Drought Assistance and Exceptional Circumstances Programs
Chapter 3 addresses the inquiry's third term of reference, the adequacy
of current drought assistance and Exceptional Circumstances (EC) programs to
cope with long-term climatic changes.
Overwhelmingly submissions and evidence to committee were of the view
that existing drought assistance and EC programs were not appropriate tools to
cope with long term climate change. The committee acknowledges that, to some
extent, its consideration of this term of reference has benefited from, but
also been superseded by, the announcement and ongoing work of the National
Review of Drought Policy.
Chapter 3 starts with an overview of the current National Drought Policy
(NDP), including a summary of some of the drought assistance and EC programs,
and an overview of new measures to help primary industries adjust to climate
change. The chapter goes on to outline the work of the National Review of
Drought Policy and then concludes with a discussion of the problems and
short-comings of the current policy and programs.
National Drought Policy
Government assistance for drought events is guided by the NDP. The NDP
was developed in 1992 and reaffirmed in 2005 by the Primary Industries
Ministerial Council. Under the NDP, drought assistance is intended to be a
short-term measure to help farmers prepare for and manage and recover from
The objectives of the NDP are to:
- encourage primary producers and other sections of rural Australia
to adopt self-reliant approaches for managing climate variability;
- maintain and protect Australia's agricultural and environmental
resources base during periods of extreme climate stress; and
- ensure early recovery of agricultural and rural industries,
consistent with long-term sustainable levels.
Although self-reliance is a key objective, the NDP also recognises that
there are rare and severe events that are beyond the ability of even the most
prudent farmer to manage. These events are covered under the EC arrangements.
Exceptional Circumstances events
3.7 To be classified as an EC event, the event:
- must be rare, that is, it must not have occurred more than once
on average in every 20-25 years;
- must result in a rare and severe downturn in farm income over a
prolonged period of time (eg greater than 12 months);
- must be a discrete event that is not part of long-term structural
adjustment processes or normal fluctuations in commodity prices.
Applications for EC declaration are prepared by communities or industry
bodies with the assistance of the relevant State or Territory Government and
are forwarded to the federal government Minister for Agriculture, Fisheries and
Forestry (Minister) for consideration. Applications for EC declaration need to
be supported by evidence of the rarity and severity of the event and evidence
that the event could not have been foreseen or managed through normal risk
management strategies available to farmers.
Currently, the classification of drought rarity and severity is based on
long-term historical rainfall records.
On receipt of an application for EC declaration, the Department of Agriculture,
Fisheries and Forestry (DAFF) assesses whether the application demonstrates a
prima facie case for EC assistance. Where an application is found to demonstrate
a prima facie case for EC assistance, the Minister forwards it to the National
Rural Advisory Council (NRAC).
The NRAC assess the application for EC declaration, and may also conduct
an on-ground assessment of the application area. NRAC then provide the Minister
with a recommendation on the application. Where the Minister accepts the
recommendation of the NRAC to declare an EC area, the funding of the
declaration requires Cabinet approval.
Drought assistance and Exceptional Circumstances programs
There is a broad range of drought assistance and EC programs available
from both the Federal and State Governments. Set out below is an outline of
some of the types of assistance available.
Exceptional Circumstances Relief
The Exceptional Circumstances Relief Payment (ECRP) is to assist farm
and small business families in EC declared areas that are experiencing
difficulties meeting basic living expenses. ECRP is paid at a rate equivalent
to the Newstart Allowance, and subject to similar income and asset tests as the
Newstart Allowance. The income and assets test excludes assets considered
essential to the long-term viability of the farm and up to $20,000 in off-farm,
or non-business, income.
DAFF and DCC provided the following information about the uptake and
cost of the ECRP:
As at 1 February 2008, there were 24 180 farming families and 1
047 small businesses receiving ECRP. Total expenditure since 2001 equates to
over $1 billion ... The mean payment for ECRP [to farmers] is $5 410 per year ...
