Research Paper 6 1995-96

Dry Paddocks, Damp Policies:
Drought Assistance Strategies and their Effectiveness

Alan Burdon
Economics, Commerce and Industrial Relations Group
11 September 1995

Abbreviations

Contents

Major Issues

Drought is a recurring feature of Australian agriculture and the severe drought in eastern Australia which began in 1991 is the latest in a succession of nine major droughts identified by the Bureau of Meteorology since records began in the 1860s. The description of the current drought as the 'worst ever' in some quarters is debatable, but this question is really of little relevance given the different pattern and impact of each drought and the different circumstances of the rural economy at the time.

Widespread and generally substantial falls of rain in most agricultural areas of south eastern Australia during April and May 1995 are the strongest indications yet that this severe drought might be near an end, at least in the climatic sense. While those regions which have been affected by drought will take some years to restore their physical and financial situation, the political and emotional pressures arising from the drought are set to ease substantially.

With parts of central and southern Qld as well as northern NSW having experienced drought conditions for more than four years there have been frequent vivid media portrayals of the harsh physical impact of the drought and the considerable personal hardship it has brought to people living in affected areas.

While the present drought has not been as significant a feature of the national economic landscape as that of the early 1980s it is nevertheless estimated to have reduced growth in GDP during 1994-95 by 0.8 per cent. In total the drought has caused losses to the Australian economy estimated at $5 billion, resulted in around 23 000 fewer jobs than would otherwise have been the case and caused a significant reduction in export income. Further, there has been a significant additional 'cost' of at least $700 million stemming from the assistance committed by the Commonwealth and State Governments over the course of the drought as well as substantial contributions from the general public.

As with previous droughts there are lessons to be learned and hard questions to be faced about the long term economic and environmental impact of drought policies so that farmers and rural communities can be better prepared to face the inevitable next drought. In the national interest, the effects of drought on rural businesses, regional economies and the national economy should be minimised. As the present drought would appear to be entering its recovery phase it is timely that the Commonwealth and State Governments review the effectiveness of drought relief policies free of the pressures of providing immediate relief to farm families. No matter how economically sound drought policies are, however, it must nevertheless be recognised as a political fact of life that at some stage severe droughts are going to cost governments large amounts of money to alleviate hardship and support those farming communities affected. No matter what management strategies are employed, farms cannot be totally insulated from major droughts.

Drought relief policies have been a difficult and contentious area particularly since the Commonwealth Government's sudden decision in 1989 to remove drought relief from the Natural Disaster Relief Arrangements. Subsequently the Commonwealth and the States agreed on a National Drought Policy (NDP) based on the principle that drought was a recurrent natural event. The objectives of the policy are to encourage the agricultural sector to adopt a self-reliant approach to managing for drought, to maintain and protect Australia's agricultural and environmental resource base during severe drought and to ensure early recovery of agricultural and rural industries, consistent with long-term sustainability. The current drought is the first test of the effectiveness of this new 'risk-management' approach which reflects the economically rationalist ideology favoured by governments in recent years.

While drought preparedness and self-reliance are certainly worthwhile long-term objectives for farmers and should be encouraged by governments, the practical situation is that during extended drought farmers need cash to support the farm business and maintain the farm household. For many farmers, the current drought occurred at the end of a rural downturn with cash reserves depleted by low commodity prices and events such as the collapse of the wool market. Other farmers who had borrowed heavily faced substantial interest payments. Despite the excellent wheat harvest in 1993-94 the agricultural sector was, in general, in poor financial shape to cope with the extended drought which compounded many farmers' financial problems particularly those who were barely viable under favourable seasonal conditions. At end June 1993, total farm debt was $17.3 billion which represented a 48 per cent increase (in nominal terms) from the $11.7 billion owed in 1988.

Since 1989, the main instrument for the delivery of drought assistance has been the exceptional circumstances provisions of the Rural Adjustment Scheme (RAS) which also cover other situations considered beyond the farmer's control such as disease outbreaks. The RAS is, however, essentially a structural adjustment program aimed at assisting individual farmers with sound long-term prospects to return to profitability rather than a welfare scheme. The use of the RAS to alleviate personal hardship has not been without problems.

In times of financial hardship, many farmers have been precluded from access to the welfare and social security assistance available to other sectors of the populace due to their asset base. As the drought developed and its scale increased the Commonwealth Government progressively eased conditions for access to welfare benefits particularly through the introduction in September 1994 of drought relief payments for farm families which were provided through social security arrangements.

The Commonwealth Government's initial response to the provision of drought was to provide incremental funding through the RAS on a case by case basis as requests from Qld and NSW were considered. By mid 1994 the scale of the drought and pressures were such that a need arose for more comprehensive drought packages which were announced, belatedly in the view of several commentators, in September and December 1994. The packages committed a total of $276 million. By mid May 1995, over 10 000 farm families had been approved for Commonwealth drought relief payments announced in the September 1994 package. For the financial year 1994-95 to mid May, about 3800 farmers had been approved for drought exceptional circumstances under the RAS. By May 1995, the Commonwealth Government had committed over $560 million in drought assistance since 1991.

The governments of NSW and Qld also introduced a range of schemes to supplement Commonwealth assistance. The drought situation and coordination of assistance have also been addressed by Commonwealth and State Ministers responsible for agriculture through the Agriculture and Resource Management Council of Australia and New Zealand which held a special meeting for this purpose in September 1994. There was also considerable concern by the general community for the hardships being faced by farmers and besides direct initiatives to supply food and fodder to rural communities, over $9 million, which was matched by the Commonwealth Government, was donated to the Farmhand Appeal.

At the time the NDP was agreed in August 1992, large areas of NSW and Qld were already affected by drought and these States have subsequently continued to provide transaction-based subsidies for the transport of fodder, stock and water. Such subsidies have been strongly criticised as encouraging an assistance mentality and 'compensation-based' farming as well as encouraging overstocking.

Several of the regions worst affected by the current drought are those marginal agricultural regions such as the Western Division of NSW and South West Qld where dry conditions would appear to be the norm rather than the exception. Drought is, however, not the only contributor to hardship in these and other areas where it is now recognised that closer settlement schemes earlier this century have resulted in many farm enterprises being too small to be economically viable. Other factors include severe land degradation, low profitability and high debt levels. An expectation that government assistance will always be forthcoming whenever dry conditions occur would hinder the structural adjustment necessary. A clear need exists for the development of regional adjustment strategies to achieve a sustainable agricultural industry in these areas. Substantial commitment of government funds appears inevitable if this objective is to be achieved. Clear principles and responsibilities should also be determined at the outset, otherwise a further layer of confusion could be added to an already complex and difficult situation.

