Agriculture key part of mainstream economy, says PM

Agriculture is a key part of the Australian economy and must be helped to realise its full potential, the prime minister Kevin Rudd says.

In his opening address to the ABARE conference in Canberra this morning, Mr Rudd said three key issues were affecting the sector's ability to be more productive.

"First, the immediate challenges in the Australian macroeconomic environment from inflationary pressures," he said.

"Second, the longer term challenge of lifting our competitiveness in global markets and finding new export markets, and third, possibly the greatest long term challenge of all, dealing climate change and water shortages."

"If we deal with those challenges, the real potential for Australian agriculture can be realised."

He said the agriculture industry was more exposed to inflationary pressures and interest rate rises than other sectors.

"The deteriorating inflation outlook reflects capacity constraints across the economy that have been emerging for many years," the PM said.

"Those constraints have affected agriculture more than many sectors because of its reliance on infrastructure and its greater shortage of skilled workers."

"The higher input costs being experienced by agricultural producers reflect an economy-wide problem in Australia, with the underlying rate of inflation now at a 16-year high of 3.6 per cent."