Be wary of simplistic indicators of ‘competitiveness’

The Australian Farm Institute recently undertook a research project, funded by the Rural Industries Research and Development Corporation (RIRDC), which had the aim of developing a statistical index of the competitiveness of Australian agriculture, relative to the competitiveness of competitor national agricultural sectors.

The background to the research was that national competitiveness indices have been developed and published by international organisations over the past 10 years, with the aim of helping governments identify policies that have the potential to make their nation more competitive. The most widely recognised of these is the Global Competitive Index, published each year by the World Economic Forum. The development of a similar national agricultural competitiveness index was believed likely to be of benefit to Australian governments in assisting them to identify policies likely to improve the competitiveness of the agriculture sector in Australia.

The research initially involved the identification of the major factors considered likely to be important in the relative competitiveness of Australian agriculture. These included factors like the natural resource base, investment in agricultural research and development, the quality of infrastructure and ports, the relative cost of farm inputs, the availability of agricultural finance, and the availability of the use of technology in agriculture. There were also a number of national factors identified as likely to be important. These included national economic growth rates, exchange rates, standards of governance and the nature of the national regulatory environment.

Statistical indicators were identified for each of these, and data collated over periods of up to 40 years for a group of seven major agricultural exporting nations, including Australia. Statistical analysis was then used in order to try and identify which factors, or combination of factors was most closely correlated with growth in the real value of agricultural output of each of the nations included in the research.

The first challenge encountered in adopting this approach was the poor quality of available agricultural statistics, including for developed nations such as the United States (US) or Australia. This meant that indicators had to be used that were less than ideal. The second challenge identified was even more fundamental, however, as the statistical analysis was not able to identify a combination of factors that reliably predicted the performance of the national economic sectors included in the research.

On reflection, the results obtained were perhaps not entirely surprising. There are numerous economic and environmental factors that contribute to the performance of different national agricultural sectors, but in very different combinations. Brazil, for example, has a very rich endowment of soil and water resources, but the agriculture sector has been impeded by poor infrastructure and unstable government policy. Australia, on the other hand, has a relatively stable regulatory environment and well-developed transport infrastructure, but the agriculture sector faces limits in the availability and quality of land and water resources. Even comparisons limited to developed nations like the US, Canada, New Zealand and Australia revealed that the combination of factors most closely correlated with real growth in agriculture sector output was inconsistent, and it was simply not possible to develop a single, composite indicator for the relative competitiveness of a national economic sector.

An alternative approach to assessing agricultural competitiveness that arose from the research was the development of a dashboard of indicators that at least provide a better understanding of the different factors that may be important in understanding national agricultural competitiveness. These include productivity growth, trade performance, research and development investment levels and the nature and scope of government intervention in the sector. While even these were limited by the quality of available agricultural statistics, the use of multiple indicators rather than a single composite index provided more useful insights into the reasons why a particular national agricultural sector may be growing or stagnating.

A key lesson arising from the research was that policy-makers should be very careful about responding to so-called competitiveness indexes especially in the case of a single national economic sector such as agriculture. While it is easy for organisations to develop and publish such indexes, the relationship between these and the actual performance of the sector is far from predictable.

Copies of the report associated with this research may be downloaded from the Rural Industries Research and Development website at: www.rirdc.gov.au

 

Figure 1: An agricultural competitiveness dashboard comparing Australia and the US.

Image:  CSIRO

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