While the response of the Commonwealth and State Governments to the current drought has not been without criticism as being ad hoc crisis management in response to media sensationalism, the Commonwealth Government has, nevertheless, preserved the general thrust of the NDP. There are, however, indications that the self-reliant approach has been compromised which could reinforce the perception of some farmers that, whatever their state of preparedness, governments will automatically bail them out during drought.

A particular problem which needs to be addressed is the declaration process defining 'exceptional drought circumstances' which is a necessary condition for farmers to access immediate Commonwealth drought relief measures. The definition of drought for agricultural purposes does not lend itself to an objective scientific definition and political and other pressures will inevitably intrude a large degree of subjectivity into the decision making process. A further difficulty is that the States use different processes and criteria for drought declarations. After over four years of drought conditions, the Commonwealth and State Governments are still grappling with this problem to which, bearing in mind the great diversity in agriculture and climate in Australia, there is probably no real answer.

A range of policies and programs is now in place to deal with the effects of the current drought. The degree to which farmers take up drought preparedness measures such as the taxation incentives announced by the Commonwealth Government in 1994 should also be closely monitored. The next step for governments is to address the important issues arising from the drought such as the long term sustainability of agriculture in those areas severely affected by the drought and the need for drought relief policies to be tailored to meet the different needs of sectors such as the livestock and the cropping sectors. In this context it could be useful to examine experience in South Africa which also has variable rainfall and severe droughts and has linked the provision of drought relief to specified maximum stock carrying capacities on individual properties.

There is a risk that budgetary pressures will influence governments to phase out drought expenditure as soon as the drought breaks and that other policy issues will overtake drought policy for government consideration. Realistically, drought policy can only be formulated in a political environment free of the immediate pressures of severe drought. The implementation of effective strategies to minimise the effects of future droughts will be a most difficult and costly exercise. A commitment from the Commonwealth and the States to an integrated and scientific approach to drought preparedness could achieve results but full cooperation between governments, farmers and rural communities and substantial funding will be essential factors.

1. Introduction

Despite good rainfall in April and May 1995, large areas of NSW and Qld are still suffering the effects of the prolonged and severe drought which began in 1991. This drought has caused large losses in agricultural production and considerable financial hardship to many farmers and rural businesses with consequent social problems in many rural areas. The extent and severity of the drought continue to have considerable effects on the national economy.

The Prime Minister has been among those who have recognised the acute human and social problems faced by farmers and communities in the worst affected areas:

He added that this drought has also highlighted an awareness of the need for sustainable agriculture:

The response of the Commonwealth Government to the current drought has been significantly different from its response to previous droughts. Following the severe drought of 1981-82, a number of major initiatives were taken by the Commonwealth Government to attempt to mitigate the effects of subsequent droughts. Important changes to the approach to drought relief included consideration of drought as a recurrent natural event rather than a 'disaster'. Commonwealth assistance was targeted to those particular farmers in financial distress rather than to whole sectors of the agricultural industry through subsidies on purchases of fodder and transport of stock, fodder and water. Commonwealth support for the farm business, as against the farm household, is now predominantly in the form of interest subsidies on loans provided by the financial sector. This measure was first introduced during the 1982-83 drought.

In August 1992, when the present drought was in its early stages, a NDP was agreed by the Commonwealth and States.⁽²⁾ Shortly afterwards, the RAS, which had been nominated as the main instrument for the delivery of Commonwealth drought assistance, was extensively refocussed towards productivity improvement, sustainability and self-reliance. There was also a separation of assistance aimed essentially at supporting the farm business from welfare measures aimed at meeting the day-to-day living expenses of the farm family.

As the drought spread and intensified, pressure on governments from farmers, rural industry bodies and community groups for additional relief measures increased accordingly. In response to these pressures, a number of significant changes and additions were made to the drought assistance measures originally in place. These included changes to the definition of exceptional drought circumstances to enable farmers⁽³⁾ to access drought relief payments for farm households and obtain additional support through the RAS for the farm business.

1.1 Purpose of this Paper

The current drought which began in 1991 was the first test of the effectiveness of the new strategies for drought relief under extreme drought conditions. It would be useful for future drought policy formulation to examine the reasons why, shortly after strategies were put into place, changes in drought policies occurred, their effectiveness in preserving agricultural industry in drought affected regions, their effectiveness in alleviating hardship to farming families and their role in ensuring a strong recovery at the end of the drought.

This paper outlines:

It discusses:

The paper provides background to the response of governments to the current drought and draws together comments from agricultural leaders and economists. A number of serious problems and difficult questions which need to be addressed by the Commonwealth and State Governments are also canvassed.

The paper does not include any changes to the pattern of the current drought or policy developments occurring after May 1995.

1.2 Related Parliamentary Research Service Papers

A major objective of drought policies is the maintenance of sustainable agriculture through proper natural resource management. The community-based Landcare movement could make a considerable contribution to this objective. Important policy issues relating to Landcare were examined in a recent Parliamentary Research Service paper by Baden Williams, Landcare and the Mythical Money Tree.⁽⁴⁾

Social issues are covered in a recent Parliamentary Research Service Background Paper by Margot McGinness, Social Issues for Rural and Remote Australia⁽⁵⁾. The linkages between the agriculture sector and regional economies and issues on farm adjustment are addressed in forthcoming Parliamentary Research Service papers by Richard Stayner of the Rural Development Centre.

2. Extreme Drought and Role of Governments

Extreme climate variability is a characteristic of Australian agriculture. Australia is the driest inhabited continent and periodic severe droughts threaten both the financial and the environmental sustainability of its agricultural sector. At the turn of this century, Australia was in the grip of one of the worst droughts ever recorded. Since then six further major droughts have occurred including the current drought.

When the severe drought which affected much of eastern Australia during the early 1980s broke in the autumn of 1983, it could have been expected that many lessons would have been learned from this drought and earlier droughts. In particular, it might have been expected that more effective policy measures would have been developed to increase drought preparedness and to ensure better targeted and more efficient relief measures. Observers commented at the time that:

Attention was also drawn to the criticisms of the drought policies applying at that time pointing out:

• the ad hoc nature of the policies
• the high costs of administering Commonwealth drought relief; and
• the way drought policies discriminated against farm managers who prepared for dry times.

This section briefly outlines the history of major droughts in Australia and the development of Commonwealth Government assistance policies and programs to provide some perspective to the current drought and the response by governments.

