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You are here: Agriculture » About Agriculture » Publications and Resources » Policy and Strategy » The changing social landscape of rural Victoria

The Changing Social Landscape of Rural Victoria

Over the past twenty years there has been much publicity about the decline of rural communities. The withdrawal of services, continued decline in population in some small towns and aging population structures have been a recurring theme in the media with the release of each new set of population statistics.

This report is focussed upon agricultural industries of Victoria and the rural community that works in these industries or supports them. Although a relatively small and declining segment of Victoria’s population, the farm community manages a disproportionate share of the State’s land. Further, in many regional areas there are important links between farm output and regional economies.

Social landscapes of rural Victoria1

Understanding the future shape of this community is also important for our management of the State’s land, water and biodiversity resources. Understanding the social trends that will shape the future farm community is important in assisting us to understand the potential and limits to government policy in rural areas.

The report describes four social landscapes in rural Victoria and the social forces that are driving these landscapes on differing trajectories of change. The interaction and relative influences of productivity, amenity, culture and demographic forces will reshape the social landscape of Victorian rural communities over the next twenty years, much as it has already reshaped the present social landscape over the past twenty years.

Agricultural production landscapes

Australian farmers' terms of trade 1953-2003 4

The declining terms of agricultural tradeIn most agricultural industries, farmers and scientists will find new methods of producing more food or fibre for less cost. As knowledge of each new idea spreads, the same number of farmers will find themselves producing more in aggregate than they did the previous year.

But farmers may face problems in the long run as the demand for increased agricultural production lags behind increases in agricultural productivity.  If demand for the product does not increase to match the increased production, then the price of the product will fall.² Consumers do not eat more bread because there are more loaves of bread on the supermarket shelf.³ The result is a long-term real decline in the price of most agricultural commodities.

Get big or get out

Traditional farm businesses cannot ignore the compression in their terms of trade. They must increase the productivity of their businesses to maintain their real income. In Australia many of the productivity gains made by farmers have depended on farms getting larger.

A larger header can be used to make a cropping farm more efficient if the same number of workers can use the header to harvest a larger area of grain crop. Those who choose not to or who are unable to pursue increased productivity will find that the value of their farm produce declines in the long run as prices fall. By standing still, their farm incomes become smaller. Eventually, small farms will be sold and purchased by owners of larger farms.

The inevitability of fewer farms

Overall, this ‘terms of trade’ pressure will ensure the number of farms continues to decline, and fewer farms will produce more and more of the agricultural production of the country.

In recent decades there has been an average annual 1.5 per cent decline in the number of farms in Australia⁵. In the past 25 years the volume of milk produced by Australian dairy farms has increased by 50 per cent. The number of dairy cows has hardly changed and the number of dairy farmers has decreased by 80 per cent.⁶

Large farms dominate the production landscape

Number of Victorian farm establishments by financial turnover (Estimated Value of Agricultural Operations) in 200110

The Australian agricultural sector is composed of a large number of small farms and far fewer larger farms. The largest 10 per cent of farms (as measured by gross farm income) produce over 50 per cent of the value of Australian agricultural production. The smallest 50 per cent produce 10 per cent of the value of production.  Recent research has consistently shown that most productivity growth in agriculture is captured by the financially largest of Australian farms.^{7; 8; 8; 9} The production landscape, including the Wimmera and Mallee, are dominated by larger farms.

High productivity increases in the production landscape

Production landscapes offer the greatest opportunities for farm businesses to keep ahead of declining terms of trade. The main agricultural advantage is not better soils, or better rainfall, but the lack of competition from other land purchasers.

Cereal cropping country is flat and featureless to the unaccustomed eye. It is the country that urban travellers must sometimes drive through to get somewhere else. It is rarely, if ever, a destination.

