Alan Burdon
Economics, Commerce and Industrial Relations Group
11 September 1995
Abbreviations
ABARE
|
Australian Bureau of Agricultural and Resource Economics
|
NDCC
|
National Drought Consultative Committee
|
NDP
|
National Drought Policy
|
NDRA
|
National Disaster Relief Arrangements
|
NFF
|
National Farmers' Federation
|
RAS
|
Rural Adjustment Scheme
|
SOI
|
Southern Oscillation Index
|
Contents
Major Issues 1.
Introduction
1.1 Purpose of this Paper
1.2 Related Parliamentary Research Service Papers
2. Extreme Drought and Role of
Governments
2.1 Definition of Drought
2.2 Major Droughts in Australia
2.3 Physical Causes of Drought
2.4 Commonwealth and State Government Drought Assistance under
Natural Disaster Relief Arrangements
2.5 Removal of Drought from Natural Disaster Relief
Arrangements
2.6 Drought Policy Review Task Force
2.7 National Drought Policy
2.8 Overseas Experience
3. Development of Current Drought and
Response by Governments
3.1 Lead up to Drought
3.2 Structure of Australian Broadacre Farming Sector
3.3 Development of Current Drought
3.4 Production Losses due to Drought
3.5 Farm Incomes
3.6 Commonwealth Assistance for Drought-Affected Farmers
3.7 Commonwealth Drought Assistance Packages
3.8 State Government Assistance
3.9 Role of the Financial Sector
3.10 Community Assistance
4. Effectiveness of Drought Assistance
Measures
4.1 Objectives of Commonwealth Drought Assistance
4.2 Is the Current Drought Extreme?
4.3 Will Farmers be Forced off the Land?
4.4 Preservation of Breeding Stock
4.5 'Ad Hoc' or Developed Relief Measures?
4.6 Do Assistance Measures Conform with the National Drought
Policy?
4.7 Transaction-Based Subsidies
4.8 Determination of 'Exceptional Drought Circumstances'
4.9 Financial Incentives for Farmers to Prepare for Drought
4.1 Restructuring of Marginal Agricultural Regions
5. Preparing for the Next Drought
5.1 Future Drought Assistance
5.2 Need to Improve Financial Position of Farmers
5.3 Other Issues to be Addressed
Table 1. Australian Wheat Production and Exports: 1986-91 to
1994-95
Table 2. Broadacre Farm Average Cash Incomes: 1992-93 to
1994-95
Table 3. Broadacre Farm Average Business Profit: 1992-93 to
1994-95
Table 4. Commonwealth Funding Commitments for Drought Assistance:
1991-1995
Figure 1. Principal Commonwealth Drought
Assistance Measures
Figure 2. Australian Wheat Production and
Exports: 1986-91 to 1994-95
Figure 3. Broadacre Farm Average Cash Incomes:
1992-93 to 1994-95
Figure 4. Broadacre Farm Business Profit:
1992-93 to 1994-95
Endnotes
Appendix A. National Drought Policy
Appendix B. Chronology of Commonwealth Drought
Assistance Since 1971
Appendix C. Drought Exceptional
Circumstances
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:
What this long drought has put at risk is the
future of the family farms which sustain and in large part define
the bush. There is an element of our culture at stake here, a way
of life, as well as a vital part of our economy.
He added that this drought has also highlighted
an awareness of the need for sustainable agriculture:
It might be that another generation will look
back on this drought and say that it was a turning point. That it
was the drought which made us aware of the need to renovate and
restore the land, to use it sensibly and sustainably-that this was
the moment when rural industry and the environment got onto the
same track.(1)
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:
the occurrence of major droughts in
Australia
Commonwealth Government drought assistance
policies; and
the development of the current drought and
response by governments.
It discusses:
the adequacy and effectiveness of drought relief
policies; and
what experience can be gained from the current
drought.
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:
If Australia doesn't plan now for the next
drought, it could be as crippling as the last
one.(6)
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:
drought represents the risk that existing
agricultural activity may not be sustainable, given spatial and
temporal variations in rainfall and other climatic conditions.
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:
This drought is different because it's been a
culmination of years of dry, patchy weather-mini droughts, I
suppose you'd call them. And then we've gone into this one in '94
which has been a rip-roarer. It's a combination of dry periods
where people have delved into their reserves so much that the banks
say, listen, no more, you're at the limit of your overdraft. So
that's all gone, the water's all gone-and the whole thing just
snowballs.(10)
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:
1864-66
|
All States affected except Tasmania.
|
1880-86
|
Southern and eastern mainland States
affected.
|
1888
|
All States affected except Western
Australia.
|
1895-1903
|
One of the worst droughts to date with
practically the whole of Australia affected. Sheep numbers (then
more than 100 million) were halved, and cattle numbers cut by more
than forty per cent.
|
1911-16
|
Wheat crops affected in most States, sheep
numbers declined by 19 million and cattle by two million.
|
1918-20
|
Parts of WA were the only areas completely free
from drought.
|
1939-45
|
Prolonged drought that affected crops and/or
pastoral areas in all States. Sheep numbers fell from
125 million in 1942 to 96 million in 1945.
|
1958-68
|
A major drought period, second only to 1895-1903
drought in severity. The latter two years resulted in a forty per
cent drop in the wheat harvest, a loss of 20 million sheep and
a decrease in farm income of $300-500 million.
|
1982-83
|
Extensive drought affecting nearly all of
eastern Australia, particularly severe in south east Australia.
Several areas recorded lowest ever rainfalls, total losses
estimated in excess of $3000 million.(11)
|
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,
to entertain applications from the agricultural
poor for a loan of seed wheat to enable them to crop their lands
for the coming season.(17)
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:
will focus on ensuring that future drought
relief measures are consistent with the Commonwealth's rural
adjustment and soil conservation management objectives. They will
also emphasise a more equitable, efficient and environmentally
responsible approach to the amelioration of the consequences of
drought.(25)
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:
It is reasonable to conclude that if drought is
a regularly recurring event in a certain area, it is less likely to
give rise to the personal stress and extraordinary economic
disruption at which disaster is aimed. If drought assistance is
judged to be too readily available in some areas then the fault
lies with the failure of the declaration process to take account of
the frequency and probability of drought.(28)
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:
... changes in climatic conditions and the risk
and uncertainty which accompany such changes are an inherent
commercial reality of Australia's extensive farming ... . If
farmers are to manage and survive these changes, they must learn to
stand on their own two feet, without the prop of Government
financial assistance. But, the Government does have a clear role to
play in creating an environment, including fiscal incentives, which
facilitate farmers adjusting to, and preparing for,
drought.(29)
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:
Where drought is unusually prolonged and severe
and is beyond reasonable expectations regarding farm business
planning and risk management strategies, the exceptional
circumstances provisions of RAS may be invoked. Exceptional
circumstances support will facilitate improvements in productivity,
the provision of carry-on finance and debt reconstruction for those
farmers with long-term profitability prospects.(35)
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:
First, drought is treated differently to other
natural disasters such as floods and bushfires, where more flexible
assistance is available under NDRA. Second, to qualify for drought
assistance under the RAS, farmers must be judged to have sound long
term prospects in farming. This means those who do not fall into
that category will not be eligible for drought assistance. That is
discriminatory and inconsistent with the support provided to
victims of floods and bushfires and the Government's commitment to
social justice.(36)
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:
Periods of drought declaration were excessive
(up to 70 per cent of the time over a thirty year period for some
districts) and were more related to overstocking than to climate.
The effects on land degradation were serious and relief assistance
to the grazing sector could be interpreted as exacerbating the
problem. One senior agricultural official commented that "drought
relief was the main cause of veld [natural grassland pasture]
erosion in South Africa".(37)
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:
So far the scheme has worked successfully and
the regulations have not been modified by appeals to the Minister
or other political pressures. Criticisms are that the
administration of the payments is relatively slow and a sense of
disbelief by non-conservation farmers that they are not eligible
for assistance.(38)
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
|
1986-91
(annual average)
|
1991-92
|
1992-93
|
1993-94
|
1994-95
(e)
|
Million tonnes
|
Million tonnes
|
Million tonnes
|
Million tonnes
|
Million tonnes
|
Australian Production
|
14.4
|
10.6
|
16.2
|
16.5
|
9.0
|
Australian Exports
|
12.0
|
7.1
|
10.3
|
13.8
|
6.8
|
NSW Production
|
4.1
|
2.2
|
4.2
|
5.1
|
0.8
|
Qld Production
|
1.3
|
0.3
|
0.7
|
0.6
|
0.2
|
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:
if [the drought] goes on for another twelve
months, the estimated value of loss of production in 1992 is $1 430
million. That is in addition to the $965 million that was lost
in 1991.(49)
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
Type of Farms
|
Per cent of farms
|
Farm Cash Income
|
1992-93
|
1993-94
|
1994-95
|
|
|
$
|
$
|
$
|
All Broadacre
|
100
|
30 328
|
40 150
|
33 800
|
Not in Drought
|
51
|
33 655
|
40 870
|
44 500
|
In Drought 1994-95
|
34
|
31 421
|
47 440
|
25 000
|
In Drought 1993-95
|
11
|
32 804
|
22 700
|
9 200
|
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
Type of farms
|
Per cent of farms
|
Farm Business Profit
|
1992-93
|
1993-94
|
1994-95
|
|
|
$
|
$
|
$
|
All Broadacre
|
100
|
-16 308
|
-4 290
|
-13 000
|
Not in Drought
|
51
|
-8 406
|
+2 680
|
+3 100
|
In Drought 1994-95
|
34
|
-15 194
|
+3 130
|
-26 800
|
In Drought 1993-95
|
11
|
-38 627
|
-27 700
|
39 200
|
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
Date
|
Total commitment
|
Specific to NSW
|
Specific to Qld
|
Remarks
|
$m
|
$m
|
$m
|
Sept 1991
|
6 0
|
2.2
|
4.3
|
RAS carry-on
|
Sept 1992
|
14.0
|
7.0
|
7.0
|
Pilot drought scheme
|
March 1993
|
2.5
|
|
2.5
|
Pilot drought scheme
|
April 1993
|
11.0
|
1.0
|
5.0
|
$5m wool producers
$6m non-wool prod.
|
August 1993
|
1.8
|
|
1.8
|
training support for grain growers
|
Sept 1993
|
3.1
|
|
3.1
|
drought exceptional circumstances
|
Oct 1993
|
2.0
|
|
2.0
|
drought exceptional circumstances
|
Dec 1993
|
7.1
|
|
7.1
|
drought exceptional circumstances
|
August 1994
|
14.0
|
5.0
|
2.5
|
$5m training
$1.4m counselling etc.
|
Sept 1994
|
164.0
(over 2 years)
|
|
|
1st drought assistance package
|
Dec 1994
|
112.0
(over 4 years)
|
|
|
2nd drought assistance package
|
Feb 1995
|
11.3
|
|
|
Eyre Peninsula, SA
|
May 1995
|
40.3
|
33.0
|
|
about $6m to Victoria
|
Total
|
379.5
|
|
|
|
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:
If only for the sake of fairness, we must take
these measures. But it is also in the interests of the national
economy to take them. It is in the interests of the long term
sustainability of our rural industries. It is in the interests of
the environment. It is in the interests of all Australians to take
them.(56)
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]; and
-
- provision of $10 million of Commonwealth funds to match the
'Farmhand' community appeal.