Exceptional Circumstances Interest
The Exceptional Circumstances Interest Rate Subsidy (ECIRS) provides an interest
rate subsidy to farm enterprises and eligible small businesses that are viable
in the long term, but are in financial difficulties dues to a short term EC
ECIRS provides a subsidy of up to 50 per cent of the interest payable on
new and existing loans for the first year of an EC declaration, and up to 80
per cent in the second and subsequent years. The subsidy is available up to a maximum
of $100,000 in any 12-month period and a cumulative maximum of $500,000 over
As at 1 February 2008, there were 48 198 approved ECIRS applications for
farmers and 1 115 for small businesses at the cost of over $1 billion.
Exceptional Circumstances Exit
The EC Exit Package is designed to assist farmers intending to leave
farming. The package consists of a taxable, one-off, grant of up to $150,000.
In order to receive the full amount of the grant, the farmer’s net assets,
after the sale of the farm, must be less than $350,000. The grant reduces to
zero when the net assets reach $575,000.
As at 26 February 2008 there had been 231 claims registered for the
grant with five claims paid.
Other elements of the EC Exit Package include:
- up to $10,000 for professional advice and retraining to help recipients
plan for life after farming; and
- $10,000 to help with relocation expenses and to access job
seeking services after they have sold the farm.
Professional Advice and Planning
Professional Advice and Planning Grants are designed to encourage and
assist farming enterprises to develop a business plan incorporating drought
risk and management strategies.
Grants of up to $5,500 (GST inclusive) are available to eligible farm
businesses located in EC declared areas to obtain advice on business
management, production and agronomic issues, natural resource management and
risk management. The grants can be used to:
- assist in planning to maintain or increase the productivity or
profitability of a business;
- prepare for or manage a business in times of drought or climatic
- fund an independent review of a farm business.
Professional Advice and Planning Grants commenced in October 2006. As at
31 January 2008, 5015 grants had been approved amounting to a commitment of
over $26 million.
Farm Management Deposits
Farm Management Deposits (FMD) assist primary producers to deal more
effectively with fluctuations in cash flow resulting from climate variations
and/or changes in market prices.
FMD allow farmers to set aside pre-tax primary production income in
profitable years to establish a cash reserve to assist in meeting costs in low
income years. The deposits are tax deductible in the year that they are made
and included as taxable income in the year that they are withdrawn. To qualify
as a tax deduction the deposit must remain in the account for 12 months, unless
the withdrawal is made during an EC declaration, and the deposit was made prior
to the EC declaration.
As at 30 September 2007, there were 36 865 FMD holders with total
holdings of $2 389 billion.
Both State and Federal Governments provide counselling services aimed at
providing counselling to drought affected areas. Two types, Drought Counselling
and the Rural Financial Counselling Services (RFCS) Program, are discussed
Drought Counselling aims to improve access to personal counselling
services for drought-affected families in rural regions. Funding is provided
through the Department of Families, Housing, Community Services and Indigenous
Affairs' Family Relationship Service Program to enable organisations to provide
face to face counselling and other drought support measures.
Counselling is also provided through the RFCS Program. Although not
specifically a drought assistance measure, RFCS provides grants to:
support the provision of a free and impartial rural financial
counselling service to primary producers, fishers and small rural businesses in
financial difficulty. Rural financial counsellors across Australia can provide
information and support on drought issues for rural communities ... the aim of
the programme is to provide information and support to people in rural Australia
by improving access to services.
DAFF provided the following information on the numbers of clients assisted
through the RCFS program for February 2007-January 2008:
Climate Change and Drought
In its submission DAFF notes that climate change is expected to deliver
an increased frequency and severity of extreme climatic events, such as
[i]ndustries that are affected by climate, such as Australia's
agricultural industry, are at greater risk if they rely solely on historical
patterns of climate variability and extreme events when making business
To this end DAFF states that a primary objective of recent programs,
such as the Professional Advice and Planning Grant, has been to 'increase the
capacity of farmers to understand the risks posed by climate change and their
ability to manage and plan for it'.
