OPINION: Drought preparedness not drought loans

The Australian farming sector is one of the least subsidised in the world and as a direct result it is one of the most efficient.

Our farmers have increasingly been forced to rely on their own capital reserves to get their farm businesses through drought years.

WAFarmers sympathises with our eastern states cousins who are battling through a tough dry spell and we are only too aware that we endured drought in 2010, and the next big one is only on the horizon.

While this year has turned out to be great for most of the WA Wheatbelt, there are pockets that have been hit hard with some of the driest weather on record and some frost. But the vast majority of them are prepared and will bounce back.

Why? Because many WA farming businesses have factored into their farm planning the reality that the old model of State and Federal Governments being there as the lender of last resort no longer exists.

In 2013 the Western Australian Liberal-National Government endorsed the Intergovernmental Agreement on Drought Program Reform which effectively signalled that governments across Australia were getting out of farm drought assistance.

This was the end of a long process with all governments encouraging primary producers to adopt self-reliance approaches to climatic variability.

This latest drought over east has crystallised a number of policy arguments, the first and most obvious is that treasury has won the argument that the Commonwealth has enough financial problems of its own to be placed in the role of lender of last resort to farm businesses.

Despite all the political words that have flown around this year, the facts are the agricultural sector and farm operations are now just too big to rely on governments to bail them out when times are tough. We have seen this in the outcome of the Drought Summit where the funding made available has been mainly limited to supporting distressed farm household incomes to put food on the table.

Today WAFarmers know and accept that the age of entitlement is over. We acknowledge that government have a role to play in droughts, but their ultimate responsibility is limited to putting food on the table for struggling families in genuine financial stress. Most farmers accept that government funded drought assistance simply postpones the inevitable for heavily indebted farms and only waters down their remaining equity. Governments have a role to help families through the difficult and stressful process of exiting the farm with their dignity intact and as much capital as possible when the credit runs out.

What we know is that well managed farm businesses that plan and manage the capital requirements of low commodity prices and dry seasons don’t need government support. Even during the days of the Exceptional Circumstance Scheme which ran over the 1980s and 90s, up to 70% of farm businesses in drought affected areas did not receive any drought assistance, yet were able to manage the impacts on their budgets and survive and prosper.

Even the Farm Finance Concessional Loan schemes that ran in WA from 2013 to 2017 which offered loans to eligible and viable farm businesses to support productivity and drought preparedness was only taken up by a handful of farmers and the WA Department of Agriculture was left to pick up over several million dollars in administrative costs.  Public funds that were then not available to go into R&D or biosecurity that would have supported the whole sector.

As the WA State Government has stepped out of this space, the Commonwealth has recently stepped back in, which saw the announcement in July this year of a $4 billion fund as part of the Regional Investment Corporation.  A careful reading of the eligibility criteria will show it is not a last resort source of finance.  At $4 billion dollars, it is a fraction of Australian agricultural capital requirements which needs at least $100 billion by 2025 to maintain its current share of exports.  If anything it will put a small amount of competitive pressure on the banks in reality it is a political play to make the government look like it is doing something.  

The greatest risk is the message it sends to the market that is the Government continues to exist as the lender of last resort. As with all politically driven decisions that support noisy demands for Government funding, it is only a matter of time before the tap is again shut off. How long will this scheme last if there is a change of government in Canberra?

Ultimately the best bank is the family bank of cash in bank.  Western Australian farmers would like the government to get their hands out of our pockets in our good years when we have a chance to put some money in the bank. WAFarmers believe the Government should move to send a signal that self-reliance is the only way to manage the risks that exist within any modern agricultural business. WAFarmers would prefer the Commonwealth lift the Farm Management Deposit cap from $800,000 to $2m to cater for the growing size of farm businesses and open up the scheme to all forms of business structures.

This would be a far better way for the Commonwealth to ensure WA farm businesses put away some reserves from what for many will be a bumper year and prepare for the inevitable next drought than attempt to be the lender of last resort.

WAFarmers fully understands the pressures and stress of a bad year, particularly those in WA who have had a below average season on the south coast and the  intensive industry farmers such as dairy, pork, chicken and egg who are buying high priced grain are doing it tough this year. For those farmers that are doing it tough in WA this year WAFarmers urges growers to get in touch with the Rural Financial Counselling Service of WA (RFCSWA) if they’re feeling the financial pinch of a poor year.  And for those farmers with hay to sell, if you get a call from someone who is doing it tough down south then mates rates on fodder would no doubt be appreciated by those who are seeing their bank accounts go south this year.

Trevor Whittington

Acting CEO WAFARMERS

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