Chapter Three
Assistance to rural and manufacturing industries in crisis
3.1
The committee considered the first part of the terms of reference in detail
to try and break up the definitions contained within it. The committee sought
to understand which types of businesses might fall under the banner of rural
and manufacturing industries, as well as trying to establish what would
constitute a crisis for these types of businesses.
The definition of a crisis
3.2
The committee embarked on the inquiry with a general idea of what
circumstances could cause a crisis for rural and manufacturing businesses.
However it was surprised at the variety of often unforeseen events that could
impact trading and productivity.
3.3
In addition to drought, the committee heard that there are a significant
number of other events which can affect both rural and manufacturing businesses
and associated communities. The committee took evidence in Hobart from a
number of stakeholders whose businesses and sectors are susceptible to events
beyond their control.
3.4
The aquaculture sector in Tasmania provided many examples of
catastrophic events that impacted businesses, both on and off-shore. Professor
Christopher Carter from the Fisheries and Aquaculture
Centre at the University of Tasmania made the general point that 'aquaculture
is vulnerable to catastrophic events because the production cycles are long'.
He also outlined some possible scenarios for specific industries:
-
Salmon hatcheries are located inland and are exposed to bushfire
and drought, for example. Shellfish hatcheries are located close to the sea and
are vulnerable to extreme coastal events. In addition, abalone farming is land
based...Catastrophic events to hatcheries could destroy a year or more of production.
-
The oyster industry has their growing stations in estuarine
conditions. High rain events will cause run-off which dilutes the salinity of
those areas. It can also wash-out potential toxicants.
-
In the hatcheries when there is a severe drought condition they
have to manage their freshwater supply. The production of salmon is dependent
on salmon in freshwater and the volume of water can limit their production.
-
Natural disasters such as high wind events or tsunamis et cetera
can disrupt cage systems and tear them from the moorings and rip the cages.
-
Catastrophic events at sea could destroy brood stock, which will
take more than two years to grow and replace. Marine ecosystems and
unpredictable changes: marine ecosystems are complex and may be vulnerable to
threshold changes.[1]
3.5
The Tasmanian Seafood Industry Council also highlighted the potential
lag from when a disaster occurs, to its impact on the seafood industry:
In Tasmania specifically, both the salmon industry and the
oyster industry rely on hatchery production...If a bushfire were to go through
there and a hatchery were wiped out, that would have not an immediate impact on
production; but, given the lag time between when the fish are put out as
fingerlings and when they come through the production cycle, 12 to 18 months
later, you could see production severely impacted—same with the oyster
industry. In fact, I heard you talking earlier about the Dunalley bushfires
here. That is a classic example: the bushfire came within metres of destroying
Cameron of Tasmania's hatchery right in the centre of Dunalley. Now, that
hatchery produces approximately 45 per cent of the spat for the Pacific oyster
industry nationally...They are the sort of land based things that can impact on
the ability of industry to keep going.[2]
3.6
The Tasmanian Chamber of Commerce and Industry (TCCI) were keen to point
out that a crisis does not have to be precipitated by a natural disaster for it
to have a significant impact on businesses, and the community as a whole. The
TCCI recounted the impact of the Port Arthur massacre in 1996, and the recent
Dunalley bushfires as examples:
One of the things in terms of what I would like to say to the
committee today is that I think the definition, the terms of reference, is too
narrow. It really does not matter if it is a natural disaster. It could be a
bombing. It could be a massacre. It could be anything that disrupts the
community on a wide scale. With that, I realise that government cannot be God,
but, in terms of thinking, I think this is important.
Although Port Arthur was a long time ago, in 1996, I think
the lessons are still pertinent. As recently as the Dunalley bushfires, the
TCCI did take a very direct role. Based on some of my experience, I think it is
worth reflecting on those.[3]
3.7
Advocates from the manufacturing sector also had firm views on how the
term crisis should be defined. In the context of manufacturing, the sector
argued that unlike a crisis caused by natural events, a crisis in the
manufacturing sector could possibly be foreseen, and avoided with strategic investment
and research and development specifically aimed at supporting the sector to
adapt to changing economic conditions.
3.8
Unions Tasmania also emphasised this view, highlighting the perspective
of regional Australia and the impact that funding to support the manufacturing
sector could have in those areas:
Clearly, from a Tasmanian point of view, with the spread of
population across the state, we are a regional community, and many of our
regional communities have been particularly impacted as a result of loss of
jobs and closure of companies. In our view, narrowly focusing on financial
relief necessary to support these industries in times of crisis is missing an
opportunity to develop long-term and innovative industries that provide
meaningful employment in well-paid and permanent jobs.[4]
3.9
When asked whether the current economic conditions in the sector could
be compared to a natural disaster, the Australian Manufacturing Workers' Union
(AMWU) were unequivocal in their response:
[T]he problem that we have in manufacturing at the moment is
that there is a perfect storm. The perfect storm is
described first of all and most prominently by the wholesale closedown of the
vehicle industry. As I said, there are up to 230,000 jobs affected...
On top of that, we have a problem in defence procurement in
this country. The committee is probably aware, and the Senate is absolutely
aware of, the submarines issue. There are many thousands of Australian
manufacturing jobs tied up in the submarine contract but more generally in
naval shipbuilding...
Then there are other industries such as food in which the
AMWU is involved where our competitive advantage has been eroded by, for
instance, the dumping of tomatoes by the Italian tomato industry...
