Chapter Two
Drought assistance
Background
2.1
At its meeting on 1 December 2014, the committee decided that it would
consider drought as a natural disaster under its terms of reference. This differs
from the approach taken by the Productivity Commission (PC) which excluded
drought from its considerations:
The terms of reference define natural disasters as ‘naturally
occurring rapid onset events that cause a serious disruption to a community or
region, such as flood, bushfire, earthquake, storm, cyclone, storm surge,
tornado, landslide or tsunami’. Heatwaves and drought are outside the scope of
this inquiry.[1]
2.2
However the committee's terms of reference tasked it
to inquire into the need for a fund to support rural and manufacturing
industries as well as communities affected by natural disaster. In this
context the committee decided that drought was the primary natural challenge
facing communities dependent on rural industry.
2.3
An area is declared as being in drought based on
data from the Australian Bureau of Meteorology (BoM). This declaration is based
on a variety of factors, including the length of the rainfall deficiency and how
it impacts water users:
Drought is a prolonged, abnormally dry period
when the amount of available water is insufficient to meet our normal use.
Drought is not simply low rainfall; if it was, much of inland Australia would
be in almost perpetual drought. Because people use water in so many different ways,
there is no universal definition of drought. Meteorologists monitor the extent
and severity of drought in terms of rainfall deficiencies. Agriculturalists
rate the impact on primary industries, hydrologists compare ground water
levels, and sociologists define it by social expectations and perceptions.[2]
2.4
Extreme variability of Australia's climate and the subsequent impact on
rural industries has been well-documented. For example, the National Farmers
Federation (NFF) note in their Climate Change Resilience Statement that:
Australia is the world’s driest inhabited
continent with the most variable climate. This variability is projected to
increase with the extremes becoming even more extreme, creating significant
challenges for agriculture ... Australian farmers must focus on embedding climate
variability as a normal business “risk” decision, whilst maintaining a focus on
productivity and profitability in the short to medium term. A resilient farm is
likely one that is profitable, sustainable (given its resources), and can
effectively manage variations in environment, financial and economic aspects of
its business, such as commodity prices and input costs. [3]
2.5
Likewise the Parliamentary Research Service paper by Alan Burdon, Dry
Paddocks, Damp Policies: Drought Assistance Strategies and their effectiveness,[4]
noted that the twentieth century began in the grip of one of the worst droughts
on record only to be followed by a further six extreme droughts. More recently the
Australian Bureau of Statistics found that from 2001 to 2009 eastern Australia
has experienced its driest period on record:
The period from 2001 to 2009 has been the driest on record
over parts of eastern Australia, meaning that many large water storages did not
fully recover from the 2002–03 drought prior to the onset of the 2006–07
drought. While rainfall returned to near normal levels in the second half of
2003 following the severe drought of 2002–03, there were no periods of
sustained above average rainfall in most of the region from early 2001 to the
summer of 2009–10.[5]
2.6
Since 1990 Australian governments have preferred a long-term management
approach to drought, rather than taking the position that drought should be
treated as a natural disaster. This means that now the onus is on those
affected by rainfall deficiencies as acknowledged by the NFF above. Successive
reviews have cemented this approach, with government intervention focussed on
supporting long-term drought preparedness and mitigation rather than providing
temporary relief.
2.7
One of the most recent and comprehensive reviews was undertaken in 2008
by the PC under direction from the Assistant Treasurer, the Hon. Chris Bowen MP
(The PC's Drought Report). This report brought into focus the previous two
decades of drought policy and found that many of the policies introduced to
alleviate the impact of drought had not met their objectives of helping farmers
‘improve their self-reliance, preparedness and climate change management’.[6]
A number of policy reviews are set out in Table 1 below.
