Ag not a 'special case'

There is no justification for relieving debt-burdened farmers of their debts so they can borrow more

AT VARIOUS times during the past couple of decades, the tourism industry has suffered a serious downturn.

The GFC caused one, as did the planes flying into the World Trade Centre in 2001. Indeed, in the latter case there was a massive downturn with all resorts doing it tough and many tourism operators going broke.

Tourism is one of the three industries in which Australia has a natural advantage, the others being agriculture and mining. It is also a huge employer, far larger than agriculture or mining. And just like agriculture, each time there is a slump the tourism industry appeals to government to step in.

Help is provided in two ways. One is to contribute funds to advertising campaigns intended to attract tourists to Australia or a particular region. The other is to provide grants to individual tourism ventures to help them expand.

Assistance is never available to help operators survive. In fact, recipients of tourism grants must prove they are viable and will contribute at least the same amount of their own funds to the venture. The purpose of the grants is to boost the capacity of the whole industry, not to keep any individual operator in business.

In my ideal world, taxpayer funds would never be used to support or prop up any industry. It’s called corporate welfare and is an improper use of other people’s money. But the amount allocated to tourism is not especially high. In the current budget, Tourism Australia will receive about $130 million and state tourism budgets are similarly modest.

According to the Minister for Agriculture, Barnaby Joyce, there will a "complete and utter financial meltdown" unless drought-affected farms, mostly in his former home state of Queensland, are relieved of their debts. Amid calls for low interest loans, Mr Joyce’s preferred solution is to nationalise the loans (and by implication the farms that provide security for the loans) that farmers cannot afford to repay. He is reported to believe these amount to $7 billion, or 10 per cent of total rural loans.

The chances of Mr Joyce getting $7 billion are zero, but it’s an ambit claim. What he wants is for drought-affected farmers to receive a handout from their fellow Australians to stay in business. If he can convince his cabinet colleagues to throw in a few tens of millions to shut him up, he’ll probably consider it a worthwhile exercise.

In economic terms, it makes no difference to our national prosperity whether an individual farmer or a tourism operator goes broke. If a hotel or tour operator fails, Ayers Rock and the Great Barrier Reef are still there.

When a farmer goes broke, the farm does not disappear or food production cease. There is always someone else, quite often a neighbour, willing to purchase the farm. Food production, if that is what the farm is used for, barely falters.

Even if a third of the farmers in the drought-affected areas were to go broke this month, which is not even remotely likely, there would be no adverse consequences for the rest of Australia. No shortages, no price rises, nothing. Indeed, it is likely that overall productivity would increase. Uncomfortable as it may be for some to accept, the farmers who go broke during droughts tend to have lower overall productivity than those who remain viable.

That is not to deny that innovative, highly productive farmers sometimes fail. Bad luck happens. Moreover, entrepreneurs who take risks with their own money deserve respect and admiration.

Similarly, there is no denying that when a business fails, the consequences can be unpleasant. Lives are disrupted, self-worth is questioned and families come under stress. There is an increased risk of suicide and mental breakdown. That applies to all businesses, not just farmers.

The notion that farmers are different from tourism operators or other business people is wrong. In a market economy, the term for failure is creative destruction. Something stronger and more resilient always emerges from it.

If government assistance to agriculture is warranted, it is no more than to ensure farmers and their families do not starve. There is a scheme for this already, which looks likely to expand. It provides the equivalent of unemployment benefits to farmers who have no income, despite the fact that they may own assets worth hundreds of thousands of dollars.

It also makes sense to facilitate the exit of non-viable farmers from the industry. This may mean helping to sell the farm and recover remaining equity, finding a job, or relocating. It’s a difficult process and taxpayers are not hard-hearted when it comes to spending some of their money in such cases.

But, as the Treasurer Joe Hockey pointed out recently, the solution to excessive debt is not more debt. There is absolutely no justification for relieving debt-burdened farmers of their debts so they can borrow more.

If they are struggling with excessive debt while interest rates are at record lows, they will be in even worse trouble when rates return to more normal levels. A drought that lasts longer than anticipated does not alter that.

Like agriculture, the tourism industry has a limited number of large operators plus a lot of family-owned businesses. Also like agriculture, it is subject to events well outside its control, such as erupting volcanoes, airline strikes and civil unrest. The effects of 9/11 were much worse than the termination of live exports.