To describe it as the perfect storm or to suggest this is by
way of a man-made natural disaster—if that is not an oxymoron, Senator—I do not
think is not over-egging the pudding.[5]
3.10
The Federation of Automotive Products Manufacturers (FAPM) also discussed
the catastrophic impact of the cessation of vehicles manufacturing in
Australia:
As you would expect in an industry that relies on volume
production, this contraction has created, and continues to create, enormous
stress on the component manufacturing side of our industry. Vehicle production
continues to decline, flowing on to the component sector. This sector is,
itself, altering production schedules to meet reduced demand from the vehicle
assemblers, and this is impacting on employment and cash flow within the
sector.[6]
The definition of a rural and manufacturing industry
3.11
The committee discovered that the types of businesses covered by the
definition of a rural and manufacturing industry span a broad spectrum, and
went beyond what would generally be anticipated. As is evident from the
contributions above, the seafood and aquaculture industry engaged strongly with
the inquiry to emphasise both the importance of the sector and its
vulnerability to events beyond its control. The industry is firmly of the view
that they are excluded from both the conversations around how disasters are
mitigated and how recovery is managed, including financial relief.
3.12
The Tasmanian Seafood Industry Council contrasted the assistance and
resources provided to land based primary producers in times of drought compared
with support given to marine based primary producers. Mr Neil Stump, the Chair
of the Council, emphasised how difficult it is for members of his sector to
access assistance in the aftermath of disasters:
What we are seeking is to receive equal treatment, the same
as our terrestrial cousins who are primary producers. Everybody is aware that
farmers for many years have received drought assistance in times of drought,
and we do not begrudge them that. But, at times when [there] have been natural
disasters—maybe from slightly different causes—in the seafood industry, we have
found it near impossible to gain government support to assist individual
companies or industry sectors to get back on their feet and operating again.[7]
3.13
The Australian Prawn Farmers' Association (APFA) provided the example of
one of their member's attempts to access emergency relief payments following
Cyclone Yasi in Queensland which they claim, illustrates the inequity of the
system:
All emergency relief offered under the NDRRA Category D
assistance packages were reportedly poorly constructed for the aquaculture
industry and underestimated the significant position that aquaculture holds in
rural and remote regions of Queensland and the dependence of local communities
on these aquaculture facilities.[8]
3.14
APFA quoted the observations of one of the Industry Recovery Officers (IROs)
employed following the cyclone, which supported the claim that the aquaculture
industry is not well served in the current disaster relief framework:
The IRO reported at the time –
“the above underestimation combined with a poor understanding of the
operational needs and financial capital requirements of aquaculture, compounded
the ability of already inappropriately constructed assistance packages to
deliver ... maximal recovery outcomes to industry.” [9]
3.15
Wildcatch Fisheries South Australia Inc. (WFSA) concurred with the view
that assistance to the marine food industry is not well served with the current
disaster relief framework, despite encountering the same difficulties and risks:
At present there is not a consistent framework for defining
primary producers and primary production. Many government programs do not
classify seafood producers (wildcatch and aquaculture) the same as a
terrestrial food producer. In many cases the businesses of seafood producers
are also subject the vagaries of nature and their fishery and its performance
is subject to environmental variability.
...
It is therefore our opinion that Government must work to
provide the same safety net and support for seafood producers that many other
primary producers have come to enjoy and expect.[10]
The distinct nature of the
manufacturing and farming sectors
3.16
The question of why any industry should receive government support was
raised during the inquiry. The point was put to the AMWU in terms of what
particular attributes the manufacturing sector brought to the economy that made
it distinct from other sectors:
The reason why manufacturing is special is the amount of
human capital, if you will, or the amount of knowledge and technology, that
goes into manufacturing, as opposed to other sectors. In other sectors there is
technology, of course, and there is human capital, but the intensity is not
anywhere near as much.
You can look at this from the macro point of view and you can
see that manufacturing is responsible for a quarter of the R&D that the
business sector does, yet it is responsible for much less—less than 10 per
cent—of actual output. So it is a very knowledge intensive area, and that is
not surprising because manufacturing is the transformation of basic goods into
much more valuable goods. That is not what mining does. That is not what
services do. So the links between manufacturing and technology and science are
links that do not exist with other sectors, and it is the technology and the
science that make us advanced.[11]
3.17
Farming is of course the predominant rural industry across Australia.
The cultural attachment and dependence of rural and regional Australia has on
farming, as well as the scale of the agricultural sector make it impossible for
government not to provide assistance and support when required.
3.18
The NFF also makes the point that the sector does not impose a burden on
the taxpayer, and compared to international competitors receives relatively
little subsidy from the government:
Even though their operating environment is extremely
volatile, Australian farmers are much more self-sufficient than their
international competitors (with whom we compete on both an international and
domestic level). At 0.2% of National GDP, Australian agriculture has the lowest
level of support in the world. The fact is, Australian farmers don’t impose a
burden on taxpayers. They underpin one of the very few sectors that creates
real value for the economy. As the current Australian Government has rightly
identified, agriculture is a key pillar of the Australian economy.[12]
Committee view
3.19
The committee was made aware very early in the
inquiry that a business could be placed in crisis by a range of circumstances,
many of which were unique to that industry. One of the initial tasks of the
committee was to tighten up the definition of a crisis in the context of the
inquiry's terms of reference.