Those who want to buy land in these landscapes are almost without exception, broadacre farmers. Partly because of this advantage, over the past two decades the Australian cropping industry has achieved remarkable increases in productivity.^{8; 11}

Farm aggregation occurs at the rate of retirement from farming

Estimated annual exit rates from farms in selected cropping SLAs by age group for the period 1976-20011

Whilst the farm population continues on its course of inevitable contraction, this does not mean families are being forced off their farms. Having established a career in farming, farmers in their mid life are not easily persuaded to leave farming. The young make the key decisions about continuing or abandoning the family farm business.¹²

Farms destined to be purchased by neighbours are those where the next generation has given a clear indication that they will be pursuing another career and will not return to farm. The ‘terminal’ farming generation will then continue to farm as long as it suits their life plans and aspirations. Some will farm until they are physically unable to. Fewer will take the opportunity to do something else for part of their life. With increasing life expectancy it is inevitable there will be older farmers on farms. If trends in the United States and Canada are repeated, there will be increased leasing of this farm land prior to eventual aggregation.¹³

Inevitable population decline

Change in population in rural Victorian SLAs 1961-200114

The counterpoint to impacts of agricultural productivity and innovation on farm businesses is a continuing trend of depopulation of the hinterland and growth of a limited number of regional centres.  This decline is an inevitable outcome of competitive pressures towards aggregation in agriculture, the de-coupling of the farm sector from small town economies and the absence of other industries within these landscapes.  The historic decline of small to middle sized country towns in cropping areas is a continuing source of anxiety for both town and farm residents, and for understandable reasons. In the past these small towns have provided the social networks of the cropping communities. The relentless search for productivity on cropping farms continues to fuel the decline of these small towns.

In towns, the young leave, the old remainPopulation decline will reshape the age profile of many small towns, creating a population with a large proportion of aged residents. It is young adults who leave these towns in search of education, work, culture and experience.

Only a small proportion return for the relatively limited opportunities in these small towns. Over the past thirty years this loss of young adults has steadily reduced the capacity of small town populations to maintain their population by producing children. With little migration to substitute for rapidly declining natural population increase, the future of many small towns is projected to be one of rapid structural ageing.¹⁵

Population of Buloke Shire in 1976, 2001 and projected in 202615

Providing services for an aging population

Whilst the absolute numbers of aged persons will not be large, the capacity to provide services for aging town populations will be constrained by the small numbers of skilled workers living in the community.

Over the 1990s many service agencies, private and public, consolidated their services in major provincial towns.¹⁶ The younger professional class of service providers has also chosen not to live in these small towns. There is no reason to expect this phenomena to reverse. Innovative employment and service delivery strategies will be needed to overcome the looming service deficits in these communities.

Declining social connectedness

The local town has traditionally played an important role in the social life of farm communities. It has provided the social focus of the sporting and service clubs. An important component of permanent migration to cropping farms is through marriage.

The number of potential partners in small regional towns has been depleted by the migration of young women to major urban centres. This has increased the difficulties of young men in farming finding partners. Those who are not temperamentally suited to increasing isolation of farming in these emptying landscapes will increasingly choose to live elsewhere.

Rural amenity landscapes

Demand for landscape amenity

Ratio of Victorian population to Victorian farm establishments 1935-20311

In 1920 there were 20 Victorians for every farm in the state. By 1970 the ratio had risen to over 50. Today the ratio is 175 Victorians for every farm in the state. This ratio may approach 400 by 2030¹. One of the consequences of urbanisation is an increasing demand for ‘multi-functionality’ from land and water resources. Multiple functions include native vegetation protection, improvements in the quality and quantity of water supply, improved animal welfare, improved health of riverine habitats, ‘clean’ food and landscape amenity. The greatest influence of urban environmental preferences on the agriculture sector is in the high price of land in the more amenable and accessible parts of the rural landscape. Land that is close to major urban centres, has good views, is close to water or has a moderate climate attracts migrants from these centres. Research in the United States has shown that landscape amenity was the best predictor of rural area population change.¹⁷

Get out or get small

Ratio of value of rural land per hectare to value of agricultural production per hectare in 200119

It is in the amenity landscapes that we see the price of land generally at values higher than broadacre farm businesses can afford to pay if they adopt a business perspective to their land purchases. The choice to buy or not to buy turns the traditional dictum of farming on its head: get out or get small!

Unable to increase in size, farms in these regions have over time become smaller as the size of a viable farm in other landscapes has increased. Those that do purchase expensive land are following a high-risk strategy.

