Improving productivity - the incentives for change

Productivity growth has been the main means by which Australian farmers have increased agricultural production and maintained international competitiveness. - Total factor productivity (TFP) growth for the broadacre farm sector (non-irrigated crops, beef and sheep) averaged 1.3 per cent a year between 1977-78 and 2008-09. Over this period, productivity growth rates differed between the main farm types: 1.9 per cent a year for cropping; 1.3 per cent a year for beef and 0.4 per cent a year for sheep. However, productivity growth (predominantly in cropping) has declined since the mid-1990s, beyond what is attributable to poor seasonal conditions. - Dairy industry productivity growth has averaged 0.8 per cent a year since 1988-89, although this rate has also waned in recent years. - At an industry level, there are three main pathways to productivity growth: technical change (best practice farms getting better); changes in technical efficiency (average farms catching up to best practice farms); and structural adjustment (less efficient businesses exiting farming). - Productivity growth is enabled by a wide range of factors, such as investments in R and D, infrastructure and education. However, without well-aligned policy incentives to encourage the adoption of new developments, the rate of farm innovation may be impeded.