3.20
The impact of the cessation of automotive
manufacturing in Australia is catastrophic for those engaged in that sector,
and for the local communities and economies that rely on the industry. Many
businesses have been profoundly impacted by matters outside their control. The
committee considers that this is a crisis for those affected.
3.21
The seafood and aquaculture industry was well
represented in the written submissions and at the committee's public hearings.
The industry presented examples of the types of catastrophic events beyond its
control that had significantly impacted the sector. These included water based
events such as storms and high winds. However there was also evidence of how
land-based disasters such as bushfires, heavy rains and drought impact the
industry. In addition, disease was cited as having potentially catastrophic
consequences, especially in the aquaculture industry when it affects fledgling
stock used for re-stocking.
3.22
The industry argued that they were often left out
of the conversation about reconstruction and recovery initiatives following an
event, and did not usually have 'a seat at the table' when it came to planning
the recovery efforts. Given the often disastrous impact on the sector from
land based events, the committee strongly supports efforts to ensure that the
sector is recognised and is consulted and supported in both mitigation efforts
and any post-disaster responses.
Recommendation 3
3.23
The committee recommends that the Commonwealth
government works with state and territory governments to ensure that the
seafood and aquaculture industry is an integral partner in all future mitigation
planning and post-disaster reconstruction and recovery efforts.
Current industry assistance programs
3.24
Industry assistance is a substantial part of the federal budget each
year. In 2011-12 the Commission of Audit found that overall assistance to
industry amounted to $17.3 billion. This comprised:
$7.9 billion in gross tariff output assistance,
$5.1 billion of budgetary outlays and $4.3 billion in tax concessions. After
allowing for the cost to business of tariffs on imported inputs ($6.8 billion),
estimated net assistance was $10.5 billion in 2011-12.[13]
3.25
The manufacturing industry received the highest level of assistance, $7.4
billion consisting of tariffs, budget outlays and tax concessions. In terms of
budget outlay alone, the industry received $1.4 billion, second to the services
sector (mainly electricity, gas, water and waste services) which received $2.1 billion.[14]
3.26
The previous government established the Automotive Transformation Scheme
(ATS) specifically to assist those businesses involved in the automotive
industry to develop sustainable business models. In January 2011 the ATS commenced
operations and was set to run until December 2020, providing $2.5
billion in capped assistance and approximately $348 million in uncapped
assistance.[15]
The ATS originally had two stages: $1.5 billion of capped assistance would be
provided between 2011 and 2015, and $1 billion of capped assistance from 2016
to 2020. Uncapped assistance of $348 million would also be provided. However,
the committee notes the 2015-16 Budget projections for the ATS state that the
demand for capped assistance will reduce by $795 million over the forward
estimates to
2018-19. The net impact of the reduction will mean the government will spend
$105 million from 2014-15 to 2020-21.[16]
3.27
The ATS is open to:
-
motor vehicle producers (MVPs)
-
automotive component producers (ACPs)
-
automotive machine tool and automotive tooling
producers (AMTPs)
-
automotive service providers (ASPs).[17]
3.28
Participants in the Scheme will be able to claim for 50 per
cent of the value of eligible investment in Research and Development and 15 per
cent of the value of plant and equipment.[18]
3.29
With the cessation of both automotive manufacturing, and the relative
decline of the broader manufacturing sector, Commonwealth funds have been
established to support the transition from these industries. One of the primary
levers used in recent years to mitigate the impact of crises in the sector has
been to establish regional innovation funds to assist industries and
communities to recover from major industrial upheaval. There are currently
three such funds administered by the Department of Industry and Science:
-
The Geelong Region Innovation and Investment Fund (GRIIF)
-
The Australian Government Innovation and Investment Fund
(Tasmania)
-
The Melbourne's North Innovation and Investment Fund (MNIIF).
