IT WAS NEVER part of my plan to move to a farm. The landscape is Wiradjuri country, bought from previous farmers in the 1920s by my husband’s family. In the past quarter-century since I moved from the city, I have become more familiar with this place in a multidimensional way. Life in a more natural landscape replaced life in a built environment in the frenetic media industry. There, I considered nature as an add-on. Here, the farm underlines to me every day that we belong to nature. Like a quilt, the farm’s various ecologies are stitched together in ways that are both affected by human management and beyond it. Its soil, plants and animals work as a system for the benefit of all the inhabitants, including us and the introduced livestock. It is a dance, informed by observation and ecology.
Droughts have arrived with regularity. I have learnt that nature bends and looks like it may break. Then it self-organises, not always in good ways for humans or the natural world. Pulling the thread on a farm takes you to fundamental questions of human existence. For us, the short-term goal is feeding ourselves, our families and our communities. The long-term goal is to leave the land in a better state than we found it. Almost every farmer I speak to would share that ambition. The way we choose to manage that task has to work at the natural level and the human level because humans are part of the environment too.
At the natural level, organising food production requires consideration of the building blocks of our physical world: oxygen, carbon, nitrogen, phosphorous, rhizobium bacteria and mycorrhizal fungi, and many more we don’t even know about yet. The whole is greater than the sum of its known parts. The whole includes the river systems, the native vegetation and all the little critters in the soil food web. These ecosystems have to function to produce healthy food – and their limits can be reached due to any number of factors: the human culture managing the system; the amount of rainfall and its timing; the landscape’s health or disease; the global forces of climate change.
At the human level, land management can take you to the big economic and political questions. The limiting factors for the food grower include the most basic constraints on the farm. The costs of growing the food compared with the price the farmer receives. The rules of engagement outside the farmer’s control are often pulling in opposite directions.
Farmers are caught between market demand and the natural world. The rules are sometimes set by governments, the most obvious around native vegetation and water take. The rules are increasingly set by large corporations, which specify the produce they buy, such as the shape of a carrot or the fat content of a lamb chop. The global forces of competition and international trade rules affect the equation. The infrastructure by which farmers get their product to market, particularly in a country the size of Australia, also plays a role.
In the current farming system, the simple truth is that the natural constraints are at odds with the human constraints. For at least three decades, farmers have been told to act as the farming version of homo economicus. ‘Using rational assessments, homo economicus attempts to maximise utility as a consumer and economic profit as a producer,’ says the OED. Farmer economicus has been held as the ideal since the 1980s. Farmers have been repeatedly told by economists, governments and agricultural educators that the only way to get a pay rise is to increase production. Apple may set the price of an iPhone, but the average farmer cannot set the price for a tonne of wheat. Farmers are told that producing more with less is the only way to improve the bottom line.
Since Norman Borlaug’s Green Revolution, farmers have been primed to feed the world and its growing population. The Green Revolution’s leap in production technology delivered an agribusiness system that left growers dependent on a high-input farming model, requiring fertilisers, herbicides, fungicides, insecticides and other additives. This has allowed farmers to deal with the human constraints of falling food prices and greater specifications from supermarkets and food processors as well as the need to compete with other trading nations. Global farmers have become so successful that the world can apparently now afford to live with a distribution system that wastes 40 per cent of what farmers produce. That’s another story.
Enter climate change. Add it to flatlining economic growth and wages. Some economists now question the wisdom of our current path. Economic growth as it is currently framed is the never-ending story: in theory, we just keep growing ad infinitum. It is the aeroplane that takes off but never lands, says Oxford economist Kate Raworth. I see parallels between the never-ending economic growth story and the never-ending productivity story in agriculture. Except in Australia, agricultural productivity has flatlined too. And, arguably, we are using balance sheets that only show part of the picture. One large part of the asset has always been left off the accounts of the food producer. That is the natural assets. The natural capital. We are spending up big and we are not accounting for our spending in the natural world.
KEN HENRY’S FATHER was a timber cutter, making railway sleepers from felling trees. The Henrys sprang from a long line of ‘cedar getters’, working long days, from dawn until dusk. One afternoon when Ken was about thirteen, John Henry drove his three sons to the sawmill.
