this can be elaborated more with the law of demand and supply. It is evident that when
prices increases (farmer’s context) the agricultural output is increased since most of the
farms aim at increasing profits. Also, to the consumers’ context, when the prices of
products increase, the level of consumption in the market is declined and the derivative
remains true(Alston et al, 2009).
Accessibility of better technology; this allows better and great management of
labor. In the market of agricultural products, technology advancement increases the
potential market in terms buyers both abroad and locally. When the agricultural products
or services are made from better technology, the quality is assumed to be high.
Therefore, tastes and preferences of the customers are considerably to be high since
the products in the market are of good quality.
Accessibility of economies of scale; the economies of scale have been supported
through deregulation of stipulated agriculture markets and micro-economic reforms on
the economic worldwide. Economies of scale can be enjoyed by the agricultural farms
through the expansion of their sales and profits (Keogh, 2012). This creates constant
supply and demand of goods and services especially the agricultural ones.
Furthermore, Individual regions and sectors whereby they are located influences the
market of agricultural products (Australian Agricultural and Resource Economics

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Society, 2016). Big farms tend to be with much level of productivity and profitability. For
instance, empirical analysis suggests that some of the farms got the same output levels
per hectares as the greatest performances gauged over 20% of the farms (Kingwell et
al, 2016). The total sum of broad acre for agricultural output would be about 18% over
the present levels with the income of the farm (costs subtracted from receipts). This
reflects the increased productivity of the farms that are large and brings about the
advantage of structural changes especially for farm level of competitiveness. In other
words, small farms are less profitable on the mean average compared to their bigger
counterparts. Also, the households relate favorably with the population of Australia as a
whole with the debt and income that are comparably lower (Sheng et al, 2015). In
addition, Australian government’s will of strengthening the agricultural sector in the
economy improves the competitiveness with other sectors such as the booming mining
industry, it is done through making sure that it maintains its competition. This package
advocated for the A$11.4 million in 2015 to boost the regulators of Australia. Australian
Competition and Consumer Commission (ACCC) engages in the industry, the regulator
establishes the specific unit that devotes in encouraging fair trade through taking
enforcement actions and strengthening of competition in the supply chains of
agriculture. This competitiveness seeks to address ACC’s actions about increment of
consolidation that is over the farm gate and practices of trade that are unfair in
agricultural supply chain (National Rural Reporter, 2019).
The Rate of Inflation and Deflation; the rate at which general prices of the
agricultural products and services increase is termed as inflation whereas when the
general prices of the commodities decrease, this is what we call deflation. Deflation in
Australia helps to offer incentives to the buyers of the products till when they seem to
become cheaper. This situation is caused by inflation thus leading hoarding of goods
which in turn brings to higher prices since the goods are limited in circulation (Sheng et
al, 2011). It is confirmed that both deflation and general increase in prices affect the
agricultural productivity in one way or the other.
Most significant market condition about productivity in agriculture is the steadily
declining terms of trade over years. Despite the trend in the terms of trade for farmers

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negatively, agricultural yields and output have been increasing. The level of agricultural
productivity has been altered possible by some changes that are significant in enabling
producers to keep attaining more profits through lowering per unit costs of production
(Hochman et al, 2012). More so, the increase in agricultural productivity enables
production with the specified input prices. This helps to increase the faster level than the
demand that is driven principally by the growth of population thus raising incomes. In
addition, the prices about agricultural products in relation to the prices of manufactured
goods have also significantly declined. The declines in input factors per unit output in
agriculture (usage of many resources for use in other sectors) and the relative prices
that are higher mainly cause the fall over time in relation to the contribution of
agriculture in the economy of Australia (National Rural Reporter, 2019).
Still on the declining terms of trade, various agricultural farms have tried to
exhibit differential levels of growth in productivity. Several studies have estimated the
level of farms’ productivity trends among Australia’s broad acre, agricultural and
dairying farms in current situation. Also, the visible disparities have been there in
between the rates of growth of productivity and different agricultural farms. While the
productivity especially in cropping farms is evaluated to have amounted by the mean of
3.6 per cent from 1990s to the current century. Also, beef and dairy productivity rise
especially in sheep farms was below 0.2 percent in a single year.
Competition among firms in the same industry; In an environment where
competition in production is high such as those in Australia, the prices of goods keep on
fluctuating. Since most agricultural markets are perfectly competitive where there is free
entry and exit in the production process, the prices are normally low and the quantity
produced is high. This is because the many firms would be producing similar
commodities which will float on market forcing prices to be low. However, in monopoly
markets where competition never exists the prices are ever high well as the quantities
produced are low.
Interest rates; this market condition has a strong impact on the returns of any
industry in terms of investment. Low interest rates boost the agricultural firms’
production through increasing the quantity and so they earn a high profitability.