2.1 Definition of Drought

A wide range of views and perceptions exist about drought from individual, industry and national viewpoints. From a meteorological viewpoint drought relates to a deficiency in rainfall. The Bureau of Meteorology identifies a serious deficiency when, for a period of three months or more, rainfall falls within the lowest ten per cent of all previous totals for the same period of the year. A severe deficiency occurs when the rainfall for the period is within the lowest five per cent of previous totals for that period. Other concepts of drought were examined and attempts at an objective definition were reviewed extensively by the Commonwealth Government's Drought Policy Review Task Force (the Task Force) established in 1990.⁽⁷⁾

The Task Force considered that the main factor that sets drought apart from the concept of aridity, or normal variations in rainfall, is that those areas considered to be affected by drought are being used for commercial or social purposes that depend upon certain levels of rainfall. In the agricultural context, the adequacy or otherwise of rainfall depends upon:

• the condition of the land at the time
• the adequacy of pasture and crop responses to that rain; and
• the type of agricultural activity being undertaken.

Drought referred to as agricultural drought therefore occurs whenever seasonal conditions are unable to support existing agricultural activity over an extended period, either due to the degree of climatic variability experienced or to the particular agricultural activity involved. What may be drought in one area or on one property is not necessarily drought in other areas or on other properties. As an example of different agricultural activities, the immediate impact of drought is generally more severe on crop production than on livestock production, but it can take up to five years for livestock industries to recover from the drought, while recovery in the cropping sectors is much quicker.⁽⁸⁾

While maintaining that an objective and scientific definition of drought is not central to a proper understanding of the concept of drought, from either a farm management or government policy perspective, the Task Force nevertheless adopted the following working definition of drought:

This definition of drought and indeed the whole concept of 'agricultural drought' begs the question, however, as to whether the existing agricultural activity in a region is, in fact, appropriate for that particular region and therefore whether those particular agricultural activities should ever have been established. There are increasing concerns that some agricultural activities in low rainfall areas are not sustainable and supporting those activities through drought assistance will lead to further environmental degradation.

The Task Force also recognised that no two droughts are the same and that while it is not possible objectively or scientifically to define lesser and extreme droughts, if seasonal conditions deteriorate for extended periods, the risks involved may increase beyond the capacity of individual producers to address on a normal commercial basis and government assistance may be warranted.

As well as the physical effects of drought, its impact on farm businesses has been referred to as a financial drought. Drought causes marked reductions in farm cash operating surpluses available for consumption or investment purposes which can increase the financial vulnerability of farms to later declines in commodity prices. At the national level it has been estimated that for the period 1949-50 to 1977-78, climate variability was responsible for some 39 per cent of total variation in farm income.⁽⁹⁾

The pattern of the current drought and the resulting financial stress on individual farmers have been described quite graphically by a farmer from Walcha in northern NSW:

2.2 Major Droughts in Australia

The Bureau of Meteorology has identified nine major droughts in Australia since the keeping of records began in the 1860s not including the current drought. There have also been six other droughts of lesser severity but nevertheless causing appreciable losses in large areas of several States. The Bureau has listed the nine major droughts and commented on their consequences:

The incidence of droughts was examined in 1983 as part of the report Water 2000: A Perspective for Australia's Water Resources to the Year 2000 which states that in every one hundred years:

• twenty one years are likely to be free of major droughts
• sixty two years will be marked by drought which covers an area of less than twenty per cent of the continent
• fifteen years will be marked by drought over twenty per cent but less than forty-fifty per cent of the continent; and
• two years will be marked by widespread drought which covers more than forty-fifty per cent of the continent.⁽¹²⁾

Considering the incidence of drought on a State basis, NSW Agriculture has examined the twenty three years from 1972 to 1994 inclusive based on monthly drought declarations by the Department. There were no full years during which the State was entirely free of drought declarations and only three years during which the State could have been considered as essentially 'drought-free' with only small areas of the State drought declared for part of the year. In the north-west, winters have seen drought declarations in around twelve of the twenty three years while the south of the State has fared well with few summer drought declarations.⁽¹³⁾

The above analysis raises some questions about the validity of the process of drought declaration within NSW which is initiated by an application to the State Government from the local Pastures Protection Board. Standing arrangements for drought relief in NSW such as subsidies for the transport of stock, fodder and water come into operation immediately following the declaration of drought. A risk thus exists that the availability of assistance under these procedures could encourage the declaration of drought and discourage its revocation. There is little encouragement to livestock producers to reduce stocking levels and conserve pasture when overgrazing might serve to bring forward a drought declaration.

Criteria for the declaration and revocation of droughts differ significantly between States. For example, South Australia has not formally declared 'drought' for over ten years in contrast to the practice in NSW and Qld. This situation gives rise to anomalies between States for the same farm activities. Similar anomalies between declared regions and other areas arise within States. The Task Force agreed that it can be argued that each system reflects the unique climatic, regional and industry requirements of each State but the different systems and criteria create a fundamental difficulty in using State declaration procedures as a basis for Commonwealth support.

The above difficulties were recognised by Commonwealth and State Ministers responsible for agriculture and in October 1994 the Agriculture and Resource Management Council of Australia and New Zealand agreed to a harmonised, rather than uniform, system of drought declaration as a basis for an application for Commonwealth support. States may continue to make their own drought declarations to activate their own procedures and policies.

2.3 Physical Causes of Drought

In recent years a greater understanding of the physical causes of droughts has arisen as scientific knowledge of the various interactions of climate factors has increased. A major influence on our climate has been identified as what is referred to as the El Nino phenomenon which can be measured using an index known as the Southern Oscillation Index (SOI). Details of this climatic phenomenon are covered in a Parliamentary Research Service Research Note by Greg Baker published in March 1995.⁽¹⁴⁾

During an El Nino event the odds of eastern Australia receiving rainfall in the lowest thirty per cent have been calculated at about 6/4 on with odds for rainfall in the highest thirty per cent at 16/1 against. In 1982-83, the biggest El Nino of this century occurred and corresponded to the severe drought of 1982-83.⁽¹⁵⁾

The SOI has been strongly negative for much of the 1990s. In March 1995, however, the SOI was positive and the highest for more than four years giving hope that the drought was coming to a close. Although the SOI again turned negative in April 1995 other indicators such as ocean temperature patterns across the Pacific are returning to normal.

The effect of climate on the financial performance of individual farm enterprises has been examined by the Qld Department of Primary Industry. Studies suggest that in the northern grain belt, over a ten-year period, 78 per cent of the total profit from growing wheat is derived from the best three years and the worst three years run at a loss. The Department has related rainfall variability associated with the SOI to wheat and sorghum yields in north-eastern Australia. Yields tend to be higher or lower depending on whether the SOI is consistently positive or negative through late autumn. Farmers could thus gain some advantage by adjusting their inputs in response to a seasonal forecast. A simulation model has indicated that, on average, profit increased when the rate at which nitrogen fertiliser is applied follows such a strategy.⁽¹⁶⁾

2.4 Commonwealth and State Government Drought Assistance under Natural Disaster Relief Arrangements

There is a long history of government involvement in the provision of emergency relief in severe droughts. Campbell points out that as long ago as April 1866, after widespread drought, Henry Parkes, then Colonial Secretary of NSW, journeyed to the colony's southern districts, inter alia,

Under the Constitution, the Commonwealth has no specific powers on drought relief or natural disaster relief which consequently remain a function of the States. Under section 96 of the Constitution, however, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit and usually the conditions for Commonwealth assistance are jointly agreed by the Commonwealth and the relevant States.

