Recent comments by: Rational Ag Policy
Agribuzz with David Leyonhjelm
Given rural Australia clearly despises paying a market rate for labour and skilled farm managers (if it wasn't market rate we would have high unemployment, but we don't), perhaps rural Australia should split from the rest of Australia becoming a different country run solely for the benefit of land holders. The rest of Australia could then buy their food of who ever they want (we pretty much do this already thought). Rural Australia could also remove rates and taxes, form massive cooperatives, fund their own research and pay it's labourers $5/hr. Good luck with that rural Australia ;-)
WTF - by artificially inflating rural land prices (through support mechanisms and a culture that encourages farmers to hang on at all cost and regardless of an ability to do so) we are doing exactly what to don't like about negative gearing. But this time it's done to future generations of farmers.
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.
Richard - despite being unfair, the handouts are not the big issue. It's the perpetuation of farming as a hobby by people who struggle to turn a profit because they are no good at what they choose to do. As a result rural Australia is stuck in an unprofitable rut, chances are it won't get out. Ever gone to the city and wondered why they are so well off. It's because they reward talent and ensure businesses are run by the most talented people, dead wood is quickly cut out. If you really want to see rural Australia flourish, unhobble good farmers by not propping up bad farmers.
The waste of a few billion is a drop in the ocean compared to the long term damage subsidies to inept business people have on rural Australias future. Whilst other sectors of the economy march ahead, the majority (but not all) of farmers tread water with returns below 10%ROA. These producers farm because they enjoy it, not because they have any hope of generating profit. For them it's a hobby. These farmers send a clear messages to talented young rural people - Get out now, get a degree and move to the city, as this is a hobby, your talents won't be rewarded here. I real pity.
LC - European and American farmers hold a lot of political leverage, and as such extort money from the general public via a pile of different assistance schemes. This is unlikely to change any time soon. And to be honest, if they want to take money from their taxpayers and give it to me via slightly lower world food prices, I am all for it. This is nothing new, if you purchased your farm any time after WWII, you will have made an investment decision knowing this and knowing full well the small effect on world prices. You knew the rules of the game and cannot complain about them now.
JT - I agree the single desk was not a subsidy, it was a cost on you. That's right you were worse off because of it. Do you really think a bunch of unaccountable bureaucrats was the most efficient way to move grain out of Australia. It was pretty much the equivalent of your local council (who you no doubt bemoan) running Australia's wheat export. They had no incentive to get good prices and no incentive to minimise costs because you were forced to sell through them.
Seriously, would you maximise farmer returns knowing farmers couldn't fire you? And they didn't either.
JT - you receive some pretty serious subsidies that other industries don't and shouldn't enjoy. These include interest rate subsidies or exceptional circumstance payments (every time a serious drought hits and you are yet again financially unprepared), subsidised research (you receive a massive subsidy from the taxpayer in the form of Agricultural research, you should pay for thing that make you money, its only fair), subsidised education (you have the luxury of being rounded up by a taxpayer funded educator to be given free business mgt advice).
David, fantastic blog.
Rural Australia will keep losing their young people to rewarding, challenging and most importantly high paying city jobs, yet they insist on their most unprofitable and poorly run businesses being propped up.
And to those who argue we would all starve to death if inept business people were allowed to go broke, rubbish. There is a long line of competent, well financed farmers capable of rational investment decisions waiting to buy your place. Why not sell up, put your money in the bank and let rural Australia get on with making a profit.
Farmer Joe - or farmers could pay for their own research. Why on earth do you think that I should have to pay for research that increases your (assuming you are a farmer) personal wealth. Sorry mate, making you richer is your problem, not mine. Get good or get out.
Rob Moore - genius, what happens when farmers plough greater profits back into the purachase of land, thus driving its price up? Ther pretty much do this when ever they have spare cash. Nothing will change, these business people (farmers) choose to earn 2% for decade after decade, not the fault of a disconnected city person, its the farmers choice. Didn't think this one through, did you.
Burrs under my saddle
Peter, could you please disclose your return of asset over the last 10 years including capital growth. If its <10%, stop whinging. If you earned less than 6% including capital growth then sell up to one of the 25% earning <10%. If over the last 10 years you have made <6%, it is clear you and your management ability is the problem, because despite what you may assert, good farmers have managed to make money. These good farmers are the bright future of farming in Australia.
The serf - its called the cost price squeeze, its one of the rules of the game you should know all about. People who don't know about it should probably think twice before investing their money in Agriculture. Input prices will always rise and output prices will always fall. Also, if land prices have risen to levels that don't reflect the profit they generate who is to blame, the government (as you suggest) or people (who enjoy farming regardless of the cost) making dodgy investment decisions. I think you really need to blame the latter. Good comment about the hat.
Barry, I love rural Australia, and your opinions and those of your party are why I can never vote for you. The reason late sippers are so well off is they do what they are good at, unlike 70pc of Australian farmers. If 70pc of disconnected latte sippers got jobs they were no good at they could not afford lattes. Conclusion: encourage structural adjustment (i.e. not what you now advocate), get out of the way and give future generations of smart rural kids a chance in large good businesses with opportunities for progression. Also, write something interesting, you lot sound like a broken record.
You lot should do some research on the benefits of foreign direct investment. Seriously, it's awesome. We get to tax the profits of capital bought into our country. This is then used to pay for things like health, education and the most important thing of all, your exceptional circumstances payments when you fail to make a profit, which is likely more often than not. They also bring skills and training and JOBS. Seriously, ever looked an Melbourne and Sydney and wondered why they are doing so well.
Now you have yourselves a predicament.
In normal business, poor performing managers are swiftly replaced by more competent individuals. Over time this means the most talented individuals manage business' and returns are on average high. The disconnected city folk prosper. On the other side of the coin we have a not insignificant fraction of managers in rural Australia, who clearly demonstrate their management skills are lacking. What do we do, throw MY money at them, tell them its not their fault and keep them in charge of the assets. The unsurprising consequence of this perverse strategy is the rubbish we see every drought.
The Nationals are sending a clear message to rural young people - get out quick, we will prop up this debacle for a long time yet.
Why would someone bother to commit themselves to a future in Agriculture knowing all it holds is working for or in unprofitable small, un-innovative tax payer funded hobby farms.
Wow, I recently had by life savings (not much) invested with a bank and I am glad you lot were not in charge of lending it out. Seriously, other peoples money is not a toy to be played with by some failing and inept farmer, or any other business person for that matter. If you look like too much of a risk due to your lack of management ability (this includes borrowing too much to accelerate your generation of personal wealth) then I am more than happy for my bank to pull you in line before its all gone (its my money) and say we need it back you are too risky.
Jan, good on you for sticking up for your union members (sorry association). But seriously, do you actually believe that halting the process by which land moves from bad managers to good managers you are doing rural Australia or Australia a favour. It's about time someone in the bush had the guts to take a position like David. Instead people like yourself (politicians and farm union bosses) insist on reassuring their more inept members (and voters) that all their consistent bad luck (poor management) is the fault of politicians, foreigners and disconnected people in the city.