The Commonwealth also foreshadowed a range of
measures to encourage the adoption of a self-reliant approach by
providing incentives for farmers and rural communities to better
protect the agricultural resource base during drought and encourage
improved land use. These additional measures were announced in
December 1994 in a package costed at more than $112 million over
four years including:
-
- an enhanced Farm Management Bond Scheme to encourage farmers to
build cash reserves for downturns such as drought
-
- taxation incentives through an investment allowance of 10 per
cent for expenditures of up to $50 000 per taxpayer per annum until
2 000 on fodder and water storage for livestock, water conveyancing
and minimum tillage equipment
-
- additional funding of $10 million over two years for structural
adjustment in drought-prone areas on a regional basis
-
- additional funding for landcare projects and better linkages
between landcare and labour market programs in drought areas;
and
-
- easing of eligibility conditions for JobSkills and JobStart
programs in drought exceptional circumstances areas.
At the same time additional regions of NSW and
Tasmania were declared as exceptional drought areas.
The taxation measures were originally intended
to come into effect on 1 July 1995, but in response to
representations from farming organisations, the Commonwealth
subsequently brought them forward so that the drought investment
allowance came into effect on 23 March 1995 and the Farm
Management Bond arrangements from 7 April 1995.
These drought packages were generally well
received by farmers and farm organisations. The main area of
criticism related to the criteria for defining exceptional drought
regions. As could be expected for any scheme of this type with
eligibility dependent on inclusion in a defined geographical area,
farmers on the border of exceptional drought regions were
dissatisfied. Not surprisingly, those regions which considered
themselves to be drought-affected and missed out on inclusion
sought a revision of the criteria. Other criticisms of the package
were that rural businesses and local government councils did not
receive any direct assistance.
In February 1995, the Commonwealth Government
agreed to provide exceptional circumstances drought assistance of
up to $11.3 million to farmers in the Eyre Peninsula of SA whose
incomes had been severely affected by two consecutive years of
drought. At the same time the Commonwealth offered financial
support to the SA and WA Governments to develop and implement
regional adjustment strategies for the drought affected regions of
the Eyre Peninsula of SA and the Gascoyne/Murchison region of
WA.
In May 1995, the Commonwealth Government
approved the extension of exceptional circumstances drought
assistance to additional regions of NSW and the Wimmera area of
Western Victoria at an estimated cost of $40.3 million.
The 1995 Budget provides $282.3m for assistance
to farm families and rural communities affected by the current
severe drought in 1995-96. These outlays allow for the continuation
of drought related exceptional circumstances declarations through
most existing areas until 31 December 1995. They do not make
any allowances for any extension of declarations to other areas.
This funding is to meet previous commitments. No new drought
assistance programs were announced. Essentially, for 1995-96,
$148.2m is being provided as assistance to farm households through
social security and welfare arrangements and $134.1m is being
provided to support farm enterprises and rural communities, mainly
through the RAS.
From the announcement of the first drought
relief package in September 1994 until May 1995, over 10 000
farm families have been approved for Commonwealth drought relief
payments and $47.7 million has been paid. For the financial year
1994-95 to April 1995, about 3600 farmers have been approved for
drought exceptional circumstances payments under the RAS at a total
expenditure of $67.9 million of which the Commonwealth has
contributed over $50 million.(57)
To summarise, the amount and type of
Commonwealth financial assistance increased as the severity of the
drought, its long duration, and the scale of its effects became
apparent. The first payments were made in 1991 with relatively
small amounts of carry-on finance under the provisions of the RAS.
Since then, Commonwealth assistance measures have progressively
increased to comprehensive assistance packages costing in the
hundreds of millions of dollars. Senator Collins, the Minister for
Primary Industries and Energy, stated in May 1995 that the
Commonwealth has committed more than $560 million for drought
assistance since 1991.(58)
Despite some disagreements on the amount and
type of support, the Commonwealth and State Governments have
generally taken a coordinated approach to drought relief. Apart
from the normal bilateral consultation and cooperation between the
Commonwealth and the States at ministerial and official level, the
response of governments to the drought was considered on a formal
basis at the regular meetings of Commonwealth and State Ministers
responsible for agriculture.
As the severity of the drought increased,
however, it became necessary for the Agriculture and Resource
Management Council of Australia and New Zealand to hold a special
meeting in September 1994 to review the drought situation and
coordinate action. At this meeting the Council agreed to adopt a
coordinated national approach to drought declarations and
reaffirmed its support for the principles of the NDP adopted by the
Commonwealth and the States in 1992.(59)
3.8 State Government Assistance
As the drought developed NSW and Qld introduced
a range of schemes to supplement the assistance provided by the
Commonwealth.
By December 1994, in NSW, the range of measures
introduced included:
-
- freight subsidies for farmers in drought declared areas to meet
half the cost of transporting stock to and from agistment, movement
of fodder, water cartage for stock and domestic purposes;
-
- interest subsidies to farm related businesses up to a maximum
of $5 000 per business
-
- contribution of up to $1 500 for farmers participating in the
Australian Bankers Association Debt Mediation Scheme
-
- vouchers of $50 value redeemable against farm and business
electricity accounts and vouchers of $30 value to assist with
domestic electricity accounts; and
-
- exemption of stamp duty payments for refinancing primary
production loans.
Other measures included assistance with school
expenses, town water cartage subsidies, rent relief on agricultural
and grazing leases in the Western Districts and additional funding
for family support programs.
In February 1995, the NSW Government announced a
number of additional drought relief measures in a package costing
$30.5 million. The additional measures included subsidies up to 80
per cent of interest costs to help farmers purchase seed,
fertiliser and fuel for crop planting and a $10 million payroll tax
rebate scheme for rural businesses adversely affected by the
drought.
By the end of 1994, the range of measures put in
place by the Qld Government included:
-
- the Drought Freight Subsidies Assistance Scheme which provides
subsidies for the cartage of water and fodder to sustain livestock
on drought declared properties and the transport of livestock
returning from agistment following drought and for restocking
purposes. By February 1995, around $34.6 million of assistance had
been provided since 1991-92;
-
- Drought Restocking Loans up to a maximum of $100 000 at
concessional interest rates of six per cent to cover restocking
requirements;
-
- Drought Crop Loans up to a maximum of $40 000 at concessional
rates of six per cent to assist primary producers involved in
broadacre, grain and fodder crops to purchase seed, chemicals,
fertiliser and fuel;
-
- Small Business Drought Assistance of $5 million to meet
operating and other essential costs by way of interest subsidy up
to a maximum of $5 000 per annum for two years;
-
- interest free loans to local authorities whose rate income has
been affected by the impact of drought on ratepayers;
-
- Urban Water Supplies assistance to cart water for urban use for
towns suffering from water supply problems; and
-
- additional $10 million for maintenance of roads in
drought-affected local authorities.(60)
Since 1991-92, the Qld Government has allocated
$109 million for drought support.
The effectiveness of the various Commonwealth
and State responses to the current drought is examined in Section 4
of this paper.
3.9 Role of the Financial Sector
The role of banks and other financial
institutions in supporting farm enterprises through drought is
critical, particularly with Commonwealth drought assistance through
the RAS being based primarily on interest rate subsidies with the
commercial sector providing the loan principal. The advantages for
government and the financial institutions were outlined in a
previous Parliamentary Research Service Background Paper:
-
- the risk of default is carried by the financial institutions;
and
-
- a willingness to provide additional loan capital is an
indication of the longer-term viability of the farmer.
For the financial institutions:
-
- the interest subsidy provides additional assurance that loans
will continue to be serviced
-
- restoration of farmers to profitability should ensure continued
servicing of loans at commercial interest
rates.(61)
At 30 June 1993, total farm debt was $17.3
billion of which nearly $10 billion was owed to the major trading
banks. This level of debt represents a 48 per cent increase (in
nominal terms) over the previous five years from the total farm
debt of $11.7 billion in 1988. ABARE expects the average farm
business debt for broadacre farms to increase by around 4 per cent
during 1994-95 which compares with a slight decrease in
1993-94.(62)
In recent years the banks and other financial
institutions have been severely criticised by farmers and rural
institutions. Submissions to the inquiry into banking and
deregulation by the House of Representatives Standing Committee on
Finance and Public Administration in 1991 included complaints by
rural borrowers about their treatment by banks which ranged from
allegations of failure to notify changes to interest rates to
forced exiting from farm properties. The Committee concluded
that:
claims of widespread bank foreclosure in rural
Australia for other than commercial reasons are overstated.
However, in a number of cases it was clear that some banks were
taking unreasonable action to force farmers in default of their
loans to leave their properties. Some banks were also reluctant or
simply refused to negotiate with rural borrowers facing financial
difficulties. In these cases banks need to adopt a more sympathetic
approach so that these farmers can attempt to trade out of their
difficulties rather than being forced out of the
industry.(63)
The inquiry in 1994 by the Senate Rural and
Regional Affairs and Transport Reference Committee into Rural
Adjustment, Rural Debt and Rural Reconstruction examined the role
of the financial sector concluding, inter alia, that:
there is little doubt that following
deregulation in 1983-84 the banks, in pursuit of market share in
the face of heightened competition, made loans based on security
levels offered by existing equity but without sufficient regard to
the capacity of clients to repay. This approach, together with the
very high interest rates in the late 1980s, played a significant
role in the development of a debt crisis which continues to affect
many farmers.
There is also evidence that some banks and
financial institutions behaved in an insensitive manner when
farmers encountered debt difficulty, sometimes with little regard
for the social consequences of their actions.(64)
The Senate Committee noted, however, evidence
suggesting that, more recently, some banks have adopted a more
responsible and sensitive approach to the plight of farmers
overwhelmed by debt, drought and poor returns and are negotiating
with them on a case by case basis.
While banks are understandably reluctant to
publicise such schemes, there are reports of banks setting aside
parcels of debt carried by farmers in drought areas on an interest
free basis to be repaid when the farm enterprise recovers as an
alternative to foreclosures in a depressed rural real estate
market.(65)
In August 1994, Senator Collins, the Minister
for Primary Industries and Energy, also commented favourably on the
attitude of the banks, stating that the Government was maintaining
close links with the banks and that the banks were being extremely
responsible.(66) The Prime Minister, however,
subsequently criticised the banks for failing to see the potential
of Australia's rural industry and the capacity of Australia's
farmers to run profitable and productive
concerns.(67)
3.10 Community Assistance
As the drought spread in 1994, a growing
awareness of the problems being faced by the rural community
developed in the capital cities without doubt stimulated by graphic
media portrayals of withered crops, poorly nourished stock and
extreme personal hardship. The general community rallied to assist
farmers, the most prominent initiative being the Farmhand Appeal
which was launched in August 1994 by media interests to provide
short-term relief for farming families. Up to April 1995, $9.2
million was donated by the public through individual, community and
corporate initiatives. The Commonwealth Government agreed to match
public donations on a dollar for dollar basis allocating $10
million in the 1994-95 budget for this purpose. The funds have been
made available largely to farming communities not eligible for
drought assistance measures under the exceptional circumstances
provisions and around 8000 families, mostly residing in NSW, have
been assisted. Several other locally based schemes were launched to
provide cash and goods to farming families such as train and road
convoys of fodder to NSW from communities in Victoria.