After Federation, State emergency aid was supplemented with Commonwealth assistance. From 1960 to 1970, the Commonwealth Government matched State government expenditure for disaster relief including drought on a dollar for dollar basis for the relief of personal distress and hardship and the restoration of public assets to their pre-disaster condition. There were exceptions to this policy such as in 1965-66 when the Commonwealth met all expenditures by the NSW and Qld Governments on agreed measures to mitigate the effects of drought. This was done because no assistance in the form of grants for personal distress and hardship was available. Had such assistance been given then presumably the Commonwealth Government would have given aid on a matching dollar-for-dollar basis.⁽¹⁸⁾

From 1971 until 1 July 1989, Commonwealth drought assistance was provided under the Natural Disaster Relief Arrangements (NDRA) and each State developed its own drought assistance policies, generally within the context of the NDRA. Under NDRA, the States initially fund assistance measures and then seek reimbursement from the Commonwealth. The amount of Commonwealth payments to the States is based on a formula which, with the exception of personal hardship and distress, reflects the States financial capacity to absorb the costs of disasters. States meet all costs up to a threshold after which the Commonwealth meets an increasing proportion of total costs as they increase. These arrangements minimise Commonwealth involvement in relatively minor disasters whilst heavily involving the Commonwealth in assistance for major disasters, relief for which would be beyond the resources of the States.

Drought relief payments under the NDRA were substantial. From 1973-74 through to 1981-82, the Commonwealth Government provided $152.2 million in drought assistance and between $50 million and $100 million was provided from State treasuries.⁽¹⁹⁾ A further $340 million was provided by the Commonwealth during 1982-84 covering the severe drought of 1982-83 which included payments under the Drought Relief Fodder Subsidy Scheme and the Drought Relief Interest Subsidy Scheme. The core measures of assistance included concessional loans to farmers unable to obtain funds from commercial sources, freight subsidies and subsidies for livestock slaughter. In the 1982-83 drought, purchased fodder and interest rate subsidies were introduced.

Apart from the specific drought relief measures under NDRA, the fact that drought relief was provided under this program reinforced the concept that drought was essentially a natural disaster rather than one of a number of risks and uncertainties which characterise agriculture and need to be managed accordingly.

Towards the end of the 1982-83 drought, the Commonwealth and State Governments through the [then] Australian Agricultural Council initiated an examination of drought policy based on recent experience. A report prepared by a Commonwealth/State working group of officials on government policies for drought was subsequently released in 1983. The report recommended against the use of practically every drought policy measure employed in the preceding years recommending that only concessional finance for carry-on, restocking or restoration purposes be retained. The report also recommended that the Drought Relief Fodder Subsidy Scheme and the Drought Relief Interest Subsidy Scheme should not be reintroduced in future droughts.⁽²⁰⁾ This report which argued against the 'sacred cows' of fodder, water and stock freight subsidies and rebates was described at the time as 'having stunned most rural producer organisations'.⁽²¹⁾

The above working group also recommended that a representative group be formed to continue its work and the Commonwealth established the National Drought Consultative Committee (NDCC) through the Australian Agricultural Council to continue the review of drought policy. A Commonwealth proposal that drought carry-on loans should be provided through the RAS met with considerable resistance from the States and the National Farmers' Federation (NFF) representatives on the NDCC and in 1985 the Australian Agricultural Council endorsed the continuation of drought carry-on loans within NDRA.⁽²²⁾

Drought policy then disappeared from the agenda of the Australian Agricultural Council until July 1988 when a report from a working party which examined the effects of drought assistance measures and policies on land degradation drew the following conclusions:

• there was considerable discrepancy between the frequency of drought declarations in various areas and the occurrence of rainfall deficiencies
• drought assistance was being provided to counter production deficiencies caused by meteorological and other factors; and
• most forms of assistance offered are primarily for welfare or carry-on purposes, and most have negative effects on land resource conservation or drought preparedness and on management generally.⁽²³⁾

The Council noted the report and agreed to seek comment from interested parties.

At the time of the establishment of the NDCC, the Primary Industry Survey commented that the review of drought policy 'promises to be one of the most contentious exercises in Australian agriculture for many years'.⁽²⁴⁾ The prediction that drought policy would be a contentious exercise was all too true and up to the present day drought policy continues to be the subject of considerable debate.

2.5 Removal of Drought from Natural Disaster Relief Arrangements

In April 1989, the Commonwealth Government announced its decision to remove drought unilaterally from the NDRA Scheme as of 1 July 1989. The Government stated at the time that alternative arrangements:

The reason for this decision was recognition that the major failings of the drought relief mechanism under natural disaster arrangements were in the process for defining the occurrence of drought and the distribution of assistance payments. Many areas were drought declared for long periods. For example, in NSW, the Cobar Pasture Protection District was drought declared for forty four per cent of the period 1957-82.⁽²⁶⁾ In 1989, some shires in Qld had been either partially or completely drought declared seventy per cent of the time since 1964.

Senator Walsh, the then Minister for Finance, also claimed that abuses of the scheme had occurred in Qld which had received $48.2 million, that is ninety two per cent of the total of $52.5 million of national drought assistance outlaid by the Commonwealth under NDRA over the previous five years (1984-88).⁽²⁷⁾

The reaction of the States, farmers and rural institutions to the removal of drought from the NDRA was mostly critical. While recognising that the onset of drought was more progressive and that the 'event' may last longer than other natural disasters, Gary Goucher of the NFF claimed that a sound argument could be made for providing assistance for droughts which are of extraordinary severity. Goucher recognised, however, the problems resulting from the drought declaration process:

The removal of drought from NDRA did, however, provide an opportunity for the Commonwealth to formulate a more sensible agro-economically, environmentally and financially based drought policy. Concurrently, therefore, the Minister for Primary Industries and Energy, John Kerin, announced the establishment of an independent Task Force to review drought policies. The Task Force included representatives from the Commonwealth and State Governments and rural institutions as well as farmers and scientists and was required to seek submissions from interested parties. The Task Force was requested to provide a preliminary report by 30 June 1989 on interim arrangements for assistance.

2.6 Drought Policy Review Task Force

The terms of reference for the Drought Policy Review required that, in order to assist the Commonwealth Government in formulating equitable, efficient and environmentally responsible policy approaches for dealing with the effects of drought, the Task Force:

• identify policy options to encourage primary producers and other segments of rural Australia to adopt self reliant approaches to the management of drought; and
• consider the integration of drought policy with other relevant policies including structural adjustment, social welfare, land management, conservation of breeding stock and animal welfare.