Rural counsellors say one of the major reasons they have clients is the decision by some farmers to pay too much for land.¹⁸ An alternative option is to sell the land and purchase greater land in another area where land prices are lower. For most farm families this is a socially unattractive option. Most farming families will continue farming in their current high-priced location and explore other paths to productivity that does not require land purchase.

Intensification or off-farm work

Those family farms intent on maintaining a viable family business will generally have two options open to them. One is farm intensification, producing more or higher value produce within the existing land base. This might mean the development of horticultural enterprises, the transformation of farm businesses into purveyors of gourmet food or farm-stay tourism, or more intense pasture management and grazing strategies.

There is a limit to the extent of intensification. Tourist markets are generally small and easily oversupplied. Horticulture requires significant capital and access to irrigation water. For the majority of farm families, off farm work integrated with beef production will be the easiest strategy.

In the rural amenity landscape the predominant rural industry is beef production. This enterprise makes low demands on labour, allowing production in conjunction with off-farm employment or on-farm semi-retirement. These farms are generally locked into a slow decline in economic power as the terms of trade continue to compress farm returns faster than their limited productivity gains.

A farm population of commuters and retirees

Purchases of rural land by local purchasers as a ratio of purchases by non-local purchasers by SLA 1991-20011

In this landscape, younger farmers will generally undertake off-farm work. Older farmers with high equity in their business can absorb the declining terms of trade. Their easiest course of action is to remain in farming for as long as they are healthy and able to enjoy it. Of course, there is little real hope of passing on the farm to the next generation. These latter choices inexorably drive the path of farm adjustment towards an aging farm population and a non-commercial agricultural future. ²⁰ When farmers cease their occupation, there is little likelihood of an inter-generational transfer. Properties will often be purchased by migrants from provincial centres or Melbourne.

Positive future for small towns.

This pattern of gentrified beef production, dormitory living and horticultural niche marketing is much more successful at maintaining population than the competitive farm production landscapes of the cropping and irrigation regions. Small towns are not necessarily condemned to slow decline. Their future can be secure because of the landscape amenity, or because of particular cultural associations that encourage migration from Melbourne.

Transitional landscapes

The slow decline of the wool industry

Productivity change in the Australian sheep and cropping industries 1978-200221

The boundary between amenity landscapes and production landscapes has been shifting over the past forty years. The boundary can be pushed by the expansion of the amenity zone, or by the retreat of production agriculture. New freeways have pushed the boundary further out from Melbourne.

The contraction in the dairy industry in the 1970s in response to loss of access to European markets contracted the production landscape. The wool industry has been experiencing a slower, longer decline. It has achieved only very modest increases in productivity over the past 30 years, being limited by the labour intensive nature of wool production.⁸ A transitional landscape is being created by this decline.

Traditional agricultural diversification

In some parts of the transitional landscape more profitable forms of broadacre agriculture are supplanting the traditional wool industry. Farmers with the capacity to change the balance of production on their farms have diversified from wool production into other agricultural outputs that give a better chance of keeping pace with the declining terms of trade.

The easiest shift is from wool to prime lamb production. The research and development of the past few decades into raised bed cropping technology has allowed some farmers with the capacity to crop to expand their cropping activities. In the longer term, those who are successful in increasing the intensity of cropping on their farms will out-compete specialist wool producers in the market for arable land. To the south, the dairy industry has been expanding, fuelled in part by water shortage in the northern irrigation areas.

Controversial new land uses

More novel land uses are also supplanting traditional agricultural pursuits. In the south west transitional zone many sheep properties have been purchased for blue gum plantations. These purchasers have raised the price of land well above local sheep farmers expectations of its worth. This has allowed many older wool producers to leave the industry with a lump sum that exceeded their expectations.

The capacity of these plantation companies to outbid the sheep and dairy industry in the land market has been a cultural shock for the remainder of the local community. The replacement of wool farms and traditional patterns of land ownership and management with industrial forests is seen as a threat by those remaining as residents in afforesting communities.²²

The west of the state is also well endowed with both an accessible electricity grid and reliable wind in many locations. This has made it attractive for wind farming. There are currently almost 700 megawatts of wind farms proposed for the south west region of the state. This could potentially result in 500 wind towers being built on eighty farms across the region.

