Migration, labour demand, housing markets and the drought in regional Australia

Research paper No. 49

Background: Population dynamics in rural and regional Australia

Drought is only one factor underlying mobility patterns and associated population trends in rural Australia. Garnaut (2008) suggested that even without the impacts of climate change, Australia's agriculture sector would be likely to grow because of higher demand and higher commodity prices. Overall, Garnaut's assessment was that the impacts of climate change are likely to reduce agricultural opportunities, and emissions mitigation policies (such as the increased use of bio-sequestration) will probably create new opportunities for developing more efficient land management.

"The agricultural sector is continually adjusting to the many forces of change" (Productivity Commission, 2009, p. 13) - agricultural output has been increasing, but the sector's share of the gross domestic product (GDP) has declined as farmers' terms of trade have been declining. As a group, the lowest 25% of broadacre farms did not make a profit in any year from 1988-89 to 2006-07. Farm numbers and the amount of land used in agricultural production have fallen, but there has been an increase in average farm size. Notwithstanding, agriculture continues to exhibit strong long-term productivity growth.

Population growth and regional centres

The Australian Bureau of Statistics (ABS, 2006) noted that in 2004-05, the largest population growth outside the capital cities occurred in coastal areas, most of which resulted from internal migration, as people from inland areas and cities moved towards the coast - a reflection of the so-called "sea change" phenomenon. These population movements are likely to reflect factors such as the relocation of retirees, individuals seeking a change of lifestyle, high city house prices, and the development of technologies that enable people to telecommute.

Many larger inland centres ("sponge cities") too are growing, at the expense of smaller outlying towns - although the validity of using the analogy of sponge cities (and rural towns) has been contested recently by Argent, Rolley, & Walmsley (2008). Some regional towns have had strong population growth because of the growing demand for labour by the mining industry.

The Productivity Commission (2009) noted that the population of small towns (with a base of 200-1,000 people) increased by an average of just under 1% per annum from 1996 to 2006 (close to the national average). However, this broad statistic hides the fact that while some towns have benefited from inflows to selected coastal and inland areas, others have declined due, in part, to the greater availability of commercial and other services in the larger towns and to the long-term decline of some rural industries.

The benefits of urbanisation are attractive to people and businesses alike (Bradley & Gans, 1998). Larger centres have greater product variety, higher order health services, a greater range of leisure activities and economies of scale. They offer better access to a skilled workforce, transport cost savings and improved technological synergies between firms. Improved roads and cars mean that it is easier for farmers and other local residents to travel to these centres.

Prolonged drought may have exacerbated these trends by reducing the income of wealth in rural communities relative to the more urbanised settlements.

In its submission to the Drought Policy Review Expert Social Panel, Central NSW Councils (2008) observed that drought can hit rural communities particularly hard:

The decimating of communities will only lead to less and less services within rural communities including medical services having a multiplying downward spiralling impact for rural and regional Australia. (p. 1)

The micro-dynamics of change in Australian agriculture

It would be surprising if the economic and social stresses associated with drought were not associated with migration. However, there is not necessarily a relationship, so we must consider some of the other factors underlying the population dynamics of regional Australia, especially with regard to the agricultural sector.

Barr (2004) described the changing demographic structure of Australia's farm community using a simple model of the farm sector. According to Barr, entry to farming has changed little since 1996. After a rapid decline in the entry rate of young persons during 1970s and 1980s, entry of younger persons seems to have stabilised at new low levels. The major form of entry is increasingly mid-career, rather than through informal family apprenticeship. Exit rates from agriculture continued to decline between 1996 and 2001, particularly for women and for older persons. It appears that increasing numbers of farmers are choosing to continue to farm on grazing enterprises in the absence of a next generation interested in taking over the business. The most vulnerable farmers are not necessarily those facing the greatest climate variability. Factors such as small farm scale, land degradation, low liquidity and lack of diversified income sources are more likely to increase the vulnerability of farms to adverse shocks.