In considering the outcome of the review, it is important to note that the Task Force essentially undertook a policy review which was a significant departure from many previous reviews of drought which adopted a more technical focus on the incidence of drought and the possible severity of its effects.

Among the total of eighty nine submissions received by the Task Force, that from the Grains Council of Australia stated, inter alia, that:

As an illustration of the divergent views of rural organisations on drought policy, the Grains Council policy was severely criticised by the NSW Farmers Association whose President described parts of the Council's policy on drought aid as 'drivel'.⁽³⁰⁾

In its interim report released in July 1989, the Task Force recommended that carry-on funding for severe drought circumstances arising over the following twelve months be provided under the RAS. The Commonwealth Government accepted this recommendation which meant that Commonwealth subsidies would no longer be available for transport of fodder, stock and water and that drought assistance through interest subsidies would be targeted to those farmers suffering financial stress but with good prospects of longer term profitability.

The final report of the Drought Policy Review Task Force Managing for Drought was released in August 1990 and has provided the framework on which subsequent Commonwealth drought policies have been based. The report was comprehensive and contained fifty-eight recommendations which included the following:

• against reinstatement of drought within NDRA
• against establishment of any relief scheme for drought based on a natural disaster concept
• Commonwealth and State governments should implement a NDP
• a NDP should focus attention on the respective roles of producers and governments in implementing a self-reliant, risk management approach to drought
• the provision of Commonwealth assistance under a NDP should be independent of State declaration procedures
• against the provision of subsidies or rebates for purposes such as the purchase of fodder and the transport of fodder, stock and water under a NDP
• income support needs of rural families in severe financial difficulties are appropriately addressed through the RAS; and
• a review of income and other taxation arrangements for capital intensive industries such as agriculture be undertaken in a sustainable development context.⁽³¹⁾

The response of State governments and rural industry to the recommendations of the report was disappointing, in that most comment focussed on, and was critical of, the recommendations that drought should not be considered as a disaster and that subsidies for the purchase of fodder and the transport of fodder, livestock and water should be discontinued. Many of the other recommendations of the Task Force do not appear to have been seriously considered by the States and were not pursued by the Commonwealth with any vigour.

In May 1991, the Minister for Primary Industries and Energy, John Kerin, announced the Commonwealth's new drought policy which was based on the recommendations of the Drought Policy Review Task Force. The three key elements of the policy which replaced the interim arrangements in place since drought assistance was removed from NDRA were:

• a fundamental recognition that drought is a natural, recurring feature of the Australian climate and one of the ongoing commercial risks of rural enterprise
• financial assistance to farmers to be provided through the RAS. Emphasis would be placed on individual assessment of farms and targeted assistance based on this assessment; and
• the new approach to drought management would be implemented through other Commonwealth policies and programs to ensure that farmers can make more informed and strategic responses to manage drought according to their particular circumstances.⁽³²⁾

Land conservation policies and the Landcare program were nominated as two examples of existing frameworks within which drought management principles would be implemented.

In November 1991, the Senate initiated an inquiry into a NDP and appropriate government responses to the recommendations of the Drought Policy Review Task Force by its Standing Committee on Rural and Regional Affairs which issued its final report in July 1992. The Committee considered that drought should not be reinstated within NDRA as this would compromise the development of a self-reliant, risk management approach to drought. The Committee also recognised that drought is a recurring feature of Australia's climate that must be prepared for and managed.⁽³³⁾

2.7 National Drought Policy

In August 1992, Commonwealth and State Ministers responsible for agriculture agreed a NDP (refer Appendix A) which was stated to be based on principles of sustainable development, risk management, productivity growth and structural adjustment in the farm sector. Drought was seen as a normal feature of Australian agriculture which should be treated as such. The primary source of Commonwealth funding during drought would be the RAS which would be revised to focus more sharply on sustainable long-term profitability at the farm level, based on structural adjustment and productivity growth. New measures were also foreshadowed to provide support for farmers unable to meet day-to-day living expenses.⁽³⁴⁾

The objectives of the NDP are to:

• encourage primary producers and other sections of rural Australia to adopt self-reliant approaches to managing for drought;
• maintain and protect Australia's agricultural and environmental resource base during periods of extreme stress; and
• ensure early recovery of agricultural and rural industries, consistent with long-term sustainable levels.

Under the NDP, farmers would have to assume greater responsibility for managing the risks arising from climatic variability. This would require the integration of financial and business management with production and resource management to ensure that the financial and physical resources of farm businesses are used efficiently. To assist risk management through income smoothing and the creation of financial reserves, the Commonwealth introduced an improved Income Equalisation Deposit scheme which included provision for a Farm Management Bond. Withdrawals from the Farm Management Bond can only be made without penalty in periods of hardship arising from circumstances such as drought and other natural events.

The RAS would be the vehicle for providing assistance to farmers in times of exceptional circumstances which encompass not only drought but also commodity price falls, disease outbreaks and other situations beyond the farmer's control. Provision of this assistance would depend on the degree of financial hardship of the farmer rather than drought per se and would be provided only to those with sound long-term prospects in farming. The RAS Advisory Council has described the circumstances under which assistance may be provided:

Under the exceptional circumstances provisions of the RAS, special interest subsidies of up to 100 per cent of the interest rate on commercial loans and/or existing debt may be provided jointly by the Commonwealth and the States.

The NDP allows for the States to provide drought assistance measures in addition to those adopted by the Commonwealth but these should not compromise the overall direction of the national policy. States may provide transaction-based subsidies at their sole discretion and expense as a transitional measure and agreement was reached that these type of subsidies be phased out as soon as possible.

Other new initiatives under the NDP included commitments to:

• fund a communication strategy for the NDP which taps into the States' networks
• fund education and training related to risk management and drought preparedness based on whole farm planning
• support additional measures under Landcare
• fund research and development for drought, including climate forecasting; and
• ensure better co-ordination of research and development (R&D) on drought by the Resources R&D Corporation, the Rural Industries R&D Corporation and other R&D corporations.

There was a mixed reaction to the NDP from rural organisations. While the NDP was generally welcomed by the Grains Council of Australia as being based on principles regarded as being critical to a vibrant and efficient grains industry it was criticised by the NFF as not going far enough. The NFF President, Graham Blight, commented that there were two major problems with the approach and claimed that drought affected farmers were discriminated against compared with victims of flood and bushfires:

A chronology of Commonwealth drought assistance measures since 1971 and announcements of relief measures for the current drought is at Appendix B. The principal drought relief measures are also illustrated in Figure 1.

2.8 Overseas Experience

Australia is not unique in experiencing severe droughts. There are direct climate and agricultural similarities between Australia, South Africa and parts of North America.

