Northern Australia is Australia's last frontier
and also its most vexing economic development puzzle.
People have long dreamed of turning its vastness into a bountiful bread basket.
It might be possible. But there remain formidable challenges in the way.
For over thirty years starting in the 1960s, the Australian government built a series of
dams to divert the waters of the 650 kilometer or 405 mile long Ord River for irrigation.
Over a billion dollars went into the project since 1950. And the water
eventually did flow. But a (maybe) surprising thing happened: The farms would not make money.
Northern Australia is one of the largest land masses in the tropics. In this case, the Tropic
of Capricorn. It spans the states of Western Australia, the Northern Territory, and Queensland.
At about 3 million square kilometers or 1.2 million square miles, northern Australia is
about the size of India. By itself it would be the 7th largest country in the world.
Yet despite its vastness, very few people live there.
Only about a million, mostly in a few small urban areas like the city of Darwin.
Within this massive area is the Ord River Valley.
It’s formally located in the Kimberley region in the state of Western Australia.
It is named after Sir Harry George Ord, Governor of Western Australia from 1877 to 1880.
The Ord river region has long been a high potential target for a dam since the 1870s.
Explorer Alexander Forrest first surveyed the
area and noted that cotton and sugarcane could be grown there.
In the 1940s, the Kimberley research station was established to study the
area's agricultural potential. Scientists noted the presence of crop pests and
questioned whether such an irrigation project could be economically viable.
Despite these initial misgivings, the Western Australian government asked
the federal government to consider an Ord River Scheme. And in 1958,
the Commonwealth passed a bipartisan plan - partially motivated by the upcoming elections.
As originally planned in the 1960s, the Project would be executed in three stages.
It would start with the creation of a diversion dam to irrigate 10,000 hectares of land.
After that would be the construction of the main dam,
a project to create a very large permanent reservoir.
Fully realized, this would add another 60,000 hectares of agriculture-quality land to the area.
The final piece would be the construction of a large hydropower station.
Stage one of the scheme - the diversion dam later to be named the Diversion Dam
at Kununurra - began in 1963 and finished two years later
at a cost of $6 million Australian dollars ($83 million in 2013 dollars).
The federal government now had 10,000 hectares of agriculture-quality land.
31 cotton farms were founded to begin producing the cash crop,
and the town of Kununurra was established to serve as an industrial base for the cotton industry.
Having finished this first stage of the project,
the federal government quickly turned to executing the scheme's second stage.
But that same year, economist Bruce Davidson published the book "The Northern Myth".
This famous book was very critical of the Ord River project.
Davidson argued that agriculture in Australia's north was in
general uneconomic - especially in cash crops like cotton and rice.
The north already had a large agricultural industry made up
mostly of sprawling dry-land cattle farms. The land mostly cultivated grass for grazing.
Their presence hinted at the land's inability to support high-value,
high-effort crops like cotton or rice - even if the water was to be made available.
Regardless, cotton output in the Ord did boom throughout the 1960s. But as feared,
insects and other pests attacked the cotton crop. Farmers spent 50% of their total budget
applying pesticides up to 30 times a season. Furthermore, the area did not have robust rail
transportation links. As a result, goods had to trucked in and out, sending costs sky high.
Farmers stayed in the market only due to the presence of explicit price supports
and subsidies from the government.
Such a situation should probably force a re-evaluation of the entire scheme.
Why move forward with these expensive irrigation projects
if the farmers need additional subsidies to stay in business?
But the federal government felt that they had to move forward with the scheme for
political reasons. They first wanted to keep their campaign promises. And second,
they wanted to develop agricultural jobs for the local aboriginal people.
A people, by the way, who was never consulted on the project's first stage.
And since then has received title to the area.
And third, they saw national security value in developing the Australian north.
There is a risk in the area being too depopulated. Such a fear dates back
to World War II, when people thought the Japanese might have invaded the continent.
Thus in 1969, the government moved forward with building the Ord main dam - but at a reduced scale
from the original plan. Completed three years later, the dam created one of Australia's largest
freshwater reservoirs - Lake Argyle - at a cost of $48 million Australian dollars. $700 million
in 2013 dollars. This expanded the total amount of irrigated land in the area to 14,000 hectares.
That same year in 1972, the federal government removed the cotton subsidies.
The cotton farms lost their ability to compete against growers in other parts of the country
and those farms quickly closed down.
Studies in 1978 confirmed that those cotton farmers were unable to profitably farm in
the area without subsidies from the Western Australian state government.
Again, harsh conditions, crop pests and high transportation costs were the reasons.
The poor results finally convinced the government to reevaluate things
and the hydropower station - the third part of the plan - was never built.
The improvements of what is now referred to as the Ord Stage 1
were not super encouraging. But over time, the agriculture industry
in the valley began to literally bear fruit. Recommendations from agricultural scientists
led to improved crop diversification and a move away from broad crop fields.
Growing perennial and annual horticultural crops like bananas, rockmelons, watermelons and mangoes
brought the first signs of success. Later on, improved pest management and new
GMO variants brought chickpeas, soybeans and Indian sandalwood.