4. Effectiveness of Drought Assistance
Measures
This section examines the effectiveness of the
drought assistance measures taken by the Commonwealth and State
Governments in response to the current drought in meeting their
objectives in providing emergency relief to farm families and
maintaining a sustainable agricultural sector in the
drought-affected regions.
4.1 Objectives of Commonwealth Drought
Assistance
Before examining the effectiveness of the
Commonwealth's drought assistance measures, it is instructive to
look at both the magnitude of the current drought (see Section 4.2)
and the objectives of the assistance as outlined in the NDP agreed
by the Commonwealth and the States in August 1992 which are to:
encourage primary producers and other sections
of rural Australia to adopt self-reliant approaches to managing for
climatic variability;
maintain and protect Australia's agricultural
and environmental resource base during periods of extreme climate
stress; and
ensure early recovery of agricultural and rural
industries, consistent with long-term sustainable levels.
The role of governments is outlined thus:
Government will help create the overall
environment which is conducive to this property management planning
and risk-management approach. We will encourage producers to adopt
improved property management practices through a system of
incentives, information transfer, education and training, landcare
group projects and research and development; and
During severe downturns, Governments will act to
preserve the social and physical resource base of rural Australia,
and will provide adjustment assistance in the recovery phase.
Support will be available to those with sound prospects who are
temporarily in financial difficulty.(68)
Malcolm has commented that:
Like the revamped RAS, the new drought policy
goes some way to meeting economists' criticism of drought policy of
the past.
but adds, perhaps somewhat cynically, that:
Despite the claims about expected self-reliance
of farmers under the new drought policy, whether things are to be
much different from the past probably will be known as soon as the
first dry spell, or rural by-election, arrives.(69)
4.2 Is the Current Drought Extreme?
Although each major drought is different in its
duration, intensity and location there are common factors in the
response of farmers and their industry spokespersons. Before it has
progressed very far, each drought is hailed as the 'worst ever',
the 'worst this century' or the 'worst in living memory'. There are
predictions that thousands of farmers will have to walk off their
properties and breeding herds will be decimated requiring at least
a decade to rebuild. For example the Qld President of the Sheep and
Wool Council is reported in April 1993 as stating that:
50 per cent of graziers would walk off their
properties unless adequate assistance was given
immediately.(70)
It is perhaps ironic that at the same time as
the above statements were being made, banks and other rural
financial institutions were being urged to support the agricultural
sector by providing additional finance to carry drought-affected
farmers and their families through the drought and not to foreclose
on farm enterprises unable to service loans and with little
prospects of financial recovery even in favourable seasonal
conditions.
Although the present drought is certainly severe
and has extended for several years in some areas, it can be
inferred from historical rainfall data that in several regions
affected by the current drought, the average rainfall since 1950
has been significantly higher than the average rainfall for the
preceding fifty years. The question, however, as to whether the
current drought is, or is not, the worst ever is probably of little
relevance given the different pattern and impact of each drought
and the different circumstances of the rural economy at the
time.
4.3 Will Farmers be Forced off the Land?
As to whether large numbers of farmers will be
forced off the land, Gow points out that an examination of farmer
numbers before, during and after the last major drought of 1982-83
reveals that between 1981-82 and 1991-92, statistics demonstrate
that the net number of farmers who left agriculture was close to
zero. Defining a farm enterprise as an agricultural establishment
with an estimated value of agricultural operations greater than $20
000 per year, as has been used by the Australian Bureau of
Statistics, in 1981-82 there were 122 408 farm enterprises compared
with 122 054 in 1991-92. In between these years the number of farm
enterprises rose to 128 707 in 1986-87 before declining in the face
of the rural downturn.(71) In an overview of farm
adjustment, Stayner has noted that the above estimates run counter
to popular perceptions:
From time to time, farm adjustment becomes 'big
news'. Typically, these are times when droughts, slumps in
commodity prices, or high interest rates are making life miserable
for a larger than usual number of farm families.(72)
adding that adjustment should be seen as
encompassing a wide range of circumstances which are an inherent
part of an open market economy while not dismissing the anguish and
regret undergone by those farm families who unwillingly find
themselves part of the adjustment process.
Although farmers in large areas of Qld have
endured the most prolonged period of the current drought, a recent
survey of rural debt in Qld indicated that there was no debt crisis
which would force substantial numbers of farmers off the land:
Against the background of the difficult
conditions in the rural sector over the past four years, the survey
indicates that 92% of Qld's primary producers with farm debt
currently have the capacity to service their debt in the long term.
The relatively low 'at risk' and 'non-viable' percentage would
indicate considerable financial discipline and good management by
both primary producers and financial
institutions.(73)
4.4 Preservation of Breeding Stock
Problems in relation to the preservation of the
national breeding herd, with calls for subsidies on fodder
purchases and the transport of fodder and stock, have been raised
during the current drought. This issue was examined by the Drought
Policy Review Task Force which used figures supplied by the
Australian Meat and Livestock Corporation to question the extent to
which the breeding base of the herd or flock was threatened by the
severe drought of 1982-83.
While herd numbers fell by around two million
head in 1982-83, cattle slaughterings accounted for only 25 per
cent of this reduction.
Similarly sheep numbers fell five million head
across the same period, but slaughterings of both lamb and mutton
accounted for only one-third of this fall. Mortality rates were not
exceptionally high, and the number of livestock shot in the
paddocks was relatively low.(74)
The Task Force concluded that national herd and
flock numbers suffered from the low rate of joinings or low calving
rate during periods of climatic stress implying a short-term
reduction in production levels, rather than a threat to the genetic
base. Maintaining livestock numbers cannot be attributed to a
single policy instrument such as drought assistance but other
factors including technology, infrastructure, transportation,
information services, animal husbandry and management
techniques.
During the present drought, ABARE expected the
Australian cattle herd to fall from 25.3 million in 1991-92 to
24 million in 1994-95. Slaughterings in 1994-95 were expected to
fall to 8.1 million as against 8.7 million in
1991-92.(75) Preliminary results from the agricultural
census for the 1994-95 season show that, contrary to expectations,
the Australian cattle herd has actually increased over the drought
years from 25.2 million at 31 March 1993 to 25.8 million at 31
March 1994 and 26.2 million at 31 March 1995.(76)
ABARE has commented on slaughter levels and the
influence of the feedlot industry.
While drought would normally be expected to
result in dramatically increased turnoff and slaughter rates,
national slaughter levels, although high, have remained reasonably
steady over the past few years.
An additional difference from the big drought of
the early 1980s is that at the beginning of the current drought
there were alternatives to immediate slaughter. Increased lot
feeding provided a valuable option to fattening on pasture,
increasing the availability of forage for breeding
stock.(77)
ABARE added that the feedlot industry offers an
economic alternative to the immediate slaughter of cattle during
dry periods and that slaughter levels would have been much higher
if not for feedlots. Compared with the previous severe drought, the
livestock industry has now a number of options to reduce livestock
numbers which would also include the live cattle export trade.
While these options have assisted in 'drought-proofing' the cattle
industry to some extent, the failure of grain crops and the
resulting increase in feed prices has resulted in a reduction in
the number of cattle in feedlots.
4.5 'Ad Hoc' or Developed Relief Measures?
Before examining the Commonwealth Government's
responses to the current drought, there is a view that so called
'ad hoc' policy making in response to drought circumstances may not
necessarily be inefficient. Simmons has compared what he refers to
as 'band-aid' and 'increased preparedness' drought policies and
states that.
Ignoring any potential non-farm social gains
that might arise from drought policy, 'band-aid' drought policy is
a lose-win game with tax-payers losing and farmers
winning; it is really just a transfer payment. Alternatively,
'increased preparedness' drought policy is a lose-no win
game where taxpayers lose and farmers are no better
off.(78)
Simmons makes the point that the strength of
'band-aid' policy is in its reactive nature being targeted towards
only those farmers who are drought-affected rather than the whole
farming community. Under 'increased preparedness' policies all
farmers must be targeted to help the few who will be affected by
drought in the unknowable future. Weaknesses of 'band-aid' policies
are that farmers can be led to increase their risk exposure in the
expectation of relief payments and the possibility that drought
declaration procedures may become politicised. In the latter event
relief is unlikely to be distributed efficiently in terms of the
policy goal of relieving drought related financial stress.
Despite the above views, there still appears to
be a valid case for policies which increase drought preparedness
since such policies recognise the likelihood that given the
vagaries of the Australian climate nearly all farmers can expect to
experience drought at some time.
While the concept of farmers adopting a risk
management approach has been popular among governments in recent
years in line with economic rationalist ideology, this will not of
itself eliminate the effects of drought. A recent study by the
University of New England's Centre for Agricultural and Resource
Economics and NSW Agriculture has concluded that no matter what
management strategies are employed, farms cannot be totally
insulated from major droughts.(79)
This is a key conclusion recognising that it
would not be practical, for example, for a livestock producer in an
area generally with adequate rainfall to conserve fodder and set
stocking rates on the basis that a severe drought is always
imminent.
4.6 Do Assistance Measures Conform with the
National Drought Policy?
It is useful to compare the assistance measures
announced by the Commonwealth with the objectives of the NDP and
ascertain whether the assistance was in accordance with or contrary
to the policy. One could reasonably conclude that the establishment
of the NDP and extensive revisions to the RAS during the early
stage of the drought should have precluded the need for recourse to
ad hoc policies to meet the developing situation.
At first sight the large number of announcements
of relief measures and changes to conditions as outlined in the
previous section of this paper suggests that drought policy was
again being made 'on the run' and being addressed with 'band-aid'
measures in response to the pressures from rural institutions and
the media. The pressures on governments during a severe drought are
considerable and have been described by Gow:
Drought is a heaven sent media event. It is
visually stimulating and emotionally moving with its images of
destroyed landscapes, dying animals, broken dreams and shattered
lives. All emotion and no analysis, a perfect opportunity for media
reportage ... Farmer representatives are out in the fields intoning
gravely about the seriousness of the situation. Pressure thus
builds on government to be seen to be 'doing something' about the
'disaster'.(80)
While some of the rhetoric at the time the
Commonwealth's major drought assistance packages were announced in
1994 may have suggested a knee-jerk response to pressures, closer
examination of the packages suggests that the majority of the
measures were basically in accordance with the NDP.
