AUSTRALIA is internationally regarded as a primary producer. In 1965, 85 per cent of the earnings from exports was derived from primary products, of which less than one third had undergone some form of processing before shipment. However, as a result of its fast-moving industrial development, the contribution of the primary producing industries to the gross national product has fallen to little more than 10 per cent. The proportion of export earnings provided by manufactured goods has doubled since the mid-1940’s, when it was about twice as large as before World War I.
Australia has attained a high degree of sophistication in its industrial development. The home market has grown to sufficient size to support a fairly broad spectrum of industrial activity. Recent growth rates, though not quite as impressive as in the most dynamic industrial countries such as Japan, Italy, and Germany, have been consistently high. Correspondingly, the growth of imports has also been large. Per capita, the value of imported goods is about equal to that of Germany and the United Kingdom, though smaller than that of the Benelux and Scandinavian countries, or Switzerland.
The prospect for raising export earnings has often been viewed with pessimism in Australia. The protectionist farm policies pursued in some countries have tended to put a limit on exports of many products that can be produced at a relative cost advantage in Australia.
The Postwar Decline in Trade Shares
Other primary producers are also concerned about this. Indeed, statistics show that the share of world trade of the industrial countries (the United States, industrial Europe, Canada, and Japan) increased from about 60 per cent in 1948 to about 70 per cent in 1965, at the expense of the share of the less industrialized and less developed countries. The share of the developing countries declined most, by almost one third (from 30 per cent to 21 per cent) between 1948 and 1964, while that of the “developed but not fully industrialized” countries (Australia, New Zealand, South Africa, and European countries other than those regarded as industrialized) fell from 10 per cent to about 8 per cent. Australia’s proportion of world trade declined from 2.7 per cent in 1948 to 2.0 per cent by 1965.
The situation has been made more difficult by the fact that in only a few years in the postwar period have the terms of trade (the index of their export prices divided by the index of their import prices) moved noticeably in favor of the primary producers. Since the mid-1950’s, after the boom in raw materials during the Korean war period had passed, the average price of primary commodities has declined substantially while that of manufactured goods has risen. Over the ten years to 1964/65, Australia’s terms of trade declined by almost 20 per cent.
To raise export earnings speedily, so as to keep up with the growth of imports which higher incomes and the process of industrial expansion call forth, seems like an impossible task under these circumstances. In the postwar period the authorities relied on import controls to help to prevent severe imbalances in the external accounts, but these controls were eliminated in 1960.
Only one fourth of the total area of Australia receives sufficient rain for intensive farming. The prospects for bringing more land under crops or grazing seemed remote. Moreover, an increase in livestock could, for natural reasons, only be gradual, and there were pauses in some years, because of drought or unprofitable prices. But a number of scientific developments have in the event led to striking improvements in farm production. For one thing, by the late 1950’s it proved possible virtually to eradicate from wide areas the infestation by rabbits; holdings of livestock per acre could thereafter be raised appreciably and crop yields increased. Spraying of crops against insect damage and plant diseases has proceeded rapidly, and research activities—assisted by the Government—in numerous fields have contributed in large measure to higher output.
There has also been a large increase in the use of fertilizers; the deficiency of phosphates in Australia’s soil was overcome through large-scale application of superphosphate fertilizer, the raw material for which is available at reasonable prices from nearby Pacific islands. The improvement of pasture land, especially through the introduction of clover, has also depended on vigorous top-dressing. Large areas also have been made productive by the use of so-called trace elements—i.e., the application of relatively small quantities of copper, molybdenum, or other minerals in which the soils proved to be deficient. Nitrogenous fertilizer is applied mainly to land under sugar cane, fruit, vines, and vegetables. Usage, however, is limited because of its relatively high price. In applying fertilizer and chemicals, aircraft have proved to be an important help. At present, about 11 million acres, or one fifth of total acreage farmed, are top-dressed from the air; this compares with about 1 million acres in 1956/57 (the first year for which figures are available).
From 1940 to 1950, the number of sheep declined to a little more than 100 million—about the same as in the early 1930’s. But during the 1950’s a marked increase took place, and in 1965 the number was one half more than 15 years earlier. Wool production and exports rose slightly more, as fleece weights increased also. However, with the development of synthetic fibers by the world’s chemical industries, there was a danger that the increased volume of wool could not be sold at profitable prices. This danger remains in the minds of sheep farmers and of the authorities, since about one third of the country’s export earnings still come from wool. Vigorous efforts have therefore been made to broaden the potential for wool exports through marketing and quality research. The most recent success in this field has been the development of a method by which the shrinkage of wool can be largely prevented. Rather than merely compete with synthetic fibers, wool has allied itself with its competitors, and it is now used widely together with synthetics in a variety of products, including carpets.
