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Opinion: Why drought aid is a travesty of policy

by Ben Rees, 15 May 2015
6

It has become tiresome watching politicians and rural leaders wringing their hands and shedding crocodile tears over the failure of drought aid to reach those in desperate need. The cause of their angst is that drought concessional loans are reaching very few people in need. Not one rural leader or politician will acknowledge that ineligibility of people in need to access appropriate finance is evidence of regional policy failure. Supply side dogma from the 1980’s remains unquestioned i.e. supply finance and it will flow to some theoretical demand and solve the policy problem.

On May 9th, the Prime Minister issued a statement in central Queensland proclaiming additional drought measures; and, pre-empted further drought funding in the coming Budget. In the Prime Minister’s online statement, it was disclosed that 4800 applicants were in receipt of Household Assistance whilst 531 farm businesses were in receipt of $270 million in concessional loans. On average, each 531 farm businesses had accessed $ 508, 475. From our national experience with the Rural Debt Round Table, this average amount per farm business is little more than a conscience salve for rural leaders and politicians out of touch with modern agricultural finance.

The more significant figure is 4800 applicants on Household Assistance. The flip side of Household Assistance is that beneficiaries are most likely long term non-viable farmers unable to access drought concessional loans. This data then becomes an approximation of threatening insolvencies in drought affected regions. That is a shocking conclusion that should shame all political and industry leaders at both grower and political party levels. In light of these statistics, politicians that have paraded themselves around drought areas look very insincere people more concerned with party profiles and personal career paths than the welfare of drought affected rural communities.

Media reports inform all that both Agforce and NFF are concerned about eligibility criteria and have been working for several months to have access conditions relaxed. Well, I identified this problem in my paper presented in December 2014 at the Winton Crisis Meeting. Both Agforce officials and Barnaby Joyce attended that meeting and heard my comments. My paper was available if they missed my comments. Six months later and nothing has happened except political posturing and jawboning. Meanwhile more farmers and town businesses go to the wall. This is the modern version of Nero fiddling whilst Rome burnt.

The Legislative Problem

All States have statutory authorities that deliver Commonwealth programs to rural industries. These state authorities have complimentary legislation to Commonwealth Legislation necessary to deliver Commonwealth Government aid to rural industries. In Queensland, QRAA has a Drought Concessional Loans Scheme Legislation which carries the emblem of both Queensland and Commonwealth Governments. This legislation will reflect the intent and direction of Commonwealth Legislation

Section 12 subsection (b):

Farm Business has the capacity to repay the Drought Concessional Loan and has sound prospects for a return to Commercial viability within the term of the Drought Concessional loan

Patronising politicians touring drought areas know this. Both Agforce and NFF know about this. It is not new information. What are they doing to do about it?

Rural debt compounds drought support delivery

2015-5-14-Ben-rees-chart

Compiled from: NVFP ; ABARES commodity statistics 2014 Table 13 Rural Debt; RBA Statistical tables online, Table D9.

Have a good look and think about what this graph is saying. Post GFC, rural lending (red line) has basically flat lined. The debt curve implies that little new lending has flowed to rural businesses. Implicitly, new lending is either not happening; or, being cancelled by farm foreclosures, bankruptcies, and subsequent winding up of farm mortgages. Drought Concessional Loans to a few drought affected regions does not address this national debt problem ; but, the underlying debt problem compounds delivery of drought aid constrained by a long term viability clause. Until debt restructure is adopted, contemporary drought aid must remain ineffectual.

Debt incurred pre-2008 has been undermined by a 40% collapse in land values post the GFC. Affected enterprises become precluded from concessional loans by the long term viability requirement. Other enterprises that were solvent after the GFC will have long term viability sorely tested by costs associated with operation of their drought affected properties. These businesses are dependent or become dependent upon Household Assistance.

Household Assistance meets day to day living requirements; but, it does not provide for emergency expenditure on such things as medical expenses, phone bills etc. To cover these emergency requirements, beneficiaries of Household Assistance must turn to local charities. In Queensland, these charities comprise churches of all denominations, private charities, and urban based Queensland Freemasons

Household Assistance is little better than a conscience salve for politicians and agro political elites. The fact that beneficiaries of this program have to depend upon local charities to meet emergency expenditures is a shocking indictment of the architects of Australia’s contemporary drought policy. In April 2013 at Merredin WA, 1000 farmers moved a motion rejecting the implementation of a pilot program that had run in that region. That pilot program underwrote contemporary drought policy introduced in July 2014.

