Interest rate subsidies will play no future role in drought assistance policy under changes announced by Federal agriculture minister Joe Ludwig on Friday.

Reforms to the drought assistance program have been flagged for several years, however the sudden termination of a major support measure in the absence of a replacement policy has infuriated farm leaders.

The decision was timed to coincide with the lifting of Exceptional Circumstance declarations in Bundarra and Eurobodalla in New South Wales, which means that for the first time in a decade Australia is now officially-drought free.

In a press release issued on Friday Senator Ludwig said the Government was taking the opportunity to transition from a reactive approach to drought policy to a proactive approach that prepared farmers for the future.

He said the WA drought pilot program conducted in recent years had reinforced the view of State and Federal Governments that the EC Interest Rate Subsidy scheme built dependency and did not assist the farming community to prepare for future challenges, including drought, or to improve risk management.

“This is a move recommended by successive reviews of drought policy since 1997, including by the Productivity Commission, which found the subsidy resulted in farm businesses being less responsive to drought conditions,” Senator Ludwig said.

The Government has indicated that it hopes to have an alternative drought policy in place within the next 12 months.

To provide assistance until then, it has announced funding for the Transitional Farm Family Payment until June 2014, which will provide up to 12 months household income support to farm families facing financial hardship.

Eligibility for the program is based on the same income and assets tests as the Newstart Allowance.

Farm leaders say they were given no advance warning that interest rate subsidies would be axed in the lead up to this year’s federal Budget.

Describing the decision as baffling, NFF president Jock Laurie said that axing the existing scheme before a suitable replacement was in place was completely unacceptable.

“There’s no doubt that the decision to move to an improved drought policy is the right one – after all, the NFF has been driving this for many years. However, today’s decision to ditch interest rate subsidies before a suitable alternative is in place is certainly the wrong one,” Mr Laurie said on Friday.

“For as long as the debate on drought reform has been raging, our position on interest rate subsidies has been clear. Interest rate subsidies for farmers can only be phased out once a suitable alternative, and an appropriate transition period, is in place.

Mr Laurie said the Government had to find a balance between allowing farmers to build their own risk management and preparedness, while also ensuring that appropriate assistance remained available in the event of exceptional drought.

Federal shadow minister for agriculture and food secrurity John Cobb said drought created exceptional circumstances for small rural based businesses that necessitated an adequate safety net for farmers.

“There isn’t another small business I know that can plan and survive ten years of negative income as happened to many farmers in the worse drought on record.”

Mr Cobb said farmers found it increasingly difficult to invest in long term strategies when they were undermined by increased government regulation, artificially inflated costs through the carbon tax and a higher Australian dollar, contributed to by massive Government borrowings.

He said drought reform should not be used as an excuse by the Federal Government to clawback “wasteful spending in other portfolios”.

“Regardless of any sensible drought preparedness measures to mitigate farm impacts, the Gillard government must accept that there will still need to be an adequate ‘safety net’ to help affected farmers.

“The Coalition support drought reform but not absence from the field, we have to look at helping farmers help themselves and that may include expanding tax incentives for drought proofing.”

WA drought pilot

A range of drought assistance measures have been tested in a drought pilot program in Western Australia over the past two years.

WA Agriculture and Food Minister Terry Redman said the EC assistance scheme was a complicated and time-consuming process, under which many farmers in his state had found it difficult to qualify for assistance.

“Providing income support to all eligible farming families in need, with or without an EC declaration, is a much fairer and more efficient system,” Mr Redman said. 

The trial of drought reform measures includes income support for farming families and planning workshops to help farmers better prepare for future challenges.

The Minister said the support measures offered through the drought pilot were well received, especially considering 2010 was the driest year on record in many parts of WA.

“Through the drought pilot almost 500 farming families were able to receive immediate income support,” he said.

“Under EC they would have had to wait more than two years before getting any assistance.

“We’ve also had more than 1000 farm businesses take part in workshops to help them prepare for future droughts.

“I’m very proud that WA has taken a lead role in this process, and I look forward to continuing to work with the Federal and State governments as we move towards drought reform.”

• Information on the Transitional Farm Family Payment program is available from the Department of Human Services website or by phoning the Farmers Assistance Line on 1800 050 585.