Individual Paper: Analysis of Agricultural Reforms in Australia

This report provides an economic analysis of agricultural reforms in Australia, focusing on the country's shift towards free market policies. It examines the essence of the story, highlighting the contrast between Australia's approach and the subsidized agricultural markets prevalent in other countries. The report delves into relevant economic theories, including demand and supply, and the impact of government interventions such as tariffs and price support policies. It uses diagrams to illustrate market equilibrium, the effects of support prices, and the resulting surpluses and shortages. The analysis concludes with recommendations for the Australian government, suggesting increased investment in innovation and infrastructure to enhance the agricultural sector's productivity and competitiveness. The report emphasizes the importance of a market-based approach while acknowledging the need for strategic government involvement to support long-term growth and sustainability.

Running head: AGRICULTURAL REFORMS IN AUSTRALIA
Agricultural Reforms in Australia
Name of the Student
Name of the University
Author note

1AFRICULTURAL REFORMS IN AUSTRALIA
Table of Contents
Introduction......................................................................................................................................2
Essence of the story.........................................................................................................................2
Economic theories and concept.......................................................................................................3
Demand, Supply and Free Market...............................................................................................3
Agriculture support policy...........................................................................................................5
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

2AFRICULTURAL REFORMS IN AUSTRALIA
Introduction
In the composition of national GDP agriculture, contribute a significant portion in
Australia. Australia makes huge export earnings from exporting its primary products. Australian
farmers are able to produce 93% of domestic product used by Australian natives on daily basis.
Other than, that agricultural sector possesses linkage with other sectors in the economy.
Agricultural sectors also contribute to employment generation in Australia and unemployment
rate significantly lower. Nearly 1.6 million people are engaged in agriculture and other related
farming industries. Despite so much importance, agricultural sector receives least assistant from
the government. The paper makes an economic analysis on news report capturing different types
of agricultural reform policy of Australian government.
Essence of the story
There is a well known different between the agricultural policies devised by the
Australian government and that of the rest of the world. A subsidized or regulated agricultural
market is the most common form of reform. In contrast free market approach has been given
more priority in Australia. In other contemporary countries like Ireland or United Kingdom
follows Common Agricultural Policy (CAP) (queenslandcountrylife.com.au, 2017). The farmers
there receive agricultural subsidies and participate in programs for agricultural development. In
contrast, Australian farmers are independent of EU’s subsidy allowance.
Australian government is reluctant to give price support to farmers. Australia stands as
second in the list of OECD countries in terms of giving lowest support in its agriculture. In other
OECD countries, CAP subsidy accounts a significant part of farmers’ income. This makes

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Australian agriculture more sensitive to market forces. CAP has a different type of operation in
Australia. Apart from basic subsidy, other benefits under CAP policies include healthy regional
communities, efficient management of agriculture product and inputs (Swinbank & Daugbjerg,
2017).The target of the Australian government is to make agro business to run profitably and
viably. Australian government aims at designing a market based sustainable agro policy keep it
primary sector competitive in the world market.
Economic theories and concept
Agricultural reforms in Australia though largely rely on free market policies there are
some areas where government intervene. Australian government had initially imposed a high
tariff rate to protect the agricultural sector. A tariff is a tax on imports (Park, 2017).To protect
famers from low price imported agricultural product tariff was imposed. However, due to the
distortion resulted from tariff policy government decides to relax all the restriction and back
again to the free market policy.
Demand, Supply and Free Market
Demand for a product is defined as people ability to buy the product at the existing
market price (Kirwan & Roberts, 2016). On the other hand, supply of a product measures
producers’ ability to supply at different pricing point. Market equilibrium is ensured at a point
where decision of buyers matches with the decision of seller (Frank, 2014). Corresponding to the
equilibrium point, market price and market quantity is determined.

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Figure 1: Demand, Supply and free market
(Source: As created by Author)
Free market price and quantity are P* and Q* as obtained from the intersection of
demand and supply curve. At any price higher the P* there will be excess supply and at any
price below P8 there will be excess demand. In such situations forces of demand and supply
adjusts and restore equilibrium. Price mechanism known as invisible hand ensure efficiency in
the market.
In the free market, there are no amount of market power either in the hand of buyers or in
the hands of sellers (Nicholson & Snyder, 2014). Hence, the surpluses are equally divided among
buyers and sellers. Resources are efficiently allocated and hence optimally utilized.
This justifies the Australian government decision of free market policy.

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Agriculture support policy
With support price policy, there are always distortions in the market (Bernanke,
Antonovics & Frank, 2015). The following figure describes the market with a agricultural
support policy.
Figure 2: Effect of agricultural support price
(Source: As created by Author)
In the above figure free market price and quantity are P* and Q* respectively. In the free
market situation, consumer and producer surpluses are shown by the area abe and cf. Now,
suppose government intervene and sets price to P min to increase producers surplus. Higher price
induces consumer in the grain market to reduce their demand from Q* to QM while supply
increase from Q* to QT. Because of supply outpacing its demand there will be excess supply in
the market that the government has to purchase at the regulated price. This may increases the

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stock of grains to government but in most of the situation the grains are wasted (Ciaian, Kancs &
Swinnen, 2014). The loss occurred due to government spending to purchase additional grains
shown by the area HEFGJI.
Recommendation
The price support policy to agriculture is not very effective in Australia. However,
government cannot stand still leaving this sector completely on free market situation. In
agricultural sector, productivity matters a lot. The productive growth is measured through the
change in output contributed from factors in addition to direct factor inputs. These include
innovation and adaption of new technology in the production process. Australian government
should increase investment in innovation. This will increase productivity in agricultural sector.
The government may continue with its non-subsidy policy but investment should be made to
improve the infrastructure of agriculture.
Conclusion
In the paper, a critical evaluation is made on the article published in Australia on reform
agricultural policies in Australia. The article finds the difference of reform approach in Australia
and that in other European countries. Agriculture is an important sector for Australian economy.
The policy agricultural reform in Australia is different from that of other European countries.
While most of the countries generally adapt price support policy or other agricultural subsidy
policy farmer in Australia usually, deal with free market condition. The agricultural sector is
strong enough in Australia but still there is some field where the government should intervene.
Areas like innovation or other infrastructural facilities require government investment. With
government support, the sector can make a remarkable progress.

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References
Ag system differences an interesting study. (2017). Queensland Country Life. Retrieved 10
August 2017, from http://www.queenslandcountrylife.com.au/story/4841904/ag-system-
differences-an-interesting-study/.
Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-Hill
Higher Education.
Ciaian, P., Kancs, D. A., & Swinnen, J. (2014). The impact of the 2013 reform of the common
agricultural policy on land capitalization in the european union. Applied Economic
Perspectives and Policy, 36(4), 643-673.
Frank, R. (2014). Microeconomics and behavior. McGraw-Hill Higher Education.
Kirwan, B. E., & Roberts, M. J. (2016). Who Really Benefits from Agricultural Subsidies?
Evidence from Field-Level Data. American Journal of Agricultural Economics, 98(4),
1095-1113.
Nicholson, W., & Snyder, C. M. (2014). Intermediate microeconomics and its application.
Cengage Learning.
Park, H. W. (2017). Economics 100 04 Introductory Microeconomic.
Swinbank, A., & Daugbjerg, C. (2017). The Changed Architecture of the EU’s Agricultural
Policy Over Four Decades: Trade Policy Implications for Australia.