And yet, the government’s support for the tourism industry is far more coherent and rational than any of the proposals now being floated for supporting drought-affected farmers.

There is nothing inherently different about farming that warrants different treatment. Apart from a certain amount of compassionate assistance, improved access to markets is about all it needs.

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FarmOnline
David Leyonhjelm

David Leyonhjelm

has worked in agribusiness for 30 years and is a Senator for NSW representing the Liberal Democrats.
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READER COMMENTS

Bigpen
10/02/2014 3:09:37 AM

Absolutely spot on David. If any business has more debt than it can handle giving it more debt will not solve anything , rather it will perpetuate a continuing structural problem. I have personal knowledge of those receiving previous EC assistance taking an overseas trip and seeking to buy more land after interest assistance. Help us to help ourselves.
fairs fair
10/02/2014 4:40:21 AM

If thats David's attitude towards farming then I expect he will push for the government to stop giving aid to flood, fire & storm victims in extreme events. Drought is no different to the aforementioned natural disasters and unless the federal government is going to cut all aid when disaster hits, drought should be no different. I would challenge David's theory that if a 1/3 of farmers left farming tomorrow it would have no adverse affect, please explain in more detail how you arrived at the assumption? Clearly David has little understanding of agriculture's current underlying problems.
David Fleming
10/02/2014 5:42:31 AM

It is shameful that supposed well educated people do not see the importance of providing relief to agriculture in unforeseen circumstances.This is the price all Australians should have to pay for enjoying cheap food and charging rural workers with the always difficult task of taking care of their land.When government removes assets such as water once correctly attached to the land so urbanisation can develop and mines can grow, it is a decision made by representation.Unfortunately a small badly represented minority group are trying to look after the majority of Australia .
TC
10/02/2014 5:55:30 AM

David, you're a cold, heartless & insensitive politician who will never experience hardship or hunger as the taxpayer will look after you now, forever. You won't worry where food for your next meal comes from because if it isn't produced by am Aussie farmer, just import it. Your attitude appears to be "stuff the Aussie farmer, if he can't make a go of it just let them go, all of them". Hope you sleep well at night. By the way, what product or outcome do politicians produce? None, you're that necessary "pain in the arse" we all have to endure.
The Quiet Farmer
10/02/2014 6:03:46 AM

Improved access to markets, eh! I don't recall the Govt telling tourist operators they couldn't allow Indonesians to stay at their resorts! Maybe you missed that press release?
ando
10/02/2014 6:11:53 AM

The point that David misses here, is that unlike any of the other business comparisons that he makes, is that farmers are managers of a living breathing piece of dirt. A complex and continually changing landscvape that takes years to understand and longer to manage. What will be lost as these generational managers (and their Sons and Daughters) disappear may not be immediately evident, but will certainly become noticeable in the years to come. The land will still be there, my question is, what shape will it be in? To be continued......
ando
10/02/2014 6:18:56 AM

Time and again I have witnessed new ownership of properties in my district purchased by individuals and or companies, only to see them become degraded and run down because of either lack of understanding of the landscape or being driven by profit over sustainability. The argument should not be focussed on saving farmers, it should be about saving good agricultural land for the benefit of the entire community. This is about long term productivity and sustainability (i hate that word), not retaining rural capitalists in their accustomed lifestyle.
X Ag Socialist
10/02/2014 6:25:16 AM

Well written Dave and when the new Gov has finished knocking the cobwebs out of rural Australia you Guys can reform the shambolic senate electoral process and the casual counting methods employed by the AEC ,
William
10/02/2014 6:38:13 AM

In my ideal world people that don't understand food is essential to life would be denied access to it when the consequences of their philosophies are realised. Food security isn't something you seem to think is important, but when we become an importer of food rather than a producer, all it takes is one dockside dispute, or a small war, or a devaluation of currency, or insert random event here. The food you eat now you are taking for granted. It's easy to be an economic rationalist when you have a full belly. Try it when you are starving.
Geronimo
10/02/2014 7:14:29 AM

It is well-known in rural communities how easy it was to rort previous assistance programs and who was doing it. We all know who they are. Maybe they have blown it for everyone. When people are actually borrowing and spending to increase the amount of support they get, then something is seriously wrong. How you can come out of an assistance program with more land, new trucks and new sheds has got me beat.
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Agribuzz with David LeyonhjelmCommentary, news and analysis with agribusiness consultant David Leyonhjelm. Email David at reclaimfreedom@gmail.com

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