DAFF's submission also noted the commencement of a new measure: the Climate
Change Adjustment Program (CCAP).
CCAP is part of the Australia's Farming Future initiative, which is designed
to address the impacts of climate change in the primary industries sector. CCAP
provide financial assistance to build skills, provide training
and professional advice to help improve management and to provide for better
planning and decision-making. It will also provide re-establishment grants for
More information about CCAP is set out on DAFF's website.
Assistance under CCAP includes:
- An Advice and Training Grant of up to $5,500 (GST inclusive) for
specialised professional advice and training across a range of disciplines to
assist farmers to adjust to the impact of climate change.
- Transitional Income Support to assist farm families in financial
difficulty to manage the impacts of climate change. Income support is available
for 12 months at the Newstart Allowance rate. Farmers receiving Transitional
Income Support must developing a CCAP Action Plan and undertaking actions
included in the plan, for example improved financial security, and increased preparedness
of the farm business for changing economic and climatic conditions.
- A Re-establishment Grant of up to $150,000 for farmers who choose
to sell their farm enterprise and leave farming.
As CCAP is a new measure, the committee received little evidence on the
National Review of Drought Policy
In February 2008 the Primary Industries Ministerial Forum announced that
'current approaches to drought and exceptional circumstances are no longer the
most appropriate in the context of a changing climate', and that '[d]rought
policy must therefore be improved to create an environment of self-reliance and
preparedness and encourage the adoption of appropriate climate change
In April 2008 the Minister for Agriculture, Fisheries and Forestry
announced a review of national drought policy'.
The review of national drought policy comprises three separate investigations:
- an economic assessment of drought support measures by the
- an assessment by an expert panel of the social impacts of drought
on farm families and rural communities; and
- a climatic assessment by the CSIRO and the Bureau of Meteorology
of the likely future climate patterns and the current EC standard of a
The Minister for Agriculture, Fisheries and Forestry has stated that the
progress of the review will be discussed at the November meeting of the Primary
Industries Ministerial Forum, with the aim of having an improved drought policy
in place by July 2009.
Criticisms of drought assistance and Exceptional Circumstances programs
The evidence and submissions received by the committee was in agreement
with the view of the Primary Industries Ministerial Forum, that the current drought
assistance and EC programs are no longer the most appropriate in the context of
a changing climate. Submissions called for 'sweeping reforms' and a 'visionary
new strategy', especially in light of a climate change.
The CSIRO also submitted that there is a misalignment between the
objectives of drought policy and the science used to support it:
The objectives of drought policy focus on reducing the economic
and social impacts of drought, while the science supporting drought policy has
focused almost exclusively on rainfall and agricultural production. This
misalignment has potential implications for the ability of policy to influence
drought and agricultural production, at least in the short term. For example, a
focus on rainfall and production has distracted from the development and
implementation of more holistic methods for measuring the key policy outcome,
such as the adaptive capacity of rural communities...
The Queensland Government also queried whether it was appropriate to
continue using the historical climatic record in the drought declaration
Using the historical record for drought declaration processes
may no longer be indicative of future conditions, with implications for
sensible drought planning. Drought assistance programs were not designed to
cope with long-term climatic change.
Several general criticisms were made of the drought assistance and EC
programs. The Rural Business Development Corporation (RBDC) described the
current programs as being of 'limited use'. RBDC is of the view that assistance
could be provided in a timelier and less complex fashion.
The Agricultural Alliance on Climate Change stated that current drought policy
is 'entirely reactive', providing little or no active support for the adoption
of locally appropriate drought management strategies.
Growcom were of the view that current programs 'fail to provide real
assistance' to horticulture industries and enterprises and believes that the
programs will not cope with new and additional demands driven by climate
One specific criticism that was made of current drought assistance and
EC programs was that these measures may, in some cases, merely prolong the life
of unviable or unproductive enterprises and hinder structural change. This
particular criticism appeared to be directed more to business assistances
measures, such as ECIRS, than social welfare measures, such as ECRP.