2.8
The PC also found that the majority of farmers did not access available
government assistance in drought-stricken areas and that over two thirds of the
designated assistance was not spent. It also found that most farmers are in
fact sufficiently self-reliant to manage climate variability.[7]
Drought policy in Australia
Table 1 Drought policy reviews[8]
Review
|
Key Recommendations/Findings
|
1990 — Drought Policy Review Task Force Final
Report
|
-
Drought separate from natural
disaster relief
- Governments should implement a National Drought
Policy
- Against the use of transaction-based
subsidies/rebates
- State/territory assistance for drought purposes be
provided through general concessional loans
- Provision of grants or interest free loans be limited
to extreme situations
|
1997 — Drought Policy Task Force Review of the
National Drought Policy
|
- Transaction-based subsidies and interest rate
subsidies be phased out
- Improve farm financial and land resource planning via
education and training programs
- Encourage farmers to build cash reserves during good
seasons to prepare for downturns
- Research and development on the effects of prolonged
drought
- Introduce a Farm Family Re-Start Scheme, targeted at
farmers unable to access payments from other sources
- Counselling services be managed by state governments
and provided at an early stage of drought
- Amend and combine Income Equalisation Deposits (IEDs)
and Farm Management Bonds (FMBs)
|
1997 — McColl et al. Mid-term review of the 1992
Rural Adjustment Scheme (RAS 92)
|
- Remove interest rate subsidies and grants to farm
businesses for productivity improvement or for EC support
- Replace Rural Adjustment Scheme (RAS) 92 with an
improved scheme addressing the issues of management skills, farmer
re-establishment, and savings and welfare
- Introduce FarmBIS and the Farm Re-establishment
Scheme
- Introduce a single instrument combining IEDs and FMBs
- Higher priority should be accorded to research on
climate change, climate variability and climate prediction
|
2004 — Drought Review Panel Consultations on
National Drought Policy
|
-
Most stakeholders would support a
shift in government focus towards drought preparedness measures at the
expense of business support
- Exceptional Circumstances Relief Payment (ECRP) was
valued highly and regarded as being necessary during drought
- Stakeholders less in favour of business support
Exceptional Circumstances Interest Rate Subsidy (ECIRS) and fodder/transport
subsidies — overall, stakeholders thought such assistance encouraged debt and
supported the less prepared
- Transaction-based fodder and freight subsidies seen
to have a detrimental effect on farmers in other states (most stakeholders
considered these subsidies should cease)
- Exceptional Circumstance (EC) process as a whole seen
as too demanding, complex and confusing
- Off-farm income and assets limits for accessing EC
assistance seen as restrictive
- Criticism by stakeholders about perceived differences
in administration of ECIRS between states
- FMD and FarmBis schemes strongly supported
- Rural Financial Counselling service regarded highly
|
2006 — Agriculture and Food Policy Reference Group
Creating our Future
|
- Phasing out of interest and other transaction-based
subsidies by the end of 2010
|
2.9
The PC made a number of recommendations intended to provide a long-term
policy foundation that included:
- Research, development,
extension, professional advice and training to improve farmers’ business
management skills and build self-reliance warrant significant government
funding where they deliver a demonstrable community benefit;
- Farm Management Deposits,
notwithstanding their use for tax management, have encouraged farmers to save
and to be more self-reliant, and should be retained;
- All farm households in
hardship — regardless of cause or location — should have access to an income
support scheme that is designed for farming circumstances;
- The NDP [National Drought
Policy] should be replaced with extended objectives for Australia’s Farming
Future; and
- An intergovernmental
agreement with independent monitoring and financial incentives for complying
with agreed commitments should be established. [9]
Drought policy
2.10
Up until 1989 Commonwealth drought assistance was provided under the
Natural Disaster Relief Arrangements (NDRA) and each state and territory developed
its own drought assistance policies, generally within the context of the NDRA.
2.11
In 1989, the Commonwealth Government removed drought from the NDRA. Its
removal was brought about by concerns that temporary relief during droughts was
not appropriate and that drought declarations were being made either ad-hoc or too
quickly. The Commonwealth was also concerned with the high cost of
administering drought relief and the way that some drought policies discriminated
against farm managers who did prepare for dry times[10].
Additionally, concerns were also voiced about funds possibly being misused for
political purposes.[11]
2.12
Following the removal of drought from the NDRA, the Commonwealth
established the Drought Policy Review Task Force in 1990. The Task Force noted
similar concerns including that many drought relief schemes were more focused
on obtaining assistance and less about mitigating and living with drought.
