Agriculture as a buffer against economic shocks

Katie McRobert, AFI General Manager

At a time when the rest of the economy is contracting, ABARES (1) has forecast a 53% increase in winter crop production in 2020–21. If the forecast holds, this could result in the fourth-largest crop produced in Australia. This capacity of agriculture to support the economy in a countercyclical fashion and provide stability in times of external shock has historical precedent, as explored in the AFI’s inaugural John Ralph Essay Competition (JREC).

The 2010 JREC topic investigated the role of primary industries in buffering the Australian economy in the context of the global financial crisis (GFC) of 2007–08. The chosen papers, published in the November 2010 Farm Policy Journal, noted that the export revenue and diversity provided by primary industries are critical for economic resilience and also attract much-needed capital investment.

The journal featured an article by Gaétane Potard and Mick Keogh which noted that the performances of the agriculture and mining sectors are driven largely by exogenous factors (such as seasonal conditions or global market fluctuations) and thus tend to operate on different cycles to the rest of the economy. This asynchronicity provides the benefit of diversifying economic risk.

“The fact that Australian primary industry economic output increased for a substantial proportion of 2007 and 2008 [during the GFC] … acted as a buffer while the manufacturing and services sectors experienced a strong contraction in output over this period. In a technical sense, the contribution of the primary industries sectors prevented the Australian economy experiencing a recession.”

Accounting for more than two-thirds of all export revenue in 2008, primary industries also generated significant investment and employment across the economy, although the authors noted the link between these and exports was not immediately obvious from official statistics.

The winning entry of the essay competition, titled Australia’s primary industries: a bulwark against external shocks?, was contributed by Daniel Gibbons. This paper also highlighted the importance of primary industries in providing much-needed diversification, particularly given the dominance of the services sector in the Australian economy. Gibbons noted that economic policies focused on increasing productivity and removing trade barriers to improve the competitiveness of Australian primary industries had been largely successful.

“Australian governments have played a strong role in promoting an efficient and effective primary industries sector … [creating] a competitive advantage for Australia, which can be leveraged in times of crisis. Falling subsidy rates have freed up funds for use in more productive investments or Keynesian stimulus.”

However, Potard and Keogh cautioned that the performance of primary industries sectors will not always act as an economic buffer; reduced primary industry output has at times dampened national economic performance.

With approximately 70% of the total value of agriculture, fisheries and forestry production exported, ongoing access to free trade is foundational to the economic success of Australian primary industries. To this end, the Cairns Group Farm Leaders (2) recently urged governments to ensure free and fair international trading is not compromised by protectionist responses to COVID-19.

While a decline in overall economic activity has impacted discretionary spending on some agricultural products, Australian farm exports have remained strong during COVID-19 despite supply chain disruptions. (3)

As noted a decade ago post-GFC, Australia’s internationally competitive primary industries continue to provide the economic diversity which reduces the risk of a severe and prolonged national economic downturn. (4)

  • The November 2010 Farm Policy Journal is available to purchase for download, along with related research reports.

1. The Australian Bureau of Agricultural and Resource Economics and Sciences
2. The National Farmers’ Federation is a member and secretariat of the Cairns Group Farm Leaders, a coalition of 19 agricultural exporting countries.
3. Jackson, T, Zammit, K & Hatfield-Dodds, S (2020), Australian Agriculture 2020 (p. 8), ABARES.
4. AFI (2010), Are farmers and miners saving the day?, Farm Policy Journal, 7(4), 56.

Image:  USDA