In the August 1994 drought package, the basic
principles of the NDP as it applies to farm businesses were upheld,
the main announcement being a significant increase in funding for
exceptional circumstances drought relief coupled with increases in
the maximum individual assistance limits. In the face of determined
lobbying the Commonwealth did not agree to any subsidies for fodder
and transport and did not change the condition that RAS assistance
can only be made available to those farmers with prospects of
sustainable long-term profitability apart from those farmers who
have made a decision to exit farming and are eligible for
re-establishment grants.
For personal living expenses, the introduction
of the Drought Relief Payment scheme provided an attractive
alternative to Farm Household Support by providing farmers in
exceptional circumstances drought areas with cash payments
generally equivalent to and under the same conditions as Job Search
Allowance. These payments are administered through social security
arrangements and were foreshadowed in the NDP except that these
measures were envisaged for situations of exceptional downturn
whether brought about by drought or other factors. An alternative
to the Farm Household Support scheme was well received by the rural
community. Since its inception the Farm Household Support scheme
has not worked well and has been subjected to considerable
criticism from farmers' organisations, rural counsellors and
others. The inquiry by the Senate Rural and Regional Affairs and
Transport References Committee into Rural Adjustment, Rural Debt
and Rural Reconstruction concluded in December 1994 that:
The Committee received consistent evidence that
the farm household support program is a 'total failure' because of
ill-defined operating guidelines, inadequate training for DSS staff
and poor communication. The Committee agrees and recommend that
this program should be significantly overhauled.(81)
The measures announced in the second stage of
the drought relief package to provide incentives to farmers to
better prepare for future droughts through taxation and other
financial incentives such as the enhanced Farm Management Bond
scheme are fully in accordance with the NDP. These measures have,
however, been subject to criticism on efficiency grounds. Simmons
recognises, however, that Farm Management Bonds are a more general
instrument than drought bonds since access requires evidence of
financial hardship which need not be specifically drought related
and therefore Farm Management Bonds are more efficient than they
initially appear to be but adds:
Thus, in summary, drought bonds unambiguously
make farmers better off by increasing their utility, unambiguously
make tax-payers worse off because they must pay for the policy and
will cause increases in on-farm risk exposure that may have a
negative effect on the environment.(82)
Some observers have commented that the
Commonwealth's drought relief packages appear to have reinforced
the perception of many farmers that severe droughts are an abnormal
occurrence and that when a farm enterprise is faced with these
conditions, governments will come to the rescue. There is thus a
contradiction with the fundamental objectives of the NDP of
adopting a self-reliant approach to managing for climate
variability. Gow has put his views strongly:
Unfortunately the September 1994 statement by
the Prime Minister destroys the self-reliant approach to management
of drought by farmers. Farmers now know that the government will
cave in if sufficient media created political pressure
occurs.(83)
4.7 Transaction-Based Subsidies
A large proportion of the drought assistance
provided by the governments of NSW and Qld is in the form of
transaction-based subsidies for the transport of fodder and stock.
In accordance with the NDP, the States may provide
transaction-based subsidies or other similar based measures at
their sole discretion and at their own expense as a transitional
measure. The States did, however, agree to phase out
transaction-based subsidies as soon as practicable to ensure the
smooth transition to the measures available under the NDP.
The Drought Policy Review Task Force was highly
critical of transactions-based subsidies on the general grounds
that they encourage an assistance mentality and notions of
'compensation farming', sometimes referred to in the literature as
the 'drought relief syndrome'. The absence of needs based
eligibility criteria for these subsidies and rebates also means
that they represent a form of welfare payment to primary producers
to offset the financial costs of undertaking specific farm
activities such as the freight of livestock or the purchase of
fodder. Transaction-based subsidies can also be counter-productive
and some of their effects are to:
-
- discourage self-reliance
-
- benefit mainly the freight transporters and fodder
suppliers
-
- encourage overstocking; and
-
- exacerbate land degradation pressures.
An examination of the effectiveness and
efficiency of the transaction-based subsidies by Freebairn
following the 1982-83 drought concluded that it was likely that the
subsidies would increase the severity of future droughts by
lowering the incentive for farmers to adopt their own support
strategies. He summarised the effects of the fodder subsidies as
follows:
... the fodder subsidies resulted in a mixed
pattern of gainers and losers. No more than one-half of the drought
affected sheep and cattle producers received the subsidy. Some of
the subsidy was gained by fodder producers and carriers and some
went to overseas consumers of livestock products. Adverse price
changes resulted in losses to sheep and cattle producers in
non-drought areas, farmers in drought areas who used alternative
strategies, such as feeding their own fodder or conservative
stocking rates, and intensive livestock producers. While the
subsidies increased the incentive to increase the number of animals
on some farms, the aggregate industry increase was smaller because
of modifying price effects.(84)
While it would not be feasible for NSW and Qld
to phase out transaction-based subsidies during the current
drought, the Agriculture and Resource Management Council of
Australia and New Zealand reaffirmed its support for the principles
of the NDP as recently as September 1994. On this basis farmers
could not expect transaction-based subsidies to be made available
by the States in future droughts.
4.8 Determination of 'Exceptional Drought
Circumstances'
While it can be reasonably concluded that,
despite the comments of several economists, the Commonwealth
Government's response to the drought is essentially in accordance
with the objectives of the NDP, one of the key factors which will
determine the long-term effectiveness and efficiency of the drought
support measures is the definition of the exceptional drought
conditions which trigger the exceptional circumstances
provisions.
As the Drought Policy Review Task Force
concluded in 1990, the definition of exceptional drought is
difficult and contentious. There has to be considerable doubt as to
whether any scientific or technical methodology is capable of
defining the declaration or revocation of the imprecise concept of
agricultural drought as against climatic drought. Initially the
Commonwealth used the criterion that for a district to be deemed by
the Commonwealth to be in exceptional drought circumstances, it
needs to have been drought declared for the previous two years. In
August 1994, the Commonwealth relaxed the guideline allowing
farmers to qualify if they are in drought now and have been
drought-affected for two of the previous three years. At the time,
Senator Collins, Minister for Primary Industries and Energy, stated
that this guideline is designed to ensure farmers who have obtained
one good crop in the past three years are not rendered ineligible
for assistance.(85)
One difficulty is that the States use different
processes and criteria for drought declarations. This problem was
recognised by Commonwealth and State Agricultural Ministers who
agreed in September 1994 to cooperate to draw up a uniform national
approach to drought declarations. Ministers subsequently agreed in
October 1994 on a more flexible system of drought and other
exceptional circumstances declarations allowing more regional
factors to be taken into account. These would include:
-
- meteorological conditions
-
- agronomic and stock conditions
-
- water supplies
-
- environmental impacts
-
- farm income levels; and
-
- scale of the event.
States would make initial assessments in
accordance with these criteria and as a working guideline,
exceptional circumstances would be indicated when the combined
impact on farmers of the core criteria was a rare and severe
occurrence. Applications for exceptional circumstances assistance
would continue to be referred by the Commonwealth Minister to the
RAS Advisory Council which would advise the Minister in terms of
the agreed criteria. The Commonwealth Government would continue to
be the final arbiter (see flow chart at Appendix C).
A State government perspective on extreme
drought was given in a recent survey and report on rural debt in
Qld which states that:
For the purpose of the Qld government's drought
policy, it is an extreme event that is once in every ten to fifteen
years that is considered a drought. An event of this nature is not
considered an acceptable level of commercial risk to be born by any
rural enterprise.(86)
The fundamental dilemma for governments in
determining whether a drought is an exceptional circumstance is
that in the absence of any methodology for scientifically
determining whether an extreme drought exists, political and other
pressures will inevitably intrude into the decision process. Under
these circumstances a signal could easily be given to those regions
where farming has an inherently high risk exposure that governments
will bail out those farmers who are ill-prepared for drought and
further discourage self-reliance. There is also a considerable risk
that the inevitable departure of farmers in arid agricultural
regions, which perhaps should never have been farmed and seem
unlikely to achieve long term financial viability, could be
hindered by an expectation that government assistance will be
forthcoming during the inevitable dry spells.
To maintain the thrust of the NDP towards
self-reliance, it is important that exceptional drought should be
declared only on rare occasions such as once or twice in a
life-time as suggested by the NFF in evidence to the Senate
Standing Committee on Rural and Regional Affairs inquiring into NDP
in early 1992. The NFF maintained that while self-reliance is
possible in recurring dry periods, this is an unreasonable
expectation in droughts that are experienced once or twice in a
life-time and suggested the following definition of severe
drought:
severe droughts of the type which statistically
might be expected once or twice in a farmers working life will have
physical and financial effects that will be difficult or impossible
for a farm business to always be prepared to absorb without direct
assistance.(87)
On the basis of the definition of severe drought
suggested by the NFF, it could reasonably be concluded that those
regions presently exceptional drought declared could expect such a
declaration not more than every twenty years or so. Otherwise the
risk exists that assistance under the NDP and the RAS exceptional
circumstances arrangements could become a means of maintaining
unsustainable agriculture in essentially arid regions. Should this
eventuate, those shires in Qld and pasture protection districts in
NSW which were drought declared for some 50 per cent or more for
many years could be looking at being declared in exceptional
drought circumstances for similar long periods.
One operational difficulty with the NFF
definition would be that the statistical assessment required can
only be made well into a drought or even after it. Assistance
measures to give effect to the principles of the NDP would be
required well ahead of such a time.
4.9 Financial Incentives for Farmers to Prepare
for Drought
There can be little doubt that during drought
conditions the most serious deficiency on farms is the shortage of
cash rather than water and fodder as such. In 1992, in evidence to
the Senate Standing Committee on Rural and Regional Affairs, Tim
Scholz, President of the United Farmers and Stockowners of SA told
the Committee that the following reflected the views of many
farmers in his State:
It would be far better if we were given the
ability to accrue a money haystack when times are good. We can look
after ourselves. Those farmers who do not elect to use the better
years to protect themselves could no longer go back to their farm
organisation or to their government or their local member and say,
'Please help me out'.(88)
Other farmers' organisations have reiterated the
preference for self-help. In a submission to the Drought Policy
Review Task Force in 1989, the Grains Council of Australia
recommended that:
the Federal Government's policy response to
drought be confined to facilitating farmer self-help adjustment,
and that provision for welfare assistance be made
only in the event of severe and extreme drought
circumstances.(89)
The package of measures announced by the
Commonwealth Government in December 1994 contained a number of
measures which serve to assist farmers to prepare for drought in
the longer-term. These included an enhanced Farm Management Bonds
Scheme to encourage farmers to build up cash reserves for downturns
and taxation incentives to build up physical reserves such as
fodder and water storage. The degree to which farmers, particularly
those in the regions affected by the current drought, take up these
fiscal incentives in the next few years should be closely monitored
so that their effectiveness can be assessed when the next drought
occurs.
4.10 Restructuring of Marginal Agricultural
Regions
There are several agricultural regions where dry
conditions or drought tend to be the norm rather than the exception
and the farming community frequently seeks drought assistance. In
these marginal, arid regions land degradation is a severe and
growing problem. It is now recognised that many farm enterprises
which date from closer settlement schemes earlier this century are
too small to be economically viable and this encourages
overstocking and environmental damage.