2.13
The Task Force also noted that drought could not be objectively or
universally defined and there could be no agreed distinction on the severity of
drought:
The Task
Force concluded that it was not possible to develop an objective, scientific,
and universally accepted definition of drought and rejected the notion of being
able to identify the severity of a drought. It concluded that: Any distinction
between lesser and extreme droughts in this context would be completely
arbitrary and inappropriate. (McInnes et al. 1990, vol. 2, p. 20).[12]
2.14
The Task Force considered that the main factor that sets drought apart
from the concept of aridity or variations in regular rainfall, is that those
areas considered affected by drought are being used for commercial or social
purposes that depend on certain levels of rainfall.[13]
2.15
Nevertheless, the Task Force did develop a working definition that:
[D]rought
represents the risk that existing agricultural activity may not be sustainable,
given spatial and temporal variations in rainfall and other climatic
conditions.[14]
2.16
On the basis of this definition, the Task Force proposed that drought
should be considered as 'a
recurring, natural condition and not a rare climatic aberration' and that a
new national policy approach be adopted that focuses on 'the roles of producers
and governments in implementing self-reliant risk management approaches to
drought.'[15]
2.17
Two years
later, in 1992, the Senate Standing Committee on Rural and Regional Affairs was
tasked with reporting on the Task Force's recommendations. In contrast to the Task
Force's view that there should be no distinction between different degrees of
drought, the Committee opted instead to make a distinction on the degrees of
drought severity on the basis of circumstances that it could reasonably be
planned for, and exceptional circumstances that no amount of planning could
mitigate.[16]
2.18
Following the
Task Force report and the Senate committee's response, the National Drought
Policy (NDP) was developed. The NDP's objectives, as recommended by the Task
Force, were 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
-
ensure early recovery of agricultural and rural industries,
consistent with long-term sustainable levels.[17]
2.19
While the NDP adopted the position that responsibility for managing
drought risk lies with the farmers, it also incorporated the distinction
between normal and severe drought events as recommended by the Senate Rural and
Regional Affairs Committee through the Exceptional Circumstances (EC)
provisions that were introduced as part of the National Drought Policy (NDP)
announced in 1992.
Exceptional Circumstances
2.20
The exceptional circumstances concept as a trigger for assistance was a
feature of government drought policy until 2013. The concept was predicated on
the distinction between normal and severe drought conditions. Due to there
being no objective definition of drought, the NDP incorporated criteria for
severe drought which categorised it as being exceptional, based on
meteorological and economic factors. For a drought to meet these
criteria, it must meet the following conditions:
-
Be rare, in the sense that they do not occur more than once on average over a 20 to 25 year period;
-
Result in a rare and severe downturn in farm income over a prolonged
period of time (12 months or more); and
-
It cannot be planned for or managed as part of a farmer’s
normal risk management strategies.[18]
2.21 The criteria placed the onus on the farmer to manage all but the most
extreme circumstances, as well as ensuring that assistance is only provided in
circumstances where a tangible economic impact on the farming business can be
established.
2.22
The introduction of the NDP also dovetailed with the redeveloped Rural
Adjustment Scheme (RAS), the Farm Household Support Scheme (FHSS) and the Farm
Management Bond Scheme (FMB). The RAS developed out of the Rural
Reconstruction Scheme which was introduced in the 1970s to assist farmers to
either improve their farms, provide short term assistance to maintain the farm,
or to leave the farm. The RAS was subject to review in 1992 with a greater
emphasis on sustainability and management skills.[19]
2.23
The FHSS was intended to provide household support at the equivalent
rate of the Jobsearch allowance to non-viable farmers where they had been
refused commercial financing and had difficulty meeting living expenses.[20]
The FMB provided assistance in the form of interest rate subsidies and tax
breaks.[21]
2.24
Aside from these programs, drought assistance measures have evolved into
a plethora of schemes and time-limited programs to tackle particular aspects of
hardship borne by farmers.