3.30
The GRIIF was established by the Australian and Victorian Governments in
response to the announcement by Ford Australia that it will cease its vehicle
and engine manufacturing operations in Australia from October 2016. It has a
budget of $29.5 million which will be supplemented by $5 million from Alcoa
following their announcement of the closure of the Port Henry aluminium
smelter. The fund will distribute grants of more than $50 000 to businesses
focussed on the creation of new jobs rather than job retention.[19]
3.31
The Tasmanian Fund has a budget of $13 million over three years and the
MNIIF has a budget of $24.5 million, which includes a $4.5 million contribution
from Ford. Both funds have a similar methodology to the GRIIF providing grants
greater than $50 000 with a focus on the creation of new jobs rather than the
retention of current jobs.[20]
3.32
Other funds designed to assist businesses in the automotive industry
include the $42 million Automotive New Markets Program (ANMP), established by
the previous government as a joint initiative of the Federal, State and
Victorian governments to help automotive supply chain companies broaden their
customer and product base, and remove their dependency on domestic vehicle
manufacturers.[21]
This fund closed in 2014 and was replaced by the $20 million Automotive
Diversification Program (ADP).[22]
3.33
The Next Generation Manufacturing Investment Program (NGMIP) is a
national fund established in response to Holden and Toyota's decisions to close
their factories. The program was established to 'provide grants to support
capital investment projects in areas of high value manufacturing. It aims to
stimulate economic activity and increase business competitiveness and
sustainability.'[23]
The Department of Industry and Science provided details on the program's
funding while emphasising that it was part of a broader policy to support the
sector transition:
There are a number of elements to that program and one of
them is called the Next Generation Manufacturing Investment Program, which is
to be focused on Victoria and South Australia only. That is a $60-million
program to which the two states are contributing $12 million each. That
program, which has only recently closed to applications, was enormously
oversubscribed. With $60 million in funding available, I think we had 265
applications seeking grants totalling more than $500 million.[24]
3.34
The Department explained that the assistance is a short-term investment
in the hope that this builds sustainable businesses:
The thing about these programs is they are not a be-all and
end-all. It is a recognition that that particular geographic location is worth
keeping, for a start, and that it is going to be severely socially and
economically impacted if that is not assisted. But it is also a recognition
that it will be short-term assistance. In other words, if assistance is
provided now, in the short term, there is a good prospect that in the longer
term that particular region can sustain itself. [25]
3.35
The Automotive Diversification Program and the Next Generation
Manufacturing Investment Program are both part of the $155 million Growth Fund
established by the Australian Government in 2014 with support from Holden,
Toyota and the Victorian and South Australian Governments.[26]
3.36
While stakeholders agree that innovation and diversification are crucial
in creating sustainable businesses, the committee heard that there are substantial
barriers to growth, particularly for the manufacturing sector. The AMWU stated
that access to finance for the sector is a significant problem:
The Australian Industry Group conducts surveys of its members
and asks: 'What are the barriers to growth that you face?' Access to finance is
one that comes out on top for manufacturers. In addition,
the ABS collects data, also through survey form, where, again, access to
finance pops out as an issue. And if you go around and talk to both experts in
the field and business people, they will admit that access to finance is a
problem, especially for new technology—for the deployment of new technology
type projects.[27]
3.37
According to the AMWU the reasons behind the lack of enthusiasm on the
part of investors was the long lead time required for a return on the
investment:
One of the reasons is that manufacturing has a much longer
lead time for the realisation of profit, especially when it comes to the
innovation cycle and the learning curves that were required to ensure that
there is a return on capital, whereas a major mining project can provide a
major return on capital within three years of the first sod being turned, and
oftentimes in manufacturing you are talking about a lead time of eight years to
10 years before there is a substantive profit.[28]
3.38
This view was supported by FAPM who surveyed their members regarding
access to finance and found that it was becoming more difficult to access
funds, and that coordination between the automotive industry and the banks would
need to improve for this to change:
Our view is very clear that the commercial banking fraternity
has been very poor in liaising with our industry over quite a number of years,
particularly on the issue of access to capital, and our members have reinforced
that. We surveyed our members on access to capital a number of years ago now,
about 4½ years ago now. It was very clear that banks have essentially turned
off the lending tap to the automotive sector and have done so for many years.
They have made the commercial decision that they have not seen the automotive
industry as an industry that they want to bank.[29]
Skills and training
3.39
According to the AMWU the government's policy response to the challenges
that are facing the manufacturing industry, and the knock-on effects of a
crisis such as the cessation of vehicle manufacturing in Australia, will not
assist the recovery of business and the local and national economy:
Policy is needed to mitigate the impacts of the closure of
the automotive manufacturing industry, especially policy to assist in the
transition of supply chain firms to new products and markets. Only through
active policy intervention can the employment, social and community impacts of
closure be minimalized.
To date, the government’s response to this task has been so
inadequate as to be laughable. The $155 [million] Growth Fund announced in
response to the industry’s closure includes a $20 million diversification fund
to help supply chain firms diversify. In addition, only $3 million of this
represents new funding for diversification support, as $17 million of the fund
has been transferred from the now closed Automotive New Markets program, which
was also aimed at assisting auto supply chain diversification.[30]
3.40
FAPM cited the UK as an exemplar for how a relatively high wage country
could maintain a sustainable automotive manufacturing industry, even after
years of contraction:
I think the United Kingdom is very instructive for Australia.
Certainly through the late seventies and eighties the UK automotive industry
basically contracted, and a lot of their indigenous brands were sold and moved
offshore—Jaguar, Land Rover and a whole range of other companies as well...But
then they realised what we in particular—and others—have been talking about for
three years. They realised that the capacity, the capability and the skills
that are generated within an automotive industry are diffused throughout the
whole economy... And the UK is now a poster child for global automotive
production—the factories are coming from eastern Europe and Europe, for
example, back into the UK.[31]
3.41
The AMWU argued that it would be a wasted opportunity if the government did
not intervene to better utilise the skills and human capital from the
automotive industry to benefit the economy as a whole:
If the government sits by and does nothing after pulling auto
support and then seeing the sector collapse then that is a massive amount of
capacity, skills and capital that just goes to waste. There is no reason for
that. Even if you do not want an auto industry, those resources and those
skills should be channelled to be deployed somewhere else to save that
capacity, save that value.[32]
3.42
The committee heard that innovation and research are crucial levers in
enabling business to transition away from industries such as the car
manufacturing. FAPM highlighted the extensive 'engineering, design and
construction capabilities of the automotive industry' and discussed how the
industry and governments could support these skills to be used successfully in
other industries:
[W]e have identified other industries and we have done a lot
of work in this space, as I know all three governments have, really. The
Victorian and South Australian governments and certainly the federal government
are looking at other industries—for example, prefabricated construction; I
think that is a real opportunity going forward. There is a huge dynamic going
on in the building industry at the moment—new and innovative ways to build
apartments, particularly in Melbourne, I see, and new construction methods. And
the skills and capabilities that are being developed in automotive—like lean
and just-in-time delivery and all those waste reduction initiatives, which were
all developed in the automotive sector—are being brought into other industries,
so it is not only banging out a widget; the skills, technologies and the
capabilities are being developed as well.[33]
3.43
FAPM added that a number of other sectors would benefit from the
expertise of the skills developed in the automotive industry:
In answer to your question, ultimately we have identified
things like mining, med-tech and prefabricated construction, amongst others.