On the ground was the biggest log he had ever seen. It lay there ‘like the vanquished party in Jack and the Beanstalk’, two metres in diameter and twelve metres in length, which was about all a truck could carry. His father was proud to show his boys, proud of his work, given he had to climb so far up to get to a point where felling such a tree was possible. The monster log was just a portion of a much larger tree.
Henry and his brothers were proud of their dad and, like kids everywhere, they were ready with questions. Dad, how old do you reckon the tree must have been? ‘Oh, very old. At least a hundred years. Anywhere up to five hundred.’ Wow! How many houses do you reckon you could build out of that log? ‘Oh, it would make the framing for at least three houses.’ Wow! So how much would that log be worth? ‘I’m not sure, but certainly thousands of dollars.’
So how much do you get? Ken Henry, Secretary of Treasury from 2001 to 2011, credits that moment with sparking his career in economics. His father said that he would only get a couple of hours’ wages. The sawmill would get the majority, and the state government would get some royalties, ‘a few dollars I guess, perhaps not that much’. The whole scene troubled him. And he sensed his father and brothers were troubled too. [i]
‘Our sense of unease only grew as our father told us that he had cut down hundreds of trees just like the one from which this log had come but had had to leave them lying in the bush.’ Old hardwoods typically have hollow cores and a sawmill didn’t consider it economic to pay the transport costs for a log with fewer than one foot of solid timber around the hollow core. ‘The problem was that you couldn’t tell how hollow a tree was until you brought it down. That didn’t trouble the sawmill, because it paid royalties only on what it took out of the forest. The Forestry Department didn’t get a cent for what was left behind on the forest floor. Hundreds of trees, hundreds of years old, torn down – their carcasses left to rot where they fell.’
Cultures, laws and economic signals change. Behaviour can be altered by leadership or markets or regulation or law, but those measures rarely account for the intangible costs. In conversations long after the felling of that tree, John Henry told his son of his remorse over the way he earned a living and the effect of logging on the soil and the ecosystems – even though he was simply providing a living for his family.
TALL TREES THROW a long shadow. The shadow of John Henry’s tree followed his son into university. He learnt lots of things along the way. That property rights were important. That free markets might fail. That people in commerce could benefit from exchanges that might impose costs on others, including future generations. That prices guide resource allocation. He also learnt that governments might manage the common wealth in the common interest.
‘I came to the view that peoples’ behaviours had a lot to do with their pursuit of self-interest, and that a lot of what I might have found objectionable about the things humans did could have had something to do with the opportunities and incentives established by governments.’
Henry’s 2010 analysis of Australia’s tax system came up with 138 policy recommendations to streamline the nation’s overly complex system. The Rudd government implemented just one: the Resource Super Profits Tax, known as the mining tax – a complete change in the way Australia would account for natural resources to future generations, but isolated from the context of Henry’s planned overhaul. It was swiftly killed by the incoming Abbott government after the mining industry bankrolled a political campaign that would hone its skills to defend the coal industry for another decade.
After Henry retired from Treasury, he was still working for that tree. Despite a lifetime of reporting using orthodox economic criteria in his work, he has a problem with one of the biggest staples of government budgeting and economic performance: the gross domestic product, used to measure the health of the economy.
TO BECOME INTIMATE with one piece of land is to watch the world shrink. It reinforces that the system is limited. Only so much grass. Only so many trees. Only so much soil carbon. Only so much water. It becomes obvious, particularly in a drought, how quickly things can turn. For the longest time, parts of farming culture reinforced a more circular economy, and in some places it still does. This is obvious on this farm. Baby-formula tins hold nuts. Jam jars hold bolts. Pallets have been made into storage cupboards. Timber boxes have been fashioned into bedside tables. Strict accounts are kept to measure the flows of products. When wool, wheat and lambs are shipped to market, they have to be accounted for. So many sheep, so this much wool. So many acres of crop means this much wheat. All accounted for.
But the way countries account for resources is different in the GDP. If you look at it plainly, it sounds like a conjuring trick. It is better than the rabbit pulled out of the hat. It is as if the resources come from nowhere.
