Beneficial land sector change in far northern Australia is required and possible – a refutation of McLean and Holmes (2019)

Additional keywords: ecosystem services, land use, northern development, pastoral enterprise, rangelands.

Sustainable land sector development in northern Australia faces many recognised challenges and lesser appreciated opportunities. For the most part, the major current land use focuses on extensive beef cattle production in a region characterised by poor soils, significant climate variability, predicted significant extenuating climate change in decades ahead, frequent fires, and volatile market conditions. In two recent papers we have: (a) independently re-assessed key findings of comprehensive authoritative pastoral enterprise economic assessments (McLean et al. 2014; Bray et al. 2015; Holmes 2015; Holmes et al. 2017), which collectively describe challenging conditions facing the north Australian beef industry, including in our focal region (essentially 1.2 M km² of the far northern savanna region above the long-term 600 mm rainfall isohyet, less the humid wet tropics); (b) provided exploratory assessments of associated ‘hidden’ environmental costs associated with the pastoral industry; and on these bases set out a case that (c), for those parts of the ‘pastorally unproductive far north’, it is time to recognise and capitalise on the region’s internationally significant cultural and natural resource ‘ecosystem services’ values, including in conventional (e.g. eco-tourism) and novel (e.g. carbon, biodiversity offsets) markets (Russell-Smith and Sangha 2018; Russell-Smith et al. 2019). Our simple contention is that all ‘far north’ savanna stakeholders, including economically strapped pastoral enterprises, would benefit substantially from such diversification opportunities.

In critiquing the Russell-Smith and Sangha (2018) study, McLean and Holmes (2019) outline their concerns that, in various instances, we have misrepresented their data and that our assessment ‘does not accurately portray the economic performance and contribution of the pastoral sector in northern Australia, nor justify the conclusion that fundamental land sector change is required’. Although we refute these matters in detail in sections following, it is important to acknowledge the very significant contributions those authors (and colleagues) have made in developing an unparalleled evidence base for understanding the contemporary enterprise characteristics and common challenges faced by northern beef producers; parts of our assessments simply could not have been undertaken without generous access to their data.

To provide a broader context for this discussion, it is necessary to first illustrate the immense recognised challenges faced and posed by the northern pastoral industry. With reference to Holmes’ (2015) insight that long-term pastoral enterprise viability requires diligent attention both to business management and sustainable natural resource stewardship – and evident interdependencies between these – we summarise some identified key challenges in Table 1 for the northern pastoral industry generally, and with specific allusion to conditions in our ‘focal area’ where pertinent. Of course, any major industry also requires social licence to operate and, in the case of the Australian beef industry, significant additional headwinds include ethical issues related to cattle live-export, tree clearing especially in Queensland, minimising greenhouse gas emissions, biodiversity conservation and catchment-scale sediment runoff issues, meat (and artificial meat) consumer trends. Running a successful rangelands pastoral enterprise in the 21st century evidently requires dedicated participation in a heavily contested paddock.

Table 1.  Core generic challenges facing long-term economic viability and environmental sustainability in the northern pastoral industry

Finally, it is important to appreciate that our focal study region incorporates significant Indigenous demographic characteristics which are not addressed by any of the McLean and Holmes pastoral enterprise studies – (a) rapidly evolving Indigenous interests in land where, currently, Indigenous people have legal tenure to 28% of the region (Russell-Smith and Sangha 2018), and share title (Native Title) with a further 28% (Sangha et al. 2019); (b) outside of towns Indigenous people comprise a substantial proportion of the rural population, including about half in the Kimberley, Top End and Cape York, and more than 90% in very remote regions (Archer et al. 2019). Indigenous people own and run several very profitable cattle enterprises (e.g. Rural Industries Research and Development Corporation and McClelland Rural Services Pty Ltd 2012; Brann 2016) but, typically, Indigenous pastoral concerns occupy marginally productive lands and are unprofitable. Further, such marginality of much Indigenous pastoral estate presents significant economic and cultural management responsibilities given that ‘country’, once reacquired, is not real estate that can be traded (Archer et al. 2019) – unlike for non-Indigenous pastoral landowners who, as an economic last resort or for windfall gain, can avail themselves of phenomenally increasing land values, averaging around 6% annually over the past 20 years for a median-priced northern pastoral property (Rural Bank Ltd 2016). While developing sustainable diversified economic opportunities for the regional Indigenous demographic presents a singular challenge, we note that many similar issues pertain also to non-Indigenous pastoral enterprises in other regional community settings (e.g. Preece et al. 2016; Rolfe et al. 2016; Kerins and Green 2019).