The Western Division of NSW which covers 42 per
cent of the area of the State is classified as one of these
regions. Research by NSW Agriculture shows that while present
conditions may be bad, historical records show the region can
expect decades of poor to well below average seasonal conditions.
Years when rainfall recordings in the Western Division were well
below average are:
-
- 1883-84
-
- 1888
-
- 1896-1902 worst drought on record.
-
- 1907-09 far worse in south-west.
-
- 1912-14 patchy.
-
- 1918-19
-
- 1922-23 mainly in south-west.
-
- 1927-29 patchy.
-
- 1935
-
- 1937-38 exaggerated by rabbits.
-
- 1943-45
-
- 1957-58
-
- 1964-65 patchy throughout early to mid 1960s.
-
- 1967
-
- 1972
-
- 1981-82
-
- 1990-?(90)
The Western Division was also one of the regions
examined by the Bureau of Rural Resources in 1993 in its study of
regional adjustment and development needs.(91) It was
one of the first of the arid pastoral areas to be settled by
Europeans in the mid 1880s but over-estimation of the capacity of
the grazing resource, high stock numbers, drought and rabbits have
been cited as factors leading to a severely degraded environment by
1900.
Until the 1950s, NSW Government policy was to
subdivide properties into a size that would support a single family
and to lease properties on a perpetual lease basis. Although the
maximum size of lease was increased in 1968, it has been argued
that the majority of pastoral leases are too small to remain
economically viable and to alleviate their financial situation,
owners of small properties have overgrazed with resultant land
degradation. Although it could be argued that property owners made
their own assessment of the risks involved at the time of taking up
leases, the degree of government involvement, in particular the
restriction on maximum size, suggests that governments have at
least a moral commitment to assist those owners of properties with
little prospect of long-term profitability.
There are now about 1 350 grazing operations and
it has been suggested that up to 400 families may have to leave the
pastoral areas over the next few years. The study noted that
climate is a major factor determining the success of pastoralism
and other agricultural industries in the Division identifying
that:
Lack of understanding of the significant
fluctuations in fodder [supplies] in space and time as a result of
the climate, and the importance of accommodating these, is thought
to be a major cause of the Division's current
problems.(92)
The study by the Bureau of Rural Resources also
drew attention to land degradation issues in general pointing out
that:
In the pastoral regions (South-west Qld, Western
Division, Gascoyne) limitations in our understanding of arid and
semi-arid landscapes, particularly the significant fluctuations in
the availability of forage resulting from unreliable rainfall, have
led to over estimation of grazing capacity by land administration
agencies and pastoralists. This has resulted in the loss of much
perennial vegetation and in the reduction of the drought resilience
of these rangelands.(93)
Watson has identified that in the current
drought, the worst affected areas have a history of government
involvement in land management and uses the region in central Qld
where the brigalow scrub was cleared (the brigalow belt) as one
example along with the Western Division of NSW:
Repeated crop failures in central Qld-the former
brigalow belt, with flukey rainfall for winter and summer
crops-suggest cropping is only sustainable when opportunistic.
The brigalow was developed for cattle in the
1950s and '60s. The switch to cropping was encouraged by the beef
collapse of the 1970s. Cropping is problematical in the brigalow,
given the climate and pattern of settlement.(94)
Another region which is considered one of the
most marginal areas of Australia is the Upper Eyre Peninsula in SA.
A farmer with a property of just over 1 000ha producing wheat,
oats, medium wool and mutton has described the conditions as
follows:
Over the long term we have about three good
years, four average years and three really bad years out of
ten.(95)
The problem of such regions has now been
recognised by Commonwealth and State Governments. For example,
under the South West Qld Regional Adjustment Strategy, funding of
about $17 million will be provided by the Commonwealth and Qld
Governments as a special RAS program during the period 1994-95 to
1996-97. The problems of this area include severe land degradation,
low profitability and high debt levels. A primary focus of the
program will be to achieve sustainable grazing management of the
mulga lands.
In its December 1994 additional drought relief
package, the Commonwealth Government provided an additional $10
million of funding over two years for adjustment in drought prone
regions. Regional strategies will involve property restructuring
and productivity enhancement and the program will utilise RAS and
Commonwealth and State Government social welfare, labour market
programs and the National Landcare Program. In February 1995, the
Commonwealth Government offered the SA and WA Governments funding
from this initiative to develop and implement regional adjustment
strategies in the drought affected regions of the Eyre Peninsula in
SA and the Gascoyne/Murchison region in WA.
These strategies will necessarily result in some
increased control of land management by State authorities to
achieve environmental sustainability which could include controls
on stocking rates and requirements for land reclamation activities
and will require a number of farmers to leave the land. In
South-West Qld for example, it has been estimated that 550
pastoralists have no immediate or long term prospect of achieving
viability for their pastoral enterprise.(96) In recent
years, however, the capacity for State governments to facilitate
appropriate adjustment activities would appear to have diminished
as most States have reduced their agricultural extension activities
and the professional infrastructure required to tailor more
sensitive responses to regional issues.
5.
Preparing for the Next Drought
This section examines what might be done by
governments to better prepare for the next severe drought whose
occurrence is inevitable, only its timing, location and duration
being unknown.
At the time the NDP was agreed in August 1992,
the current drought was well under way. Although the change in the
Commonwealth's approach to drought from it being a disaster to a
natural occurrence had been signalled by the decision to remove
drought from NDRA and the conclusions of the Drought Policy Review
Task Force, it would appear that the message had not been received
or certainly not accepted by many farmers judging by comments of
farmers and their spokespersons in the rural press. For example, as
late as 6 April 1995, an editorial in the rural press called
for the eastern Australian drought to be recognised as a national
disaster adding dire predictions:
only federal money can provide the resources and
encouragement needed to sustain hand-feeding programs through
another winter, to avert a sell-off of breeding stock on a scale
that will decimate farm earnings for years to
come.(97)
Professor Keith Campbell has strongly criticised
the decision to remove drought from the NDRA and called for a
return to natural disaster funding adding that:
this decision, followed by its adoption of the
recommendations of a Drought Policy Review Task Force, lie (sic) at
the roots of today's drought crisis.(98)
There was an expectation that relief measures
for the current drought would be implemented along the same lines
as those for previous droughts as indeed happened with the
transaction-based subsidies offered by NSW and Qld. It could be
argued that these attitudes may possibly have been nurtured or
reinforced by elements of the Federal Coalition's drought policy
announced in August 1994 which included:
-
- support for the immediate introduction of a drought relief
fodder subsidy scheme to help offset the massive cost of feeding
livestock in drought declared areas, similar to that provided in
the 1982-83 drought
-
- the return of 'severe' drought to the Natural Disaster Relief
Arrangements to ensure more assistance is available to both farmers
and affected small businesses through concessional loans; and
-
- suspension of the assets test on welfare payments such as
JobSearch Allowance and Family Payment for farmers suffering
extreme financial hardship as a result of events such as 'severe'
drought.(99)
There is, therefore, a need to redefine the
principles of self-reliance within the NDP as soon as the current
drought ends to leave the farming community in no doubt as to the
nature of future drought assistance and provide farmers with an
opportunity to make the necessary adjustments.
A major consideration highlighted by the Prime
Ministers' statement at the beginning of this paper is the linkage
between drought policy and sustainable land use. Policy makers need
to stand back from the immediate problems and hardship resulting
from the current drought and examine strategies for the longer
term. While it is clearly not possible to fully 'drought-proof'
agriculture in Australia, there should be scope for mitigating its
effects. Possible approaches could include the strategy implemented
in South Africa of linking drought relief with reductions in stock
numbers.
5.1 Future Drought Assistance
As to the assistance, if any, required prior to
and during drought conditions, there is a clear need for an
informed and rational debate once the current drought has broken
and matters can be discussed in an atmosphere free of the political
and emotional pressures arising from graphic media portrayals of
the hardships being endured in the drought affected regions. A need
is seen for a comprehensive examination by the Commonwealth in
collaboration with the States of the effectiveness and efficiency
of the drought relief measures implemented during the current
drought. The Drought Policy Review Task Force which reported to the
Commonwealth Government in 1990 could be a suitable model for such
a review. A useful starting point would be to revisit the many
constructive recommendations of the Task Force in the light of
experience during the current drought.
A drought policy task force has already been
suggested by the NFF to develop policies to facilitate recovery
from the current drought for the various sectors of the
agricultural industry as well as improving the capacity of farmers
to provide for and manage future droughts. The recovery phase will
involve issues reaching into Commonwealth and State Government
programs and industry advisory services, financial institutions and
welfare programs. The NFF will seek the support and participation
of Commonwealth and State Governments, financial institutions and
appropriate farm institutions.(100)
To support any review of drought policy a series
of studies is suggested to establish how the drought assistance
from the Commonwealth, States and the community was distributed and
which group, agricultural industry or profile of farmers most
benefited. It would also be useful for follow up studies to trace
the progress of those farmers assisted under the exceptional
drought circumstances provisions to ascertain the percentage of
farmers who returned to sustainable long-term profitability and the
time taken for recovery. The issue of the effects of the drought on
non-farm businesses could also be pursued to establish once and for
all whether a sound case exists for government support during
extreme drought conditions.
5.2 Need to Improve Financial Position of
Farmers
As outlined earlier in this paper, the financial
position of many farmers at the onset of the drought in 1991-92 was
weak following the rural downturn resulting from low commodity
prices and for those farmers servicing high levels of debt, the
very high interest rates of the late 1980s further diminished their
ability to both prepare for and put aside funds for adverse
seasonal conditions. A robust and financially secure agricultural
industry is a necessary prerequisite for farm enterprises to
survive severe drought conditions. The increased emphasis of the
RAS on productivity improvement and the acquisition of managerial,
technical, financial and business skills should greatly assist
those farmers with good prospects of long term profitability to
make the necessary adjustments to achieve sustainability.
State governments have also recognised the need
to go beyond a short term response to the drought and plan for the
future, [then] Premier Fahey of NSW stating that:
We must also ensure our farmers are in a
position to trade their way out of the current difficulties when
the drought does break(101)
When the current RAS was introduced in 1993, a
commitment was made to undertake a comprehensive review after four
years. This review would provide an opportunity to examine the
performance and effectiveness of the RAS in its role as the vehicle
for the delivery of Commonwealth assistance to farm enterprises
during the current drought.
5.3 Other Issues to be Addressed
Simon Field, the Executive Director of the
Australian Institute of Agricultural Science, has put forward a
number of hard questions on drought policy. He recognises that
during drought when rural communities are fighting for survival,
these questions may seem insensitive but in the long term the
answers may pre-empt much of the social and financial pain of
drought. The questions include:
-
- Have some farming areas enjoyed above normal rainfall for an
extended period, and is the 'drought' in these areas a return to
normality?
-
- Should some low rainfall areas be removed from farming and the
current occupants be paid as custodians of the land?
-
- Have rural towns and shires developed drought strategies that
fully utilise the human resources available?