This new land use is arousing passions much as has been the case with the growth of plantation forestry. The issues behind the passion are quite different. Unlike plantation forestry, wind farm leasing provides a means for farmers losing the battle against declining terms of trade to reverse their fortunes for a 20-year period. It allows them to remain on their farms into retirement. This benefit is opposed by other residents who see the gains of those hosting the wind farms being counterbalanced by the loss borne by all in the visual landscape commons. The result can be bitter community conflict.

New settlers on the land

Not all the transitional landscape is arable or has reliable rainfall or wind. A new breed of settler is purchasing land in these parts of the transitional landscape. They are not always as wealthy as the new migrants to the amenity landscapes. Many of these new buyers have escaped from the city, sharing the same dreams of an idyllic rural lifestyle.

The attraction of the transitional landscape is the greater affordability of the land as compensation for its less dramatic amenity. Few of these new settlers want to grow wool commercially. The new settlers are bringing untraditional and diverse aspirations for their land.

Amongst these migrants are small lot farmers who might aspire to grow boutique crops or animals. There are new settlers who aim to renovate the original native vegetation and landscape.

Retiree and lower income migrants to towns

The future for many small towns in the transitional zone is uncertain.  Residents of these towns generally have low incomes.²³ Less than a decade ago there was debate over residents ‘trapped’ in these towns because no one was interested in purchasing their properties.²⁴ In the last few years there has been a new migration to many of these towns, driven by limited access to affordable housing in Melbourne. The extent of this migration is likely to rise as increasing numbers of Victorians reach retirement age over the next twenty years and find they have insufficient retirement savings but a significant nest egg locked up in Melbourne property, notably the family home.

Tolerance, trust and talent in rural communities

The future for small towns in the transitional zone will be dependent on the continued migration of new residents who may be culturally quite different from the existing population.

In some cases, the social sustainability of small country towns will depend upon how the migrants and longstanding residents accommodate each other. There may be concerns by residents that the new arrivals don’t share the community’s beliefs about what is important. Other residents and businesses will view the newer migrants as a potential source of talent and ideas that can help build a better future. The latter view may be crucial for town sustainability. US research on retirement migration reveals that older migrants have a strong desire to become involved in local community.²⁵ Communities with a reputation for welcoming are likely to be more attractive to migrants and more likely to survive.²⁶

Planning and mediation of conflict

The diversity of new land uses brings inevitable conflict between production and amenity, forestry and wind farms. The balance between the benefits of amenity and the benefits of economic investment is not easily determined.

We should not expect consensus on these matters in the transitional zone where the future landscape is at its most uncertain. Planning processes to mediate and finally arbitrate conflict are inevitable. There is a real challenge to mediate these conflicts without threatening the social cohesion of the community.

Irrigation landscapes

Victoria's irrigation regions

Increased population, water and amenity

Until recently, irrigation farmers in the Goulburn-Murray irrigation region have faced little competition from amenity land purchasers. The landscape is flat and relatively featureless. Amenity interest in land has been focussed upon the margins of the few rivers in the region, around bodies of water and close to the major towns of Shepparton and Echuca.

Beyond these areas, existing or aspiring Goulburn-Murray irrigation farmers have generally been the purchasers of irrigation farms. This has allowed the dairy industry in the region to follow a path of productivity improvements by increasing the scale of farm enterprises. This situation is now changing, not because of increasing amenity demand for land from urbanised Australians, but because of the tradeability of water and perhaps the increasing concern for the fate of river ecosystems.

Researchers have demonstrated a relationship between a country’s economic development and the protection of environmental assets.²⁷ Initial industrial development will lead to increased exploitation of natural assets, but eventually per capita income will reach a level where public demand for environmental goods will lead to increasing levels of environmental protection.^28-30

The International Water Management Institute has found evidence of a similar relationship between national development and the commitment of water to irrigation ³¹. Increasing public interest in irrigation water use has lead to the introduction of water markets to facilitate more efficient water use, and more recently in bipartisan commitment to increase environmental flows in the Murray River.