South Africa provides a particularly relevant comparison. Both South Africa and Australia have extensive grazing coupled with the world's most variable rainfall and severe droughts which can last for several years. Until new policies came into force in South Africa in 1990, payments for agricultural drought relief were high being more than A$1 billion for the financial years 1979-80 to 1988-89. Criticisms of the drought relief arrangements echoed those in Australia:

A basic principle of the revised policy arrangements in South Africa is that drought relief is only available when drought assumes disaster proportions and is linked to maximum carrying capacity. Drought declarations are based upon the recommendations of a local Drought District Committee submitted to the National Drought Committee in Pretoria. The main criteria for assessing drought are:

• rainfall over the past three seasons
• veld condition; and
• condition of stock.

The main difference in policy compared with Australia, however, is that for a farm to be eligible for drought relief it must be registered as a 'conservation farm'. Such farms must adhere to the carrying capacity allocated to their land by ensuring that stock numbers remain below the carrying capacity at all times otherwise they are disqualified from the scheme for at least five years. Following declaration of drought by the National Drought Committee, stock numbers on conservation farms must be reduced to a nucleus herd comprising one-third of the approved carrying capacity of the farm within four months. During drought declaration, a monthly subsidy is paid for each allocated livestock unit together with additional assistance for finishing stock to be sold, extra fencing and the transport costs of fodder for the nucleus herd. Smith has commented that:

Although the introduction of such a scheme would be a most radical step for Australian farmers to contemplate, let alone accept, it should not be discarded as a policy option, particularly if the level of financial support were to be substantial and the only real alternative available to individual farmers would be to exit agriculture.

In the United States, federal aid is provided to farmers under disaster assistance and emergency crop loss programs under the 1990 farm bill when either planting is prevented or crop yields are abnormally low because of adverse weather and related conditions. Another avenue of support is crop insurance through the Federal Crop Insurance Corporation. Although crop insurance is available for a wide variety of crops, it is not always available in each location where a crop is grown. The disaster assistance programs are quite complex and the level of assistance varies between different crops.

3. Development of Current Drought and Response by Governments

The current drought dating from 1991 has been the first test of the effectiveness of the new strategies for drought relief. In addition, the drought relief measures announced by the Commonwealth for relief of the current drought represent a commitment of over $560 million to date. Adding expenditures by the States, there will have been a commitment of at least $700 million from governments by the time the drought breaks. This is a considerable expenditure of public funds which merits a close examination of the effectiveness of the various programs of drought relief, in particular their success in achieving the objectives of the drought strategies formulated after the drought of 1982-83.

This section outlines the development of the current drought and the response of the Commonwealth and State Governments and the community to the pressures to provide assistance to preserve farm businesses and relieve personal hardship.

3.1 Lead up to Drought

Following the severe drought of 1982-83, rainfall patterns in most agricultural regions were generally around or above average until the onset of drought in central and southern Qld and northern NSW in 1991. Australia was not, however, totally drought free during this time with several regions such as the Eyre Peninsula in SA and parts of Qld, Tasmania and the NT suffering severe rainfall deficiencies. While the impact of drought on individual farmers and the local economies of these particular regions was severe, the implications from a national perspective were relatively slight compared with the 1982-83 drought. This is illustrated by the expenditure by the Commonwealth of a total of some $60 million on drought relief under NDRA over the five years 1984-85 to 1988-89 compared with total expenditure of $341 million on drought relief over the two years 1982-83 to 1983-84.

It is important to note that prior to and during the initial period of the current drought, farm revenues had significantly declined such that many farmers were already under considerable financial stress at the onset of the drought as shown by the decline in farmers' terms of trade which is the ratio of prices received to prices paid. Terms of trade fell by 9 per cent in 1989-90 and 14 per cent in 1990-91 as a result of falls in commodity prices and the collapse of the wool market.⁽³⁹⁾ Those farmers who had borrowed heavily during the mid 1980s were in a particularly vulnerable financial position as a result of the rises in interest rates which subsequently occurred. The drought therefore compounded many farmers' financial problems particularly those who were barely financially viable under favourable seasonal conditions.

The financial problems of farmers in the broadacre⁽⁴⁰⁾ sector coming into the drought were illustrated by the Australian Bureau of Agricultural and Resource Economics (ABARE) which showed that in 1994-95, farms came into drought from a far worse financial position than they did in 1982-83. Using the measure of farm business profit which is defined as farm cash income plus buildup in trading stocks, less depreciation, less the imputed value of operator, partner and family labour, in 1982-83, broadacre farms averaged a profit of $18 000 in 1994-95 dollars whereas in 1993-94, broadacre farms averaged a loss of $4300. Moreover in 1981-82, average farm business profit had been positive for the previous four years whereas in 1993-94, broadacre farms had averaged a loss for the previous four years.⁽⁴¹⁾

3.2 Structure of Australian Broadacre Farming Sector

In examining the effects of the drought and the relief measures undertaken, it is helpful to be aware of the large variation in individual farm size and output. A survey and analysis by ABARE shows that in 1992-93, a relatively small number of broadacre farms produced a large proportion of total output:

• One third of broadacre farms produced 70 per cent of the broadacre sector output. These farms were relatively large operations with positive rates of return on capital but high debt levels averaging $290 000 per farm leaving them more exposed to interest rate increases
• A further 20 per cent of broadacre output is produced by the one third of broadacre farms of medium size, being about one quarter the size of the large farm group. Most of the medium sized farms appear to be operated as commercial enterprises although their incomes and rates of return on capital are relatively poor. Many of these medium sized farms could be struggling to earn sufficient income to meet debt commitments, capital investment and living expenses
• The remaining one third of broadacre farms are the smaller farms which produce just 8 per cent of total broadacre output. These smaller farms are predominantly relatively small livestock producers and are mostly unprofitable when considered solely as agricultural enterprises. Non-farm income is relatively high and it is clear that non-farm income plays a substantial role in meeting living and even farm expenses.⁽⁴²⁾

The results of the above survey and analysis by ABARE highlight both the diversity of the broadacre farming sector and the need for caution in the use of data averaged across the whole sector. There are large differences between different farming operations within the broadacre sector and the situation facing specialist crop producers and mixed crop and livestock producers is very different to that facing specialist livestock producers. For example a decision by grain producers as to whether to plant is an 'all or nothing' issue depending on the moisture level in the soil and the prospects of follow-up rain.

A prime aim of drought relief is to maintain the agricultural base by preserving those enterprises with good prospects of long term viability. Adjustment and drought relief policies should therefore be tailored to meet the different needs of the different groups in the broadacre farming sector. There could also be a case for specific drought relief policies to target those farm enterprises which supply the bulk of agricultural output.