Current drought assistance policy
2.25
Drought declaration has traditionally been the responsibility of state
governments which take into account a variety of factors, including rainfall
deficiencies, in determining an area to be drought affected (based on data
provided by the BoM). This declaration can include a declaration of Exceptional
Circumstances if required, which in turn triggers a range of assistance to
those affected, which can include retrospective support. However, a significant
change occurred in drought policy regarding declarations, and many other
aspects of drought, in 2013 with the introduction of the 2013 Intergovernmental
Agreement on National Drought Program Reform (IGA).[22]
2.26
The IGA moved away from EC declarations, with the NSW Minister for
Primary Industries citing the controversy over the equity of the EC model:
There's no doubt that in the past there has been a lot of
concern about the former Exceptional Circumstances model...Clearly that system
was out of date and unfair.[23]
2.27
The objectives of the IGA agreed by the Commonwealth and all the states
and territories are to:
-
assist farm families and primary producers adapt to and prepare
for the impacts of increased climate variability
-
encourage farm families and primary producers to adopt
self–reliant approaches to manage their business risks
-
ensure that farm families in hardship have access to a household
support payment that recognises the special circumstances of farmers
-
ensure that appropriate social support services are accessible to
farm families
-
provide a framework for jurisdictions’ responses to needs during
periods of drought.[24]
2.28
These objectives are founded on the set of principles agreed in April
2011 by the Standing Council on Primary Industries. The principles set out the
case for reform of drought policy:
Council reconfirmed the principles
for drought policy reform that would
enable farmers to move from crisis
management to risk management and
preparedness. The principles are:
-
there should no longer be Exceptional
Circumstances (EC) declarations or ‘lines on
maps’. Instead, governments should focus on addressing the specific needs of farming families, farming businesses and farming
communities;
-
acknowledgement that drought is just one of a number of hardships
that can adversely impact farmers'
-
recognition of the important role of farmers as the nation’s
food producers;
-
future farm family welfare
assistance should require a level of mutual responsibility;
-
for access to the income support
system, farming families should have a temporary period of exemption from the normal assets tests for farm
assets, but otherwise receive the
same access rights as the wider
community;
-
government farm business support should assist farming businesses plan and prepare for the
future. Farm business support will be based on a willingness by those businesses to prepare for the impacts of drought and climate change;
-
the role of farmers in natural resource management and their role
in maintaining vibrant rural
communities;
-
the importance of maintaining
and supporting the natural resource base during drought
and climate change;
-
government policies and programs
should support farming communities
to prepare for drought and enhance their
long term sustainability and resilience.[25]
2.29
However, the reform proposals have not been welcomed by all
stakeholders. The NSW Farmers President said that while they welcomed the
concept of preparedness, the process of reform was taking too long and having a
direct impact on farmers across the state:
We
welcome preparedness and we welcome the concept of that... but we also need a
strategic approach... so that we can have some certainty as we head into these
difficult weather conditions about exactly what arrangements will be in place. [26]
2.30
The National Farmers’ Federation submitted that an adequate replacement
for the Exceptional Circumstances model had not been put in place and has
resulted in an ad-hoc and inconsistent response to drought:
Concerning specific drought assistance arrangements, a
lack of clear and consistent commitment from all levels of government has been
witnessed since the dismantling of the Exceptional Circumstances framework
without a suitable replacement. This has disappointingly led to worse outcomes,
with government at all levels not committing adequately to funding preparedness
and then subsequently responding ad-hoc to drought events, rather than through
a transparent and consistent framework. The NFF believes it is important that
the governments provide drought assistance to businesses in a consistent, structured
manner that places sufficient effort on preparedness, in-event support and
recovery.[27]
2.31
AUSVEG, the national peak industry body representing Australian
vegetable and potato growers, was critical of the decision not to treat drought
as a natural disaster for the purposes of determining financial relief:
The devastating effects of ongoing drought are undeniable,
and while Australia’s climate necessarily requires that farms account for dry
spells as part of their business risk management, a period of declared extreme
drought should be considered a natural disaster...[28]
2.32
AUSVEG also contend that $6.5 billion spent through the Natural Disaster
Relief and Recovery Arrangements (NDRRA), which superseded the NDRA, did not
address the real threat to the livelihoods of vegetable growers in Australia:
... the NDRRA do contain a significant flaw: they do not cover
drought. The vegetable growers of Australia are far more likely to have their
livelihoods injured by prolonged drought than a meteorite strike, but under the
NDRRA, they are protected against the latter and not the former.[29]
2.33
Graingrowers also submitted that prolonged drought is the 'pre-eminent
current concern to the grain industry'.[30]
However their submission offered suggestions aimed at mitigating the impact of
drought rather than providing post-drought relief:
-
Assistance with preparedness for drought is preferable to after
the fact relief.
-
Development and support of a Multi-Peril Crop Insurance scheme
with government backing is an efficient way for support to be provided, and it
has precedents internationally.
-
Subsidised finance (i.e., interest rate at market rate minus an
allowance), so that it recognises the special conditions around maintaining
agricultural production but is still linked to market signals, is preferable to
unlinked support.[31]
2.34
GrainGrowers also recommended that any support should take into account 'the
nature of farm ownership and farm asset values', and be contingent on farmers
adopting 'best management practices/using effective farm business decision
technology'.[32]
2.35
The NFF were not of the view that drought should be addressed in the
same way as other natural disasters. The Federation proposed that drought assistance
requires a bespoke strategy that recognises the increased frequency and
longevity of drought events:
We certainly want to see a natural disaster mechanism and we
want to see a specific drought mechanism. We do not want to see it bundled in
with natural disasters. We have a real fear that if it is bundled in with
natural disasters any drought relief may simply go to the biggest cause in the
biggest area and not actually enable farmers to cope with something that is
occurring on a more frequent basis. We would like to see consideration given to
what that drought support would look like.[33]
2.36
There are a number of significant state and federal drought management
programs already in place. Many of these purport to assist in long-term
mitigation strategies to better prepare farmers for the impact of drought.
