News

Opinion: A NW Qld flood recovery option

Ben Rees, February 18, 2019

In this contributed opinion piece, farmer and research economist Ben Rees outlines a Whitlam era policy that he believes offers the best approach to structuring northern flood recovery efforts.

 

IT IS distressing listening to the sad stories coming from the north; but, it is time the discussion turned to what needs to be done and how it can be structured.

Natural disaster assistance will be limited to small scale grants for immediate relief from hardship and distress; but, it will not structure recovery. Calls for the Commonwealth to pay for all deceased cattle is fairyland stuff, and, beyond Section 51 (iii) of the Australian Constitution.

In the past a reconstruction facility would have been established by the Commonwealth and funds delivered through either the Commonwealth Development Bank, or the State Agricultural Bank, now QRIDA. Under a properly constructed reconstruction facility, financially distressed farmers are passed from the retail banking sector to the reconstruction authority. Once accepted by the Reconstruction authority, the producer is isolated from creditor bankruptcy proceedings or bank foreclosure whilst his situation is assessed. If considered salvageable, the Reconstruction authority negotiates a market valuation of the retail mortgage. That allows a write down of debt to a manageable level. Government either State or Commonwealth can then provide further relief either through a subsidised interest rate; or, further write down of debt. If the distressed farmer is not salvageable, then his assets are orderly liquidated by the reconstruction facility. This hopefully will preserve some funds to begin a new life.

A reconstruction and development bank can be structured by either the Commonwealth or State under Section 51 (xiii). At State level, the institution cannot operate beyond State boundaries. The authority being a government statutory authority borrows on the capital market at government rates. An interest rate margin is then built in to the lending rate to manage any defaults that occur. The revamped QRIDA funded from Budget cannot handle the level of debt that will be exposed by this disaster.

The Commonwealth Government should immediately structure a modern version of the Whitlam Regional Economic Development Program known as the RED Scheme. Under that program, Commonwealth funds flowed to distressed regional councils to employ unemployed local people. Since Whitlam, State Grants Commissions have been formed so that make the distribution task much easier than in the 1970’s.

Local councils used RED funds to build local roads and infrastructure. This provides employment and income necessary to stabilise local town businesses and distressed regions. There should be no obstacle to town businesses being included within the reconstruction program. Most likely, Blaze Aid will move in and assist in the rebuilding of on farm infrastructure. Urban charity then will continue its valuable; but, unrecognised role in rural policy.

State Government responsibility should assist the movement of stock and fodder both into and out of the distressed regions. Land rental relief also falls within the State responsibility. Immediate medical assistance; and, costs of returning children to school would also fall within the responsibility of the State.

Queensland beef cattle numbers provided by ABARE commodity statistics, 2018, show that in 2017 there were 5.6 million adult female cattle and 11 million total cattle in Queensland.

The loss of several hundred thousand will hurt the northern region; but, can be rebuilt over the medium term. The most affected will be the live cattle export sector. A recovery strategy will need to be built around that

There are Constitutional difficulties involved with Commonwealth assistance. Grants cannot be provided directly to individuals. Sections of the Constitution involved would be

  • Section 51 (xiii) Banking other than State banking.
  • Section 96 which limits grants to States
  • Section 91 allows State bounties to support production and exports
  • Section 51 (iii) Bounties on the production or export of goods ; but, must be uniform throughout the Commonwealth

It is time some positive recovery plan was being discussed in the public arena by the collection of mayors and peak industry bodies. The immediate confusion is understandable; but, structure now needs to be discussed

 

