This product contains the latest Total Factor Productivity (TFP) estimates for Australian farms. These estimates are produced using ABARES farm survey data from 1977–78 to 2019–20. The data is presented by industry, state and region.
Productivity is an important measure of Australian agricultural performance. It shows how efficiently inputs (labour, capital, land, materials and services) are used to produce outputs (crops, wool, and livestock) over time. Growth in the ratio of outputs produced to inputs used translates to improved profitability and competitiveness for farmers.
In the long term, estimates of productivity reflect changes in farm business scale and management practices, and technological progress. However, short-term estimates of productivity are often highly volatile, and influenced by seasonal conditions and other temporary factors. Readers should be cautious when interpreting conventional agricultural productivity estimates over short time periods.
To account for short-term volatility in conventional productivity estimates caused by variation in climatic conditions, ABARES has produced climate adjusted productivity estimates from 1988–89 to 2019–20. These estimates have been produced using the ABARES farmpredict model. Climate adjusted productivity estimates mainly measure underlying technological change and are a better reflection of ‘true’ industry productivity performance over time.
Key findings
- National TFP growth in the broadacre industries averaged 1.0% per year from 1977–78 to 2019–20.
- Dairy industry productivity growth averaged 1.3% per year from 1978–79 to 2019–20.
- Farm productivity fell between 2017–18 and 2019–20 largely because of widespread drought across much of eastern Australia
- Over the period from 1988–89 to 2019–20, national broadacre climate adjusted productivity growth averaged 0.6% per year, outpacing the ‘unadjusted’ growth rate of 0.5% per year
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What is Total Factor Productivity? – An illustrative example
Total factor productivity, or TFP, is a measure of how efficiently outputs are produced using inputs. It is calculated as a ratio of weighted total output to weighted total input.
An increase in TFP means an increase in production efficiency, which corresponds to one of the following: (1) more output is produced using less input. (2) more output is produced using the same amount of input. (3) the same amount of output is produced using less input. Vice versa for a decrease in TFP.
The calculation of TFP numbers is illustrated using the following example:
Consider Alison the wheat farmer.
In year 1, Alison used 15.4 tonnes of fertiliser (input) and produced 440 tonnes of wheat (output)
- The ratio of total output to total input in year 1 was:
440 (tonnes of grain) / 15.4 (tonnes of fertiliser) = 28.6
In year 2, Alison decided to switch to a higher-yielding wheat variety and changed the way she runs her farm. Alison’s fertiliser use increased marginally to 16.1 tonnes, but thanks to her new innovative practices and high-yield seeds, wheat production increased to 560 tonnes.
- The ratio of total output to total input in year 2 was:
560 (tonnes of grain) / 16.1 (tonnes of fertiliser) = 34.8
- Relative to year 1, Alison’s output to input ratio increased by a factor of:
34.8 (year 2) / 28.6 (year 1) = 1.22
- This equates to annual TFP growth of 22% from year 1 to year 2.
The new production systems allowed Alison to be more efficient, as she was able to produce considerably more wheat (output) using a slightly larger amount of fertiliser (input).
TFP and profit:
TFP and profit are distinct concepts. While these two variables are often positively correlated, this is not always the case.
For a given price, an increase in TFP will generally result in higher profit for Alison, as she is able to earn more revenue from selling more wheat, provided this outweighs any increase in the cost of seed and other inputs.
However, if wheat prices fall significantly in a particular year, Alison’s business profit will likely decline in that year despite the choice of a more efficient production system.
For more detailed explanation of ABARES TFP calculations, visit Measuring productivity.
Key trends
Trends and drivers of Australian Agricultural productivity
Key drivers of agricultural productivity growth are:
- Public and private investment in research, development and extension (RD&E)
- Farm innovations
- Policy reforms and deregulation
- Changes in industry structure
- Climate conditions
- Investment in human and physical capital
ABARES has undertaken previous research into the trends and drivers of agricultural productivity. For a more detailed analysis, visit Productivity drivers.
Broadacre industry TFP
From 1977–78 to 2019–20, broadacre productivity growth has been driven by declining input use. Broadacre output recorded little growth. The composition of the broadacre industry has changed significantly over time - some outputs have expanded while others have contracted, the number of farms has declined while farm size has increased, and the location of particular industries has shifted. All these changes have contributed to the overall trend in broadacre productivity.
Broadacre productivity growth slowed between 1998–99 and 2004–05, partly as a result of drought during the 2000s. Productivity returned to positive growth between 2005–06 and 2011–12 before slowing down again in recent years. The slowdown appears to have been primarily driven by deteriorating climate conditions and drought events in eastern Australia.
Cropping industry TFP
From 1977–78 to 2019–20, cropping productivity growth has been driven by strong output growth relative to the increase in input use. Sharp declines in output and productivity generally correspond with unfavourable seasonal conditions.