Western Australia for example manages both state and federal programs through
the Rural Business Development Corporation of Western Australia (RBDC).
2.37
The RBDC informed the committee of the assistance available to farmers
affected by drought in WA. The RBDC administers a number of programs on behalf
of both the Government of Western Australian and the Federal Government. The
state programs include:
Farm Business Assessment Scheme — A State Government
scheme which provides grants of up to $10 000 to farm businesses in drought
affected shires to have their business assessed by an external professional.
Farm Exit Support Grant — A State Government scheme
which provides a $20 000 grant to farm businesses who have decided to exit
farming.
2.38
The federal assistance programs administered by the corporation are:
Farm Finance Concessional Loan Scheme (FFCLS) —
A Federal Government scheme that aims to assist farm businesses that are experiencing
debt servicing difficulties but are considered commercially viable in the
longer term, by providing loans to undertake productivity enhancement
activities. Recently, this scheme in WA was enhanced by the inclusion of a debt
restructuring component, and an increase of the maximum loan amount to $1
million. A total of $50 million of funding is available.
Drought Concessional Loans Scheme (DCLS) — A Federal
Government scheme that aims to assist farm businesses recover from an existing
drought and prepare for future droughts and return to viability in the longer
term. Under the scheme, $20 million is available to drought affected farmers in
Western Australia.[34]
2.39
However the RBDC reported that there was a low uptake for both federal
schemes. Over the two rounds of FFCLS funding from January to April 2014 and
July 2014 to April 2015 only 25 of the total 53 applications received were approved.
This funding amounted to $5.19 million, of the available $50 million allocated.[35]
2.40
Similarly, DCLS, which opened in September 2014 and closes in June 2015,
has had very low take up. As of January 2015, the fund had only received eight
applications and had only approved one.[36]
2.41
According to RBDC there were a number of reasons why both the
application and the approval rates were so low. These reasons included the record
WA grain harvest in 2013 which prevented many previously eligible farm
businesses from meeting the criteria for either fund; farm businesses being
unable or unwilling to take on more debt; and that the BoM methodology does not
take WA's Mediterranean climate into account:
This [DCLS] Scheme is reliant on the Bureau of Meteorology
(BoM) rainfall deficiency data, based on annual rainfall figures. In Western
Australia, as we have a Mediterranean climate with only a six month growing
season, the 12‒24 month BoM data does not suit the Western Australian
short and single growing season. Accordingly, the BoM maps for WA shows areas
that have not experienced drought as being in severe drought, and other areas
that have experienced severe drought are shown as having experienced ‘normal’
seasons. While the Scheme is a national scheme, the BOM data has disadvantaged
some Western Australian farm businesses, which in turn has made it hard to
‘market’ the Scheme to farmers.[37]
2.42 This explanation was expanded on by the Western Australian Farmers
Federation who suggested that this failure of the methodology was also
responsible for the 'failure' of the Exceptional Circumstances model in WA:
Maybe I should go back and explain why the EC did not work,
because we are actually seeing the present circumstances not working for much
the same sort of reasons and that is that, especially in the south-east land
division, we have very much a Mediterranean climate where we depend on rain
falling in a fairly concise time...
One of the problems we have with the present system is that
the rainfall outside that time is recognised. Therefore, people who are really
deficient of rain in that growing period have been put out of, or culled out
of, the drought section because they actually—especially last year—got rain
during harvest and same with the year before. Although some of that rain in the
summer can be useful if it falls in late summer, but if it falls around about
harvest time it is virtually no use even with the amount of spraying and whatever
that goes on these days.[38]
2.43
Support at both state and federal government level continues to
develop. The federal government currently provides a number of assistance
measures including:
-
Farm Household Allowance
-
Farm Finance Concessional Loans Scheme
-
Farm Management Deposits (FMD)
-
Taxation measures
-
Rural Financial Counselling Service (RFCS).[39]
2.44
There have also been a number of funding announcements in recent months
to support these programs. In December 2014 the Minister for Agriculture, the
Hon. Barnaby Joyce MP, announced $100 million of new funding for Drought
Recovery Concessional Loans. Loans of up to $1 million will be made available
at 3.21 per cent over a 10-year period. These loans are in addition to the
existing Farm Finance and Drought Concessional Loans Schemes which have already
approved loans to 286 farm businesses in Queensland and NSW, valued at over
$150 million.[40]
2.45
On 9 May 2015 a further series of funding announcements was made to
continue funding for concessional loan schemes, as well as other assistance
measures:
-
$250 million in 2015–16 to continue existing drought concessional
loans and drought recovery concessional loans schemes.
