Nigel Scullion and Barnaby Joyce

The Productivity Commission’s new draft report on agricultural regulation makes clear that the biggest threat to productivity in an industry identified as a “pillar” of the economy by the Coalition is the National Party.

Agriculture is one of the great productivity success stories of recent years in the Australian economy, with surging exports, increasing investment and rising production while the number of workers in the sector has fallen significantly. But in a long draft report covering a number of key areas, the Productivity Commission has identified a range of issues within the regulation of the sector that impose significant burdens or raise serious concerns about the way regulation is applied.

The report is openly critical of the Coalition government’s 2015 changes to the rules around foreign investment in agriculture, which lowered the threshold at which foreign investment would be screened by the government and increased the compliance burden for foreign investors.

[Why are Chinese buyers snapping up so much Australian property?]

These changes were driven by the xenophobic Barnaby Joyce, who has a long history of attacking Chinese investment in Australia. The PC wants the 2015 changes reversed and notes that foreign investment rules were already tighter than elsewhere (in fact, among the tightest in the developed world):

“Australia’s foreign investment policy arrangements in agriculture are considered to be relatively restrictive compared with other developed countries, mainly due to its screening processes … Australia’s foreign investment rules for the agricultural sector have become more restrictive as a result of the changes in 2015, resulting in a deterioration in Australia’s ranking.”

It concludes:

“… there is a risk that the lower thresholds (combined with different thresholds depending on the country of origin of the investor) will increase the cost and complexity of investing in Australian agriculture — ultimately deterring foreign direct investment in the sector — without offsetting public benefits. It is unclear what additional public benefits will be derived from the lower thresholds … Australia’s lower screening thresholds for foreign investment in agriculture are also inconsistent with other government policy initiatives that actively seek to promote foreign investment in Australia.”

What about community concerns about foreign investment? “Some community concerns appear misplaced,” the draft report notes, “and may have arisen partly because of a lack of information and informed debate about foreign investment in Australian agriculture.”

Who would be responsible for that “lack of informed debate”? It’s Barnaby Joyce and his merry band of economic illiterates who have driven the entire debate and forced Liberal treasurers to oppose foreign acquisitions of Australian agribusinesses.

The report also slams the remaining relics of Nationals-style overt protectionism, marketing boards for rice and potatoes in NSW and WA respectively, and the latest Liberal National Party contribution in Queensland — the re-establishment of sugar cane marketing controls by the the Katter Party and the LNP opposition in 2015.

As many reports have noted, the PC is also sceptical of any benefits from an “effects test” amendment to competition law to help farmers — although this has been misreported as a wider criticism of an effects test, which is championed by the Nationals, the ACCC, the Greens and small business and opposed by Labor, the Liberals and the Business Council. The point made by the commission in the draft report is broader on a different issue — it rejects the persistent claim from farmers and some Nationals that the supermarkets are somehow engaging in anti-competitive or damaging behaviour in negotiations with their suppliers.

“The existing competition regulation and oversight is adequate for managing concerns about abuse of market power by supermarkets and traders engaging with farm businesses. The current focus on the potential for the misuse of market power by wholesale merchants and supermarkets engaging with famers is not well supported by evidence.”

The report also has bad news for the Nationals, who have long opposed the development of water markets and water trading (something about which Crikey has been banging on about for many years) in favour of handing out taxpayer money to farmers and irrigators to build more pipes. The development of water markets has been grindingly slow as the states and irrigators tried to stymie them.

But the bad news for the Nationals and the states (and John Brumby, who notoriously imposed stupendously dumb restrictions on water trading in Victoria when Premier) in the draft report is that, finally, farmers themselves are starting to talk about the benefits of water trading and actually complain about restrictions on it.

“Farmers reported that water trading has increased the productivity of their businesses by providing them with the flexibility to buy and sell water in response to changing market and seasonal conditions. While farmers reported that there is room for improvement, they also said that the process of trading water is gradually becoming faster and more efficient.”

This isn’t the sort of productivity that the Nationals approve of. As the draft report later notes, “these productivity gains are partly attributable to markets facilitating the transfer of water entitlements to larger and more efficient farms” — and the Nationals like family farms, not larger, more efficient farms (which might be bought by foreign investors, too).

[China’s Australian land deals didn’t count on Barnaby]

The commission urges that remaining impediments to water trading be removed — like inter-district trading restrictions and the noxious habit of irrigation infrastructure owners charging ludicrously large “termination fees” to discourage farmers from selling their water rights.

There’s much else besides in the report that warrants examination, but let’s cover just one more, on animal welfare. The report argues that our current approach to animal welfare is based on a poor understanding of what community expectations are in this area, while explaining that the live export industry has significantly improved outcomes along many of its export supply chains. But it finds that there could be serious problems in the extent to which industry dominates the governmental process for determining welfare standards.

The commission considered multiple examples of regulatory bias in favour of industry provided by animal welfare groups, and appeared to agree they had a point, concluding “[t]here needs to be more independence in the standards development process so that outcomes are not overly influenced by the views of any one group.” To address this, the commission considers:

“… that the most effective approach would be to establish an independent body with responsibility for developing national standards and guidelines… The independent body would be responsible for managing the [regulation impact statement] process, informed by independent and rigorous science on animal welfare and community values. Industry and animal welfare organisations would provide input through the RIS and other public consultation processes. The standards and guidelines developed by the independent body would be implemented by state and territory governments.”

As with encouraging foreign investment and speeding up the development of water markets, don’t expect a Coalition government — especially with an economically illiterate xenophobe in charge of the Agriculture portfolio — to do anything about providing greater independence on animal welfare standards anytime soon.