RURAL POLICY: by Dr Mark McGovernNews Weekly
Facing up to the farm income crisis
, August 14, 2004
Sound policy is urgently needed to address the crisis of declining farm income and the potential for a rapid deterioration in agriculture and in Australia's trade position, with further consequences for down-stream processing. Dr Mark McGovern, senior lecturer in the School of International Business, Queensland University of Technology, outlines some key issues. There are successes in Australian agriculture and throughout the regions today. The trouble is there are too few of them. Many of the problems are sectoral ones arising from a lack of overall understanding, flawed analysis and poor industry policy.
Given the efforts and capabilities of those involved, we should have far more successes - economically, financially, societally and environmentally.Declining farm incomes
A few years ago I reported a naïve analysis that indicated Australian farm incomes could trend to zero around 2017. Alternate analysis of the 40-year trend showed an underclass could emerge subsisting on around one-third of current incomes.
Though technically adequate, the analysis was essentially a demonstration. My purpose was to indicate what could happen if such income trends were allowed to continue, and so stimulate debate and find corrective policy.
Unfortunately, while my comments were widely reported, policy reaction was nothing. In the years since, there have been a couple of good and a couple of bad years for farm incomes. But the trend broadly continues. Agricultural incomes are still dancing downwards.
Unfortunately other developments in this time could
even hasten the demise of Australian agriculture. Even the strongest swimmer struggles when the tide is ripping out.
Around the world, agriculture is struggling to provide decent incomes and adequate returns on capital. All manner of examples appear. Not only does the tragedy in the Third World continue, the blight on agriculture is now evident in the First World. Canadian farm debt has doubled in the last couple of years, for example.
The European Union has expanded to 25 members. The Common Agricultural Policy's generous subsidies will not be available to the new members from the old Eastern Bloc, but they will have market access (variously restricted) to the West, compounding the problems on world markets that are likely to come from the EU.
US farm subsidies and other actions have enabled considerable reduction in the American farm debt problem. Remember, US farm debt once exceeded that of developing South America.
World Trade Organisation multilateral trade talks at Cancun went nowhere. Despite recent talk of a breakthrough, details remain unclear at this stage and any phasing-in will take a considerable time.
This is the time which those already advantaged can use to consolidate their positions. The positions of others will continue to deteriorate. Talk of reform is cheap and is an effective delaying strategy. Such delays will continue to cost many dearly.
Meanwhile, markets will continue acting in ways that would not be expected to occur in truly competitive markets. Incredibly in a period of extensive supply chain development, the assumed market alternative to the present situation remains one of competition everywhere.
Pulling all these things together, agriculture is a sector with serious problems across the markets and along the supply chains throughout the world. Resolution at the moment is being driven by those taking opportunistic advantage.
Such a corrupted and degenerating situation threatens the incomes, assets and futures of Australia's farmers, the land and those associated through supply chains or community interactions.Trade reform
It is agreed by all but the most one-eyed supporters that there is little for agriculture in the proposed Australia-US Free Trade Agreement (FTA). Not only is the agreement discriminatory in a number of ways, it is still uncertain how it might actually be implemented.
For example, how will GM foods be handled? Indeed, I see some parts of the agreement as potentially so flawed that it could actually weaken Australia's strategic alliance with the US, while needlessly impoverishing some and, perhaps, many.
For a farmer there is a simple question that needs to be answered: how is a farmer with minimal support and considerable debt to compete with a well-supported farmer and lesser debt? Farmers and farm investments will wither if no positive answer is found.
Remember, it is the marginally priced or costed agricultural product that drives down prices in the market. A small amount of "excess" US or other production can dramatically lower prices in Australia. An FTA with the US will likely see problems, previously associated mainly with farm industries exporting to international markets, spread to the bulk of Australian farmers - that is, those servicing the domestic market.
In setting policy there has been confusion between business, economic and political interests. Each have distinct interests. Economics is currently being used (and sometimes distorted) for political purposes, and to the gain of some businesses.
Much more could be said but clearly the interests of Australia and many Australians are not well served by our current situation. One day we may well be having a "Farmers Overboard" inquiry. In the meantime, appropriate actions are needed.
The real challenge is for those in agriculture and those with the best interests of the Australian communities and regions to combine their efforts for mutual gains which are also in the best interests of Australia.