With these farm inputs currently worth around $20 billion a year – or two-thirds of total Australian farm costs – the industry is critically important to the competitive position of Australian agriculture.

The study, undertaken by Dr Selwyn Heilbron of S.G. Heilbron Pty Ltd and Fiona Roberts, of Agri-Focus Pty Ltd, points out that movements in the cost, quality and market structure of materials and services to farms can have significant impacts on international competitive performance.

Their report says developments in the farm inputs industry are driven by changes in its farm sector customer base. Currently there are 108,413 farm businesses, contributing $26,725 million to the Australian economy and employing around 421,900 people.

But the sector is facing significant adjustment pressures, with farm sizes increasing, farm numbers declining, and the real net value of total Australian agricultural production stagnant in trend terms over the past decade.
Reflecting longer-term trends, farmers’ purchasing power has generally been declining.

The study

The objective was to improve knowledge and understanding of structural changes currently occurring in the farm inputs industry.

The methodology for the study included:
 

The study is the first of its kind in Australia – surprising given the significance of the industry and its critical importance to the competitive position of Australian agriculture.

The results

But reflecting farm production trends and purchasing power, the overall market for farm inputs also has been relatively stagnant for the past 10 years. Only in regions such as Moree Plains and industries where agricultural production is growing, eg, cotton, has there been an expansion of the range of inputs provided and an increase in the number of suppliers.

Some input sectors such as fertilisers and chemicals have grown rapidly due to growth in industries such as cotton, while other input sectors have declined, eg, marketing services to the wool industry.

Other factors impacting on the industry include:
 

Figure 2. Australian Sales of Agvet Chemicals

Two contradictory trends are occurring – rationalisation, particularly where fixed assets such as wool handling form the basis of the sector; and significant expansion of specialist providers like currency hedging firms and crop consultants providing agronomic advice.

A future continuation of current trends is likely on the basis that the rural industry will continue its long-term secular decline. Pressures towards fragmentation and rationalisation are likely to continue in the foreseeable future.

The impact of end user concerns and the environmental movement on change is considerable and will continue to grow in terms of lobbying power and intensity of impact on the industry.

Moves towards greater coordination within the farm input sectors is likely to continue with coordination driven by product safety legislation, consumer pressures, cost pressures, and where industry players investigate value-adding opportunities.

Changing technology is having an impact, eg, the objective measurement and sale by description of wool has reduced the need for wool buyers to subjectively appraise fibre prior to sale, thus altering wool handling systems.

The seeds sector is becoming an increasingly important input area, impacting on crop protection, biotechnology, distribution and input consumption.

Overall expenditure on farm inputs reflects the health of the agricultural industry. Similarly, changes to the health of agricultural production in a particular region has major spread effects on farm inputs.

Given increasing government concerns over the wellbeing of regional Australia and a wish to regenerate it, encouraging and facilitating growth in agricultural production will be important.

Summary

The two regions analysed provided an informative comparison on developments in regional agriculture and its impact on the farm inputs industry. The growth in the Moree chemical supply sector illustrated how a new or expanding industry could impact on regional input suppliers.

Bank branches closing in smaller towns and the changes to service provision by banks were a consistent theme across the two regions. The decline in pastoral house branch numbers around Hamilton illustrated, at a regional level, the rationalisation that occurred in Elders and other pastoral companies.

There have been significant changes in the number and nature of service providers in the two regions caused by factors including commodity booms and slumps – such as the wool industry boom in the 1980s and its collapse in the early 1990s, increased competition, rationalisation of branch numbers, specialisation in new services, changing customer demands and the development of new technologies.

Reviewing the developments of IAMA Limited and Elders Australia, highlighted overall causes of change for the rural merchandise market and the farm inputs industry. Many changes for both companies were brought about by developments in the customer base, while the importance of buying power and market share were illustrated in IAMA’s development.

The economics of distribution is a key competitive driver for each of the sectors analysed.

As competition becomes more intense, a key differentiating feature can be the level of service offered to customers. Increasing demand for knowledge-based inputs also is encouraging closer customer contact.

But achieving greater personal service within an environment encouraging economies of scale remains a challenge.
Customers are being segmented according to their level of profitability and the degree of personal service tailored accordingly.

Differential trends in various sectors often reflect relative developments in end markets. The cotton industry has grown quite rapidly, and with it there has been rapid growth for farm services demanded by the sector.

The regions that have experienced faster growth in agricultural production have witnessed an expansion of the range of inputs provided and an increase in the number of suppliers, eg, aerial spraying, agronomic advice, seed grading.

By contrast those regions dependent on wool have seen a contraction in some input supply services. These forces of expansion and contraction have important implications for the farm inputs industry.

What is clear from the analysis is the competitiveness of the farm inputs industry surveyed. The sectors are characterised by vigorous competition, relatively low barriers to entry and considerable competitive pressure to lower cost and improve services offered.

In service industries there has been expansion of specialist providers, eg, currency hedging firms, and crop consultants providing agronomic advice. This situation is a result of generally low barriers to entry and exit in many service industries, in addition to the increasing need for, and recognition of the importance of, specialist service providers.

But there are also equally strong pressures for rationalisation in some sectors, particularly where fixed assets form the basis of the sector (such as wool handling). Here the decline in the customer base, potential for scale economies and increased competition has seen significant pressures for rationalisation.

As to the future, a continuation of current trends is likely on the basis that the rural industry will continue its long-term secular decline. Pressures towards fragmentation and rationalisation are likely to continue in the foreseeable future.

Table 1: Number of Businesses Operating in Moree Region