RURAL CRISIS: by Ben ReesNews Weekly
Crocodile tears and hand-wringing over drought
, November 10, 2007
The rural crisis has its background in economic policy, writes Ben Rees.There is much wringing of hands and many crocodile tears from politicians and parts of the media over the state of rural Australia.
Historic drought is the catch-cry of some distressed politicians while climate change is the clarion call of others. Well, no doubt these factors do contribute to some degree, but fundamentally what is confronting both political parties approaching this important federal election is development of appropriate rural policy for the 21st century.
Current policy is the product of the 1970s confused mix of thought from left-of-centre technocrats and hard-right crusaders. It was a period when size represented efficiency, and modernity of thought and free market theory were the giddy elixir of policy.Use-by date
Like the urban water crisis and other crises confronting the Australian community, the problem lies in the economic philosophy that underwrote structural reform of the Australian economy from the 1980s onwards. It has now reached its use-by date.
The ritual of the devout is now being brought into sharp public focus.
They have no solutions, just excuses and rationalisations. Drought is a convenient shield behind which they can hide and continue their mantra of fiscal conservatism, free trade, efficiency and productivity.
Analysis of farm data shows a very different policy picture of rural distress from the populist claims of drought and climate change.
Over the decade since 1996, rural debt has risen from 68.4 per cent of gross value of farm production to 121.2 per cent. If we use a ratio of real net value of farm production index to actual net value of farm production expressed as a percentage, the erosion of real farm income (income adjusted for inflation) is starkly identified. The ratio percentage falls from a value of 3.1 per cent in 1996 to 1.3 per cent in 2006. While actual farm production rose from $27,515 million in 1996 to $38,517 million in 2006, the purchasing power of that farm income residual fell sharply.
If we compare prices received for farm production, farm costs indices, and CPI, the falling real income picture of the farm sector is confirmed. In 1996, the index value of farm prices received for output was 111.2 while the index value of farm inputs (costs) stood at 99.5. In the decade that followed, farm prices received rose annually by 1.2 per cent to an index value of 124.7. On the other hand, farm costs rose more rapidly to an index value of 131.6 or annually at the rate of 2.8 per cent.
Prices in the wider community measured by the CPI rose annually by 2.5 per cent over the decade. So inflation eroding farm-gate income becomes a major contributor to the farm crisis.
Structural reformists of the Australian economy are now seeing chickens coming home to roost in a policy-made rural crisis.
The next question the hand-wringing practitioners need to look at is their monetary solution. A figure of some $26 million weekly is hurled around in the media. Another figure circulated in the media is that 23,000 farmers are beneficiaries of this aid. If you do the maths, then of 129,934 farm establishments, only 17.7 per cent of farmers are beneficiaries of rural-support programs.
No doubt the easing of parameters will increase this number but, as structural reform is still to remain the dominant criterion, support will remain the domain of a rural elite.
Over 100,000 farm establishments in the wider rural community will be left to sink or swim.
The main instrument of rural support is interest subsidy. If you think about the statistics above, this policy approach can be easily interpreted as support for financial institutions that have underwritten the technocratic policy of "get big or get out".
These figures also demonstrate the anomaly that a particular farmer can benefit while his neighbour is ineligible.
Other policies that have negative impacts on the farm sector have been lifestyle or environmental demands of urban dwellers. No compensation has been offered for added cost impacts on the farm sector.
It is ironic that environmentalist policies to mitigate greenhouse emissions are now being identified as a contributor to food shortages.
Biofuel development has required farmland be transferred from food production to fuel production.
That was never discussed by the environmentalists when they demanded cessation of land-clearing, thereby depriving farmers of their principal method of increasing efficiency.
Clearly, the rural crisis is about more than drought.
It requires a complete reassessment of a policy direction developed during a confused period of economics in the third quarter of last century.
Let the debate begin.- Ben Rees is an economist and farmer living near Dalby, in the northern Darling Downs, Queensland. This article is from the Brisbane Courier-Mail (October 1, 2007).