In the abstract to their paper, McLean and Holmes note that our 2018 economic assessment ‘draws heavily on work by the present authors’. That is correct. Not mentioned is that we drew heavily also on a range of other economic, ecological and pastoral business datasets including ABARES (Australian Bureau of Agricultural and Resource Economics and Sciences 2014, 2017; and other reports), Bray et al. (2015), Meat and Livestock Australia (2017), Rolfe et al. (2016), Tothill and Gillies (1992), and consultations with pastoral experts. We respond below to the specific comments as listed in McLean and Holmes (2019).

McLean and Holmes state ‘the authors quote data from the ‘entire northern region’ to summarise their economic assessment’. This is incorrect. We followed the pasture productivity regions identified by Bray et al. (2015) which are either exactly the same or larger than the regions defined by ABARES. For example, ABARES – Kimberley (Region 511), and the Top End (Region 714) and Victoria River District (Region 713) in the NT directly correspond to the Kimberley and the northern NT regions in our focal area (refer to fig. 2 in Russell-Smith and Sangha (2018) – the black curved lines indicate ABARES regions embedded in the larger ‘productivity’ regions following Bray et al. 2015). For Cape York Peninsula and the Queensland Gulf, ABARES (Region 311) largely corresponds with our low productivity region along with an additional small proportion of Qld Central North (ABARES (Region 313)), for which area-based proportional EBIT (earnings before interest and tax) was used to derive an average EBIT for the combined region. The match between ABARES and our regions is also noted by McLean and Holmes (2019) in their paper.

They further state that we used an average across the entire northern region (page B, column 1 last paragraph), which again is incorrect. For our economic assessment, the region-specific data were used to obtain EBIT and EAIBT (earnings after interest and before tax) for an average pastoral business, as evident from EBIT estimates reported for different regions (Russell-Smith and Sangha 2018; p.317, column 2, paragraph 3 and fig. 2).

The authors contest our results (on page B, column 1 last paragraph) concerning the low productivity of pastoral systems in our focal study area. ‘low’ productivity is in fact clearly evident from fig. 1b, sourced from Tothill and Gillies (1992), and from their own reports (McLean et al. 2014; Holmes et al. 2017). However, we acknowledge an omission of explaining L, M and H for low, medium, and high productivity regions in Russell-Smith and Sangha (2018; Table 1, page 323).

McLean and Holmes (2019) note that we excluded pastoral corporates, which we indicate on p. 317 (column 2, paragraph 2) under the generic statement ‘financial assessments … were based on long-term data … for average pastoral businesses in each region, following Holmes et al. (2017)’. In so doing we followed McLean et al. (2014), Holmes (2015), and Holmes et al. (2017). As argued by Holmes (2015; p.613), the decision to: ‘chose to exclude corporate-scale data [in the McLean et al. 2014; report was] because it was not well represented across the geographic spectrum of the northern rangelands, was of questionable quality, and was biased by the inclusion of data from non-representative corporate entities. Broad statements that corporate operations are more profitable than smaller family operations in the same region … need close scrutiny before acceptance because the basis for comparison is not always valid’.

More generally, we note that the sample of family-owned businesses utilised by McLean et al. (2014) and Holmes et al. (2017) for their assessments would appear to be statistically robust. Although sample and population sizes are not given in Holmes et al. (2017), presumably comparable data are included as in McLean et al. (2014; Table 1) – for the four ABARES regions which broadly cover our focal study area (W : Ki, N : Vk, N : DTE, Q : Ca), family business sample sizes comprise ~40–50% of the entire population in respective regions.

We also clarify here that our earlier estimate of a gross value AU$414 million (reported on p. 316 of Russell-Smith and Sangha 2018) relates to average pastoral enterprises in the focal region.

The authors question why our EAIBT estimates do not fully match theirs. Reasons for this include: (a) as noted above, our assessment regions differed to some extent; and (b) that different interest rates may have been applied. We used a conservative interest rate of 5%, in line with the 6.1% interest rate applied for the Qld Gulf region by Rolfe et al. (2016). The interest rate(s) applied by Holmes et al. (2017) are not provided as they used the actual amount of interest reported from ABARES (McLean and Holmes 2019; page B, column 2, paragraph 2).