Strong productivity growth in the cropping industry in the 1980s and 1990s have been attributed to developments in technology (Jackson. 2010 and Knopke et al. 2000). The slowdown in cropping sector productivity growth after the mid-1990s has been attributed to climate factors and a slowdown in the growth of agricultural R&D investment (Sheng et al. 2011).
Beef industry TFP
From 1977–78 to 2019–20 beef productivity growth has been driven by output growth, while input use was relatively constant.
Productivity improvements in this industry have been realised through improved pastures, animal genetics and disease management, which lowered mortalities and increased branding rates (calves marked as a percentage of cows mated) (Jackson, Dahl & Valle 2015).
Sheep industry TFP
The Australian sheep industry has undergone significant adjustment since the early 1990s, when price support mechanisms for wool were removed. Many farmers shifted their enterprise mix from wool towards cropping, resulting in decreases in both ouput and input use in the sheep industry, and contributing to higher broadacre farm productivity overall. Sheep numbers have also been reduced as a result of destocking during periods of drought.
Dairy industry TFP
Since 1978–79 dairy productivity growth has varied significantly. Overall productivity growth has been driven by output growth with a mild decline in input use.
The dairy industry has undergone significant adjustment since deregulation in the 2000. In the period following deregulation, output and input use both declined, but productivity growth increased. Productivity improvements in this industry have been driven by ongoing structural change as well as uptake of new technologies such as rotary dairies, artificial insemination and improved pastures (Harris 2011).
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Climate adjusted TFP
ABARES publishes estimates of climate adjusted total factor productivity (TFP) alongside conventional or ‘unadjusted’ TFP statistics. Climate-adjusted productivity estimates are derived from ABARES farm survey data combined with the farmpredict model – a machine learning based microsimulation model of Australian broadacre farms.
Farmpredict generates synthetic counterfactual farm level data for broadacre farm inputs and outputs, under a range of climatic conditions. For example, the model can estimate the inputs and outputs of agricultural production for a farm in particular year, had it experienced the climatic conditions that existed in a different year. For more information about the farmpredict model, see the ABARES working paper.
Synthetic farm level results are calculated across a range of years to generate an estimate of a particular farm’s performance under ‘average’ climate conditions. TFP estimates are then generated from the synthetic data using the standard methodology for generating farm level agricultural productivity estimates, outlined in Zhao et al., 2012.
Whilst year-to-year climate conditions vary significantly, Australia post-2000 has experienced a deteriorating climatic trend, specifically through hotter and drier average seasonal conditions. Climate adjusted productivity estimates are an important measurement tool because they largely remove the impacts of both annual variations and the trend in climate conditions, thereby revealing the underling pattern of productivity growth in Australian agriculture.
The growth in climate adjusted agricultural productivity for Australia’s broadacre agriculture industry has been gradual and positive over the three decades since 1988–89. This growth reflects improvements in productivity over time that farmers have achieved through investing in new technologies and adopting new practices in production.
Growth in climate adjusted productivity has been slightly higher than in the unadjusted series. Since 2000, unadjusted productivity growth in the broadacre industries was 0.1% per year on average, whereas climate adjusted productivity growth averaged 0.4% per year. The difference in the growth rate of the two series reveals the additional amount of productivity growth that has been required to offset the effects of the trend towards poorer climatic conditions.
Climate adjusted TFP estimates are available from 1988–89 onwards for the broadacre industry. The estimates are also available for the broadacre sub-industries (cropping, beef, sheep, sheep-beef, and mixed livestock-cropping), and are available at national and state level geographies. ABARES intends to provide updates to the series on an annual basis.
The climate adjusted productivity estimates are designed to serve as a key measure of farm performance. As the estimates largely remove climate-induced volatility, they should be used as the preferred measure of assessing technological progress in Australian agriculture, particularly over shorter time periods.
Model update
In 2020, ABARES completed an update of its broadacre and dairy productivity models. The update was initiated to overcome a set of issues related to the availability of data and interpretability of estimates. The original methodology set out in Zhao et al. (2012) has not changed.
Table 1 summarises changes to the productivity growth rates between 1977–78 and 2018–19 before and after the model changes. The overall impact on estimated Total Factor Productivity (TFP) is a very small increase in most industries. In general, estimates of growth in both inputs and outputs have also increased but this varies across industries.
| TFP (% per year) | Output (% per year) | Input (% per year) | |
|---|---|---|---|
| Broadacre | |||
| Previous estimates | 0.97 | 0.05 | –0.92 |
| New estimates | 1.12 | 0.25 | –0.87 |
| Cropping | |||
| Previous estimates | 1.50 | 2.50 | 1.00 |
| New estimates | 1.66 | 2.60 | 0.95 |
| Beef | |||
| Previous estimates | 1.00 | 0.91 | –0.08 |
| New estimates | 0.85 | 0.99 | 0.14 |
| Sheep | |||
| Previous estimates | 0.31 | –2.52 | –2.83 |
| New estimates | 0.61 | –2.18 | –2.79 |
| Dairy a | |||
| Previous estimates | 1.30 | 1.04 | –0.27 |
| New estimates | 1.39 | 1.16 | –0.22 |
a Time series starts in 1978–79.