For example the RBDC highlighted specific concerns with interest rate
subsidies, which RDBC believes may provide greater benefit to poorly managed
...providing an interest rate subsidy across all farm debt means
in practice that considerable assistance is provided to those farmers who have
a high debt prior to the EC event and conversely farmers who operate under low
debt scenarios as a matter of course receive less. The level of debt that a
business has prior to the EC event will be a function of the stage the business
is in i.e. expanding versus consolidation, but high debt levels could also
reflect an accumulation of trading losses. This would mean that greater
assistance would be going to poor performing businesses. This inequity can be
divisive within affected communities where all farmers have been impacted by an
In evidence to the committee Mr Ben Fargher of the NFF acknowledged that
interest rate subsidies are 'not a perfect tool', but argued that such measures
may still be appropriate in some circumstances:
...what about the young people out there that will only get
through this current drought because of that instrument and go on to be good
farmers for years and years?
Proposals to improve drought assistance
The committee received substantial evidence on proposals to change
government drought assistance programs, making the programs more appropriate to
a changing climate.
Improved decision making and risk
A number of submissions highlighted the need for assistance programs to
be focussed more on drought preparedness by enabling farmers to plan for, and
manage, the risks of climate change. For example, Growcom submitted that:
[w]hile some improvements have been made to shift the emphasis
of assistance programs towards risk management, major reforms are still needed.
The likely implications of projected climate changes must be incorporated into
future arrangements for drought, exceptional circumstances and natural disaster
Growcom advocated the need for drought policies and programs to have a
strong focus on 'supporting proactive risk management and advanced agricultural
business planning for a drier, hotter climate'.
Meat and Livestock Australia and the Cattle Council of Australia also
commented on the need for assistance to incorporate climate change into
There is an immediate need for improved knowledge and tools to
enable producers to build climate changes into current management strategies.
Improved seasonal climate forecasts at appropriate regional scales that are
based on dynamic climate models incorporating human-induced climate change as
well as natural variability will form the basis of decision support tools for
The Queensland Government outlined its investment in the development of
climate forecasting systems to assist farmers in their business decision
The Queensland Government has also invested ... in drought
preparedness programs to help producers be better prepared for drought and
climate variability. These include the development of climate forecasting
techniques and a range of farm management tools that practically integrate
these climate forecasting systems into producers' operations. Queensland
Government climate forecasting systems ... have become widely adopted
internationally. Continued development of these applied forecasts and
integrated decision support tools are integral to ensuring producers are able
to adapt to an increasingly variable climate.
Diversifying farm income sources
A number of submissions also noted a role for the development of
diversified income sources for farmers as a means of sustaining the
agricultural sector through drought and reducing reliance on government
The Agricultural Alliance on Climate Change discussed 'building the
resilience of rural livelihoods by increasing the diversity of farm income
sources' as an effective and measurable objective for drought policy.
Mr Tim Wiley and Mr Bob Wilson note that farmers require off farm income
to sustain them through periods of drought. According to Mr Wiley and Mr Wilson,
in the Mid West region of Western Australia farmers working part time in local
mines have made a valuable contribution to both industries through the recent
In their submission, Mr Wiley and Mr Wilson also state that there needs
to be a change from drought assistance to agricultural restructure, and propose
a role for carbon sinks to finance this change.
The National Association of Forest Industries also highlighted the role
of forestry as a complementary land use:
Commercial scale forestry, while it is generally ineligible to
access funding from assistance programs, does not require the level of
assistance which often applies to agriculture. In contrast, forestry can offer
a valuable complimentary land use which is less exposed than other forms of
agriculture to the effects of seasonal and long term climatic variations.
For instance, both native and plantation forestry, can provide a
valuable source of income at both the regional and farm level during periods
when extreme climatic conditions are causing an economic downturn for other
parts of the agricultural sector. This may be critical in supporting regional
communities and individual landholders during these periods.
