Land subsidies 'immoral'

there is something immoral about the notion of subsidising farm acquisitions ...

YOU often hear it said that it is important to give young people a start in agriculture. This may be based on concern that the farmer population is growing old and needs to be refreshed, a subject I discussed recently, or as something thought to have inherent merit.

It is not unusual to hear claims that while it was once relatively easy for young people to become a farmer, that is no longer the case. Land prices in particular, it is suggested, are simply out of their reach.

Mostly, those who make that argument are above a certain age and compare current circumstances with what it was like when they got started. The comparison gap, therefore, tends to be in the range of 20-50 years. And memories are far from perfect.

It is actually quite difficult to make generalisations about farm land values. Demand for the deep, rich soils of northern Tasmania is vastly different from the buffalo country of the Northern Territory or the remarkably productive sand of the Western Australian Wheat Belt. Prices, therefore, are equally dissimilar.

There is nonetheless some evidence indicating that land values between 1992 and 2011 appreciated faster than the rate of inflation. One source claims land values increased 367 per cent, almost six times higher than the total rate of inflation of 64pc, with prices rising, on average, for all but two of the last 20 years.

Another suggests the average compound annual price appreciation for land in the wheat belt over the decade 2002-2011 was 8.8pc.

That does not necessarily prove farm land is less affordable. Incomes have also risen faster than inflation with most commodity prices racing ahead and some costs (including interest rates) down.

But let us assume land prices are less affordable than they were a generation ago. What, if anything, should be done about it?

The same question is raised in relation to first home buyers, based on the claim that house prices are unaffordable. Governments are prone to handing out taxpayers’ money at election times to address this supposed problem.

What happens in that case is house prices go up by the amount of the subsidy, so there is no net change in affordability. It’s basically just transferring money from mostly older people to mostly younger people.

Some states now limit the grants to new houses in an effort to stimulate the building industry, but they never seem to be withdrawn when the building industry booms. People easily become addicted to free money.

This is exactly the problem that would confront anyone wanting to make farm land more affordable by using taxpayers’ money. It would inevitably make no difference because the price of land would rise by the amount of the subsidy.

Moreover, there is something immoral about the notion of subsidising farm acquisitions using the money of other taxpayers. Nobody gets subsidised to buy a fish shop or hairdressers.

But even if it is not as affordable as it was in the past, it is a moot point whether farm land affordability is all that low anyway. By international standards Australian farm land is cheap, especially compared to other Western markets. Around my farm in NSW, for example, land can be bought for $500 a hectare. It’s cheaper still in more remote areas.

Furthermore, governments can have quite a lot of influence on land affordability via their rules and regulations. If they were to make different decisions, land could be quite a lot more affordable.

Rules preventing clearing, for example, reduce agricultural capacity and thus land values. Stamp duty, rates, land tax and other imposts raise the cost of buying and owning land, also keeping prices down. Interest rates, which are heavily influenced by government decisions, have an enormous impact on demand for land.

Hobby farmers and lifestyle investors increase demand and boost prices, but rules restricting subdivision into smaller blocks discourage them.

Even restrictions on foreign investors keep buyers out of the market, reducing demand and helping to keep down prices.

The other side of this coin is that most farmers would not want to keep land prices down. They use their farms as collateral to raise funds and aim to cash it in to fund their retirement. Low prices would certainly not be welcome from either of these perspectives.

Which leaves unanswered the question of whether young people should be helped to enter agriculture and, if so, how that help should be provided.

In fact, quite a lot of young people already receive assistance to buy farms. This comes from their parents who leave the family farm to them in their will, sell it to them on favourable terms when they retire, or help them borrow funds to buy another one somewhere else. And although there is probably scope for more, there are also options for share-farming.

That’s exactly how it ought to be. Parents are primarily responsible for ensuring their children receive an education and get a start in life. Whether that extends to helping them enter farming is their business and nobody else’s.

  • David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at reclaimfreedom@gmail.com
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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

    Sam_Trethewey
    26/08/2013 6:50:27 AM

    Great article David.
    bg
    26/08/2013 8:01:34 AM

    Not always do I agree with David, but this is one time. But the same argument also applies to other middle class subsidy schemes such as Tony's paid parental scheme.
    Max
    26/08/2013 8:47:41 AM

    I tend to agree in principle, but i am a bit dissapointed that i will never have the opportunity to own a farm, I have a degree in Rural management, post grad cert in cotton. 8years farm management experience. No inherintance though, alas no farm for me!
    modernfarmer
    26/08/2013 10:49:41 AM

    Max and other young people need to think outside the square. As a young farmer who has built a deposit by running agistment cattle on lease country, then used the profit to build our own sheep flock. I recommend you replace your disappointment with some ambition and don't give up.
    qlander
    26/08/2013 12:02:01 PM

    Morals good or bad play no part in international politics. We don't compete with Fish shops or Hairdresser, we compete in a international market place against other farmers who are heavily subsidised by their governments. Morals are a luxury Australian farmers can no longer afford. All government with justify what every spending (on who ever) it takes to keep them in power. Rural Australians hold the balance of power they are just to stupid to use it to their advantage.
    Jacky
    26/08/2013 12:22:28 PM

    Max, if you can't inherit it, next best option is to marry it!
    Stuart
    26/08/2013 2:41:29 PM

    What about loan and grant schemes, ie rural recontruction, rural adjustment, drought relief, exceptional circumstances,etc? A farmer told me that exceptional circumstances was "good money", he only needed to nominate a bank account, there was no supervision. Trouble is, that's one more farm that a young farmer can't buy.
    John Niven
    26/08/2013 4:00:36 PM

    This article is so appropriate. Subsidies are Govt sponsored market failure. I would be one of the last of the suckers who believed in a level playing field. Shearing sheep for years to pay tax and finance a property, denied assistance because of off farm income, to see a MINORITY of bludgers milk the system basically because they had inherited a farm. Any assistance scheme would ensure any capable fencing contractor, shearer, or for that matter anybody with decent salary would invest their money elsewhere. The simple answer is profitability to reward hard work and good decisions.
    john from tamworth
    26/08/2013 5:13:46 PM

    Jacky what a great example of lateral thinking.
    Ted O'Brien.
    26/08/2013 6:04:11 PM

    modernfarmer @12:49:41 PM. There is nothing new about that. Many successful farmers have built their success on that plan. It is harder now, but surely at this time there are opportunities for strong, willing young people to do just that. Build up a livestock base which can then fund the purchase of land. Even so, the overall "profitability" picture which John Niven refers to is quite unsound with current prices under the policy of unilateral trade reform. Success depends on reversal of that policy.
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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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