The authors question first, the application of figures AU$29/AE for high-, and AU$10.84/AE for low-productive, regions to assess the net sustainable economic benefits presented in Russell-Smith and Sangha (2018; Table 1). We argue that to develop sustainable beef businesses, we need to understand the potential net returns (EBIT less environmental costs). These were estimated using region-specific carrying capacity data from Tothill and Gillies (1992) for proportional high (5 head/km²) and low (<5 head/km²) carrying capacity areas within each subregion as listed in our Table 1. Then an EBIT of AU$29/AE or AU$10.84/AE was applied for respective high or low carrying capacity areas within each subregion to assess total sustainable returns, as presented in Table 1, including environmental costs (details explained in footnotes). The EBIT figure of AU$29/AE was rationally applied based on average long-term performance of highly productive subregions. An average EBIT of $10.84/AE across the north that was applied to low productivity subregions actually represents an overestimate as the average of those subregions was only AU$6.60/AE, suggesting that EBIT estimates given in Table 1 are towards the upper-bound. Table 1 illustrates a scenario of potential cost-benefits for operating sustainable enterprises, in line with the carrying capacity of land, for our focal area.

Second, the authors argue that we portray Barkly, VRD, Kimberley regions as being of ‘high’ productivity which is incorrect; see Table 1 where Barkly, VRD are listed as ‘M’ (medium), and Kimberley as ‘L’ (low). ‘High’, ‘medium’ and ‘low’ are the relative terms used for different regions following Bray et al. (2015).

We also highlight that our estimates in Table 1 account for pastoral carrying capacity. Conversely, the financial analyses reported by Holmes et al. (2017) and McLean et al. (2014) focus on operating scale, not carrying capacity.

McLean and Holmes (2019) include ‘top performers’ in their calculations to support their contention that pastoral businesses across 48% of the landscape are profitable (page C, column 1, paragraph 3) – implying that 52% of the northern landscape supports non-profitable pastoral enterprises. Accepting that ‘top performers’ tend to be those operating at ‘larger scale’ (especially >3000 AE: McLean et al. 2014; Holmes 2015, Holmes et al. 2017), it does not necessarily follow, however, that northern beef businesses can equally demonstrate long-term business sustainability if (a) appropriate environmental liabilities are not taken into account (e.g. Holmes 2015), especially given (b) the generally infertile, low productivity, over-exploited pasture conditions of the ‘far north’ (Table 1). We consider the very significant issue of appropriate accounting of environmental liabilities further under Environmental cost.

As per our response to Incomplete populations above, we note (Russell-Smith and Sangha 2018; p. 317, column 2, paragraph 2) that we followed Holmes et al. (2017) in the undertaking of our financial assessments, thereby including owner wages and excluding off-farm income. We consider that the inclusion of owner wages in the manner undertaken by those authors to be entirely appropriate and followed suit.

Exclusion of off-farm income followed McLean et al. (2014) and Holmes et al. (2017). As argued by McLean et al. (2014): [the assessment does] ‘not include off-farm income, with the assumption being that the farm business has to be able to meet the personal needs of the owners. Of course, many producers are able to maintain farm business operations and personal needs with other income. This is entirely reasonable and widely observed. However, in a study of this kind, off-farm income is, in fact, a business and/or personal subsidy and should be ignored. Not everyone will agree with this approach, but it is important to state it and provide the reasoning’.

We consider this comment irrelevant. Our stated focus is on the status and condition of the northern land sector of which extensive (free range) pastoralism is the dominant land use.

As noted previously, understanding and appreciating the environmental liabilities associated with the northern pastoral industry has significant long-term implications for business sustainability and public licence to operate. McLean and Holmes (2019) take issue with our costings associated with two of those liabilities but, as widely recognised, ‘costing of other environmental impacts …, although feasible to do … poses significant challenges – for example, how to put monetary values on biodiversity components and ecologically critical surface and ground-water resources’ (Russell-Smith and Sangha 2018; p. 321). What price do we put on the well documented connection between beef cattle (and other ungulate) grazing and impacts on avian granivores (Franklin 1999) and small mammals (Legge et al. 2011)?