-
- Do we continue to provide drought relief to farmers who
consistently avoid using risk management?
-
- Do we encourage risk management by introducing a drought bond
or insurance system, similar to the bond system imposed on miners
or hail insurance, to ensure financial or environmental damage is
repaired?
-
- Is the wider community prepared to pay for the kind of rural
landscape it wants?(102)
The above issues are interesting and debatable
and addressing them will raise more difficult issues. The problems
identified must be faced up to, however, before the next severe
drought inevitably makes its appearance if the financial hardship
and personal suffering of farm families are not to be repeated and
land degradation is not to be exacerbated.
Finally it has to be fully recognised by
governments that drought is only one of the pressures leading to
financial stress on farmers with marginally profitable agricultural
enterprises. As the current drought comes to an end and, hopefully,
commodity prices strengthen an opportunity will arise for
governments to implement more effective adjustment policies to
assist those farmers with sub-economic or marginal farming
operations to return to profitability or leave the industry. This
will result in a profitable and sustainable agricultural sector,
but can only be successful if the Commonwealth and State
Governments collaborate in an integrated and scientific approach,
and are prepared to commit very large amounts of funds up-front to
meet the necessary capital expenditures for those farmers remaining
in the industry and to provide substantial compensation for farmers
leaving their properties.
A key issue, particularly for the States who
have prime responsibility, is the difficult question of land
management. It is doubtful that reliance on the rural property
market to achieve adjustment through the land pricing mechanism
will achieve the desired results. Particular contentious issues
which need to be addressed include grazing leases in semi-arid
zones and irrigation allocations in areas such as the Darling river
catchment in NSW and Qld.
Endnotes
-
- Australia. Prime Minister (Paul Keating), Speech to the 40th
ALP National Conference, Hobart, 26 Sept. 1994.
- In this paper references to a 'State' or 'States' may be taken
to include the Northern Territory and the Australian Capital
Territory except where otherwise indicated.
- Of relevance here is the definition of a farm enterprise since
it is important to exclude hobby farmers and very small part-time
enterprises from drought assistance. The Australian Bureau of
Statistics (ABS) defines a farm according to the estimated value of
agricultural operations (EVAO). Prior to 1986-87, farming
enterprises with an EVAO greater than $2 500 were classified as an
agricultural establishment. This threshold was raised to $20 000 in
1986-87 and subsequently raised to $22 000 in 1991-92. On this
basis, there were 120 650 farm establishments in Australia at
30 June 1993. Adjustment of this threshold accounts for the effects
of inflation and is a more accurate indicator of the number of
commercial farms.
- Williams B, Landcare and the mythical money tree,
Research Paper No. 22, Parliamentary Research Service, Canberra, 17
March 1995.
- McGinness M, Social Issues for Rural and Remote
Australia, Background Paper No. 26, Parliamentary Research
Service, Canberra, 6 Feb. 1995.
- Rural Development Centre, Lessons in the Dust, Inside
Australia, Summer 1994: 12-14.
- Drought Policy Review Task Force, Managing for
Drought, Final Report, Vol. 2, AGPS, Canberra: May 1990.
- Department of Resources and Energy, 'Water Resources Aspects of
Drought in Australia', Water 2000: Consultants Report No.
13, AGPS, Canberra, 1983: 27.
- Department of Resources and Energy, 'Water Resources Aspects of
Drought in Australia, Water 2000: Consultants Report
No.13, AGPS, Canberra, 1983: 4.
- 'The Drought-A Real Rip Roarer', Worksafe News,
Vol.10, No.1, Feb. 1995: 9.
- Bureau of Meteorology, Drought in Australia: 1991.
- Department of Resources and Energy, 'Water Resources Aspects of
Drought in Australia', Water 2000: Consultants Report No.
13, AGPS, Canberra, 1983: 3-4.
- Map, Drought-Advance and Retreat, NSW Agriculture.
- Baker, G. El Nino and the Southern Oscillation Index,
Research note No. 17, Parliamentary Research Service, Canberra, 7
March 1995.
- White, B. Beating the Odds-Research on Weather and Farmer
Decisions, Proceedings of ABARE Outlook 95, Canberra, Feb.
1995: 14-15.
- Bureau of Meteorology, Farming a Sunburnt Country,
1994: 23.
- Campbell, K. 'Federal Drought Policy is the Real Disaster',
Sydney Morning Herald, 15 Sept. 1994.
- Australia. Parliamentary Research Service, internal report
'Drought Relief', May 1981.
- Freebairn, J, 'Drought Assistance Policy', Australian
Journal of Agricultural Economics, Vol.27, No. 3, Dec. 1983:
185.
- Australian Agricultural Council, Resolutions of Meeting No.17,
Port Moresby, 1 Aug. 1983.
- 'Government Policies for Drought', Primary Industry
Survey, No. 202, Australian Press Services, Canberra, Nov.
1983.
- Australian Agricultural Council, Resolutions of the 122nd
Meeting, Darwin, 21 July 1985.
- Australian Agricultural Council, Resolutions of 130th Meeting,
Cairns, 14 July 1988.
- 'Government Policies for Drought', Primary Industry
Survey, No. 202, Australian Press Services, Canberra, Nov.
1983.
- Australia, Treasurer (Paul Keating). Economic
Statement, 12 April 1989.
- Smith, D. 'Should There be Drought Subsidies', Search,
Vol. 20, No. 6, Nov./Dec. 1989: 185-8.
- Cribb, J. 'States to Face Big Bills for Disasters', The
Australian, 14 April 1989.
- Goucher, G. 'Drought Declaration Faulty Not Relief',
Search, Vol. 20, No. 6, Nov./Dec. 1989.
- Criddle, L. President, Grains Council of Australia, 'No Wet
Solution on Drought from Economic Drys', News, 9 Oct.
1989.
- Dick, A. 'Grains Drought 'Drivel' Claim', The Land, 19
Oct. 1989.
- Drought Policy Review Task Force, Managing for
Drought, Final Report, Vol. 1, AGPS, Canberra, May 1990.
- Australia. Minister for Primary Industries and Energy (John
Kerin). 'New Commonwealth Drought Policy', Media Release,
No. DPIE 91/144K, 21 May 1991.
- Australia. Senate Standing Committee on Rural and Regional
Affairs, A National Drought Policy, July 1992: xi.
- Australia. Minister for Primary Industries and Energy (Simon
Crean), 'New National Drought Policy', Media Release, No.
DPIE 92/66C, 20 Aug. 1992.
- RASAC, Annual Report 1993-94, Canberra, Nov. 1994.
- Blight, G. President NFF, 'New Drought Policy Inadequate',
News, 20 Aug. 1992.
- Smith, D. 'Drought Policy and Sustainability: Lessons from
South Africa', Search, Vol. 24, No.10, Nov./Dec. 1993.
- Smith, D. 'Drought Policy and Sustainability: Lessons from
South Africa', Search, Vol. 24, No. 10, Nov./Dec. 1993.
- Rural Adjustment Scheme, Annual Report 1991-92,
Canberra, AGPS, 1993.
- Broadacre farms are those farms engaged mainly in running sheep
or beef cattle and growing cereal grains, coarse grains, oilseeds
or grain legumes.
- Topp, V., Martin, P., Gooday, J. and Parameswaren, B., Farm
Financial Performance-Outlook and Analysis, Proceedings of
ABARE Outlook 95, Canberra, Feb. 1995: 315.
- Topp, V., Martin, P., Gooday, J. and Parameswaren, B. Farm
Financial Performance- Outlook and Analysis, Proceedings of
ABARE Outlook 95, Canberra, Feb. 1995: 307-328.
- Love, G., Hogan, L. Bell, J., Penm, J., and Fisher, B.
Commodity Overview, ABARE, Outlook 95, Canberra, Feb.
1995.
- Fisher, B. Australian Commodities-Overview, Australian
Commodities, Vol. 2, No. 1, Canberra, ABARE, March 1995.
- 'Two Nations: How Drought is Dividing Australia', Economic
Insight, NFF, No. 21, Dec. 1994.
- 'The Big Dry: Its Economic Impact and Policy Implications',
Economic Insight, NFF, No. 20, Oct. 1994.
- Australia. Agriculture and Resource Management Council of
Australia and New Zealand, Record and Resolutions,
Canberra, 23 Sept. 1994: 7.
- Knopke, P., Hicks, D. Coarse Grains Outlook, Outlook
95, ABARE, Canberra, Feb. 1995.
- Australia. Senate Standing Committee on Rural and Regional
Affairs, A National Drought Policy, July 1992: 65.
- McKanna, Guy. 'Worsening Drought Costs NSW Farmers
$645 Million', Australian Financial Review, 22 Oct.
1991.
- Connors, T., Drought Bites Hard into our Farms,
Canberra Times, 17 Oct. 1994.
- Martin, P. 'Sheep-Industry Performance', Farm Surveys
Report 1994, ABARE, Canberra: 30.
- Martin, P. 'Wheat and Other Crops-Industry Performance',
Farm Surveys Report 1994, ABARE, Canberra: 15.
- Australia. Agriculture and Resource Management Council of
Australia and New Zealand, Record and Resolutions,
Canberra, 23 Sept. 1994: 7.
- Topp, V., Martin, P., Gooday, J., and Parameswaren, B. Farm
Financial Performance-Outlook and Analysis, ABARE Outlook 95,
Canberra, Feb. 1995.
- Australia. Prime Minister (Paul Keating), 'Drought Assistance'.
Media Release, Canberra, 21 Sept. 1994.
- Australia. Minister for Primary Industries and Energy (Sen Bob
Collins), 'Budget maintains commitment to rural Australia',
Media release, No. DPIE 95/21C, 9 May 1995.
- Australia, Minister for Primary Industries and Energy (Sen Bob
Collins), 'Drought assistance for NSW and Victoria', Media
release, No. DPIE 95/29C, 29 May 1995.
- Australia. Agriculture and Resource Management Council of
Australia and New Zealand, Record and Resolutions,
Canberra, 23 September 1994:4.
- Report on Rural Debt in Queensland, Queensland Rural Adjustment
Authority, March 1995.
- Burdon, A. 'Commonwealth Government Assistance for Adjustment
in Agriculture', Background Paper No. 14, Parliamentary
Research Service, 28 June 1993.
- Topp, V., Martin, P., Gooday, J. and Parameswaren, B. Farm
Financial Performance-Outlook and Analysis, Outlook 95, ABARE,
Canberra, Feb. 1995: 313.
- Australia. House of Representatives Standing Committee on
Finance and Public Administration, A Pocket Full of
Change, Nov. 1991: 279.
- Australia. Senate Rural and Regional Affairs and Transport
References Committee, Rural Adjustment, Rural Debt and Rural
Reconstruction, Dec. 1994: 99-100.
- Stevens, T. 'Trickle of Hope', The Australian, 4 Aug.
1994.
- Australia. Minister for Primary Industries and Energy (Senator
Collins), Interview with Laurie Oakes, WIN TV, 9 Aug. 1994.
- Australia. Prime Minister (Paul Keating), Address to the NFF
Annual Conference, Canberra, 17 May 1995.