Wool is not the only example, and by no means the most impressive one, of the way in which production and exports were expanded rapidly. Australia has been a large producer of wheat for many years. Attention given to the potential of this crop waned in the late 1940’s because of a shift to wool as a result of high wool prices. In the crop year 1953/54, wheat production was nearly 200 million bushels, a figure which was not exceeded until 1958/59. Toward the end of the 1950’s, acreage devoted to wheat rose sharply and production increased correspondingly, a development which is related to the growth of demand from the U.S.S.R. and Mainland China in the world wheat market. Under its Wheat Stabilization Plan, the Federal Government has ensured that farmers will obtain a minimum return equivalent to the cost of production for a certain quantity of wheat exported, and a minimum price is guaranteed for wheat consumed in Australia. The increase in acreage under wheat has not been at the expense of other crops or pastures, but reflects efforts to bring new land to agricultural use, much of which is in remote areas. Yields per acre have fluctuated with changing weather conditions, which can be severe in Australia, but the underlying trend has been strongly upward. In the year ended June 1964, exports of wheat and flour earned a record $A 406 million (US$455 million), more than one seventh of total export earnings in that year; in 1958/59, only $A 105 million had been earned through wheat exports. The increase in export value was attributable partly to a higher price level but in the main it reflected the opening of additional markets for Australian wheat beyond the traditional ones (the United Kingdom, New Zealand, and other countries in the British Commonwealth); Mainland China accounted for between one third and one half of Australia’s total wheat exports in 1961-63. During the past two years the quantity of wheat available for export has been reduced by drought.
A further interesting development has been related to the production of sugar for export on an important scale. In the decade ended 1960/61, export receipts from sugar more than doubled, and in 1963/64, thanks to the exceptionally high world price, $A 156 million was earned from sugar exports. Except for the latter year, the rise in export receipts was largely a consequence of a higher volume of exports. Output was raised further in response to the sudden price rise which occurred in 1963/64, but the precipitous decline in world prices has more than offset the increased volume of exports.
The Livestock Industry
Export earnings from meat have shown important gains in recent years and in 1964/65 were close to $A 300 million, about 11 per cent of total export earnings. In 1950/51, they had accounted for only 3 per cent, and in 1960/61 for less than 8 per cent of the total. From the latter year to 1964/65, export receipts roughly doubled. Higher prices for beef and lamb helped this process, but in the main it was an outcome of greater production for export to new markets, principally the United States. That country in fact surpassed the United Kingdom as the largest customer for Australian beef, and the United States also became a major market for mutton. Australia is thus taking full advantage of the economic fact that the consumption of high-quality food products, particularly beef, increases rapidly with rising incomes. While this applies within Australia itself, and a large part of increased production goes into domestic consumption, there is also great scope for increasing beef exports in response to rising foreign demand.
Less dramatic has been the growth of exports of butter, cheese, and other dairy products. In fact, little change was visible in the 1950’s, and such expansion as has taken place in the 1960’s has been gradual and limited. Although new markets for these products have been found, these have provided only a relatively limited outlet compared with the traditional U.K. market, which is now heavily contested by various other countries. Some of these competitors provide substantial subsidies to their farmers. Shipments of cheese have shown a more promising upward trend, and a larger proportion goes to countries other than the United Kingdom.
To make Australia independent of the vagaries of world developments that have endangered continuous supplies of essential raw materials, self-sufficiency has often been cited as a desirable goal, and the development of certain resources owes much to this desire. On the whole, however, economic considerations have prevailed, among them the realization that the extent of exploitation depended primarily on world demand, taking account of the relative cost and quality, proximity to markets, and other factors. It was realized that for some time to come, the domestic market would not justify developments on an economic scale. Only a wider international interest in Australia’s mineral resources would produce the needed large capital sums required for large-scale search and exploitation of the mineral deposits.
Among the “traditional” minerals mined in Australia and exported on a significant scale are lead, zinc, copper, rutile, ilmenite, zircon, asbestos, cadmium, silver, tungsten, manganese, and gypsum. In 1964 earnings from such exports were about $A 175 million, showing a gradual rise over the years. Coal exports also have been a sizable earner of foreign exchange for some time, and recently they have staged a spectacular comeback, bringing in $A 41 million in 1964.
Important as the export value of these mineral products is to the Australian economy, the scope for rapid expansion seemed limited until a few years ago. But Australia’s role as a supplier of minerals appears now to have changed radically, and this has improved the prospects for the country’s economic development and for its balance of payments. The change is due to the discovery of large deposits of bauxite and iron ore, for which there is a ready demand at present from Japan. There is a substantial demand for alumina from the United States and Europe.
Other countries are also showing interest in Australia’s potential as a supplier of these materials, particularly because of the country’s political and economic stability, which promises a continuous flow of supplies. The Report of the Vernon Committee of Economic Inquiry (a comprehensive analysis of Australia’s economic performance and capabilities, which was submitted to the Federal Government in 1965) called the new mineral discoveries “among the most dramatic features of Australia’s postwar growth.”