-
$35 million for local infrastructure and employment projects that
provide options for people whose work opportunities have been adversely
affected by drought.
-
$25.8 million for programmes to manage pest animals and weeds in
drought affected areas.
-
$20 million to extend and expand existing social and community
support, including mental health support and counselling, for drought-affected
farming families and communities.
-
$1.8 million available to fund additional rural financial
counsellors to meet increased demand during periods of drought.[41]
2.46
The committee also notes the proposals announced in the 2015-16 Budget, and
subsequently contained in the Tax Laws Amendment (Small Business Measures No.
2) Bill 2015, introduced on 4 June 2015, which will provide for accelerated
depreciation for primary producers. This will allow farmers to deduct amounts
for capital expenditure on water facilities, horticultural plants, fodder
storage assets and fencing assets.[42]
2.47
However it is unclear to the committee whether this new funding will
address the concerns of farmers' advocates that there are significant barriers
preventing farmers from accessing the assistance measures. The NFF suggested
that the system needs to be 'reworked', commenting that a more structural
approach should be taken:
I would like to see it reworked. I think it can be sporadic;
it is hard to compare event with event; often it can be fuelled by media. It is
[a] horrible topic to talk about, but it can be fuelled by media, who may
overindex in a particular geographic area, and the TV may drive the outcome. We
think it needs more structure and more clarity of purpose...[43]
2.48 AUSVEG were also concerned that current assistance efforts were
sometimes hampered by political considerations, arguments between different
levels of government and the lack of a coherent strategic purpose:
Last year the Productivity Commission referred to government
disaster relief responses as 'ad hoc and emotionally and politically charged'.
An independently managed Commonwealth fund would ensure that when rural
industries were at their most vulnerable they were not left exposed to the
political motives of state or local governments. This is exemplified by the
current lack of coverage for South Australia in the Drought Concessional Loans
Scheme in which the state and federal governments are blaming each other for
applications not being opened. This situation is unacceptable considering the
federal Treasurer has acknowledged that drought relief is a complete natural
disaster and the Minister for Agriculture believes drought is an unmanageable
crisis.[44]
2.49
Mr Finlay from the NFF suggested in the media that those most in need of
assistance were often considered ineligible for the current assistance
packages, leaving much of the available funding unspent:
Some of these businesses, because they have been so smashed,
are deemed to be non-viable so they're deemed to not be able to service the
loan or pay it back in future, he said.
Mr Finlay said it was simply not possible for many farmers to
take on a concessional loan which must be paid back in five years and said the
Government needed to extend all loan periods to 15 years.
He said there needed to be greater cooperation between
Government lending authorities and commercial banks to streamline the lending
process and a relaxation in loan eligibility criteria.[45]
2.50
The NFF were also supportive of recent measures to improve water
infrastructure, which has the additional benefit of supporting local
communities:
In these remote communities the actual council, the local
government authority, is the major employer and a lot of businesses rely on
that and a lot of people in that community rely on that for income, Mr Finlay
said.
