2018, Volume 21, Paper 9
Capital Structures for Large Scale Australian Agriculture: Issues and Lessons
Brad Plunkett – Senior Economist, Department of Primary Industry and Regional Development Western Australia (DPIRD), and Muresk Institute, Charles Sturt University.
Andrew Duff – Senior Policy Officer, DPIRD.
Ross Kingwell – Chief Economist, Australian Export Grains Innovation Centre, and University of Western Australia.
David Feldman – University of Western Australia.
Macro institutional factors, such as the level of public subsidies and Australia’s natural resource endowment, explain much of the comparatively large size of its farms. Allen and Lueck’s transaction cost framework is used to examine patterns of family farm and corporate ownership in Australian large-scale farming. Ceteris paribus, it should be expected that in areas of greater climatic variability, family farm structures will tend to dominate corporate forms. Factors that lessen the impact of climatic variability, such as irrigation, protected environments and, possibly, big data, encourage corporate ownership. At issue is the degree to which big data can permit production processes to be meaningfully separated in highly seasonal production and thus provide scope for greater ownership flexibility. Capital is required to lift productivity within Australian agriculture so agriculture can yield competitive rates of return over suitably long time horizons. Large family farms generate comparatively high rates of return whilst corporate returns have been mixed, although corporate interest in agriculture is building. Corporates could supply more capital and lift operator productivity if new structures could free up farmer capital for investment into operations. Factors such as hurdle rates and time horizons influence the means by which corporate ownership will flow into agriculture. Several structural examples are discussed.
Key words: Scale economies, corporate farms, family farms, productivity, transaction costs, climate (seasonal) variability.
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