The discovery of large bauxite deposits dates back to 1955. The reserves at Weipa, Queensland, were estimated at 2,000 million tons, of which 500 million tons have been proved. The grades of ore found there are fairly good, and the low cost of mining makes this a highly competitive source of raw material for the world’s aluminum industries. Deposits of lesser quality have been found at Gove in the Northern Territory. More recent discoveries in other areas have yet to be proved worthy of exploitation, but they also look promising. Altogether, it has been estimated that Australia has about 30 per cent of the world’s reserves of bauxite. Production and exports of bauxite and aluminum began on a significant scale in 1963; in 1964 the value of shipments, mostly in the form of ingots, was still only $A 8 million, but on the basis of export contracts concluded (notably with Japanese companies), a marked rise is expected. It was recently estimated that, by 1970, exports of bauxite, alumina, and aluminum in more or less advanced stages of production would amount to $A 70 million. A large plant for the processing of bauxite into alumina will soon come into production in Weipa, Queensland. This and other plants should give the country an increased export surplus of aluminum ingots.
Importance of Iron Discoveries
More impressive still has been the size of the deposits of iron ore found in various parts of the continent in the last few years. According to official estimates, reserves of high-grade iron ore in the Pilbara District of Western Australia amount to 14 billion tons, of which more than one half has a better than 60 per cent iron content—mostly 63-65 per cent. In addition there are enormous resources of ironstone with 26-35 per cent iron content. By now these estimates have been exceeded, and it is obvious that Australia is potentially one of the great suppliers of iron ore. Exports, mainly to Japan, began on a small scale in 1965 upon completion of the first mining and shipping facilities, and a rapid rise in exports is certain. On the basis of contracts concluded up to January 1966, shipments of over 250 million tons, valued at over $A 2.2 billion, will be made to Japan over the coming 20 years or so, and further contracts are under negotiation. It can thus be estimated that by 1970 exports of iron ore could reach about $A 180 million a year, a valuable addition to the country’s balance of payments. However, in recent months financing difficulties have slowed progress in the development of some of the newly discovered areas. But steel companies in other countries, such as Germany, may also be interested in Australian iron ore. With large bulk carriers, shipments to Europe could well become feasible.
Australia has seen rapid development of a steel industry, principally to supply the domestic market. Because of the low cost of production, the industry has long been in a position to spread its area of sales to countries far beyond its immediate geographic vicinity, but the leading producer until recently preferred to concentrate its efforts on the local market. The availability of raw materials at advantageous prices should make for a strong competitive position in export markets for steel. However, competition from other producers and the time and capital needed to expand the industry’s capacity may prevent a spectacular rise in the near future.
The mineral picture would be incomplete without mention of the hopes that Australia might—in addition to its large coal deposits—become a major supplier of other sources of energy, notably oil and gas, and also uranium for future generation of atomic energy. So far, these hopes have not been fully justified, although there have been discoveries of uranium and, on a limited scale, of oil and gas. To confine the discussion to oil and gas, which are of immediate interest to the motorcar, aircraft, and chemical industries, Australia was fully dependent on foreign supplies of oil and oil products until 1964, when the first oilfield, at Moonie in Queensland, was brought into production on a commercially worthwhile scale. Domestic production as yet covers only about 2 per cent of domestic consumption, which rises at the rate of 8 per cent or so a year, and there is of course no prospect of oil being available for export, especially as domestic oil production is still relatively costly. Exploitation has been intensified, however, and a second field at Barrow Island has come into production recently. Gas has been found in a number of places, and commercial use is beginning to be made of it as pipelines are completed. Even so, in the field of energy, Australia is likely at best to be able to replace some of its imports by domestic supplies in coming years, thereby aiding its balance of payments.
Recent mineral discoveries promise to make a most important contribution to Australian exports for years to come. But there is also a prospect for greater interest in sales abroad by Australian manufacturing industries. As noted earlier, the share of manufactured goods in total exports has risen slowly, and is as yet small by comparison with raw materials. A major breakthrough still needs to be made, but there are indications that a substantial rise in manufacturing exports could go hand in hand with the expansion of mineral exports. Australian industries have grown to good size, and although many of them are operating behind high protective tariffs, some seem willing and able to compete in nearby markets in the Far East.
There are always unpredictable problems to be reckoned with, such as drought, and other unknown factors, for instance discoveries of similar and cheaper minerals elsewhere. To prepare for such problems, Australia will need a strong export economy. The import bill is rising at a sharp pace, notwithstanding import replacement through the further development of the economy; invisible payments are an evergrowing debit item, reflecting increased spending abroad by Australian travelers and servicing of foreign investment in profitable ventures, e.g., the mineral developments which rely heavily on foreign capital; and aid and capital exports from Australia have to be financed. All this calls for a strong balance of payments. The Australian Government is aware of this—the success of economic policies in past years and prospects for further development of exports lend confidence for the future.