Throughout the 1980s and 1990s, the Ord River Valley's total cropped area rose
from less than 3,000 hectares to almost 13,000. Agricultural
production value grew at a mean annual rate of 21%.
Despite this, there were still major setbacks. Some initial success in sugarcane production
showed some promise. And soon, sugar turned into the Ord Valley's great hope.
Eventually in 1995, a mill was built.
At its peak, the mill produced and exported 55,000 tons of sugar a year.
But a global decline in sugar prices, the mill's small scale, and the cost of trucking the sugar to
the nearby port of Wyndham led to its sale in 2000 and complete dismantling by 2008.
Today, half of the original 14,000 irrigated hectares
is for Indian sandalwood. It is great that the land is being used,
but these fragrant long-lived trees don't need a lot in terms of maintenance.
In other words, these farms don't employ a lot of people. And according to Wikipedia
it takes about a decade before they are viable for harvesting.
Finally in 2008, the Cabinet approved a $220 million expansion of the Ord project.
Water and road infrastructure would be built to service 8,000 hectares of land.
This was expected to complete by 2011, a construction time of about two years.
A second expansion was added a year later as part of a massive $4.7 billion economic stimulus
package passed in response to the Global Financial Crisis. This allocated $195 million for the
construction of 27 social infrastructure projects, including educational and health facilities.
The political impetus behind the expansion was again that the Ord Valley could be a
food bowl for the growing middle class of the Asian nations. Such an expansion would
shore up the local economy and provide jobs for the Aboriginal people of East Kimberley.
In 2012, the government granted a 50-year lease to the Kimberley
Agricultural Investment Company - an Australian subsidiary of the Chinese
company Shanghai Zhongfu - to develop this 8,000 hectare land parcel. This
would later expand to 13,000 hectares if all went well with later expansion plans.
However, this entire expansion drive saw extensive delays and cost overruns.
Firstly, the $220 million irrigation expansion project was under-scoped
and the originally cited completion time of two years was unrealistic.
The project was finally completed in 2014 rather than 2011, and this pushed back everything else.
Additionally, the original $220 million budget grew to $334 million, a 52% increase. Most of
these costs went to construction, project management, and administration. Legal and
environmental costs as well as the cost of building a workers' camp made up the rest.
Troublingly, when the Auditor General requested a more detailed breakdown of the individual costs,
one could not be provided. So we are not quite sure why this went over
by so much - requiring an additional $91 million grant from the federal government.
Kimberley Agricultural had originally proposed a future investment of $700 million,
including $425 million for a sugar mill capable of producing 500,000 tons of sugar
and ethanol annually. That would be greatly expanded as the Ord scheme developed.
By 2016 though, partly due to the delays in the original irrigation
project, none of that had happened yet. The company had cleared just
1,600 hectares with about half of that used for growing chia and sweet sorghum.
The second part of the expansion plan, the $195 million social
infrastructure construction projects, completed on budget but not on time.
The original complete date was 2010, but final completion came in May 2013, 3 years late.
With regards to social outcomes for the whole expansion project, there were tangible albeit
unmeasured social benefits. Life was improved for the community thanks to the new buildings - like
an expansion to a local school. And two hundred Aboriginal people worked on the irrigation project
- 21% of total employment and above expectations. Most of this was, as I said, unmeasured, but real.
Anyway, I am going to end our breakdown here in the year 2016. But the federal government
continues to scope out further possible investments in the area. This includes
assessments of up to 30,000 hectares in Cockatoo Sands and 9,070 hectares in the Mantinea area.
So it seems like successive administrations hold out hope that further irrigation projects can
eventually lead to agricultural success in the Ord. And in some ways they are not wrong. You
can definitely see that literal green shoots have emerged from what before had been very rough land.
But at the same time, you have to say that these governments have poured a whole lot of
money into the projects with seemingly little to be had for it. Counting public money alone,
over a billion and a half Australian dollars have gone into the venture since the 1950s.
Yet today the cattle industry still dominates the Wyndham–East Kimberley area both in terms of
agricultural output and employment. Same as it did all those decades ago. So what’s going on here?
Fundamentally, I think it goes back to those core issues raised by Davidson back in the 1960s.
Ord Valley agriculture is at a disadvantage in the market and lacks business viability.
That will not change even after the water becomes available.
Northern Australian soil is not rich enough to grow many high-value crops.
The area is too remote to truck inputs in and ship outputs out. And there is a shortage of cheap,
available labor to tend to them, especially with the mining industry involved in the area too.
All of these obstacles require money to overcome, raising farmers' costs. But on the revenue side,
they have to compete with low cost labor competitors in the Asian tropics. For instance,
Australian mangos versus Indonesian mangos. As well as compete against the high-value experienced
farmers in the Australian south - who have been cultivating soils there for over a century.
The revenues can't balance the costs without subsidies from the government. The government will
have to decide if that’s what they want to fund on an ongoing basis in lieu of other opportunities.
Northern Australia on the whole continues to attract proposals for agricultural development.
But there is a reason why these dreams have yet to turn into reality. Without close study of these
circumstances, these bread basket projects might again turn into bottomless money pits.