Assistance based on shared responsibility
A common theme put forward to improve drought assistance programs was to
develop a form of 'shared responsibility' on the part of receipts in exchange
For example, the NFF proposed mutual obligation 'Climate Management
Eligible farmers would have to match the Australian Government's
funding with either cash or in-kind support – effectively a partnership to
better drought-proof the sector. This mirrors the desire – both within the
broader community and within the farming sector – to, over time, shift the
policy paradigm from drought relief towards drought preparedness and
The NFF envisage that the grants could cover a variety of approved
activities, for example: building stock containment; trialling new or different
drought-resistant farm systems; increasing or improving fodder storage
capacity; soil mapping, including water-holding capacity and plant
requirements; and implementing innovative practices and infrastructure to
improve drought resilience.
The Queensland Government discussed 'incentive-based' assistance
Consideration should be given to providing greater support for
proactive incentive-based assistance programs that provide assistance based on
the long-term efforts of an enterprise to improve land care management and
farming sustainability. Improved economically-based multivariate evaluation
frameworks and models are needed to ensure that the quantum and nature of any
assistance provided is guided by viability and sustainability prospects in the
Both the NFF and the Queensland Government noted, however, that the
operation of drought assistance programs based on shared responsibility would
not preclude the need for a welfare safety net in times of drought.
Meat and Livestock Australia and the Cattle Council of Australia also
put forward a proposal based on incentives to encourage drought preparedness:
Agriculture needs access to tax incentive/reduced loan
facilities etc. to allow for serious future building, so that through a
government contribution, the dollars are leveraged to minimise agricultures
exposure to future droughts. The areas of 'future building' could include
fodder conservation, water reticulation, soil ameliorants, off farm investment
The CSIRO advocated a community-based system for the allocation of
finite drought assistance:
Governance systems that provide communities with authority to
allocate finite amounts of assistance determined prior to droughts would reduce
the open-ended nature of current incentives to seek assistance, and encourage
the conservation of scarce fiscal resources. Limits on drought assistance and
rules for its governance pre-agreed with local communities could help to free
governments of criticism surrounding intervention during drought. Communities
and governments could work together to develop locally relevant conditions for
mutual responsibility that do not impede the exit of non-viable farms from the
The Australia Institute's preferred policy option is to progressively
withdraw 'government subsidies' to agriculture in concert with a process of
structural reform to help remove farmers from drought-prone areas and areas of
low productivity. However, the Australia Institute acknowledges that it is
unlikely that such a policy would be considered. As an alternative, the Australia
Institute propose making improved environmental outcomes a condition of
receiving drought assistance.
The committee notes the work of the National Review of Drought Policy
and does not wish to duplicate the work of that review, or pre-empt its
findings. To this end, the committee has limited its work to consideration of
the short-comings of the current programs and outlining the options that have
been presented to for improving drought assistance and exceptional
circumstances programs. Further, the committee has refrained from making
recommendations about the direction of future drought policy.
It is clear to the committee that the general view of those in the
agricultural sector, and wider community, is that current drought assistance
and EC programs are not the appropriate tools to cope with climate change.
Climate change requires a new approach to how government assistance is provided
to assist the Australian agricultural sector through times of extreme climatic
events. To this end, the committee was encouraged by the focus in submissions
for drought assistance which focuses on drought preparedness strategies.
The committee believes the agricultural sector wants to change and adapt
to climate change, however the current drought has severely restricted the
ability of the sector to finance such change. The committee's view is that
future drought policy should therefore be aimed at assisting the agricultural
sector to adjust to climate change and prepare for extreme climatic conditions.
To some extent, the Climate Change Adjustment Program does this, by addressing
calls for improved access to tools to assist with better decision-making and
risk management strategies in the face of climate change.
The committee believes that both diversified farm income sources and
shared responsibility could play a role in future drought assistance policy. However,
many of the proposals presented to the committee in the course of this inquiry
are still only at a conceptual stage, and would require extensive work and
consultation in order to develop them to a policy stage.
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