There are a couple of others [as] well...Food production is a national imperative
as well, which would benefit from the efficiencies in the automotive industry.
As Richard said, I would say mining efficiencies as well as the global
commodity price comes off—there need to be more efficiencies put into that
industry.[34]
3.44
Unions Tasmania also suggested that any fund established should invest
in skills, innovation, research and development as a priority to support
sustainable business models in rural and regional Australia:
In our view, strong industry policy is needed to support our
manufacturing and rural industries, particularly in the areas of innovation,
investment, management skills, integration of Tasmanian businesses into
national and global supply chains, access to new markets and, importantly from
a Unions Tasmania perspective, organisational approaches in the workplace that
give workers a greater say in workplace decisions and that ensure their ideas
are actually listened to.[35]
Committee view
3.45
The committee understands that a crisis in the
manufacturing sector has very different causes from those that affect rural
industries. Events such as the cessation of vehicle manufacturing in Australia
will have catastrophic implications for the sector, causing a substantial loss
of employment, skills and experience throughout the entire manufacturing
industry.
3.46
Over recent decades, governments have provided
significant investment and subsidies to car makers through initiatives such as
the Automotive Transformation Scheme. Following the announcements by Holden
and Toyota that they would cease production in South Australia and Victoria,
this fund has understandably been curtailed. However, the committee is
concerned that the programs put in place to assist those areas and workers
affected by the closures may not fully exploit the skills, expertise and
experience that the factories have developed.
3.47
The evidence received by the committee urged the
government to take full advantage of the human capital that is available by
developing initiatives focused on training, skills, research and development of
technology. The committee was supportive of this proposed focus and encourages
the government to consult broadly on the performance of current programs and the
development of new investment initiatives to ensure opportunities are available
for individual workers and the economy as a whole.
Recommendation 4
3.48
The committee recommends that future Commonwealth government
investment is focused on training and skills development of the automotive
workforce to allow them to transition their skills and expertise to other areas
of the local and national economy.
3.49
The committee was also interested in some of the
proposals put forward to alleviate the issues regarding access to finance for
the manufacturing industry. The committee acknowledges that the sector has some
unique features which make it less attractive to commercial finance than other
sectors. In the same way that the government supports the farming sector
through concessional loans, the committee is of the view that analysis should
be undertaken to explore extending this type of support to assist manufacturing
businesses.
Recommendation 5
3.50
The committee recommends that the Commonwealth government
consider extending concessional loan schemes to the manufacturing industry to
support sustainable manufacturing businesses.
Barriers to recovery
3.51
Aside from the barriers to maintaining an industry, the committee heard
that there are substantial barriers to recovery in rural and regional areas,
following a natural disaster or industry crisis.
3.52
Bob Elkington, the Economic Development Manager at the Murrindindi Shire
Council, was involved in the recovery effort following the Black Saturday
bushfires. Mr Elkington said that the initial focus on immediate social needs
was understandable, but this approach excluded businesses which were critical
in restarting the local economy but lacked the vital assistance required to
re-establish themselves:
[P]eople tended to focus on their human and social needs. I
guess the hierarchy of needs goes: myself, my family, shelter, food and the
ones at the very bottom of the pyramid tend to be things like getting the business
going again. It impacted a lot of businesses very, very heavily, and some
businesses would not have got back up.[36]
3.53
The committee was made aware that public generosity during times of
crisis can have unintended consequences. Mr Elkington described the impact of the
public gifting of goods to disaster sites, and the effect this has on local businesses
trying to re-establish:
[S]omething that the state government and local governments
need to control more, is the massive influx of donated goods and gifted assets
that our shire and others around us received. Controlling the flow and
distribution of those is really important. We saw a number of businesses that
were not in the flame impacted area close down because there were so many goods
being gifted: white goods, work wear, footwear and clothing—that sort of thing.[37]
Committee view
3.54
Given the potential for businesses to be severely disadvantaged as a
result of the donation of goods, the committee suggests that best practice
guidance be developed to assist disaster response organisations manage public
enthusiasm and fundraising efforts to ensure they are focussed appropriately.
Recommendation 6
3.55
The committee recommends that the Commonwealth government works with
state and territory governments to develop best practice guidelines to assist
stakeholders in managing post disaster recovery fundraising efforts and that
these be disseminated widely.
