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Digital Library Digital Library

All other publications Miscellaneous works

3-1983

Industries Assistance Commission Inquiry into drought Industries Assistance Commission Inquiry into drought assistance

assistance

Department of Agriculture and Food, Western Australia Australia. Industries Assistance Commission

J. Ripley

Report to Drought Consultative Committee.

Follow this and additional works at: https://researchlibrary.agric.wa.gov.au/pubns

Part of the Atmospheric Sciences Commons, Climate Commons, and the Meteorology Commons

Recommended Citation Recommended Citation

Department of Agriculture and Food, Western Australia, Australia. Industries Assistance Commission, and Ripley, J. (1983), Industries Assistance Commission Inquiry into drought assistance. Department of Agriculture, Perth. Report.

This report is brought to you for free and open access by the Miscellaneous works at Digital Library. It has been accepted for inclusion in All other publications by an authorized administrator of Digital Library. For more information, please contact [email protected].

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INDUSTRIES ASSISTANCE COMMISSION INQUIRY INTO

DROUGHT ASSISTANCE

Western Australian Department of Agriculture March 1983

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INDUSTRIES ASSISTANCE COMMISSION INQUIRY INTO

DROUGHT ASSISTANCE

Western Australian Department of Agriculture March 1983

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CONTENTS

INTRODUCTION 1

THE EXTENT OF DROUGHT 2

THE COST OF THE DROUGHT 7

A RATIONALE FOR DROUGHT ASSISTANCE 8

AN APPRAISAL OF 1982/83 DROUGHT ASSISTANCE 1l MEASURES

ALTERNATIVE DROUGHT ASSISTANCE MEASURES 16

RECOMMENDATIONS 23

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INTRODUCTION

This submission outlines the extent of drought in Western

Australia in 1982/83, examines the adequacy of drought assist­

ance measures and, after canvassing alternative assistance measures, proposes a preferred package of drought assistance measures.

The issue of whether or not the non-farm sector in rural areas should receive drought assistance, and if so what type, is not addressed in this submission. Rather the framework of discussion is restricted to the farm sector.

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THE EXTENT OF DROUGHT A. Drought Declarations

As is shown in Figure 1 drought declarations in Western Australia in 1982/83 were confined to two agricultural areas - the north east of the wheatbelt (involving approximately 300 farms) and the Lower Great Southern region (involving about 1150 f a r m s ) .

Parts of both these regions have experienced numerous droughts in recent years as Figure 2 suggests. The

north-east of the wheatbelt in particular has been exposed to prolonged drought. Significant parts of the local

government areas of Mullewa, Morawa, Perenjori, Dalwallinu, Koorda and Mt Marshall have been drought-declared in

5 of the last 6 years, with smaller sections experiencing drought in each of the 6 years.

By contrast the Lower Great Southern region has been

less frequently exposed to drought. Areas of Ravensthorpe and Gnowangerup (around Jerramungup) have been drought declared in 3 of the past 6 years but most of the Lower Great Southern is relatively free of drought. Areas north of Esperance have been drought declared a few times in recent years.

The numbers of Western Australian farmers drought-declared in each of the past 7 years are estimated to have been:

1976-77 2 670 1977-78 2 510 1978-79 170 1979-80 l 30 1980-81 3 9 2 l 1981-82 302 1982-83 1 450

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In Western Australia recommendations for drought status are based on subjective assessments of the effects of

drought on crop yields and finances together with consider­

ation of the needs of livestock.

Subjectivity in drought assessment is not unique to Western Australia as information in Table 1 indicates:

Table l: Bases of Drought Declaration

State Basis

Western Australia

Victoria

New South Wales

Queensland

South Australia

Subjective assessment of crop, pasture, stock, water, erosion and financial conditions.

Rainfall as compared to average

and with reference to its incidence; availability of paddock feed,

fodder reserves and stock water;

numbers and condition of stock.

If stock are not hand-fed or watered they will die.

Effect of season on s t o c k , pastures, crops and primary production generally.

Subjective assessment of crop,

pasture, stock and water conditions,

The plethora of bases for drought assistance in 1982/83 and their inherent subjectivity when applied has probably caused some inconsistencies in the levels of assistance provided to farms both within and between areas. These observations point to the possible need for a uniform and objective basis for drought declaration.