- Australia. Minister for Primary Industries and Energy (Simon
Crean), 'New National Drought Policy', Media Release No.
DPIE 92/66C, 29 Aug. 1992.
- Malcolm, Bill. 'Australian Agricultural Policy since 1992: New
Emphases, Old Imperatives', Review of Marketing and
Agricultural Economics, Vol. 62, No. 2, Aug. 1994: 143-165.
- Power, Julie. 'Crean's Pledge to Drought-Hit Farmers',
Australian Financial Review, April 1993.
- Gow, J. Drought, Lies and Videotape, Policy, Vol. 10,
No. 4, Summer 1994-95: 7-11.
- Stayner, R. Adjustment on Family Farms, Outlook '94,
ABARE, Canberra, Feb. 1994: 26-34.
- Report on Rural Debt in Queensland, Queensland Rural Adjustment
Authority, March 1995.
- Drought Policy Review Task Force, Managing for
Drought-Final Report, AGPS Canberra, May 1990: 59-60.
- Collimore, C., Furmage, B. and Shaw, I. Beef and Veal,
Australian Commodities, Vol.1, No.4, Canberra, ABARE, December
1994: 436-7.
- Australian Bureau of Statistics, 'Principal agricultural
commodities of Australia (preliminary) 1994-95, Agricultural
production and farmers' intentions for the 1995-96 season'. ABS Cat
No. 7111.0, 24 May 1995.
- Collimore, C., Furmage, B. and Walters, P. Outlook for Beef
and Sheep Meat, Outlook 95, ABARE, Canberra, Feb. 1995: 90.
- Simmons, P. 'Recent Developments in Commonwealth Drought
Policy', Review of Marketing and Agricultural Economics,
Vol. 61, No. 3, Dec. 1993.
- Carson, J. 'Study Finds Best Drought Strategies',
Australian Farm Journal, April 1995.
- Gow, J. Drought, Lies and Videotape, Policy, Vol. 10,
No. 4, Summer 1994-95, Centre for Independent Studies, Sydney:
7-11.
- Australia. Senate Rural and Regional Affairs and Transport
References Committee, Rural Adjustment, Rural Debt and Rural
Reconstruction, Dec. 1994: 58.
- Simmons, P. 'Recent Developments in Commonwealth Drought
Policy', Review of Marketing and Agricultural Economics,
Vol. 61, No. 3, Dec. 1993: 443-454.
- Gow, J. 'Drought, Lies and Videotape', Policy, Vol.
10, No. 4, Summer 1994-95: 7-11.
- Freebairn, J. Drought Assistance Policy, Australian Journal
of Agricultural Economics, Vol. 27, No. 3, Dec. 1983:1 85-199.
- Australia. Minister for Primary Industries and Energy (Senator
Bob Collins), 'NSW Drought Assistance Guidelines', Media
Release, No. DPIE 94/63, 26 Aug. 1994.
- Report on Rural Debt in Queensland, Queensland Rural Adjustment
Authority, March 1995.
- Australia. Senate Standing Committee on Rural and Regional
Affairs, A National Drought Policy, July 1992: 65-6.
- Australia. Senate Standing Committee on Rural and Regional
Affairs, A National Drought Policy, Final Report, July
1992: 27.
- Criddle, L. President Grains Council of Australia, 'No Wet
Solution on Drought from Economic Drys', Media Statement,
9 Oct. 1989.
- 'Our Dying Outback', The Land, 18 June 1992.
- Barson, M., Evans, G., Fordham, D., Walcott, J. and White, D.
Opportunities for Regional Rural Adjustment, Bureau of
Resource Sciences Working Paper, Canberra, 1993.
- Barson, M., Evans, G., Fordham, D., Walcott, J. and White, D.
Opportunities for Regional Rural Adjustment, Bureau of
Resource Sciences Working Paper, Canberra, 1993: 25-31.
- Barson, M., Evans, G., Fordham, D., Walcott, J. and White, D.
Opportunities for Regional Rural Adjustment, Bureau of
Resource Sciences Working Paper, Canberra, 1993: 108.
- Watson, A. 'Drought Policy Badly Flawed', Australian
Financial Review, 24 Oct. 1994.
- Bureau of Meteorology, Farming a Sunburnt Country,
1994: 12.
- Australia. Senate Rural and Regional Affairs and Transport
References Committee, Rural Adjustment, Rural Debt and Rural
Reconstruction, Dec. 1994: 65.
- 'Still blind to the big dry', The Land, 6 April 1995.
- Campbell K, 'Governments can't ignore droughts: return to
natural disaster funding', The Land, 29 August 1994.
- Australia. Shadow Minister for Primary Industry (John
Anderson), 'Federal Coalition Announces New Drought Policy',
Media Release, 30 Aug. 1994.
- NFF, 'Drought', News Release, 15 Sept. 1994.
- Dick A, 'State gives extra $65m in ride out drought help',
The Land, 20 October 1994.
- Field, S. 'Droughtwatch', Agricultural Science, Nov.
1994: 25.
Appendix A
National Drought Policy
Managing for Risk &
Productivity
This document sets out the National Drought
Policy agreed to by Commonwealth and State Ministers. The policy is
based on principles of sustainable development, risk management,
productivity growth and structural adjustment in the farm
sector.
Definition of a Drought
Policy
Drought is one of several sources of uncertainty
affecting farm businesses and is part of the farmer's normal
operating environment. Its effects can be reduced through risk
management practices which take all situations into account,
including drought and commodity price downturns.
The objectives of the Drought
Policy are to:
-
- encourage primary producers and other sections of rural
Australia to adopt self-reliant approaches to managing for climatic
variability;
-
- maintain and protect Australia's agricultural and environmental
resource base during periods of extreme climate stress; and
-
- ensure early recovery of agricultural and rural industries,
consistent with long-term sustainable levels.
The Role of Farmers and
Government
Under the National Drought Policy, farmers will
have to assume greater responsibility for managing the risks
arising from climatic variability. This will 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.
Government will help create the overall
environment which is conducive to this property management planning
and risk-management approach. We will encourage producers to adopt
improved property management practices through a system of
incentives, information transfer, education and training, landcare
group projects and research and development (R&D).
During severe downturns, Governments will act to
preserve the social and physical resource base of rural Australia,
and will provide adjustment assistance in the recovery phase.
Support will be available to those with sound prospects who are
temporarily in financial difficulty.
State Governments may provide drought-assistance
measures in addition to those offered by the Commonwealth, but
these should not compromise the overall direction of the national
policy.
-
- States may provide transaction-based subsidies or other similar
measures in times of drought at their sole discretion and at their
own expense as a transitional measure. Agreement has been reached
to phase out transaction-based subsidies as soon as practicable to
ensure the smooth transition to the measures available under the
National Drought Policy.
Policy Measures
The New Rural Adjustment
Scheme
The Commonwealth Government is implementing a
new Rural Adjustment Scheme (RAS) to further its commitment to more
effective adjustment measures for farmers and a more productive,
efficient and competitive rural sector.
The new RAS will be more sharply focussed on
sustainable, long-term profitability at the farm level, based on
structural adjustment and productivity growth. Changes involve a
simplification of operations, with a single farm adjustment
program, new funding arrangements including shared contributions
between the Commonwealth and the States/Territories, and new
accountability procedures.
-
- The Scheme will also be a vehicle for providing assistance to
farmers in times of exceptional downturn which encompasses not only
drought but also commodity price falls, disease outbreaks and other
situations beyond the farmer's control. Provision of this
assistance will be governed by the degree of financial hardship of
the farmer rather than drought per se and will be provided
only to those with sound long-term prospects in farming.
-
- New arrangements in the form of farm household support will be
introduced for farmers, under certain conditions of hardship, who
are temporarily in need of income to meet the day-to-day
requirements of the farm family.
Ongoing measures
In normal circumstances, farmers will be able to
obtain incentives through interest subsidies on commercial finance
or grants to enhance the profitability of their businesses through
farm improvement and development, support activities such as
training, farm appraisal and planning services, and in special
circumstances, carry on financial support as part of a program of
productivity improvement. Eligibility for these measures will be
based on sustainable, long term profitability, the merit of the
proposed development project and need. Funding of this will be on a
shared Commonwealth-State basis. There are also provisions to
assist non-profitable farmers to leave farming:
-
- Grants will be provided for farmers to improve their
skills;
-
- Grants will be available to assist with the cost of obtaining
any financial assessment and counselling;
-
- Projects which increase productivity may be on an
individual-farm basis, involve collective action by groups of
eligible farmers, or involve comprehensive packages of regional
adjustment and development initiatives. This may be necessary where
sustainable development is dependent on new investment essential
for success of the overall project but not feasible for undertaking
by individual farmers. This may also be linked to other activities
such as Landcare.
The banks and other financial institutions will
continue to play a major role in financing the farm sector. The
banks have recognised the special needs of the farming community
and have introduced flexible interest and capital repayment terms
for farmers. RAS finance supplements these arrangements. Finance
from commercial and RAS sources will form an integrated package of
financial services to meet the demand from farmers for financing of
their development projects.
In order to facilitate the adjustment out of
farming of those who are considered to be unprofitable in the long
term and who have a low asset base, the revised RAS includes a
re-establishment grant which is available to eligible farmers on
the sale of their productive farm assets.
Exceptional downturn
In times of exceptional downturn, interest
subsidies above the level of 50 per cent of the interest rate on
commercial loans and/or existing debt may be provided jointly by
the States and the Commonwealth. Eligible farm businesses are those
temporarily in severe financial difficulties, profitable in the
long term, but can only access commercial finance if the interest
is subsidised. Flexibility in the amount of assistance and the
rates of any interest subsidy over 50 per cent will be a permanent
feature of the National Drought Policy to avoid implementation of
ad hoc policies in times of crisis.
Together with the flexibility that banks are
prepared to offer on loan repayment terms, any additional interest
subsidy would go a long way towards meeting the farmer's
requirement for relief from payments during exceptional
downturn.
Farm household support
New measures are to be introduced to provide
support for farmers unable to meet day-to-day living expenses.
Farmers who are in extreme financial hardship and who cannot obtain
commercial finance for carry-on purposes will be able to access
farm household support under new legislation to be administered by
the Department of Social Security on an agency basis. The
eligibility conditions for the new household support arrangements
are still under consideration.
The above measures provide full coverage of
assistance for adjustment/productivity growth; for support in
situations of exceptional downturn, whether brought about by
drought or other factors; for improving farmers' skills; and for
extreme financial hardship.
Increasing
self-reliance
Building Financial Reserves
Income smoothing and the creation of reserves
can be useful tools in risk management. Mechanisms such as tax
averaging and Income Equalisation Deposits (IEDs) have important
roles to play in financial management. The Government has
introduced an improved IED scheme, including a Farm Management Bond
(FMB) provision, which will contribute to the development of a
financially self-reliant and sustainable farm sector.
