Thank you for the opportunity to speak to you here in the heart of Australia.
I am always pleased to address those involved in agriculture because the agriculture sector – including the cattle industry, being one of Australia’s great export industries - is so important to our nation’s economic growth and prosperity.
Agriculture added around $25billion to our economy during the last financial year (2003-04) and represented 18percent of Australia’s total exports in 2003-04. And the Northern Territory’s cattle producers contributed a significant amount of this total.
As Federal Treasurer, I recognise that what you do is a tough business and you do it often under tough circumstances. I want to assure you that we recognise your importance to our national economy.
I’ll come back to the importance of cattle to our economic strength, but first, I thought I’d give you a snapshot of the country’s economic strength – focusing specifically on exports - which will help provide you with an outlook on the future.
Economic Achievements
This Government has worked hard to strengthen Australia’s economy. The unemployment rate is at a 28-year low. Inflation is moderate and interest rates remain low. And household wealth has grown to record levels. Here in the Northern Territory, the average unemployment rate over the last financial year was 5.3per cent, lower than the national average unemployment rate of 5.8 per cent.
Australia’s economic achievements are significant in their own right, but are even more remarkable when considered against the challenges that we have faced along the way. These challenges included: the Asian Economic and Financial Crisis; the recession in the United States; the unprecedented terrorist attacks leading to the subsequent War on Terror; the SARS epidemic; the worst drought in 100 years; and now record high oil prices and a strong exchange rate.
Our relative success in dealing with these shocks has seen the Australian economy outperform the rest of the developed world, propelling us up international league tables to positions that we have not occupied for several decades.
Export Performance
That’s not to say that these challenges have not had an impact on the Australian economy – because they have. The domestic and international shocks that we have experienced over recent years have been a significant dampening influence on Australia’s export performance.
The US recession and consequent global downturn affected markets for our exports; SARS interrupted the services market for Australian tourism. And of course, the worst drought in 100 years choked off the supply of rural exports.
Over the last 4 years, exports have grown by around 0.5 per cent per annum, compared to 6.4 per cent annual growth over the preceding 4 years. I believe that there is reason to expect exports to grow strongly over the next 3 or 4 years, external conditions permitting, if we attend to some important investments in this country.
With the emergence of China as an enormous source of international demand, growth in iron ore export volumes over the last two years has been 29.7 per cent and 58.3 per cent over the last 5 years. Growth in coal export volumes over the last two years has been 11.6 per cent and over the last 5 years - 34.4 per cent. Prices have risen massively for these goods – in some cases doubling - but Australian producers have not been able to take the full advantage that we may have hoped.
Those of you who follow political debate know that I have been speaking about this for some time, focusing on the infrastructure bottlenecks that have been allowed to develop in some of our coal ports on the east coast. This has hampered Australia’s exports of some resources, especially coal exports out of Dalrymple Bay. While exports of these goods have increased, they have not grown by anywhere near as much as they could have if the loading capacity of those ports had been increased in time to take advantage of the massive demand and exceptional prices now available.
Let me turn now to the question of mineral fuels.
It is not widely known that Australia’s exports of mineral fuels and metals have fallen over recent years at the same time that prices for many of these goods have increased. In the case of mineral fuels, this has been caused by a decrease in crude oil exports, which has more than offset strong growth in LNG.
Looking specifically at mineral fuels, you’ll all be acutely aware that world oil prices are currently at record highs, increasing by a third (around 33 per cent) in Australian dollar terms over the last 4 years – leading to higher domestic fuel prices and rising transportation costs. Over the same period, Australia’s production of crude oil has fallen by more than half (around 56 per cent).
This is not an infrastructure problem. Australia’s oil production chain is largely vertically integrated - the same companies that pump crude oil in Australia typically control each link of the transport chain involved in delivering crude oil from the fields to domestic and world markets. Therefore, as the price of crude oil has increased, the oil companies have had a strong incentive to increase the capacity of these transport systems to ensure that bottlenecks do not emerge.
The Liquefied Natural Gas (LNG) industry is similarly structured. The $2.5billion North West shelf 4th train project included the installation of gas trunkline over a distance of 135 km from the existing production platforms to the onshore processing plant. In addition, the LNG ship, the Northwest Swan, with a capacity of 135,000cubic metres, has been constructed to deliver sales to export markets.