Increased competition from other irrigators

With water, rather than land, being the major determinant of farming scale, irrigation farmers have seen increasing competition for water resources from irrigators operating outside the region. The early operation of the water market saw relatively limited trade in irrigation water. The small amount of water sold transferred from mixed irrigation farms to dairy farms. Those farmers selling water were generally operating small farms and were experiencing financial difficulty. The water market facilitated the growth of the dairy sector.

The prolonged period of low rainfall in recent years culminated in 2003 with a season of water allocations far lower than had been experienced in living memory.  Many dairy farmers found themselves in extreme financial difficulty. The recent deregulation of the industry had encouraged a significant number of dairy farmers to increase debt and invest in production expansion.  A rapid rise in the value of the Australian dollar compounded a weakening market for milk products leading to significant falls in the farm gate price for milk.

Horticulturalists acted quickly to secure water to protect their trees and vines. The traded price of permanently transferred water rose quickly. Many mixed farmers sold water temporarily or permanently. The price of $1200 per megalitre was more than enough to compensate for the value of stranded farm infrastructure and housing.

Those who were considering retirement had an opportunity that might not return. Those who planned to stay could temporarily sell their water and make a greater income than they could by continuing their normal farm operations. Those who did decide to continue to farm could take advantage of high prices for prime lamb.

Most dairy farmers had to choose between three options:

• Continue to produce milk by purchasing water. The advantage of this option was that it maintained both the herd and the pastures, leaving the farm system ready to respond quickly if water was available the following season. The downside was increased debt that would need to be repaid.
• Continue to produce milk by purchasing feed substitutes. This strategy retained the herd ready for production in the following season. Perennial pastures would die. This option also increased debt, to a lesser extent, but at the cost of a lower return to full production when water availability increased.
• Cease production at least temporarily, and lend or lease the most valuable cows to dairy farmers in southern Victoria or Tasmania. At the end of the season this left the business with lower debts than the previous two options, but with a much slower pace of rebuilding production.

A new pattern of adjustment

Crisis situations as experienced by the dairy industry in 2003 are not new to the farming industry: historically, farmers have found themselves unable to sell their farm when potential buyers were reticent to buy into a depressed industry, unless the price of land fell dramatically.

The sale of the farm is equivalent to cashing in the family superannuation policy early at a reduced value. Rather than take a large cut in their superannuation, farm families will hang on as best they can until the situation improves.

In 2003, with the downstream horticultural industry purchasing water at previously unheard of prices, there was a market for the dairy farmers’ water right, and the price might well be comparable to what the whole farm might have brought three years earlier. While many dairy farmers opted to stay, quite a few did sell their water downstream, a previously unthinkable outcome for a community that expected dairy farmers to always be water purchasers.

The social implications of this new adjustment behaviour are mixed. The ease of selling water ensured that many irrigation families were able to extricate themselves from what in the past would have been a desperate financial position. This benefit should not be underestimated.

On the other side of the ledger, this new situation raised local concern at the prospect of longer-term economic decline in parts of the Goulburn-Murray region. Water, on which local agricultural production was based, was being permanently transferred to other irrigation communities.

Unlike the production regions, where the competition for land drives population decline, irrigation regions feature water markets that redistribute one of the major factors of wealth generation.

From a State perspective, the redistribution is expected to generate increased economic activity. However, from a regional perspective, winners and losers take quite different views on the value of water trade.

Conclusion

Social changes are leading to the development of four distinct rural landscapes that set quite different challenges for the Department of Primary Industries and for the Victorian Government.

The traditional role of supporting increased productivity of agricultural industries remains, particularly in the production landscape, but perhaps with an increasing attention to the related and unavoidable impacts of increased productivity on rural communities.

In the amenity landscape, the potential for economic growth through increased productivity is limited by social transformation. There will remain a role for some forms of productivity investment, coupled with investment to protect agricultural market reputation, environmental services and amenity. In the transitional zone, the changing of land use can be supported by research into new land uses, but this will need to take account of wider social concerns over land use impacts on the environment and landscape amenity.

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