3.3 Development of Current Drought

Although it is difficult to identify with any precision when a drought begins, the current drought began to affect southern Qld and northern and western NSW seriously in early 1991. By October 1991, the drought had extended so that forty shires and eight towns and cities in Qld, covering about two-thirds of the State, and 65 per cent of NSW were drought declared. Other regions seriously affected by severe drought in 1991-92 were the Kimberley region of WA and several districts of the NT.

As can happen during droughts, there was some easing of the situation in particular areas following rain. For example by April 1992, the drought declared area of NSW had dropped to 42 per cent of the State but by July 1992, the drought declared area had risen once again to 68 per cent of the State. In 1992-93, there was an improvement in seasonal conditions in much of the drought affected area of NSW and south east Qld but other regions of Qld remained in drought. The drought extended significantly in 1994 affecting most of NSW, much of Victoria, southern SA, the south and west of WA and north-eastern Tasmania. Through 1994, the drought steadily worsened such that by September 1994, about 83 per cent of NSW and 40 per cent of Qld were drought declared.

By December 1994, more than 5 000 farmers were receiving Commonwealth drought relief payments. The hardest hit areas included the Darling Downs in Qld and the wheat areas of northern NSW where many farmers have not produced worthwhile winter or summer crops since the onset of drought in 1991. Although good rainfalls have occurred in many drought-affected areas of Qld and NSW to date in 1995, large areas of Qld and two-thirds of NSW remained drought declared at end May 1995. By mid-May 1995 the number of farm families receiving Commonwealth drought relief payments had exceeded 10 000.

In February 1995, Commonwealth drought support was extended to farmers in several areas of the Eyre Peninsula in SA whose incomes had been severely affected by two consecutive years of drought. A further extension of drought assistance followed in May 1995 to Western Victoria and additional regions in NSW.

3.4 Production Losses due to Drought

Losses in production and exports due to the drought have been severe and have had a significant effect on the national economy. ABARE has estimated that for each one dollar decline in the net value of production in the farm sector, there is a decline in the non-farm sector of around fifty cents. ABARE has also forecast that economic growth in 1994-95 is likely to be around 0.8 percentage points or around $3.6 billion lower than would otherwise have been the case due to the adverse effect of the drought. In 1994-95, real gross farm product is forecast to fall by 25.2 per cent from the previous year which is comparable with the 1982-83 drought when farm output fell by 23.8 per cent. The 1982-83 drought occurred, however, in a period of weak non-farm sector activity, with national economic output falling by 2.5 per cent in 1982-83.⁽⁴³⁾ ABARE has also estimated that without the drought rural exports would have been $2 billion higher in 1994-95.⁽⁴⁴⁾

The NFF has estimated a similar drop of about three quarters of one per cent of Australia's GDP. Overall the adverse effect of the drought on the Consumer Price Index could be an increase of around half of one per cent.⁽⁴⁵⁾ Drought has, however, conflicting effects on food prices. Using meat prices as an example, initially prices tend to fall as farmers sell stock to reduce their herds but then rise to reflect increases in the cost of fodder and then rise further as farmers restock at the end of the drought. The cost of drought thus tends to spread through the whole community.

There could also be a further loss of up to $2 billion in the non-farm economy, seriously affecting the capacity of the economy to reduce unemployment, especially in regional areas.⁽⁴⁶⁾ In this analysis the NFF used a multiplier effect closer to two. This figure is twice the multiplier used by ABARE and signifies a decline in the non-farm sector of at least one dollar for each dollar drop in farm production. Although quantifying the effects of the agricultural sector's reduced income on the general economy depends greatly on the multiplier effect assumed, there can be little doubt that the non-farm sector has also suffered from the effects of the drought.

The reduced rate of economic growth as a result of the drought also impacts on employment growth in the economy. ABARE estimates that employment in both the farm and non-farm sectors will be reduced by a total of around 23 000.⁽⁴⁷⁾

The effects of the drought on wheat production are shown in Table 1 and Figure 2 which illustrate the drop in production in NSW and Qld due to the effects of drought. It is of interest to note that since 1991-92 wheat production in Qld has remained well below the average of 1.32 million tonnes (Mt) for the previous five years whereas wheat production in NSW recovered in 1992-93 and 1993-94. The amount of export wheat forecast for 1994-95 includes carry-over from the relatively high wheat crop of 1993-94.

When a severe drought is followed by favourable seasonal conditions, crop yields on land which has been fallowed for some time can be significantly above average. This can greatly assist farmers to recover financially as long as prices remain firm.

Table 1: Australian Wheat Production and Exports: 1986-91 to 1994-95

Sources: ABARE, Commodity Statistical Bulletin, 1994; ABARE, Crop Report, No. 89, 6 June 1995; and Rees R, Cockinos A, Outlook for Wheat, Outlook 95, ABARE, Canberra: February 1995.

(e) estimate.

Coarse grain production has also been severely affected by drought with Australian coarse grain production forecast to fall by 56 per cent to around 4.4 million tonnes in 1994-95. To

maintain feedgrain supplies to the Australian livestock industry, it has been estimated that between 500 000 and 1 000 000 tonnes of grain will need to be imported, most of which is expected to be grain sorghum and corn from North America.⁽⁴⁸⁾

State government ministers and officials have commented on the value of lost production due to the drought. In evidence before the Senate Standing Committee inquiring into drought policy in early 1992, a Qld State Government officer commented:

In October 1991, losses suffered in NSW were estimated by the State Minister for Agriculture at $645 million.⁽⁵⁰⁾ Subsequently the NSW and Qld Governments have estimated total losses due to the drought at some $5 billion.⁽⁵¹⁾

While estimates of the losses in farm production and their flow-on to other sectors of the rural economy are necessarily imprecise, there can be no doubt that the current drought following the rural downturn of the late 1980s has had a major impact on the regional economies of large parts of NSW and Qld. The loss in export income resulting from the drought also impacts adversely on Australia's balance of payments on current account.