The reason why Australia’s crude oil exports have fallen over recent years - while world demand and prices have increased to record levels and LNG exports are booming - is that some of our oil fields are approaching the end of their productive lives. For instance, current production from the Bonaparte field (off WA) is only a quarter of its production in mid 2002. That is, oil and condensate production has fallen from a peak of around 130,000 barrels per day to around 30,000 barrels per day. And the production from the Gippsland field (Bass Strait) has fallen by almost a half over the same period of time, that is, from around 150,000 barrels per day to around 80,000 barrels per day.
Total production in all Australian oil fields has fallen from around 650,000 barrels per day to less than 430,000 barrels per day over the same period.
Australia’s decline in oil exports is a consequence of declining reserves in existing fields. We would benefit from the discovery of, and production from new fields.
For instance, the already completed 1st stage of the Bayu-Undan project is ramping up production, the Exeter/Mutineer oil field, due to come on line early this year, and further out, the Enfield oil project, due in late 2006 are expected to produce around 200,000 barrels of oil and condensate per day combined, but this is still less than the fall in production from existing fields over the past 2 years.
These increases will underpin both a decrease in Australia’s reliance on imported oil and a pick-up in Australia’s crude oil exports over the coming years.
Export Outlook
With aggregate export growth subdued over recent years, Australia’s economic growth has been driven by domestic demand, leading to strong import growth and a rising trade imbalance. However, more recent export data is promising.
On Tuesday, the Australian Bureau of Statistics released international trade data for the month of February, showing that export values have increased in each of the last 3months, to be $669 million (or 5.1 per cent) higher than in November. At the same time, easing domestic demand has seen the growth in import values slow, causing the monthly trade deficit to fall by 14 per cent (or $369 million) since November.
While I hesitate to draw too many conclusions from 3 months of data, these latest developments are positive and welcome, suggesting a pick-up in exports that we have been looking for.
Prospects for NT cattle exports
I am optimistic about Australia’s export outlook, including exports of rural goods.
As we all know, rural production and rural exports are hostage to weather and market conditions, with the last few years particularly difficult for the farm sector.
However, farm incomes and exports recovered to pre-drought levels in 2003-04, reflecting the large winter grain crop. They have come off somewhat recently, as weather conditions have been less favourable. But with a brighter outlook for weather conditions going forward, production and exports are forecast to increase.
Looking specifically at cattle, the Australian Bureau of Agricultural and Resource Economics expects Australian cattle exports to remain strong in 2004-05 and 2005-06.
Given the importance of the Northern Territory’s cattle exports, this will produce significant profit to Northern Territory producers. This in turn will profit other industries in the Northern Territory, particularly transport and meat processing.
That is not to say that the way forward is easy. Agricultural production is always subject to the vagaries of the weather. And looking at the conditions around Alice Springs today it is clear that NT cattle producers are facing very dry conditions.
The exchange rate also remains high, exerting a downward influence on cattle saleyard prices. The Aussie dollar has appreciated by over 20 per cent over the last 3 years in trade weighted terms, to be around 10 per cent above the post-float average. While it’s fruitless to speculate about the future path of market driven exchange rates, it is clear that continued strength in the dollar would create challenges for the Australian cattle industry.
Furthermore, there are the challenges of operating in a competitive international market. And your market is set to become even more competitive over the coming years with the return of US and Canadian beef into the Japanese market and low-cost South American beef production expected to grow strongly over the medium-term.
But overall, I’m optimistic about the prospects for your industry, underpinned by Australia’s well deserved reputation for producing the world’s best beef.
Securing access to global markets and assisting our export industries
Preferential Trade Agreements
The Government is seeking to assist industry to boost exports through by pursuing the benefits of more open global markets at every level – through multilateral, regional and bilateral trade negotiations.
The multilateral system has played a key role in the post-war period in rationalising border protection and reducing tariffs.
Getting multilateral agreement on further trade and investment liberalisation has become increasingly difficult. The emergence of regionalism as a potent political force has pushed many countries into seeking bilateral and regional preferential trade and economic agreements.
Where the Australian Government believes that faster progress in trade and investment liberalisation may be achieved in a bilateral context or among small regional groupings, we have been prepared to explore the potential for beneficial benefits for Australia.
Let me briefly outline what we have done and are doing.
We have completed free trade agreements with the United States, Thailand, and Singapore.
Beef is Australia’s number one export to the United States and the FTA consolidates the position of Australian producers in our largest market.
Under the agreement with the United States, we have negotiated a phased elimination of tariffs and a 70,000 tonne increase in our export quota. The quota will grow to 448,214 tonnes over 18 years, representing around $245 million additional value in the final year.