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However, when interest rates are high, farmers will find it difficult to produce much
agricultural products and therefore they will have to raise the prices as quantities are
lowered too (National Rural Reporter, 2019).
Empirical Analysis
Using the results that are simulated about the production of the identified crops
ceteris Paribas considering factors like climate, inflation, technological changes among
others. The simulated results encompass on the period of 2000 to 2060 forecasts
whereby the mean of degrees’ days represent factors that affect the level of supply and
demand of agricultural products (Hughes, 2017). The predicted responses of temporal
changes are attributed by the changes in the conditions of market that changes over
stipulated time basing on the variations of spatial the variables. In addition, the results
obtained on two scenarios of trade policy. these include the following; free trade
scenario whereby prices of all agricultural products in the economy (Australia) as
equated to their corresponding prices on the global basis (International Bank for
Reconstruction and Development)/World Bank, 2009). Another scenario is the restricted
trade; this involves the policies by the government where in inputs the import tariffs on
the agricultural products (Vegetable and plantation products). The price indices under
vegetables are simulated on projecting the future prices until 2030 and decline.
Whereas the price about plantation (fruits) is simulated to increase as the imports are
estimated to rise (Hajkowicz&Eady, 2015).
Figure1: Simulated Demand and supply for Vegetables and Fruits
Source; World Bank, 2018

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The above figures represent indices of supply, demand and land share that are
simulated on the two trade scenarios for vegetables and field crops (fruits). Under
restricted trade scenario, the simulated model forecasts the emergence of imported
fruits when the indices of prices reach the global price (Fuglie, K. 2018). Due to the
demand and supply of agricultural products, it is observed that the demand for
subsistence crops (vegetables and others) are likely to retardate and leave crops grown
purposely for sale on international levels booming. Furthermore, to identify the drivers
on the trends on the supply and demand of agricultural productivity, the country has to
identify the components of demand and supply index (OECD-FAO, 2010).
Conclusion
In summary, agricultural productivity of Australia depends largely on the
economic and market conditions. This is because most of agricultural farms producing
various products consider such conditions such as inflation, tariffs, competition, taxes,
climate, technology, tastes and preferences among others. Australian agricultural sector
is determined by the level of consumption emanating from the desires and potential of
purchasing such commodities. However, Inflation has been considered as major factor
for agricultural productivity. In relation to the law of demand. When the price increases
for a commodity in the question, it is believed that consumers reduce on their
purchasing levels till when the prices meet the equilibrium through invisible forces and
the government intervention. In general, the law of demand and supply plus the external
market conditions greatly affect agricultural productivity.
Trade policies and regulations; when the government imposes restrictions such
as tariffs, quotas, total ban among others on products and services. These restrictions
reduce the openness of the economy to the world market hence limiting interactions
with other economies. The policies therefore lead to increased prices of internal
commodities and the total supply will reduce thus decline in quantities available for
consumers to purchase. This in turn denies the consumers to have consumer
sovereignty over goods.
In this line, the agricultural farms should respond with the level of consumable
rate from the buyers of their products. This can be done through limiting or increasing

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the output in accordance to the needs prevailing in the market thus bring about
efficiency and effectiveness.

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References
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https://theconversation.com/australian-farmers-are-adapting-to-climate-change-76939

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Hughes, N., Lawson, K., & Valle, H. 2017. Farm performance and climate: Climate-
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Appendix: News Article
National Rural Reporter. 2019. Retrieved from: https://www.abc.net.au/news/rural/2019-
03-05/value-of-australian-farm-production-drops-abares-figures/10867294