Many people look at the national economic accounts and are seduced by the notion that GDP provides a pretty good measure of material living standards as well as a basis for considering how living standards change over time. It also forms a basis for international comparisons. Henry argues that the people who came up with GDP and the system of national accounts developed it as a way to keep track of the peaks and troughs in aggregate demand within Keynesian macro-economic policy. It was never intended to be used as an indicator of the standard of living.
‘The most spectacular problem with national accounts being used in that way is that it makes no allowance at all for the loss of natural value,’ he says. ‘It makes no allowance even for the loss of raw materials, using stuff in production processes. If somebody digs a tonne of iron ore out of the ground, the national accounts regards that tonne of iron ore as having been created the moment it was extracted from the ground. It didn’t previously exist. If it’s exported, then that full tonne of iron ore makes a contribution in full to Australia’s gross domestic product in the quarter in which it is extracted and exported. There is just no allowance and no recognition at all of the fact that because a tonne of iron ore is extracted, it is no longer available for future generations, or even the present generation. It just no longer exists. If it was a tonne of iron ore sitting in your backyard, you would certainly want some recognition for that. You would regard it not as income in the quarter in which you sold it; you would regard it as a sale of an asset. But that’s not how the national accounts treats it.’
When economists realised they had a problem on their hands, they asked the wrong question. They looked to modify the existing system. Is there some way of adjusting the national accounts to address these problems so we are left with a more accurate metric of what is happening to the standard of living? Henry thought for a long time that would be possible – but realised he had to take a step back.
The bottom line, he says, is that the human brain is simply not that good at placing a dollar value on the condition of an environmental asset. Numerous and classic studies prove this. One involved asking three classes of students to value seabirds trapped in an oil slick. How much would students personally be prepared to pay to save those 2,000 or 20,000 or 200,000 birds? The numbers came in at between $80 and $88 irrespective of the quantity. In other words, the students took no account of scale or scope.
‘When you ask a human to process that sort of question, the brain uses a mental heuristic, a shortcut,’ Henry says. Incapable of imagining 2,000 seabirds, let alone 200,000, it is more likely to produce ‘an image of one bird trapped in an oil slick. No matter how many birds you’re asked to evaluate, you’re going to get a mental image of one and so your answer is going to be the same.’ In the same way, he says, ‘you can’t really ask people questions like what value do you put on the Tarkine forests. Or any bit of wilderness. Because the human brain is at best going to imagine one tree.’
Ken decided the best way was to start with the scientists who already have measures of condition, species, water and air quality and so don’t fall into the shortcut trap.
Now, a not-for-profit called Accounting for Nature (ACN) – on whose board Ken Henry sits – has come up with a system of assessing the environment relative to, in his words, ‘a pristine benchmark’. An accredited ‘Econd’ unit, developed by the Wentworth Group of Concerned Scientists, can describe the current biophysical condition of an environmental asset as a number between zero and one hundred, where one hundred is a measure of the asset in its undegraded state.
Once you start measuring, you are left with tables of figures that show whether the environmental asset is going up or down, whether it is trees or a fish stock or a riparian habitat or the number of macroinvertebrates. They are categorised in a balance sheet of sorts so you can see, year on year, whether the stock is improving or declining, just as a farmer might do with sheep numbers or tonnes of grain, or cherries or cauliflowers. That environmental account becomes a barometer for the land and water assets.
The big and very contentious question is whether we should place a dollar figure on the environment in the national accounts. Environmental activists such as George Monbiot are against such accounting: ‘Everything will be fungible, nothing will be valued for its own sake, place and past and love and enchantment will have no meaning. The natural world will be reduced to a column of figures.’ [ii] And some scientists – including Peter Cosier, Henry’s fellow ACN board member and a member of the Wentworth Group – want neither a dollar-value placed on the environment nor buy-in to the idea you can monetise everything. Cosier just wants things measured so we know if we are doing well or badly.
When the United Nations’ working group settled the rule book for a standardised system of national environmental accounts ten years ago, Henry had a little mental celebration. But the Australian government decided not to fund this approach. So the impetus for ACN was ‘to start from the ground up. Literally to build it up, paddock by paddock by paddock.’ One day, he says, a future Australian government will find the approach interesting. They’ll send in the Australian Bureau of Statistics to take responsibility for the measurement of environmental condition.