Thailand immediately reduced the tariff on beef to 40 per cent, down from 51percent, and for beef offal to 30percent, down from 33percent. It will phase these rates to zero by 2020.
And the agreement with Singapore demonstrates how these agreements can help to reduce some of the technical and administrative barriers to trade. Annexes to this agreement allow for streamlined compliance and inspection arrangements for approved products.
And looking forward, we are engaged in bilateral negotiation with the United Arab Emirates.
We are also currently exploring regional agreements with our neighbours within the ASEAN regional trading bloc, including New Zealand.
And we are scoping the possibility of further arrangements with China, Malaysia and Japan.
As has been this Government’s practice, we will continue to consult with business and the community to ensure that our trade policy objectives reflect the views and ambitions of the Australian people.
Assistance to exporters
The value of total exports from the Northern Territory in the 12 months to December 2004 was $2billion. In value terms, NT’s merchandise goods exports grew by 10percent through the year to the December quarter 2004.
The Government has taken significant steps to help Australian exporters access global markets through the $630 million Export Market Development Grants Scheme and the establishment of eight new trade and industry export hubs, including a new hub in Darwin.
The Government announced in its election commitment Supporting Australia’s Exporters that it would establish 30 export facilitators to help create export opportunities for Australian businesses into the United States market.
Three of the export facilitators will be dedicated to working specifically on agricultural export opportunities.
Investing in infrastructure
Transport infrastructure
Australia’s agricultural sector relies on an expansive transport and communications infrastructure to connect with domestic and international market places. The Australian Government has made significant contributions on this front.
The Australian Government has announced a major plan to significantly increase road and rail infrastructure through its $12.5 billion national land transport plan - AusLink.
This significant investment will position Australia to cope with an expected doubling of the land freight transport task over the next 20 years.
Under AusLink, the Australian Government will invest a total of $92 million in Northern Territory land transport networks over the next five years to improve freight efficiency and trade growth, including:
- $48 million for the Adelaide to Darwin corridor;
- $22 million for the Darwin to Perth corridor; and
- $23 million on network widening, bridge upgrading and maintenance.
Added to this investment, the Australian Government will continue its commitment to increased road funding in the Northern Territory through its Roads to Recovery programme by providing an additional $25.2 million and a further $2.8 million for the Black Spot programme to improve unsafe roads across the Territory
In addition, we will invest $126 million in improvements to the Brisbane to Darwin corridor over the next five years.
The Australian Government’s priority is to improve road access to Darwin’s port to maximise the benefits of current and future development of the port.
To date, the Australian Governmenthas contributed $178.9 million to the Alice Springs to Darwin railway which carried nearly 600,000 tonnes of domestic freight in its first year of operation.
The Government is also investing to ensure that rural Australia is connected to both the domestic and global economies.
Reforms to the fuel excise system
Last year the Government announced a major programme of reform to modernise the fuel excise system.
The new arrangements will greatly extend excise relief for businesses while reducing compliance costs.
They will create a fairer, more certain and more comprehensive system for offsetting fuel excise — the ‘fuel-credits’ system.
When these reforms are fully implemented, all business use of all fuels in all off-road activities, and all private use of all fuels for power generation and heating, will be either exempt from excise or eligible for full excise relief through fuel credits.
Businesses involved in primary production will benefit by the extension of eligibility for a fuel credit to all off-road agricultural and associated activities and also benefit from the extension of the scheme to all fuels, including petrol.
This means, for example, that farmers will receive a credit for off-road business use of petrol in their utility vehicles and 4-wheel motorcycles.
Eliminating the exclusions and complexities of the current schemes’ eligibility criteria will also benefit primary producers.
For example, the off-road transport of livestock to an abattoir, saleyard or holding pen will in future be eligible for a credit. Currently, only transport of livestock for agistment is eligible.
Conclusion
Australia’s sustained strong economic performance has delivered significant benefits across the country. But we need to be vigilant to ensure our continued competitiveness in the global economy.
The improvement in our country’s competitiveness and productivity needs to be driven by a strong agenda of reform, particularly, focussing on labour market reform, liberalisation of trade and improved use of our infrastructure assets.
The Australian Government has made significant advances in securing access to global markets and assisting our exporters to reap the rewards and while it has been slower than expected, our exports are now responding to an upsurge in global demand.
We are making significant investments in our road and rail networks and ensuring increased flexibility and participation in our workforce.
The Australian Government is implementing long-term strategies that will support the anticipated growth in our domestic economy and our export industries.
Thank you.