Drought Policy: Anachronism of the 1980’s-1990’s

Drought policy is an anachronism from the 1980’ supply side free market theorists. Risk management was the theoretical flavour of that era amongst market academics besotted with mathematical models. Everyone was expected to know the probabilities of risks associated with decisions. Implicitly, it was assumed that everyone was a mathematical wizard and walked around calculating probabilities of decisions both imminent and possible unknown future decisions. Those that were not serious mathematicians were considered of a lesser breed than mathematically literate gurus of the time.

The GFC was the ultimate test of this thinking. If risk management had delivered on its promise, no GFC could occur; but it did happen. Amongst thinking people, the nonsense of risk management theory lost all credibility. Nonetheless, that theory still resides amongst industry leaders, the bureaucracy; and political parties. It is enshrined in contemporary drought policy.

Conclusion

The policy problem now is to excise risk management thinking from policy structure and direction. Until that is done, sound economics has no chance of delivering stable industries, full employment and rising living standards for all Australians. In rural Australia, the answer must lie in a new model of political representation and advocacy that is prepared to recognized policy weaknesses; and, then fight for solutions. The old 1980’s consensus model of working within the system has failed miserably.

The refusal of the Australian Senate Economics Legislative Committee in March this year to support an Australian Reconstruction and Development Board to restructure debt in dislocated industries, leaves no other option but for each State to develop its own institution. For rural Queensland, the clock is ticking on debt restructure. Meanwhile drought aid premised upon risk management will remain ineffectual.

* Ben Rees B. Econ; M. Litt. (econ.) is an economist and rural landholder based near Miles in Southern Queensland.



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Reader's Comments


Comment
  • john hall May 15, 2015

    The cause of the economic collapse of the grazing industries is the price increase of only 40cent kg rise in price for live cattle in the last 26 years and then the closure of the live export cattle market,( by the Queensland Senator Joe Ludwig because of cruel slater of cattle overseas that did not have NLIS tags, which all Australian cattle must have before sale,) & just before a drought.
    The 400% increase in our input costs of,
    Electricity,
    Fuel,
    Urea and molasses,
    Freight
    over the last 5 years has been the equivalent of a Turkish Machine Gun Mowing us down. Everyone after the loading of produce makes a profit but not those before.
    Cheers & Beers
    Bil Natas

  • Grant Piper May 15, 2015

    A failure of drought policy is just the start. This situation is the result of a failure of both left and right Government policy. If you have to flog yourself and the land to maintain a standard of living or to stave of debt because of unsustainable prices, you have no margin when drought comes, and it will come. ‘Market Support’ (the current euphemism for Government picking winners, or mates) has been methodically withdrawn from traditional industries over the last 40 years. It has been replaced with ad hoc largesse to whatever the current short-term feel-good trend industry may be. Generally on the election cycle and bent towards rewarding party supporters.
    Waste of time typing this really. All Western Governments have followed the same path, all have accumulated unsustainable debt, all are an embarrassment to their country and are despised by their citizens. Don’t expect things to change for the better anytime soon.

  • Chick Olsson May 15, 2015

    Agree with author. For a moment we got a little excited thinking we could upgrade drought fodder storage and fence some new areas and claim
    Advanced depreciation… But no, we dont qualify…. Bogus ag policy

  • Anita Lethbridge May 16, 2015

    I agree with the previous 3 comments and think that one positive step would be for all members of Govt. to get behind Barnaby Joyce and agree to implement/bring about his Senate Inquiry’s 7 Recommendations.

  • Brian and Susan Collins May 17, 2015

    I really enjoy this service that collates so much information and sense that I could never find on my own. Value all these comments but as small producer and getting too old I wonder if I will ever see any change. Thanks anyway for service. Sue Collins

  • Alison Couston May 18, 2015

    If policy was,implemented that supported small to medium producers, which in turn would enhance, rural and regional communities, why then would there be a need to pursue this foreign sell out of Australian assets? If we do not need to create corporate agribusiness giants why would we need all this investment in infrastructure at the expense of the majority of rural producers and their communities and Australia in general?

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