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Comments

  1. Rowell Walton, February 23, 2019

    Thanks Ben for your contribution, its always useful to have a little historical context.
    The floods of 2010 had a very similar effect on many grain businesses and together with the knock on of the 08 financial crisis and some institutions feeling they could act with impunity led to a raft of financial wipe outs.
    Together with a large number of supporters we set out to establish the ARDB, a particular bank funded by Commonwealth money capable of then restructuring a large sector of agriculture. Some of the people now involved were then participants and on behalf of all Australians they deserve a thank you.
    Unfortunately we were unable to have the political world adopt the proposition, at the time the then minister for Ag was coming around, his treasurer though was adamant nothing of the sort would do, and the opposition had form, they had raised some 20Bn to save the short term housing market from collapse and were particularly interested in the proposition on the table, but they were not government. The then Prime Minister was interested but I could not say supportive.
    It can only be ideology or ignorance that precludes our nation from using well regarded mechanisms easily available to resolve our problems.
    The fact the risk of production failure and income is left as to be held by farmers and graziers is somewhat a puzzle to me. It is possible to insure in some industries commercially, but the roll out is hardly supported by the current government (past ag minister exempted) and this leads me to say, either the government wants to have to deal with these calamities and enjoy the political argie bargie or they suffer from a level of incompetence which is blisteringly obvious. Few farm operators be they graziers or farmers want to take the risk/s evident after each huge event.
    So why is government so moribund? Do they really believe the market will solve these problems.?
    Whats needed is the best human intelligence to advance and adopt a contemporary financial recovery system so calamity and volatility are as much as possible removed from the lives of those who do their best in a climate which is prone to extremes. There is I can say, no pleasure in sitting back.

  2. Barry McNamara, February 19, 2019

    Having been in Rural Industry, Rural Finance and Consultancy all of my life I feel for the producers affected by flooding and drought. Our producers will definitely need the likes of the old Rural Reconstruction Board or QIDC and their philosophies to allow these producers to get back on their feet. There will be at least 3 years before an income from cattle will be possible. The amount of infrastructure to be rebuilt will take millions of dollars to do. What we need is long-term finance i.e 20 year terms at low interest. Banks will need to shoulder some responsibility but they will not be able to give terms as above for the total needs. We have seen this catastrophe in our Regional Areas so let it be a trigger to
    change our thoughts for the better for all farmers and regional businesses . Let us act instead of talking!

  3. Ben Rees, February 19, 2019

    Rural reconstruction is not a new concept. It first emerged in economic literature during the 1930’s Great Depression when the US Government intervened to support the distressed farm sector.

    In 1945 , the Australian Full Employment White Paper had a Rural Reconstruction Commission as principle 7. The function of the 1945 Reconstruction Commission was to evaluate the role of rural industries in full employment economy. The Commission was charged with the responsibility to make recommendation on policy to improve and stabilise rural living standards.

    The late 1960’s early 1970’s was probably the last time rural reconstruction was used in Australia. Most probably, there could exist dormant legislation that can be reactivated quickly.

    The RED Scheme was politically unpopular in the 1970’s. Like now, the political climate was toxic. Nevertheless, it is a proven method of delivering stability to regional dislocation. Given the depopulation that has occurred across the north west since 2011-12, such a scheme should have been implemented before this. The fact that it hasn’t been implemented says more about political representation than criticism of the scheme.

    Both rural reconstruction and the RED Scheme have proven records. The level of debt that will be exposed cannot be handled with $75, 000 grants under Natural Disaster relief.

  4. Susan Brosnan, February 19, 2019

    Is this framework able to be implemented in a timely manner? Has there been comparable situations in which this framework was able to significantly mitigate. What do the landholders affected think of this?

  5. Greg brown, February 18, 2019

    A shame that one hundred percent compensation was being discussed by irresponsible people giving very distressed people false hope

  6. I think there is a pretty fair foundation set out there in your outline. If State & Commonwealth can stay impartial & think of the people not the policy or vote gaining capabilities I feel we can save a lot of REAL Aussie people & their livelihoods. There is enormous history with a lot of these properties & families, & this Natural disaster is probably only once in three or four life times event. No one could have prepared for an event like this & no one is to blame. I hope all political parties can have a clear conscience by doing the right thing by all. But please don’t leave people just hanging, not know what your destination is, would be hugely detrimental. These families have been through enough already, they have staff, suppliers, & family to consider plus replacing stock & facilities. Lets get to it.

  7. Will Robinson, February 18, 2019

    Prof Walter Jehne from Healthy Soils Australia has indicated that soil carbon levels have been depleted enormously over the last 100 years and it would appear the extreme heat from this depletion leads to extreme weather. Perhaps we should ask Walter for an index or contextual numbers on soil carbon to work towards prevention of such events? The extreme weather events will still occur but with more organic matter on and in the ground it can be better? Initial modelling shows that high growth rates in young cattle reduces stocking rate considerably – because the young cattle are gone much earlier. Similarly, early weaning reduces feed requirements.

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