Note: Growth rates are trend annual growth rates, calculated by regressing the log value of the time series against a constant and time trend.
Source: ABARES
In total, there were 8 changes made to the productivity models:
1. Price of land—the average price of land is now weighted by the total area of land owned and operated. This reduces the factor share of land in the calculation of aggregate inputs.
2. Rates and insurance—these expenses were previously excluded, which was inconsistent with international standards for measuring productivity (OECD 2001).
3. Interest rates—a ‘risk premium’ is now included to account for the entrepreneurial risk taken by farm managers.
4. Indexation—the direct Fisher index used in the broadacre productivity model is rebased every 5-years to account for structural changes in the industry over time.
5. Farmers prices received index—the input price index measures have been updated to be consistent with changes made to ABARES terms of trade (Zammit and Howden 2020).
6. Grain prices—the gross unit value of grain prices as reported by the ABS is now used to construct aggregate index measures of aggregate grain output.
7. Livestock transfers—are now included in the measure of total livestock inputs and outputs.
8. Beef feedlots—are not broadacre farms as defined by ABARES. Beef farms with more than 5,000 beef cattle finished on grain in any year are considered feedlots, and therefore, excluded from the contributing sample.
Definitions of industries, states and regions
Industries
The TFP numbers are calculated for each of the following:
- All Broadacre industries
- Beef industry
- Cropping industry
- Sheep industry
- Mixed crop-livestock industry
- Dairy industry
States & Regions
The TFP numbers are calculated by industry at the national level, as well as by industry & by state, or by industry & by region.
Australia agricultural industry regions are depicted below:
For more detailed definition of Agricultural industry regions, visit Farm surveys definitions and methods.
Download data
Productivity data: Download the latest ABARES productivity data
Related research
Further reading
Nossal, K (2011), From R&D to productivity growth: Investigating the role of innovation adoption in Australian agriculture. Rural Industries Research and Development Corporation.
Nossal, K. and Gooday, P (2009), Raising productivity growth in Australian agriculture. Australian Bureau of Agricultural and Resource Economics (ABARE).
References
Harris, D (2011), Victoria's dairy industry: an economic history of recent developments, report prepared for the Department of Primary Industries, Victoria and Dairy Australia Ltd, Melbourne, October.
Hughes, N, Lawson, K, and Valle, H (2017), Farm performance and climate: Climate-adjusted productivity for broadacre cropping farms, ABARES research report 17.4, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.
Jackson, T (2010), Harvesting productivity: a report on the ABARE–GRDC workshops on grains productivity growth, ABARE research report 10.5 prepared for the Grains Research and Development Corporation, Australian Bureau of Agriculture and Resource Economics, Canberra, April.
Jackson, T, Dahl, A & Valle, H (2015), 'Productivity in Australian broadacre and dairy industries' in Agricultural commodities: March quarter 2015, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.
Knopke, P, O'Donnell, V & Shepherd, A (2000), Productivity growth in the Australian grains industry, ABARE research report 2000.1 for Grains Research and Development Corporation, Australian Bureau of Agricultural and Resource Economics, Canberra.
OECD (2001), Measuring Productivity - OECD Manual: Measurement of Aggregate and Industry-level Productivity Growth, OECD Publishing, Paris.
Sheng, Y, Gray, E & Mullen, J (2011), Public investment in R&D and extension and productivity in Australian broadacre agriculture, ABARES conference paper 11.08 presented to the Australian Agricultural and Resource Economics Society, 9–11 February 2011, Melbourne.
Sheng, Y, Mullen, J.D and Zhao, S (2016), Has growth in productivity in Australian broadacre agriculture slowed? A Historical View. Ann Agric Crop Sci. 2016; 1(3): 1011.
Zhao, S, Sheng, E, and Gray, E (2012) ‘Productivity of the Australian Broadacre and Dairy Industries: Concept, Methodology and Data’, Chapter 4 in Fuglie K., S. L. Wang and E. Ball (eds.) Productivity Growth in Agriculture: An International Perspective, GAB International, Wallingford (UK) and Cambridge, MA (USA) 2012.
Zammit, K and Howden, M (2020), Farmers’ terms of trade: Update to farm costs and prices paid, ABARES research report 20.3, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.