Digging a money pit

Farmers are no different to anyone else when it comes to a liking for other people’s money

WE ALL know that those who fail to learn from history are bound to repeat it, and with drought spreading in Queensland and beyond, I wish I could be more confident that people were listening to their history teachers.

Lesson one is that droughts will happen. The reality of drought always seems to come as a huge shock to city people, who find images of dried up creeks and bones of livestock in the paddock particularly confronting.

But as Dorothea Mackellar told us, you shouldn’t need a degree in meteorology to understand that drought is not a disaster in this country so much as a part of life.

Indeed, any farmer or grazier older than 12 will have experienced drought, and knows that managing it is as much a part of their job description as dealing with stormy weather is part of the job of the captain of a ship.

“They can have the effect of rewarding farmers who managed their farms badly”

The other part of history that I wish we had learned from is that drought assistance programs quickly become a bottomless pit. The Exceptional Circumstance (EC) schemes of recent times gave aid to whole regions for long periods regardless of individual circumstances, gobbling up $2.6 billion on interest rate subsidies alone from 2001 to 2011.

Several reviews subsequently recommended abolishing EC interest rate subsidies, not least because they can have the effect of rewarding farmers who managed their farms badly, and encouraged them to take on debt at the beginning of a drought.

Farmers are no different to anyone else when it comes to a liking for other people’s money, which might explain why the schemes quickly blew out. Many farmers can tell you stories of neighbours who they suspect of rorting the system or who benefited from it despite living on extremely valuable holdings.

The Productivity Commission found that none of these drought assistance programs helped farmers improve their self-reliance, preparedness and climate management. It found that interest rate subsidies and state-based transaction subsidies were ineffective, and can perversely encourage poor management practices. What’s more, it found that household relief payments were inequitable because they were limited to those in drought-declared areas.

Not surprisingly, given these findings, EC schemes were abolished. However, because of our apparent collective amnesia, and the persistence of life-long whingers, they have only been replaced by new handouts that have little more going for them.

“Farmers who cannot survive drought without help should not be propped up or encouraged to sit on their hands”

Using federal money – money that might otherwise be used to lower taxes - state governments are now being allowed to hand out concessional loans that pay little heed to old fashioned market concepts like viability. Where once it was up to financial organisations to decide who received loans, now it is up to state government agencies. It’s a scary thought.

Speaking of failing to learn from history, it will also now be up to state governments to make the inevitable, painful foreclosures. State loans to farmers were discontinued in the 1990s because of the political fallout that inevitably followed.

Right now, these loans not only put farmers deeper in debt, they put all the rest of us further in debt too because they worsen Australia’s budget position. As the drought expands, we will not be able to afford this kind of largesse, however we give it out, and whatever name we deem to give it.

Providing income support to see people through really bad periods is a given, but safety nets are already available for this, as they should be.

Drought assistance schemes should not be considered unless they can be shown to succeed where others have failed. Farmers who cannot survive drought without help from their fellow Australians should not be propped up or encouraged to sit on their hands until it rains. The only incentive they need is the one that motivates any business, which is to remain profitable and sustainable. If they cannot do that, they should sell their property to someone who can.

Socialism was an experiment that failed repeatedly in the 20th century when the money eventually ran out. Dabbling in agrarian socialism will inevitably have the same outcome.

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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.
Date: Newest first | Oldest first

READER COMMENTS

Bushie Bill
4/12/2014 8:16:20 AM

wtf, "negative gearing" is a business/commercial arrangement. It has absolutely nothing to do with "household debt". You prove with every post that you are an economic fool. Where did you learn your economics? From Frank Crean's crayon sketch book?
wtf
4/12/2014 10:14:49 AM

It is a handout so people don't pay tax bushie, u can spin it whatever way u want. In the case of real estate, it is a big leg up for the building industry and your beloved financial services industry. When it is used for shares or super, its the financial services sector again. As far as I see it, those industries are subsidised by forgone taxes to the benefit of the public. Oh and its not your struggler who is getting it, high income earners and a particular age group reap the benefit at the cost of the younger generation (refer to Jefferson) and the most needy.
Percy
4/12/2014 10:39:29 AM

The time to prepare for a drought is before it hits but with very little excess finances left after costs are taken out of production returns this makes preparing for any leaner times very difficult. The cost price squeeze has been consistant for so long that many farmers now have no margin left for facing any disaster. Any wonder the next generation is not returning to face similar struggles; especially when other 9 to 5 jobs with regular holidays and a decent income (including superannuation at the end) are on offer. CRUNCH time is coming!
+CC
4/12/2014 4:44:53 PM

Agribusiness Consultant David, really? I think this article reveals much more than you might have planned for - clearly you have a very poor understanding for the topic to which you call yourself a consultant. Those that truly understand the realities of the GDP contribution of Australian farmers would not question a sensible governments decision to support those skilled in the specialised industry of food production. We real agribusiness consultants know that there are far greater issues at hand with drought related support and the 'snout in the trough' skulduggery you would like to portray.
Rational Ag Policy
4/12/2014 5:58:04 PM

Percy - don't stress. You are forgetting the price of an asset reflects what you can make off it. If the returns from a farm go down over the long term, land prices will follow suite and hold % return constant. Prices seem to tend up though? As farms consolidate we need fewer farmers, this really isn't a big issue. The only problem is that large tracts of land tied up under poor management. I think it's also easy to forget that good farmers do exist and do plan for hard times by appropriate diversification. Lets not let inept farm managers drag the rest of rural Australia down with them.
Bushie Bill
5/12/2014 6:51:06 AM

So wtf, it is perfectly acceptable and legitimate to deduct interest and other farm expenses from your farm income (and your off-farm income) but not acceptable or legitimate for anyone owning an asset other than a farm to do so? Go figure!
Bushie Bill
5/12/2014 6:55:52 AM

Rational Ag Policy is talking rational ag. policy, something agsocs are incapable of getting their little minds around. When in trouble (which for them is all the time), simply hold out the begging bowl to Daddy Government and all bowls will be willingly filled to overflow. Where is the problem? I hear the agsocs ask.
wtf
5/12/2014 7:32:09 AM

I don't have a problem if the cost is offset against the business that earns the money bushie. However people can buy property and shares and offset those losses/costs against their regular OTHER income. To me that has chosen winners who are special as the places money can be put into, ie financial serv sect and building industry. At the same time interest rate manipulation and creation of debt/money by banks has further inflated these assets, beyond the reach of those who didn't/cant enter the market at the right time. I'm not against encouraging increased productivity, butnotat nextgens cost
Bushie Bill
5/12/2014 1:36:41 PM

But it is ok for farmers to do what you are so adamant others must be forbidden to do? How may farmers offset their off farm earnings against alleged "losses" on farm? And you are still carrying on with absolute unintelligible babble on how the banking system works. You show you have zero understanding of controls and the working of the Banking Act. It can only be concluded that, as you persist with such crap, without making the slightest effort to correct your own ignorance, that you prefer to carry on with what can now be called lies. I presume you do understand the concept of productivity?
mark2
6/12/2014 7:50:51 AM

just in case you haven't choked on your froth BB, the point I have been making is that you think it's ok for every sector of the economy to be propped up by government and have Ag operating in isolation. Why is it not ok for farmers to have access to the welfare state and everyone else dependent on it? Quite frankly I don't know how your insulting moronic posts get through the moderator. you should get out of the house a bit more often.
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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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