Think how much the debate over our natural world changes if we have a simple standardised measure of our environmental condition. It’s the ultimate feedback loop. The Australian public can then decide what to do when the dashboard is showing that petrol in the tank is low. We can decide how we want to use those resources and perhaps be more realistic about our limits. We can determine how much we are willing to blow and how much we are willing to save. Hopefully we think about our grandchildren when we are doing it.
PRIVATE MARKETS ARE heading in the direction of valuing natural capital whether or not governments have a consistent measure of environmental value – a bit like the decline of coal or the rise of carbon prices. As the former chairman of NAB, Henry is confident that banks and their products – including the average farm loan – will soon start measuring environmental condition. This will have implications for land managers across the country and the globe. Not only are eaters demanding more environmentally sustainable ways of farming; banks will use assessments of land condition to calculate interest rates. In the same way that banks look at assets and investments when lending money, they will look at paddocks and, potentially, other big measures – vegetation, ground cover, soil and water – to determine what farmers pay from month to month.
Any farmer with a loan will have had the annual visit where the banker comes for a cup of coffee and a chat to get an idea of how things are going. The bank already knows the physical assets on the place and how much money is coming in and going out. Sometimes the banker might have a poke around in the cropping program or ask about the livestock program for the year ahead.
But there is a conundrum. Two examples: one farmer is pushing harder to get maximum productivity in the short-term. Growing more. Making more money. The other farmer is operating more lightly, perhaps ensuring maximum ground cover, balancing inputs more carefully, planting trees and understocking in case the season turns. Possibly making less money. Who is the bank going to favour? I would have thought the first farmer, because ultimately, the bank wants to see the money paid back.
Henry disagrees. The bank will have a less risky loan book by favouring the second. ‘Putting my former bankers’ hat on,’ he says, ‘the worst thing that can happen for the bank is that the farm is completely degraded by the time it’s forced to take possession of it… That is what the whole field of regenerative agriculture is literally about. It is regenerating.’
There remain many arguments about the definition of regenerative agriculture. Henry’s definition is simple. ‘It is something that improves the condition of the environment and increases the returns for farmers. It doesn’t matter where the revenue comes from.’
I have met enough farmers to know that the idea of farm loans determined by environmental condition would send up at least two red flags. First, it would require more work to provide the information, and involve opening up the landscape and farm books to greater scrutiny. Second, what would that information be used for? Open the gate; the measurement is taken; new rules are imposed: that’s how it goes in the farmer’s imagination. Often the farmer’s instinct is correct. But the flipside of measuring is gathering evidence that shows how improvements in land condition – regeneration, if you like – might boost your bottom line.
I STARTED RESEARCHING natural capital after I met Steve Lacey. He was working for the Queensland agricultural advocacy group AgForce at the time. A farmer, former soldier and native of the UK, he grew up on the edge of the New Forest, William the Conqueror’s hunting ground in the eleventh century. For hundreds of years, the commoner rights of the New Forest allowed pigs and ponies to graze freely on Crown lands. The animals were used as tools to manage the asset: the pigs ate the acorns, and the cattle and the ponies chewed down the gorse and the heathland. This has woven Lacey’s view of the natural world into the human community, and vice versa.
When Steve and his family came to Australia, he discovered many farming policies were based on activity rather than the impact of the work on that farm. Influenced by Dieter Helm, a professor of economics at Oxford, he became convinced that accounting for the natural capital in any farming system – the water, the air, the vegetation, the soil that nature provides for free – would be a way of setting policies for the next generation.
‘When you have a massive asset, you tend not to measure it until it’s too late,’ Lacey says. ‘Some policies were about agricultural growth and productivity as opposed to profitability. By bringing the extra layer of natural capital into the accounts line, you could actually show you were working within a safe limit of your asset base and determine whether it was renewable or non-renewable.’
Steve likens a farm to his own body. As a young man ‘I flogged my body’, he says, ‘but when it went wrong, it’s never been the same machine since. I have seen that in the grazing industry. The time it takes to rest country once it’s gone past a certain point – that’s the bit that’s so hard on a grazier who has to produce income. That can push people to work the country harder than they need to because they need turnover. We often hear farmers are the true environmentalists. Well, some are and some aren’t fantastic at it. State and federal policy tended to support landholders to stay on the land rather than allow them to exit and get someone else to manage it.’