3.56
The Queensland Farmers' Federation made the point that a successful and
sustainable community recovery requires rural business to be functioning again
as quickly as possible:
[P]roviding assistance to farmers to speed up recovery
assists the community at large to recover. Our experience is that prompt
recovery of regional agribusinesses and other small to medium enterprises has a
strong spill‐over
to the impacted regional economy.[38]
3.57
This view was shared by the Tasmanian Fire Service, which recognised
that businesses are key to the recovery from a disaster such as a bush fire:
[I]n recognising the important community assets we are
recognising in many cases businesses as well as other assets, because for a
community to recover following the emergency we understand that in terms of the
employment created business is extremely important.[39]
3.58
The TCCI discussed the profound impact the Port Arthur massacre had on
both the local economy and the community itself, and the difficulties
encountered in recovering from it. This was not only because customers and
tourists stayed away following the massacre, but also because of the impact of
the recovery efforts on the community. Ms Parr from the TCCI explained:
What happens is that, once a disaster has struck, the
emergency services come in. The firefighters fight fires; the ambulances take
away injured people; the police do whatever they have to do; a whole lot of
bureaucrats descend upon the place, and after six weeks they all go home,
saying, 'Incident managed.' And then some poor blond person, as I used to be,
goes to do the job of community recovery. It becomes absolutely enormous. It is
the economic issues. It is the fact that businesses in small communities are
often marginal anyway. It is the fact that customers stop coming. They will not
come to Dunalley or Port Arthur or whatever. So immediately you have an
economic issue, never mind the real grief, social and personal issues.[40]
3.59
Ms Parr also expressed caution over the political response that could
impact community and economic expectations further down the line. Her experience
following the Port Arthur massacre was that significant promises were made in
the immediate aftermath that heightened expectations, which ultimately were not
met:
[T]he first thing I would say is that promises, while I can
understand them being made in that emotional situation, need to be very guarded
and very moderate—they need to be almost underpromised and perhaps
overdelivered—because people are relying on a need for certainty in management
arrangements—that what it is said is going to be done is done.[41]
3.60
Mr Bailey from the TCCI was of the view that the lessons of the Port
Arthur massacre were not learned in terms of how the bureaucracy approached the
aftermath of the Dunalley fires:
What we did not learn in Tasmania was the experience of Port Arthur, because
we rebuilt everything for Dunalley again, as far as how the bureaucracy and the community
approached it. To me that is extraordinary, because
a natural disaster,
or a disaster such as Port Arthur, whether it happens in the north of Australia
or the south, is probably going to have the same issues.
To me, it seems like a terrific
opportunity to put together some sort of process
that just clicks
into place that links all of the learnings from all of these experiences around Australia to come up with the guide that is used.[42]
3.61
This sentiment was shared by Mr Damian Bugg AM QC,
the former Chair of the Tasmanian Bushfire Recovery Taskforce. Mr Bugg provided
a number of suggestions to the committee on how recovery processes could be
improved and be more effective and efficient. Included in this list was to
allow the recovery to be managed with as few bureaucratic obstacles as
possible, and to ensure the right people were selected to empower the community
to take control of the process:
Ensure that the Recovery Directorate is properly staffed and not hide bound
by red
tape and oppressive meeting schedules. The people selected for the task should have good community savvy and connectivity. The best way to achieve an uncomplicated and
effective recovery is to
enable local communities to own their own recovery. This will not happen
with the wrong people in charge.[43]
3.62
Mr Bailey also backed Ms Parr's advice that there are two distinct
efforts required to recover from a disaster: an immediate response to the
event; and a long term approach to the rebuilding and sustainable recovery
effort to support the community in various ways:
One of the concepts that Susan talks about, which I think is very smart, is the need for two bodies to approach
this sort of issue. One body is the immediate
recovery body, almost like the war general.
But also, at the same time,
you need a group of people that are there for a much longer term, starting
at the same point, and that are more like the peacetime general,
to be working with the community
on an ongoing basis, because
it is a very different job indeed. One is that immediate fix. The next is that more long-term help for this community to regenerate.[44]
3.63
Oysters Australia raised the issue of government fees in relation to the
regulation of seafood following a natural disaster, amplifying the costs to
businesses:
These natural disasters and crises can also be amplified by
the high regulatory cost imposed by respective state Governments, particularly
in the areas of Full Cost Recovery for Licence / Lease fees and plus the
additional requirement of paying for comprehensive Shellfish Quality Assurance
Programmes which are regulatory requirements for the safe consumption of
shellfish. In some instances, Government charges have more than doubled in the
space of 12 months.[45]
3.64
In many regional and rural areas staffing is a key factor in the success
and sustainability of a business. In times of crisis the ability to retain
staff is crucial to the recovery process. The Australian Prawn Farmers
Association (APFA) submitted that post Cyclone Yasi, the Queensland
Reconstruction Authority managed Wage Assistance program (CYWA) was critical in
assisting their members to recover.
The Wage Assistance Scheme (WAS) was a critical element for
laid off staff to be paid while recovery efforts and businesses were clearing
debris, rebuilding operational facilities or waiting on assessors and insurance
claims. WAS needs to be available under extreme circumstances for dedicated
staff in any affected regional area where it can be difficult at the best of
times to attract and retain a reliable workforce.[46]
3.65
The CYWA payments were administered by Centrelink and were available to
employers to help maintain their workforce following the cyclone. Payments of
$469.80 were available for each full time staff member or full-time equivalent
for up to 13 weeks.[47]
3.66
APFA noted the significant benefits of employing Industry Recovery
Officers (IROs) during post-disaster periods. However, APFA was critical of the
present practice of employing IROs for only a limited time. APFA was concerned
that this practice eschewed valuable expertise and experience in a region that frequently
suffers natural disasters such as floods and cyclones:
Queensland is usually hit at least once a year with a severe
cyclone or heavy rain event – the IRO’s who were employed at the time were only
employed for one year. During that time they gained a lot of valuable
information from those affected on the ground. Once their contract was finished
in most cases they sought other employment taking with them valuable knowledge
that could have been used in future events.[48]
Committee view
3.67
The committee heard from a number of submitters on how difficult it was for
businesses to recover from disaster, and how integral businesses were to the overall
recovery of a community. However the committee also received a number of
valuable suggestions that could alleviate some of these problems. The
experience of the TCCI, Murrindindi Shire Council and Mr Damien Bugg from the
Tasmanian Bushfire Recovery Taskforce illustrated that there are tangible and
achievable methods available that could be implemented elsewhere. These
include suggestions for how businesses can be better prepared for disasters.
