White Paper: symptoms not solutions

07 Jul, 2015 10:00 AM
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AFI executive director Mick Keogh.
There is plenty to like ... but also plenty that could have done with more strategic thinking
AFI executive director Mick Keogh.

OPINION: AFTER an extended gestation, the Australian government release its Agricultural Competitiveness White Paper on Saturday, giving effect to the government's stated vision of building a more profitable, more resilient and more sustainable agriculture sector to help drive a stronger Australian economy.

Many of the initiatives outlined appear beneficial, although some appear to address symptoms rather than solve long-term problems.

The "Fairer go for farm businesses" component of the package has some very useful measures that will free-up and expand the use of Farm Management Deposits, and the proposal to reform agricultural chemical registration processes should result in better and cheaper access to these products.

“Without market transparency it is very difficult for a regulator to get to the bottom of illegal activity by dominant players”

However, the proposal to increase funding for the ACCC to improve its understanding of agriculture will be of little benefit unless the root cause of many of these issues - the lack of market transparency in concentrated markets - is addressed.

As the milk wars and the Coles supermarket case have demonstrated, without market transparency it is very difficult for a regulator to get to the bottom of illegal activity by dominant players.

The infrastructure measures included in the package appear to be sensible and likely to deliver long-term benefits, although they rely on state and territory governments to also come to the party in terms of funding and planning approval, and it will be interesting to see what is actually delivered in terms of new water infrastructure out of this measure in a few years’ time.

The two biggest infrastructure-related challenges for many farmers - better mobile phone and internet access, and more reliable and cheaper rail transport for grain - both receive mentions, but it is questionable whether the measures proposed will be sufficient to really fix these long-term challenges.

“Farm Household Allowance measure seems a much more rational approach to in-drought support”

The drought and risk management package proposes a continuation of the current low-interest loans as the cornerstone measure, coupled with some funding for those seeking advice on insurance products.

The low-interest loans are undoubtedly preferred by Treasury because they do not need to appear in the budget as government expenditure (and they actually end up being revenue-positive for the government) but some real questions remain about the effectiveness of these measures over the longer term.

They provide some farmers with reduced interest costs for a limited period, but ultimately these farm businesses will need to go back to normal bank finance if they can, or if they remain unviable at the end of their concessional loan period, the government will face the prospect of having to sell up the farm. Meanwhile, there is a considerable administrative cost associated with this measure.

The Farm Household Allowance measure seems a much more rational approach to in-drought support, and it would seem better to strengthen this measure rather than have the Australian Government acting as a lender of last resort to farm businesses.

The measure that provides farmers with a cash grant to access advice about multi-peril insurance is another measure that is addressing symptoms, rather than causes. Farmers have been slow to take up this insurance because it remains relatively expensive in Australia - a problem that is partly associated with the lack of local weather data in many locations, but also with the lack of uptake.

“While ever governments continue to provide ad hoc drought support measures, the incentives for a fully commercial farm risk-management system to develop remain muted”

Proposals to reduce the cost of premiums - such as by offering 150 per cent tax deductability - would have assisted to expand the market for such insurance and driven down the cost.

Offering cash grants for training or advice about these measures will do little to address the main problem, and uptake is likely to remain low, despite the attractiveness of this type of insurance as a risk management option for some farm businesses.

It has also been noted that while ever governments continue to provide ad hoc drought support measures, the incentives for a fully commercial farm risk-management system to develop remain muted.

The "Farming Smarter" package, which includes an extension of the additional $25 in annual million funding for rural R&D for a further four years is a welcome measure, but it does not really tackle the fundamental problems that are at the heart of rural R&D in Australia.

Australian Universities - especially those in the Group of Eight, have become education businesses that rely on overseas student revenue, (almost $12 billion in 2013-14) and the consequence of this model is that Australia has the lowest level of collaboration between industry and researchers of any nation in the OECD.

This occurs because the major universities are largely focused on research that generates international publications, which in turn attracts more Australian Research Council funding, lifts the universities up the international ranking tables, and attracts more international, high fee-paying students.

For the universities, this is a virtuous cycle, but it comes with a cost.

There is no room or incentive for industry collaboration in this model, and hence universities and their researchers are becoming less and less connected to industry - and especially agriculture - in Australia.

Unless this issue is addressed, it is hard to see the extra $25 million in annual R&D funding (welcome as it is) having any real impact on farm productivity and hence profitability.

“There is plenty to like about the package of measures, but also plenty that could have done with a lot more strategic thinking”

The "Accessing Premium Markets" package contains what appears to be some potentially quite useful measures that will be of benefit to the sector.

Increased funding for biosecurity and the appointment of additional agricultural counsellors in key international markets should assist in overcoming the increasing thicket of technical trade barriers that Australian exporters need to slash their way through, although the package does not appear to allocate resources to the development and strengthening of the "Australia" brand, which could be an equally important element in accessing premium markets.

In summary, there is plenty to like about the package of measures, but also plenty that could have done with a lot more strategic thinking - which is surprising given the amount of time the White Paper took to develop.

MICK KEOGH is executive director of the Australian Farm Institute.

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READER COMMENTS

John Carpenter
7/07/2015 10:35:46 AM

Several of these initiatives e.g. towers for black spots belong in the annual budget and not in a white paper.While useful they have little/no impact on our ability to compete and the relentless decline in farm terms of trade.The bulk of the funding,dams,concessional loans,seemed destined for Queensland leaving the Government exposed to the accusation of playing pork barrel politics following the Newman catastrophe.
newbroom
7/07/2015 2:02:25 PM

It is hard to get a decent run against the nitwits posting this feed. Whingers with no ideas and no worth and I am sick of reading them. Carpenter and Keogh, both Nevilles, who are they? What is matter, who cares what these nobodies say.
hilda Hereford
7/07/2015 3:32:01 PM

Newbroom, You obviously care about what others say. Otherwise you wouldn't have made a comment!! Besides I know people like John Carpenter and what he says does matter and in many instances I agree with him.
Peter Comensoli
8/07/2015 6:55:20 AM

Good analysis Mick but I doubt the wisdom of using FMDs to secure more debt. Also, raising the FMD max to $800K helps an end of our industry that doesn't need that kind of help. Don't be too dismissive of the value of accelerated depreciation. Nothing sold more utes than Rudd's GFC write offs proving that farmers' spending patterns are easily influenced by immediate tax breaks. Replacing utes with fodder and irrigation gear is pretty smart and been on our wishlist for years.
John NIven
8/07/2015 8:03:51 AM

I can't find Nevilles in the dictionary. Please explain Pauline.
Geronimo
8/07/2015 8:23:46 AM

As soon as I saw the 1950's headline "fair go for farmers" I couldn't be bothered reading it.
newbroom
13/07/2015 12:57:44 PM

Neville - neville nobody. Really mainly negative ignorant twits rather than nevilles but it appears people writing here do not have much to do in the dull lives. I should stay off it as well.
muck jockro
16/07/2015 10:12:55 AM

Neville newbroom???

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