In Australia, agriculture as an industry is nearly twice as volatile as the next nearest industry sector. Globally, Australian farmers operate in arguably the second most volatile market and weather conditions in the world with ever decreasing support. More recently we have also seen increasing volatility in sovereign risk from our own Government.
In the face of a declining terms of trade for the agricultural sector, this volatility presents a wide array of situations or events which simply are not able to be mitigated by ordinary or reasonable management. Some events may be acute such flood or fire, while other events are cumulative such as drought and the impact of each circumstance varies based on preceding events.
Recently, the dire situation faced by many farmers and graziers induced by yet another unmitigable drought has reignited the debate around justification for Government financial support to agriculture.
Any erosion in farmer resilience is felt right through rural and regional communities. Agriculture is the primary money inflow for many rural and regional areas and any downturn quickly translates to instability in employment both on farms and in the businesses that serve and rely on agriculture. This economic contagion spreads all the way through the service sectors that operate in these affected regions. The entire social and economic fabric of rural and regional communities is linked to the resilience of the farm sector.
The environmental implications of compromised financial resilience also amplify as longer term natural resource management objectives are substituted for short term financial imperatives. This often compromises longer term productivity impinging on the sector’s ability to mitigate against disruptive events.
The current drought highlights in real time the fundamental lack of economic and emotional resilience in the sector that exposes it and all who rely upon it, directly or indirectly, so profoundly to disruptions in production by weather. The 2011 live cattle export ban continues to highlight the same vulnerability to disruptions in markets.
Australia is out of step with the rest of the world in terms of commitment to support food producers in the face of global price expectations that do not adequately underpin farm viability. Australian producers have been forced to carry this financial burden. The impact of Australia’s aberrant attitude to the importance of maintaining productive capacity and retaining the human capital in agriculture is now manifest, as farm businesses fail due to a lack of economic resilience brought on by unmitigable events including drought, market closure, floods and or the cumulative impact of a range of events.
Societal expectation, as reflected through Australian Government policy, is similarly out of step with the needs of today’s agriculturists and increasingly out of step with the needs of those who depend on our produce.
In any business model the decision to invest must incorporate a risk reward assessment. Typically, low risk investment can be justified on relatively low returns. Conversely, higher risk ventures require higher returns to justify the same investment. Australian agriculture has gradually been wound into a high risk low reward category that belies the value of the sector to society.
Global agricultural markets are subject to distortion by deliberate government intervention and protectionism meaning these markets fail to accommodate the shift in the risk profile of Australian agriculture.
It is the role of government to intervene where markets fail and the Australian Government must derisk agriculture to ensure adequate Australian investment occurs in the sector and to attract and retain the kind of entrepreneurial capacity that is essential for a sustainable future.
Agriculture is more than just a business and the social value of the enterprise must be properly evaluated in terms of economic multipliers, eco services, trade and geopolitical stability. In this context the value of Australian agriculture to the average taxpayer is currently grossly underestimated by Government and there is a sound case for increased financial support for the sector.
Similarly, Australian Governments must recognise that financial support to agriculture does not exclusively benefit farmers. It is obvious and demonstrable that the entire regional and in turn national economy benefits from maintaining resilience in the agricultural sector.
It is not desirable to revert to a welfare culture as a default mechanism for support for rural and regional communities, but Government must recognise that there are circumstances that are simply unmanageable and unmitigable. The common underlying trigger that makes these events unmanageable is the lack of financial resilience.
Australia must decide if it wants an agricultural sector that can deliver on current societal expectations. If so, it must address the underlying issue of viability that includes the ability to withstand what are currently unmitigable events.
Notwithstanding that CountryMinded has defined policies in its Rural Affairs and Agriculture position that also address this issue, CountryMinded will seek meaningful reform that will:
• Reform production and market disruption support to Australian farmers including a workable definition of an unmitigable event;
• Deliver more relevant farm finance products;
• Establish novel Government co investment models to mitigate risk;
• Provide timely intervention to retain agricultural capacity;
• Ensure support mechanisms can’t be quarantined on farm;
• Ensure support for non-conventional agriculturists including tenants, employees and contractors to maximise benefits to regional communities;
• Provide full compensation from deliberate Government founded hardship; and
• Ensure all aspects of social equity are delivered especially in regards to the physical and emotional impacts on rural people from unmitigable events.