So to actually put money into these communities around
infrastructure projects, we strongly support that.[46]
Insurance
2.51
Insurance coverage, and the adequacy of insurance policies to cover drought,
was raised throughout the inquiry. The NFF highlighted the importance of
technology to improve the quality of data to inform insurance risks and
eventual premium calculations:
We have—again, I will not name names—some very excellent
insurers who are working with farmers in the long term and we have others who
may treat them simply like a city based insurance package, which does not
really work. The National Farmers' Federation as an entity must develop the top
two or three ag insurance companies in Australia and work collaboratively to
identify and alleviate the gaps, the unknowns and the risks. However, having
said that, technology is paramount. Often drought and flood are the greatest
insurance risks. If we can identify, particularly around the drought areas,
things that we are doing to mitigate the risk as a farmer collective in given
geographic areas, we believe that we can get a better insurance bundle from a
specific company.[47]
2.52
AUSVEG contended that there is a gap in the insurance market for farmers
to cover themselves for risks that may impact production:
There is also currently a large gap in the market for
agricultural producers to insure themselves against production risk, and that
gap includes coverage for drought and extreme rainfall.[48]
2.53
According to AUSVEG it was not just drought that was very difficult to
insure against, but flood was similarly problematic, especially given that many
farms are located on flood plains by necessity:
I will step into the next category that has affected us and
that is flood. We have lived on a flood plain all our life. Our farming
practices, usually high-intensity vegetable-farming enterprises, end up on
flood plains. So, for a start, insurers do not want to look at you because you
are on a flood plain. But, in saying that, even if there were an insurance
policy that would cover you, the cost of premiums would outweigh whatever we
would get out of it. Whatever we have seen over the past with insurance claims,
there seems to be a loophole somewhere.[49]
Research and development
2.54
The use of technology was widely agreed to be crucial in alleviating the
impact of drought. As discussed above, the NFF suggested that improvements in
the quality of data can assist in more targeted mitigation, as well as
improving outcomes in insurance packages. The Federation also proposed making
the most recent climatic data available to farmers to allow them to make the
best choices around their pasture management:
[F]armers often operate somewhat in isolation and they do not
have the capital resources to apply the best technology. But there is a growing
demand amongst the farmer base, particularly around climate change and pasture
management. If they could be given the best Google Maps data, the best Bureau
of Meteorology data, the best intersects around solar, evaporation and wind to
help them spray, to help them plan and to help model the land, that is the best
tool we could possibly provide over the next 20 years...
[T]here must be something done around commercial climate
technology being applied to farmer-driven outcomes at a farmer level, where the
first thing the farmer does when he wakes up in the morning is he says, 'Do you
know what? I am looking at my short-term weather forecast, my evaporation
rates, rainfall and wind, and I am not going to plant today, I am not going to
spray the weeds today.' Or, 'I am going to have a frost in three days—here is
my risk matrix and I can now make a calculated decision that the risk of frost
is too great, so I am going to wait a week.'[50]
2.55
Providing farmers with the tools to manage and prepare for drought is
the NFF's principal policy position. In addition to providing access to
climatic data, the NFF also highlighted the value in using the best available
technology to manage crops, which can a have dramatic impact:
For us there is something around the technology, the best
available farmer technology in terms of long-term forecasting and short-term
forecasting. To give you an example, in one of our major farming areas we have
been monitoring the migration of crop growing. The seasons have actually
changed, so you now put your crops in two weeks later and harvest them three
weeks earlier. That is the way the scenario works. A number of farmers were not
aware of that technology and therefore suffered frosts at one end of the cycle.
The point I am trying to make is that giving farmers the tools and the ability
to self-manage, as long as they meet certain criteria and work as a collective
within regions, is by far the better outcome.[51]
Committee view
2.56
The committee recognises that drought relief is a technologically and
administratively challenging policy arena. This includes the difficulty in
developing a determinative assessment of what a drought is, and the past fraught
declaration process which has been highly controversial for many years in
Australia.
2.57
Throughout the inquiry the committee was presented with views from a
number of stakeholders on whether the current policy model to alleviate the
impact of drought is appropriate, or whether a reworking of drought policy
should be considered. This is an especially important consideration in the
context of the Australian environment that constantly presents challenges in
how to maintain and potentially increase the productivity of rural industries that
are reliant on the land.
2.58
The Productivity Commission's recent proposal to separate some forms of
drought assistance from other types of natural disaster assistance continues a
policy evolution that began in 1990. Since then, a number of reviews have
consolidated the approach that drought requires a very different response than
other natural disasters.
2.59
The committee notes that drought is considered to be a recurring,
natural condition and not a rare climatic aberration and that this requires a
long-term strategic approach. Such an approach naturally places greater onus on
the land manager to implement self-reliant risk management approaches to mitigate
and prepare for the continuous effects of drought.
2.60
Acceptance of this approach is not universal—particularly at the
industry level. The committee heard evidence that drought, and the devastating
impact it can have on the sector, is still the primary natural disaster concern
of rural stakeholders. While the committee does not seek to diminish the
impact drought has on those affected, it recognises the underlying principle
that self-reliant risk
management of drought will require a different response to the short-term
post-disaster relief often associated with other types of natural events.
2.61
The approach of the Intergovernmental Agreement on National Drought
Program Reform in 2013 to remove the Exceptional Circumstances (EC)
classification is one that is supported by the committee. The EC model was
controversial and often resulted in seemingly arbitrary decisions based on
'lines on maps', rather than concentrating on the impact of those affected and
how best this could be prevented, or alleviated.
2.62
Replacement of this model with one more focussed on building greater
resilience that encompasses sustainable approaches for rural industries is an
option that the committee understands is more broadly accepted as best practice.