He worries that government and industry too often focus on exports and dollars to the exclusion of other things, which renders food production unsustainable. If we thought about what is best for the landscape, land managers, banks, governments and whole economies, Lacey argues, we would be in a far better position.
In other words, farmers have to take account of the system they are working in: good farmers already know that. Governments also need to pull the right policy levers to ensure that farmers don’t erode their natural capital. For the past thirty years, the government policy signal has been to push harder, grow faster and remove the costs of labour because the price of the food has dropped and the costs of inputs have increased. The only way to get a pay rise if you are under pressure is by pushing your country as hard as you can.
Yet now, in countries around the world, light bulbs are turning on. People are questioning that very neoliberal approach – not just in agricultural policy but in finance, in industry and in communities. The time has come for a more balanced approach. The simple productivity solution that has reigned from the 1970s onwards is so last century. Farming is entering the next phase and it will require a thinking shift to integrate the natural world more fully for both farming systems and anyone who eats our produce.
IT WAS ONLY in coming to grips with the business of farming that I began to think hard about how we should regard the natural world in terms of what we need to eat and produce. The farming mindset is often about control of nature, yet it regularly yields to forces beyond its control. Seasons start with promise and then die. Crops flourish and wither. Prices rise and then fall. Prize rams find a new way to die. A cold snap and torrential rain arrives in the lambing season, as it did in 2020. Water pipes burst, trade wars flare, rain doesn’t fall.
There is a balance required in farming between when to control and when to yield. The idea that farmers can control nature is prevalent because we need to make an income. It is reflected in agricultural products marketed as weapons of war against nature. At the same time, yielding to nature is a fundamental farming instinct. You can shake your fist at clear skies, but it won’t bring rain. Farming requires careful attention to nature. The farmer notices well before me that there are no bees in the Paterson’s curse. Or that the ironbarks are flowering at the wrong time. Or that shingleback lizards are having a good season. Funny, he says, I haven’t heard the sound of frogs in the back ramp for a few years.
These personal experiences ground the farmer in the landscape. The detail of nature becomes imprinted on many of them. Those experiences have emotional roots, which form a connection to the natural world, even for those who might be regarded as bad land managers. This is not to excuse bad farming, but rather an observation about why you might raise a farmer’s hackles by saying they fail to understand or are destroying nature. When the political debate strays towards climate – or water or biodiversity or native vegetation – they feel unheard and under-appreciated, even if their actions are at odds with the wider goal of preservation.
Land managers balance two imperatives: looking after the landscape and making a living. Landcare membership, planting trees, setting aside habitat or fencing off a creek appeals to the landscape imperative. Finding a way to grow a decent crop with all the conventional inputs appeals to the imperative to make a living. If eaters are unhappy with some practices and want farmers to change, they have to understand that a farmer cannot be all for landscape regeneration without making a living – unless someone is paying for that regeneration.
ECOSYSTEM SERVICES ARE about paying for farmers to address subjects such as soil health, species habitat and vegetation. If you start measuring natural capital and the environment is diminishing, how do you turn it around? The answers are either regulation or incentives to manage land in a different way, such as payments to improve natural capital. You will hear a lot more of this term in the coming decade as governments around the world scramble to mitigate carbon emissions and put back some of the natural capital both farmer and consumer have collectively blown. That conversation is most advanced in the UK.
As well as his professorship at Oxford University, Dieter Helm is Chair of the UK’s Natural Capital Committee, which provides independent advice to the government on how to manage its natural capital. The future of British agriculture is one of the key political and social choices facing the UK as a result of its withdrawal from the European Union. Farming districts largely supported Brexit, a phenomenon The Economist dubbed ‘turkeys voting for Christmas’. [iii] The result is that UK farmers will move away from the EU’s Common Agricultural Policy (CAP) system that paid farmers based on the amount of land they managed. According to its critics, it is a system that pumps up land prices, keeps farmers on marginal areas, locks young farmers out of the land ownership system and gives no incentive for good practice. Instead, future payments will be for provision of ‘public goods’ in the form of environmental land management. The pot of public money remains on par with the EU’s CAP contribution, in the vicinity of three billion pounds a year.
