Well, it’s heartening to discover yet again that the age of entitlement isn’t over if you have the right connections. This morning the government announced a $320 million “drought relief” package for farmers. In doing so, it has turned its back on five years’ worth of drought relief reform at the Commonwealth-state level.
In 2009, the Productivity Commission produced a report on drought assistance that was scathing of the National Drought Policy and the “exceptional circumstances” trigger that Labor had inherited from previous governments. Exceptional circumstances payments, it said, did “not help farmers improve their self-reliance, preparedness and climate change management …Governments need to commit to a long term reform path that recognises that the primary responsibility for managing risks, including from climate variability and change, rests with farmers”. The report said:
“From its inception, policy has ostensibly centred on helping farmers build their self-reliance to manage climate variability and preparedness for droughts. Program expenditures, however, have not been directed to this end but have mainly flowed as emergency payments to a minority of farmers in hardship and to stressed farm businesses.”
Saliently, the commission noted that previous similar recommendations from similar reviews had been ignored.
Many farmers and farming organisations actually objected to the policy at the time. As one submitted to the commission, “[e]fficient farmers who save and invest off farm are penalised, whilst farmers who waste money [and] spend everything get more help”. The commission recommended terminating exceptional circumstances handout programs and replacing them with programs to assist farmers to better manage financially, prepare their operations for drought and provide only limited hardship assistance.
Unlike previous reviews, the PC review kicked off a proper reform program at the Commonwealth and state level, with the Exceptional circumstances process dumped and new programs aimed at preparedness and risk management trialed in Western Australia. The trial was deemed a success, and all states and territories signed on to a reformed drought policy in 2o13, for commencement on July 1 this year. Financial assistance did form part of the new package: a farm household allowance, on the same level as Newstart, would be established. This allowance has been in effect brought forward, with easier eligibility criteria, today.
However, the bulk of today’s package — $280 million — is via cheap debt: “drought concessional loans” will be made available “for debt restructuring, operating expenses and drought recovery activities”. There’s little detail about the loans, but they appear to be a big expansion of the existing Farm Finance Concessional Loans Scheme, under which farmers can get cheap loans with an interest rate that goes up when circumstances improve. The Productivity Commission criticised exactly this form of cheap debt in its review:
“The Commission does not support offering concessional finance to a group of borrowers to induce them to borrow at a higher level than their own risk preferences would allow. A greater sensitivity to a loss of the farm due to the high non-monetary value placed on farming is rational and does not provide an efficiency case for measures to encourage farmers to take on more debt.”
In short, if farmers can’t access borrowings from the market at existing commercial rates, giving them access to below-commercial rate loans merely encourages risky behaviour.
The long-term resistance to the findings of numerous reviews of drought assistance is based in the National Party’s obsession with keeping agriculture frozen in time, in a mid-20th century bubble when farming was primarily a family industry, as opposed to the far smaller, hugely productive and internationally successful industry it has now become, employing far fewer people but exporting far more and being much better integrated into agribusiness supply chains. Agriculture isn’t SPC Ardmona, or the car industry, or Qantas — it’s a trade-exposed sector that has been a huge success story for Australia over the last 20 years in terms of trade and productivity. That’s all the more reason why it needs no handouts, despite a drought — indeed, during the last drought, Australia significantly lifted its overall level of agricultural exports.
This isn’t about helping farmers, this is about helping the National Party and preserving the Nationals’ outdated obsession with an industry that ceased to exist decades ago.