However the committee is aware there remains criticism over whether the present
response has been coherent.
2.63
Considering the constant calls from the sector for assistance, the
committee is very concerned about the unusually low levels of application for,
and awarding of, government funding initiatives, such as concessional loans.
Given that there are so few successful applicants, the committee questions the
validity of the schemes' intent to assist the development of self-reliant
management practices.
2.64
Some of the criticism levelled at the assistance schemes relates to the
onerous administrative task of establishing eligibility.[52]
Other criticism relates to the exclusion from assistance due to misunderstandings
in meteorological data as described at paragraph 2.41. One of the significant eligibility
criteria barriers to accessing support was the requirement that a farmer had to
hold approximately 70 per cent equity in their farm.[53]
2.65
The committee considers that after many years of no income due to the
impact of drought this requirement would appear to be overly onerous. The
committee found that a compounding issue with equity ratio calculation is more
often than not, that the calculation is taken during the drought years when
funds are sought, not across the years to average or 'smooth' out the effects
of the good and the bad years as stated by the NFF:
You should take a loan to equity ratio over a seven-year or
five-year time horizon to get the good, the bad and the average years modelled
out. What actually happens is that they say, 'Sorry, you are down to XYZ 20 per
cent equity and it is time to move on.'[54]
2.66
This treatment of equity is especially significant if policy makers
truly accept the rationale that drought is a 'recurring, natural condition and
not a rare climatic aberration'.[55]
2.67
As indicated by the NFF, the ratio issue also highlights the scheme's
loan repayment terms which are generally five year terms. This issue really goes
to the intent and appropriateness of the scheme design. The sector has
repeatedly voiced its concern that the terms are insufficient in length. The
NFF among others, have consistently said that 'it is simply not possible for
many farmers to take on a concessional loan which must be paid back in five
years... Government needed to extend all loan periods to 15 years'.[56]
2.68
A final comment regarding the administration of assistance schemes was by
the Director of AUSVEG, Mr William Bulmer, and relates to the efficacy of the delivery
of the assistance once all the eligibility criteria have been satisfied. This
comment encapsulates other similar comments from across the assistance
initiatives:
For one of the droughts we obtained, through Rural Finance, a
$200,000 low-interest loan...[by] the time they actually paid the money was 12
months. It just went on and on and on, and we just had to carry that through
our business.[57]
2.69
However, it is also important to note that recent reductions in the cost
of commercial finance will further complicate decisions by farmers to access
the schemes. The committee is of the view that while it supports the
government being a lender of last resort, the government should not be in a
position of competing with the commercial finance industry.
2.70
Nevertheless, the committee welcomes the recent announcements of funding
and support packages for those affected by drought. Though, the quantum of
assistance does not appear to be the central issue in ensuring that the
assistance measures are as effective and useful as possible. The committee is
of the view that more needs to be done to clearly establish who the schemes are
designed to assist and what they aim to accomplish. The committee would
welcome an assessment of the design of the current assistance measures before
further funding is committed to similar schemes with similar eligibility
criteria.
Recommendation 1
2.71
The committee recommends an evaluation of current concessional loan
schemes to ensure that the schemes are utilising appropriate data and that
eligibility criteria are designed in consultation with the sector to ensure
that schemes are as accessible as possible for those in need of Commonwealth government
assistance.
2.72
If the policy paradigm is to continue to support self-reliance, then
more attention needs to be given to supporting the wider adoption of
sustainable husbandry across the rural sector. The committee encourages greater
input into education and support for other assistance measures such as
investment in water infrastructure.
2.73
The utilisation of technology has the potential to transform the
preparedness and mitigation efforts of farmers. According to evidence received
by the committee, access to the latest meteorological data, accompanied by
appropriate IT, could place farmers one step ahead of both the elements, and
their competitors world-wide. The committee supports the ambitious target of
providing food for 150 million people, but for this to be realised, investment
in modern technologies is crucial.[58]
2.74
Improved technology in areas such as geographical information systems,
evaporation, water retention and soil management is available but better access
and education would ensure greater utilisation of these enabling technologies
not only to improve productivity but also to assist farmers with issues such as
insurance against unforeseen events. The committee believes that this is where
government, at both a state and federal level, could add real value.
Recommendation 2
2.75
The committee recommends that the Commonwealth government consider the
development of a land management technology fund to support the rural sector,
and to ensure that the sector is equipped with appropriate Commonwealth government
managed data.
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