The Government will monitor other aspects of
farm taxation and income-smoothing mechanisms such as tax-averaging
to ensure that they do not prevent the new IEDs operating
effectively and that they facilitate good risk-management
practices. The Government will ensure that the entire package of
income taxation and associated measures is providing both correct
and consistent signals to farmers to encourage sustainable and
efficient management systems.
The changes to the IED scheme and features of
the FMB are as follows.
For IEDs:
-
- a reduction in the withholding tax rate from 29 per cent to 20
per cent, unless the taxpayer self assesses otherwise;
-
- an increase in the maximum amount of deposits from $250 000 to
$300 000. This overall limit includes the amount deposited in Farm
Management Bond;
-
- a reduction in the minimum deposit required from $5 000 to $1
000;
-
- allowing interest payable on deposits to be reinvested;
-
- the above changes to apply from 19 August 1992.
The Farm Management Bond will be incorporated
into the IED scheme with the following characteristics to apply
from 1 October 1992:
-
- an investment component of 80 percent;
-
- the maximum amount that can be deposited in this bond is $80
000;
-
- only taxpayers who are primary producers with non-farm taxable
income of less than $50 000 are eligible to deposit;
-
- withdrawals can only be made in periods of hardship arising
from circumstances such as drought and other natural events;
-
- withdrawals other than for specified events can be made, but
the investment component will return to the normal IED level of 61
per cent;
-
- deposits in normal IEDs can be transferred to an FMB, provided
FMB criteria are met;
-
- all other conditions attaching to the basic IED apply.
The tax system already has wide-ranging measures
that provide incentive for expenditure on drought preparation. For
example, expenditure on water conservation can be written off over
three years rather than the useful life of the asset. This
encourages expenditure on physical improvements for drought
management. Further, the introduction of accelerated depreciation
provisions from 26 February 1992 means that investment in fodder
and grain storage can now be written off over much shorter periods
than previously. The Commonwealth Government will monitor the
effectiveness of existing measures, and consider introducing new
measures if necessary.
-
- However, any new measures will be carefully assessed to ensure
that they are consistent with the objectives of the National
Drought Policy in terms of planning and management strategies.
-
- It is proposed that tax incentives for drought preparedness and
whole farm management be examined in association with the 1993-94
review of income taxation measures for landcare.
Whole-farm planning
The widespread adoption of whole-farm or
property-management planning is the major vehicle by which improved
risk management, productivity growth and sustainable development
will be achieved.
Property-management planning allows the
integration of management strategies for the physical, financial,
marketing and farming practices of individual properties. Through
the use of tools such as land-capability assessments, farm budgets,
marketing plans and decision-support systems, farm plans allow
producers to identify the elements of risk within their businesses
and take steps to minimise their impact.
A general improvement in the capacity of the
rural community to increase self reliance will not be achieved
until the majority of producers develop and implement an integrated
property management plan. As discussed under Resource
Management below, the Commonwealth will provide support for
the development and effective use of property-management planning
techniques.
Education and training
While many farmers arc already engaged in
effective risk management and drought-preparedness activities,
there is scope for providing opportunities for farm managers to
upgrade their skills and learn new techniques.
Farmers will have access to information,
education and training materials, courses and facilities that will
increase their capacity to manage risk and to implement property
management planning.
-
- The Commonwealth will make a significant contribution towards
programs which provide information, services, and training to
assist decision making.
-
- Steering groups will be established in each State to develop
and implement programs targeted to particular needs of farmers and
their advisers.
Research and
Development
Research, development, demonstration and
delivery are important elements of the policy package for improved
management in a risky environment. Further, research and
development can contribute to ameliorating the physical, economic
and social effects of drought in the longer term. The Commonwealth
will provide funding in this area.
Drought research for a profitable and
sustainable rural sector is wide ranging, and includes whole farm
management systems that integrate climate prediction, technical,
biological and financial information; control strategies for weeds
and pests; socio-economic factors and the needs of rural
communities and farm families in times of stress; and research on
on-farm and off-farm investment strategies for farmers.
The Commonwealth will develop an integrated
national drought R&D program in collaboration with the States
and the rural R&D corporations. It will be funded in the first
instance by a Commonwealth allocation of $2.1 million over three
years and with the intention that additional funds through
collaborative contributions be provided by rural R&D
corporations. The program will be aimed at enhancing the capacity
of farmers to manage drought and it will seek both to bring
together existing drought related R&D and to fund new R&D
where present gaps or shortfalls exist.
Coordinated drought research is essential, given
the diverse nature of the impacts of drought. The R&D funding
organisations in the Commonwealth Primary Industries and Energy
portfolio are well placed to initiate the establishment of a
national drought R&D effort encompassing Commonwealth and State
research, policy and management institutions. The Land and Water
Resources R&D Corporation (LWRRDC) will administer the
Commonwealth funds for the national drought R&D program and,
with the Rural Industries R&D Corporation (RIRDC), will
coordinate the funding and research activities of other R&D
corporations and agencies. They will be urged, as part of their
priority setting, to include drought-related issues in their work
programs.
An important element of drought-related R&D
will be extension and demonstration, thereby ensuring that the
results of the R8D are accessible to farm managers. Efforts will be
made to ensure that the gap between research results and farm
practices is bridged, including research into the decision-making
and adoption practices of farmers.
Rural Communities
Strong, resilient rural communities are very
important to the future of the rural sector. There are a number of
Commonwealth and State programs already in place to meet the
economic and social needs of rural communities, including non-farm
businesses. At the Commonwealth level, these programs include tho
Business Advice for Rural Areas Program, the Marketing Skills
Program, the Rural Industries Business Extension Service,
Countrylink, the Rural Access Program and the establishment of
telecentres. States also have complementary programs aimed at
assisting rural families and communities to adjust.
Social support programs are already available to
farmers and their communities in times of severe downturn and
include emergency relief, health care, and financial and social
counselling. These measures will continue to be monitored to ensure
that these policies are coordinated and meeting tho needs of rural
communities. New programs will be introduced if necessary.
Resource
Management
The growth and prosperity of farming depend
crucially on the resource base of the enterprise. Sustainable
development principles must be applied to managing for drought and
farm planning, including financial planning and risk
management.
There are important links between the National
Drought Policy and Landcare. Property management planning, for
example, is central to the goal of ecologically sustainable
development and to drought preparedness and risk management. The
Commonwealth is providing $3 million through Landcare in 1992-93,
with further funding annually until 1995-96, for education and
training in property management and a range of landcare activities,
with the objectives of the National Drought Policy clearly in
mind.
The revised RAS will have the capacity to
support drought preparedness strategies by farmer which involve the
more effective use of water resources available on farm, where such
an investment improves the long-term productivity of the farm.
There will be greater consistency between
Government policies to ensure the sustainability, both economically
and ecologically, of the resource base.
-
- Governments will review land tenure arrangements to ensure that
they are not structured in such a way to encourage overstocking or
other poor management practices.
-
- Water management is critical to both drought management and
ecological sustainability. The trend towards greater cost-recovery
charging and transferable-entitlement policies for water should
encourage better water management, including during drought, by
those with access to irrigation water. For those outside irrigation
areas, tax incentives exist to encourage the storage and
distribution of water.
Implementation of the National Drought
Policy
Implementation of the National Drought Policy
will involve two complementary sets of activities: an initial
awareness campaign to publicise the policy change, and on-going
education and training on risk management and whole farm business
practices.
The Commonwealth will provide $1 million in
1992-93 and $0.5 million in 1993-94 to fund the communication
strategy which will target farmers, farmer organisations and
associated industry groups, accountants, advisers, banks and other
financial institutions, landcare groups and other areas serving
agriculture.
Training packages for sustainable farming, which
incorporate risk management, landcare principles and drought
preparedness will be developed for farmers and their advisers and
delivered by States and Territories. This process will involve
liaison with senior advisory personnel, farm management consultants
and producer representatives in the States to ensure that the
training packages and extension programs are relevant and meet the
needs of farmers as well as their service providers.
Source: Australia. Minister for Primary
Industries and Energy (Simon Crean), 'New National Drought Policy',
Media Release No. DPIE 92/66C, 29 Aug. 1992.
Appendix B
Chronology of Commonwealth Drought
Assistance Since 1971
1971
|
Drought assistance part of new National Disaster Relief
Arrangements (NDRA).
|
1982-83
|
Severe drought in Eastern Australia.
|
1982
|
Introduction of Drought Relief Fodder Subsidy Scheme (cost
$122.1m) and Drought Relief Interest Subsidy Scheme (cost
$37.7m).
|
1983
|
Commonwealth/State Working Group releases report criticising
drought policy measures.
Establishment of National Drought Consultative Committee.
|
1985
|
Australian Agricultural Council endorses continuation of drought
carry-on loans within NDRA.
|
1988
|
Report of Commonwealth/State working group on effects of drought
assistance policies on land degradation.
|
Apr 1989
|
Commonwealth announces decision to remove drought from NDRA.
|
Jul 1989
|
Interim report of Drought Policy Review Task Force.
|
Aug 1990
|
Final report of Drought Policy Review Task Force.
|
1991
|
Start of current drought.
|
May 1991
|
Commonwealth Drought Policy announced.
|
Sep 1991
|
Drought relief funds ($6.5m) provided to Queensland and NSW
under RAS carry-on provisions.
|
Oct 1991
|
Easier access to social security benefits for farmers facing
hardship.
|
Jul 1992
|
Report of Senate inquiry into national drought policy.
|
Aug 1992
|
National Drought Policy agreed by Commonwealth and States.
|
Sep 1992
|
RAS Special Drought Assistance ($14m) to Queensland and NSW.
Announcement of major changes to RAS.
|
Mar 1993
|
Additional RAS Special Drought Assistance ($2.5m) to
Queensland.
|
Apr 1993
|
Additional RAS drought assistance to Queensland and NSW for wool
producers ($5m) and non-wool farmers ($6m).
|
Aug 1993
|
Training assistance for Queensland grain growers and farm
employees ($1.8m).
|
Sep 1993
|
Additional RAS drought funding to Queensland ($3.1m).
|
Oct 1993
|
Additional RAS drought funding to Queensland ($2.0m).
|
Dec 1993
|
Additional RAS drought funding to Queensland ($7.1m).
|
Aug 1994
|
Additional emergency funding to Queensland and
NSW ($14m).
|
Sep 1994
|
Commonwealth drought assistance package ($164m).
|
Dec 1994
|
Supplementary drought assistance package ($112m).
Additional regions of NSW and part of Tasmania declared as
exceptional drought areas.
|
Feb 1995
|
Exceptional drought funds provided for parts of Eyre Peninsula
of South Australia ($11.3m).
|
May 1995
|
Exceptional drought funds provided for additional regions of NSW
and part of Victoria ($40.3m).
|
Appendix
C
Drought Exceptional Circumstances

Source: Australia. Agriculture and Resource
Management Council of Australia and New Zealand,
Record and Resolutions, Adelaide, 28 October 1994:8.
Comments to: web.library@aph.gov.au
Last reviewed 19 July, 2004
by the Parliamentary Library Web Manager
© Commonwealth of Australia