3.5 Farm Incomes

Fortunately, outside the drought-affected areas, a noticeable recovery in the rural sector began in 1992-93. Excellent seasonal conditions in southern Australia and higher grain, beef, lamb and milk prices combined to lift average incomes. During the year, average farm cash income, which is cash receipts less cash costs, for broadacre agriculture rose by 25 per cent on the previous year. Wool prices, however, remained low and the average farm cash income for those 70 per cent of sheep industry farms with receipts of less than $100 000 was zero.⁽⁵²⁾

There was again a general improvement in average farm incomes in 1993-94 with those for broadacre farms rising by 32 per cent over the previous year as a result of good seasonal conditions outside the drought areas. In NSW, wheat and other crop producers improved their average farm cash income by 61 per cent compared with the previous year.⁽⁵³⁾

In 1994-95, however, average farm cash income for broadacre farms in NSW is forecast by ABARE to fall by around 56 per cent to $19 500 per farm, with some 26 per cent of farms expected to have negative farm cash income. The largest relative falls in income are expected in the wheat and other crops industry where average farm cash income is expected to fall from a surplus of $161 700 in 1993-94, when many farms had well above average crops, to a loss of around $8300 in 1994-95. Farm cash incomes in the livestock industries in NSW are expected to remain relatively unchanged in 1994-95. In Qld, average farm cash income for broadacre farms is expected to fall by around 15 per cent to $33 200 with some 26 per cent of farms expected to have negative farm cash income.⁽⁵⁴⁾

Using average farm income figures obscures the relative positions of farms affected by drought compared with those unaffected. Those broadacre farms for which 1994-95 was their third successive year of drought recorded falls in average farm cash incomes of over 30 per cent between 1992-93 and 1993-94, and expect a further fall of 60 per cent in 1994-95. More than one third of the farms in this latter group are estimated to have recorded a negative cash income in each of the three years.⁽⁵⁵⁾

Table 2 and Figure 3 illustrate the differences in farm cash income for broadacre farms affected and unaffected by drought.

Table 2: Broadacre Farm Average Cash Incomes: 1992-93 to 1994-95

Source: Topp V, Martin P, Gooday J, and Parameswaren B., Farm Financial Performance -Outlook and Analysis, Proceedings of ABARE Outlook 95, Canberra, February 1995:307-328.

Examining profitability or farm business profit rather than farm cash income provides an indication of the general financial health of the broadacre sector. This sector comprises about 75 000 farms from the total 120 000 farms in Australia and accounted for 53 per cent of the value of farm production in 1994. Farm business profit is a measure of the gains to be made from farming after allowance has been made for:

• the value of the labour input reported for each proprietor and family member
• the notional rundown or depreciation in the value of plant and improvements; and
• the value of the buildup or rundown in inventories of stock or produce held on farm over the year.

The financial performance of broadacre farms both affected and unaffected by drought in terms of farm business profit is shown in Table 3 and Figure 4. As can be clearly seen, those farms affected by two years of drought are suffering considerable financial stress.

Table 3: Broadacre Farm Average Business Profit: 1992-93 to 1994-95

Source: Topp V, Martin P, Gooday J, and Parameswaren B., Farm Financial Performance -Outlook and Analysis, Proceedings of ABARE Outlook 95, Canberra, February 1995:307-328.

3.6 Commonwealth Assistance for Drought-Affected Farmers

Table 4 summarises the announcements of Commonwealth funding during the development of the drought. They are also listed in the chronology of Commonwealth drought assistance measures in Appendix B. The text which follows provides more detail on several of these initiatives.

The announcement by the Commonwealth Government in May 1991 that drought relief for farmers would now be provided under the RAS was followed by discussions with the States on the implementation of this decision. Subsequently, in September 1991 under the carry-on provisions of the RAS, the Commonwealth allocated funds of $4.3 million to Qld and $2.2 million to NSW to farmers affected by the developing drought and the rural downturn.

 Table 4: Specific Commonwealth Funding Commitments for Drought Assistance: 1991-1995

Source: Media Releases and RAS Annual Reports

At that time, the States were required to match Commonwealth funds on a dollar for dollar basis, but in view of the severity of the rural downturn and in recognition of the financial implications for the States of the transfer of drought relief from natural disaster arrangements to RAS, the Commonwealth agreed in October 1991 to increase its contributions to a two to one ratio. At the same time the Commonwealth announced measures to allow easier access to social security benefits for farmers facing extreme hardship.

In August 1992, Commonwealth and State Ministers responsible for agriculture agreed on a NDP. At the same time, in recognition of exceptional drought circumstances facing farmers in parts of NSW and Qld, the Commonwealth provided an additional $14 million under RAS within the NDP framework to be split equally between NSW and Qld. under the extreme drought measures contained within the NDP framework. The requirement for the States to match these funds was waived on the grounds that the States had already contributed significant funding for drought assistance.

The additional assistance from the Commonwealth was in the form of interest subsidies up to 75 per cent on new and existing farm debts, with a limit of $30 000 per farmer. The interest subsidies would be for 12 months and could be used for a wide range of activities including carry-on, restocking, restructuring of existing debt, productivity improvement and expenditure to prepare for future droughts. The Commonwealth urged the State governments to consider topping up the interest subsidy to 100 per cent. Qld subsequently topped up the maximum interest subsidy payable to 100 per cent while NSW topped up the maximum interest subsidy to 80 per cent.

In accordance with normal conditions for RAS assistance, the farm business would need to be assessed as profitable in the longer term and the farmer able to access commercial credit as well as being temporarily in severe financial difficulties. Following the announcement of major revisions to the RAS in September 1992, the drought assistance measures were referred to as the Pilot Drought Scheme. As the drought developed the Commonwealth made a series of additional allocations of funding to Qld and NSW to meet the needs of various farming sectors which included an allocation in April 1993 of $5 million specifically for drought affected wool producers.

3.7 Commonwealth Drought Assistance Packages

As the drought spread and intensified, pressure increased on the Commonwealth Government to extend the support measures in place through the RAS and the social welfare system and in September 1994, the Commonwealth announced a comprehensive drought assistance package. The measures in the package were aimed at families and communities experiencing exceptional circumstances in the worst drought areas. The

package was costed at $164 million over two years and was justified by the Prime Minister in national interest terms:

The key elements of the package were:

• a Drought Relief Scheme to address the immediate cash flow needs of the worst affected families through a Drought Relief Payment up to a maximum of almost $400 per week, depending on family circumstances. Payments were to be subject to the income and off-farm assets tests which apply to the Job Search Allowance. Farm assets are, however, not subject to assessment. The Austudy farm assets test was also removed for all families in exceptional drought areas
• Farm enterprise support through the allocation of an additional $74.25 million to RAS over 1994-95 and 1995-96, together with a commitment to fully fund all farm enterprises eligible for drought exceptional circumstances assistance. The maximum annual individual assistance limit on RAS interest payments was raised from $50 000 to $100 000 and the cumulative limit over five years was raised from $100 000 to $300 000. To assist farm enterprises to recover from the drought, applications for assistance could be accepted up to six months after the termination of the exceptional circumstances declaration. The requirement for farmers to sell all off-farm assets before being able to access the exceptional circumstances provisions was relaxed in recognition of situations whereby assets had been acquired by farmers to provide for their retirement. Investments in bona fide insurance and superannuation funds were therefore excluded from the assets test and an assets test of $163 500 would apply for other off-farm assets
• provision of further resources for rural financial and social counselling in drought areas including increasing the number of Commonwealth funded rural and business counsellors to 140 [from 118]; an