3.68
The committee would be keen to see the kind of practical advice
contained in the Murrindindi Shire Council Restore Your Business Community
Practitioners Handbook[49]
made available to communities all over the country. The committee recognises
the value of initiatives such as IROs, which have proved effective for
particular industries during reconstruction and recovery efforts. To this end,
the committee recommends that the government explore how best this information
sharing could take place to assist communities to recover from natural
disasters.
Recommendation 7
3.69
The committee recommends that the Commonwealth government works with
state and territory governments to provide more information, practical
preparation and recovery guides/advice for individuals, businesses and
communities affected or likely to be affected by natural disasters.
3.70
The committee noted how general post-disaster relief funding and
assistance, such as the Disaster Recovery Allowance and concessional loans, can
assist businesses affected by disasters to get back on their feet as quickly as
possible. The effectiveness of providing resources to assist specific sectors and
regions was well illustrated by APFA in their use of IROs. The committee
commends these types of assistance measures.
Recommendation 8
3.71
The committee recommends that the Commonwealth government engages with
state and territory governments and industry to ensure businesses are
well-informed and resources are available to help expedite recovery following a
natural disaster.
Insurance
3.72
The ability for a business to adequately insure its assets and ongoing
capacity to operate in the event of a crisis was raised by several contributors
to the inquiry. In Tasmania, the committee heard from the aquaculture industry
which provided examples of essential infrastructure that was not covered in the
event of a disaster, but was crucial to their ongoing operation. According to
the Tasmanian Seafood Industry Council this was in contrast to the support that
may be provided to land based businesses:
Some of the businesses impacted by the bushfire at Dunalley
may have received some level of assistance to rebuild sheds and things like
that. But when you talk about insurance one of the farmers there got burnt out.
His tractor, shed and everything were insured, but he could not insure the
baskets he used to put the oysters in to contain them in the water. So that was
a couple of hundred thousand dollars worth of equipment that was not insured.[50]
3.73
The TCCI discussed their experiences with their members who didn't have
adequate insurance for all their assets, or business disruption insurance:
Most people do not understand what their insurance policies
cover, and a lot of people are not insured for interruption of business...
The things that I would add to that are some of the
experiences in Dunalley, I suspect, where insurance simply did not cover all
things. An example was a local sawmill that had been in business for some
generations. A lot of the equipment had been built by previous generations.
Trying to get insurance for very important equipment that might be 60 years old
was near impossible, and I suspect one of the reasons that that business did
not reopen was the energy required by the sons and grandsons of the original
owners to get this thing up and going again. It was almost easier just to step
away and not have to worry about it, which led to 15 jobs being lost in the
community, pressure on the local hotel and the local cafe et cetera.[51]
3.74
This view was echoed by Mr Elkington, from Murrindindi Shire Council,
who said that in his experience of the Black Saturday bushfire recovery, many
businesses had not planned sufficiently, and that 'in a lot of cases did not
have adequate or any insurance, and most of them did not have any form of
emergency plan.'[52]
Mr Elkington suggested that this lack of insurance cover hampered the recovery
of the businesses and the local communities because some businesses were just
not able to recover.
3.75
Mr Elkington agreed with the Chair's comment that adequate insurance
should be included as 'a must' in any list of requirements in any disaster
continuity planning:
I think that would be a very strong message to business: if
you intend to look to support post disaster, there are certain things you need
to do. You need to have a business plan for a start. You need to have a
business continuity plan and you need to have adequate insurance.
3.76
Mr Malcolm Cronstedt, Executive Director, State Emergency Management
Committee Secretariat in Western Australia (SEMC) also highlighted the economic
and safety benefits of mitigation and preparation in the context of insurance,
and overall recovery from a disaster:
[A]ddressing the risk up-front...by mitigation and prevention
represents [a] far better investment value than dealing with the result. Of
course, mitigation reduces the cost of reconstruction and recovery, improves
the availability and cost of insurance, contributes significantly to public
safety generally, reduces the threat to those responders—volunteers are notable
at the moment in the bushfires we are experiencing—and reduces the cost of
hazard response.[53]
3.77
AUSVEG submitted that one of the advantages of an Australia Fund being
established would be to encourage the 'uptake of multi-peril insurance'.[54]
This was an issue also raised by Regional Development Australia in their
submission. They agreed that a fund could add real value by supporting rural
economies to mitigate against a number of risks through multi-peril insurance,
and that this was an issue they were already discussing with key stakeholders:
Regional Development Australia Orana are currently working
with partners from the farming, banking and insurance sectors, to develop an
advanced model for risk mitigation in agriculture.