Barr (2004) also argued that demographic research of Australia's rural regions inevitably shows the diversity of community situations, which is itself partly explained by an interaction between agricultural commodity economic systems and the urbanisation of the Australian community. In the peri-urban area (on the fringes of cities), high land values make all but the most capital-intensive agriculture a poor business investment. Therefore, as cities grow they put an upward pressure on land prices that in turn mean that farmers may have to sell the farm or move into more capital intensive farming techniques.

The landscapes of the Western Australian wheat belt offer the greatest opportunities for farm businesses to keep ahead of declining terms of trade (Barr, 2004). The main agricultural advantage is not better soils, or better rainfall, but the lack of competition from other land purchasers. However, this region has one major disadvantage in that it is, arguably, the first clear case of climate-change-induced regional decline, which may ultimately lead to higher rates of farm exits (Wahlquist, 2008).

Barr's (2004) conceptual model of entry and exit rates into farming should help the reader understand some idiosyncrasies of rural migration:

Below average exit and entry rates characterise areas which have traditionally been described as "tightly held" … Relatively high entry and exit rates describe an area where property turnover could be described as a form of "churning". High exit rates and low entry rates are characteristic of a district where business amalgamation is consolidating faster than the national average ["consolidation"]. Low exit rates and high entry rates are characteristic of business fragmentation, where farm numbers may be increasing and farms becoming smaller, or at least consolidating slower than elsewhere ["fragmentation"]. (p. 35)

Barr's classification of areas of regional dynamics in Australian agriculture provides clear examples of the process of regional adjustment to recent social and economic changes, with obvious implications for migration patterns.2

Seasonal off-farm work is quite common in some agricultural industries. The main workload of harvest for many horticultural businesses falls in the summer and autumn. Other seasons can have much less demand for labour, and owners of small horticultural blocks will often use this period to earn off-farm income. Movements such as these should be characterised as mobility rather than a permanent migration.

Another observation with some potentially important implications for migration is that the highest exit rates in farming have been after a temporary peak in commodity prices (Barr, 2004). This is counter to the intuitive assumption that poorer commodity prices will lead to a higher rate of exit from agriculture. Previous research has shown that exits from Australian broadacre agriculture are higher during periods of strong land prices, and fall during periods of low commodity prices when land markets are weak (Bureau of Agricultural Economics, 1975). If drought is associated with declining productivity, and hence lower land prices, then farmers may hold out for a more optimistic scenario before they move on. That is, farmers and other residents in regional areas may only migrate when housing prices are relatively buoyant, which is more likely to occur after a period of drought when the productivity of the land is restored to its historical levels. Farmers are likely to run down their financial reserves before selling their property because of the hope that a drought will finish sooner rather than later. Even in the presence of climate change, this is not necessarily an irrational response, as the price of property may recover somewhat after a temporary relief from drought-like conditions.

The underlying population dynamics of rural areas described above underscore the importance of understanding both the local labour and housing markets when analysing the interactions between agriculture and migration. Consequently, such issues will be given a suitable level of prominence in what follows.

2 Barr's (2004) provided further discussion of his classification system as follows: Tightly held regions "are found generally in the cropping zone of both east and west Australia. Relatively few persons enter farming in this zone, and relatively few leave. However, the rate of exit is sufficiently greater than the rate of entry to ensure there is considerable ongoing consolidation of properties. Cropping requires high skill levels and high capital for machinery and crop establishment. It is not likely to attract new cropping farmers. Entry is likely to be a sign of farm family members returning to the farm after a period earning income elsewhere" (p. 36). In churning regions, "high rates of entry and exit are a characteristic of the rangelands of northern and Western Australia. One explanation is the significant number of establishments managed by salaried employees. A significant minority of farmers in this region nominate another part of Australia as their place of usual residence. In the 1980s churning was a general characteristic of irrigation regions" (pp. 36-37). In fragmentation regions, "high entry and low exit rates were apparent in peri-urban districts across the country … Here relatively low exit rates and high entry rates reflect the allure of farm holdings in these regions as a lifestyle choice. The large number of small farm holdings allows easier entry, and the competition for land from new entrants reduces the potential for farm consolidation" (p. 37). "Relative consolidation, high exit rates and low entry rates, is comparatively uncommon as well as temporally unstable" (p. 37).

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