First, McLean and Holmes (2019) propose that since we account for greenhouse gas emissions from ruminants, it is only reasonable that we should account also for the ‘value on the carbon sequestered as a result of woodland thickening across the focal region’. Although this is a somewhat interesting proposition since most rangeland managers and ecologists would argue that woody thickening is actually symptomatic of poor or inappropriate pastoral management (e.g. Burrows et al. 2002; Cowley et al. 2014; Crowley 2015), we have no in-principle opposition to this suggestion since, in effect, it could support the development of complementary ecosystem service market opportunities especially in pastorally marginal situations. There is, however, evidence for only slight woody thickening across our focal savanna region (Murphy et al. 2014), with the notable exception of former grassland and open-woodland systems in Cape York (Crowley and Garnett 1998).

Second, McLean and Holmes (2019) worry that we ‘double count’ the costs of land degradation, where costs for deteriorating ‘B’ and degraded ‘C’ land conditions (following Tothill and Gillies 1992) were estimated (very conservatively) from losses in pasture production and subsequent cattle returns, i.e. EBIT/year (in line with, for example, Scanlan et al. 2013; Bray et al. 2015). However, land degradation costed in this manner accounts only for the annual opportunity cost to the pastoral enterprise, and not for the decadal scale impacts on local and downstream processes and industries (e.g. Caitcheon et al. 2012; Brodie and Pearson 2016), let alone for rehabilitation of the pasture and soil resource should that even be possible. As noted by Crowley (2015), pastoral lease conditions of the three northern jurisdictions require the lessee to exercise a duty of care towards maintaining and improving resource condition. Moreover, taking into account the broader costs on ecosystem services when applying authoritative accounting processes associated with land degradation (e.g. ELDI 2015), the imputed costs of pastoral land degradation across our focal region is estimated at $3billion dollars per annum (Russell-Smith et al. 2019; Table 5.5). By any reasonable measure, the environmental liabilities of the far northern pastoral industry are immense if yet to be appropriately quantified.

Based on extensive experience, respected northern pastoral industry business advisors argue persuasively that fine-honed business skills are both essential and typically lacking in most family run beef enterprises (e.g. refer to quotes in Table 1; Holmes 2015; p. 615; Rolfe et al. 2016; p. 270). Although not disagreeing at all with the importance of these observations, we simply contend, as evidenced both in our earlier treatments and here, that broader sustainable land sector development in northern Australia must address: (a) well documented challenges confronting the economic viability and long-term sustainability of many far northern beef cattle enterprises; (b) ‘far from being a landscape endowed with homogenous high pastoral potential…north Australia instead supports very significant cultural, biodiversity conservation, and global carbon stock values, which contribute significantly to the socioeconomic wellbeing of local and regional communities’ (Russell-Smith and Sangha 2018; p. 323); and (c) opportunities are rapidly emerging to engage with a range of ecosystem services enterprise options that hitherto have not been available.

Given Mclean and Holmes’ (McLean et al. 2014; Holmes et al. 2017) business focus on the northern pastoral estate it is important to note that we are not suggesting that beef cattle production and ecosystem services are necessarily mutually exclusive enterprise activities; rather, it is realistic to consider that different enterprise options might be pursued in appropriate locations either on individual properties, or regionally. Savanna burning projects, for example, can be undertaken complementarily with cattle production in marginal settings both on individual properties, or under multi-tenured arrangements – collaborations between Indigenous and non-Indigenous title holders to derive mutual benefits.

In promoting such a diversification agenda we are mindful that many in the pastoral industry will be doubtful, dismissive even – especially given the recognised conservatism and traditionalism of many producers (McLean et al. 2014; Holmes 2015; Rolfe and Gregg 2015; Rolfe et al. 2016; Holmes et al. 2017). However, just as there are significant challenges confronting the profitability and long-term sustainability of the northern pastoral sector (Table 1), so too are there very significant policy and practical implementation challenges needing to be addressed (Table 2). Regardless, we remain encouraged by the extraordinary take up of savanna burning opportunities in recent years, the strength of regional eco-tourism, and growing recognition of the international significance of the north Australian cultural and conservation economy. Beneficial change is required and possible.

Table 2.  Key challenges to developing a diversified northern Australia land sector

The authors declare no conflicts of interest.