Queensland’s drought is now the biggest on record, with 80% of the state declared drought-affected.
While this undoubtedly means many farms are doing it tough, there is a silver lining for them: drought-affected Australian farms have access to taxpayer funded assistance.
And this assistance recently got a lot more generous, with Prime Minister Tony Abbott committing to an extra $320 million dollars of drought assistance.
The decision was a political winner, with Labor joining the agrarian socialists of the National Party in supporting the move.
That doesn’t say anything of public support for Australian farmers. Though most Australians live in capital cities, the image of farmers taming a wide brown land still seduces us.
Yep, it’s popular all right- but still bad policy.
Tony Abbott made the best case against farm assistance when he attempted to dispute the link between climate change and droughts—Australia, he said, has always faced periods of intermittent drought.
You may disagree with interpretation of the science, but he’s right about the frequency of droughts which makes it hard to understand why farmers seem so surprised when the rain stops.
The Queensland drought will end
The Australian farming business enjoys good returns in times of rain, and endures low or no returns in drought. A case in point: while Queensland farmers were begging for assistance, new figures showed WA and SA farmers recorded their highest incomes in 37 years.
WA broad acre farmers generated an average $317,000 income, which is farm revenue minus costs, in fiscal 2014. SA broad acre farmers will pocket an average $231,000.
It wasn’t that long ago that these Aussie farmers were enduring droughts too which highlights the nature of agricultural businesses. The best run farms are able to navigate these bad times by planning for them.
Such assistance only encourages poor farming practices, and does nothing to address agriculture’s real challenge: a lack of investment.
Why farmers need foreign investment
In fact, the same people furiously lobbying for special assistance for Australian farmers are the ones who rail against foreign investment.
The problem with Australian farms is that they’re mostly small to medium enterprises unable to target a growing market: Asia.
Our neighbours in the region are getting richer, and changing their tastes.
They’re transitioning to a more western diet consisting of more meat and dairy. Australia should be well positioned to take advantage of our high quality products and close proximity to Asia.
Instead, our small farms can’t raise capital to ramp up production, or move into value-added products such as dairy.
While Australian farmers and rural politicians lobby for handouts protecting poorly run businesses, they rail against foreign investment with jingoisms. It’s crazy.
For perspective, we could look to New Zealand.
They’ve successfully ridden the wave of soaring Asian demand. Chinese imports of milk products have grown by an average of 32% over the past five years, and some 60% of China’s dairy imports come from New Zealand. Dairy accounts for a staggering 25 % of New Zealand’s economy.
Australia’s economy should be competing with New Zealand selling dairy and beef to Asia.
But as a protected industry, bloated with government handouts and ideologically opposed to much needed foreign investment, it isn’t.
The Queensland drought will end, but this policy nonsense looks set to continue.
Callum Denness
Contributing Editor, Money Morning
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