This model will include a mechanism for shifting from an
emphasis on in-event drought support to business based risk mitigation via
multi-peril insurance.[55]
3.78 The WA Farmers noted the benefits of multi-peril insurance products
stating that they ‘are market-driven mechanisms that cost the taxpayer
virtually nothing’, while ensuring that farms minimise their losses and
continue to trade. Additionally, the WA Farmers state that the schemes not only
transfer the risk away from the producer, they also diminish the risk to the
taxpayer by reducing the need for costly drought schemes. However, WA
Farmers did note ‘that the relatively costly audit process [associated with
multi-peril insurance] is a barrier to uptake.[56]
3.79
The issue of a fund filling in the gaps where insurance was inadequate
or did not exist was discussed with a number of contributors. The moral
hazard, or inequity of a fund providing assistance to both those who had
prepared for such an event, and those who had not, raised suggestions that
there could be mechanisms in place where assistance was contingent on being
prepared. With the benefit of his experience Mr Elkington supported the idea
of conditions being placed on assistance with benefits accruing to those who
had prepared:
We saw a lot of instances where a business was quite
well-prepared and lost everything and another business in the same street may
have had the same. The first business might have been fully insured, may have
had a disaster plan and were just unlucky. The other business might have had
limited or no insurance, but they were all eligible [for] the same amount of
support. I think a federal process that enabled people to prove that they were
pre-prepared for a disaster would be a very good thing.[57]
3.80
The SEMC in Western Australia also discussed the importance of ensuring
that there was no disincentive for businesses not to be adequately prepared
because they thought they would be adequately covered by the post-disaster
reconstruction and recovery response. Mr Cronstedt quoted from a book by
Richard Sylves who referred to the situation as a 'moral mazard':
It is a term that has been coined by a chap by the name of
Richard Sylves in a book called Disaster Policy and Politics, and I will
just quote a bit that is quite pertinent. He says that it:
Creates a type of Samaritan's dilemma: providing
assistance after a catastrophe reduces the economic incentives of potential
victims to invest in protective measures prior to a disaster. If the
expectation of disaster assistance reduces the demand for insurance, the
political pressure on the government to provide assistance after a disaster is
reinforced or amplified.[58]
3.81
The TCCI agreed that this was a situation to be avoided:
That certainly could be an unintended consequence—businesses
saying, 'I'm not going to worry about my insurance because this will cover me.'
That is not the outcome we would be looking for.[59]
Committee view
3.82
The committee agrees with contributors who highlighted the importance of
adequately insuring business assets and potential loss of business due to a catastrophic
event. The impact of not having adequate insurance for the individual business
and for the recovery of the wider community is very significant—not to mention
the potential impact on the taxpayer. The necessity to adequately insure
individual and/or business assets should always be highlighted in any disaster preparation/contingency
planning information for communities at risk of floods, bushfires or any other
disaster.
3.83
However, the question of whether it is the job of government to
intervene in the insurance market brings a complex set of other considerations
into play. Direct intervention through regulation is not necessarily the best
option, nor is the expectation that the taxpayer will refund all preventable
loss or insurable assets. The role of government does not extend to prescribing
how businesses conduct their internal affairs and manage business risks.
Government encourages greater self-reliance that includes an expectation that
adequate planning for all contingencies including insuring against risk is
undertaken by businesses. Government can however continue to assist by
investigating, developing and disseminating well-researched information to
allow businesses to make informed decisions about their risks. Sustainable
approaches, such as drought and disaster mitigation, broader technological
approaches, greater investment in new processes and skills all offer better
solutions for those involved.
Conclusion
3.84
The role of government goes to the essence of this inquiry—how it
supports rural and manufacturing industries and communities affected by natural
disasters. The inquiry's terms of reference sought responses to a number of issues
related to natural disasters and how government can assist during such times. Unfortunately
the committee did not receive any submission regarding many of these issues.
3.85
For example, the committee did not receive any evidence on how an
'Australia Fund' would be resourced or structured. Likewise, the committee received
no evidence that a single fund would assist in filling the gaps in the current provision
of support available for economic crisis and natural disasters.
3.86
With regard to these gaps, the committee welcomes the emphasis on
sustainability and self-reliance in the farming sector through concessional
loans, but is of the view that more work needs to be done on how best these
loans and their eligibility criteria are structured to ensure they provide the
most benefit. Nevertheless, the committee supports the expansion of the
concessional loan model to the manufacturing sector where access to finance is
proving a barrier to sustainability.
3.87
The committee agrees with many submitters that more investment in mitigation
and preparedness strategies is required. As mentioned in Recommendation Two, assisting
with greater utilisation of technology, including the development of new skill
sets, could improve productivity and also help farmers, manufacturers and
communities to better prepare and deal with unforeseen events more effectively.
3.88
In the committee's view, targeted and comparable support for businesses is
available at both a state and federal level. Initiatives like the Farm
Household Allowance, when considered alongside Centrelink employment support
for non-farming households, suggest a coherent approach is being taken by
government with regard to households as well.
3.89
Overall, the committee considered the evidence it received, and where
appropriate, recommends improvements in areas where issues have been brought to
its attention. However, without evidence to respond to the issues raised in
the terms of reference, it is not able to recommend the establishment of an
Australia Fund.
Recommendation 9
3.90
The committee does not recommend the establishment of an Australia Fund.
Mr Andrew Laming
MP
Chair
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