The idea of public money for public goods is quite a philosophical leap in the UK. While Britain’s decision to leave the EU was driven by a conservative impulse, reorienting farm production subsidies to environmental-service payments is potentially a huge cultural change. Helm describes it as a big moment in UK history and the public understanding.
Right now, Helm believes the UK leads the world by taking a natural-capital approach to agriculture, but he suspects it will not be long before Europe catches up. At the same time, navigating the path between environmental activists and farming-industry advocates can be difficult – although Helm has identified what he calls a ‘pretty damn large’ overlap between the two groups: soil.
‘In a country like Britain, the soil is just declining so fast. It is beginning to be quite a serious question as to whether the kind of chemical-based farming we’ve developed actually will be, in the strict sense of the word, sustainable.’
While Helm has said of farming that ‘no other economic activity combines such a perverse set of incentives, or produces so little value for its true costs’, [iv] he does not buy the argument that getting rid of farming is the best answer to landscape management – even if we could find another way to produce food. He argues that the bulk of land requires ‘a way of combining farming with a less environmentally destructive approach’.
THERE ARE PLENTY of critics of the natural-capital approach. Kate Raworth is the most notable, and her book Doughnut Economics is a favourite among policy wonks and environmentalists. She dislikes the term ‘ecosystem services’ because it changes nature from being ‘man’s material means to being an asset on his balance sheet’. It appropriates nature for human usage, unlike the indigenous view of the world, which sees nature – earth, rivers and landscape – as a family rather than something to be used. George Monbiot also argues persuasively that by accepting natural capital as the only way to change the environment for the better, it buys into a system that considers nature as just another asset, something be traded. Better to improve things by mobilisation, he suggests, by people getting involved and fighting to protect nature. The problem is that mobilisation is not working.
This is an ongoing policy debate. The National Farmers’ Federation has a goal that farmers should receive 5 per cent of their income from ecosystem service payments by 2030, whether the money comes from governments or private markets. Australia currently has a range of ecosystem or biodiversity programs, but they are neither uniform nor strategic.
If such payments come from government, there may be trade implications. Framing them as ‘payment for services’ rather than ‘subsidy’ allows Australia to continue to berate others in the world to lower trade barriers.
Such payments could also come from the private market, from companies that want to invest in people ‘doing the right thing’ – whatever that is. Ken Henry says there will be billions amassing in private markets in the next few years. He thinks there will be a dollar value on the environment by default. Queensland’s $500 million Land Restoration Fund (LRF), for example, is a state-government-run program that funds farmers and land managers for biodiversity values and carbon. Programs like the LRF and other ecosystem service-payment programs will allow people to figure out a dollar value for environmental services.
Though totally opposed to the concept, Monbiot’s warnings underline the need to get the design right. One of the biggest confidence tricks in environmental accounting has been the use of offset programs. Cut out an old-growth natural koala habitat here and plant new trees over there, in the hope that one day a dwindling koala population will find its way to trees that will take years to mature. A badly designed system that allows environment to be improved and lost through trading could be worse than no policy at all. A badly designed system with no accountability would be even more diabolical. It could become a rorted system that would make the pork barrelling ‘sports rorts’ saga pale by comparison.
Ken Henry underlines that natural capital programs should only provide commercial incentives for enhanced environmental protection. That would stop developers destroying the natural world on the grounds that their project’s economic value exceeds the natural-asset value.
‘Right now, the farmer loses no revenue based on environmental amenity but gains an income from cropping or grazing,’ Henry says. ‘And Australia’s history of land clearing and mining approvals provides pretty convincing evidence that policy-makers carry in their heads a valuation of environmental amenity that is not much above zero. Generations of “mobilisation” might have made some people feel better, but it seems to have had little impact on that.’
Of course, nature is not here for human use alone. It has an intrinsic value. But there is an urgency to this debate. In 2014, the Food and Agriculture Organization warned that the world’s topsoil could be gone in sixty years. Sixty harvests. Around 2080 – when my grandchildren will be around my age. While that date has been contested, no one is suggesting the world’s soil is improving. It is degrading. Humans need to live and eat in a way that improves the planet and we are all going to have to accept change in order to achieve this.