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An objective basis for drought declarations would have obvious appeal, However, it does have real practical d i f f i c u l t i e s .

The impact of drought can be observed in its obvious effects on pastures, crops and animals. However, it is not possible to monitor performance of growth or stress as indicators of drought because the performance of plants and animals is much affected by other factors

- notably management.

An alternative measure which has been used is rainfall.

For example, a working party of the W . A. Drought Con­

sultative Committee investigated objective monitoring of drought in 1977, and concluded:

"Following the receipt of a request for declaration, the Drought Consultative Committee should accept that where any two consecutive months in the growing season are in the first 10% rainfall d e c i l e , then prima facie evidence of drought exists . . . "

The use of this sort of formula can have serious short­

comings. One obvious problem for many new farming areas in Western Australia is that only limited rainfall records are available. For some areas records have been kept

for only 5 or 10 years. These are drought-prone areas, to the problem of inadequate records can be a recurring one.

Another possible problem is the use of say, two consecutive months in the lower 10% of rainfall d e c i l e. It is quite p o s s i b l e, for example, to have good opening rains in April-May, followed by a very dry June-July, and then good finishing r a i n s. Such a rainfall pattern could produce a bumper season.

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Figure 1 Drought-Declared Areas in 1982/3

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AGRICULTURAL AREAS Number of times declared

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A third potential problem, at least in the less populated areas is variability within d i s t r i c t s. Rainfall is

measured in some areas, at widely separated locations.

There is usually one recording point in a shire. The Western Australian experience has been that one part of a Shire can be clearly in drought while another part of the same Shire is experiencing a good season.

THE COST OF DROUGHT

As time and information constraints do not allow an estimate of all drought-induced costs and l o s s e s, only some drought costs are estimated.

In the north east of the wheatbelt drought c o s t s mainly involve reductions in cereal revenues resulting from low y i e l d s. An estimate of revenue reduction was gained by

first estimating yield l o s s. Co-operative Bulk Handling ( C B H ) provided comparisons of grain receivals at bins in drought-affected areas over two seasons. The CBH data gave indications of likely yield reductions in 1982/83. Knowing the distribution of drought-declared farms among local

government areas, using average farm approximations (derived from ABS agricultural census data) and using CBH data and field adviser opinions, the 1982/83 cereal revenue decline was estimated at $ 1 8 . 5 m i l l i o n.

For the Lower Great Southern region a similar estimation procedure gave an estimate of crop revenue reduction as

$1 3.0 m i l l i o n. Thus the estimated value of cereal yield losses due to drought in 1982/83 1n Western Australia is

$ 3 1.5 mill1on.

An indication of the cumulative effects of drought is given in Attachment l. This survey of farmers was f i r s t made after they had suffered three years of drought and was repeated three years later. No information is available on the initial position when the first drought occurred.

However the rise in average debts in the second three year period 1s most significant rising from $8l 770 to $175 936.

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Other drought costs include costs associated with stock l o s s e s , reduced wool c u t s, reduced lambing, reduced stock numbers and additional expenditure on fodder and agistment.

No attempt has been made to estimate these costs or the multiplier effects associated with revenue losses and input changes; suffice to say these c o s t s, especially in the Lower Great Southern where sheep-dominant enterprises prevail,

are likely to be at least as large as cereal revenue reductions. Attachment 2 illustrates the longer term effects of drought

on a livestock farm.

A RATIONALE FOR DROUGHT ASSISTANCE

Drought assistance is a form of temporary aid. It is aimed to sustain farmers and farm resources through a seriously adverse season or seasons. The aid is seen as temporary

because, almost by definition, a drought is assessed relative to some measure of a normal seasonal condition. A return to normal seasons will remove the immediate cause of the problem which drought assistance addresses.

Droughts are, however, essentially a financial problem.

(This statement is qualified l a t e r ). From a policy development view, then, droughts can be considered as similar to any

other factors, external to the farm business, which cause a pronounced short term reduction in farm returns. We return to this point in the discussion of policy measures.

While a drought is much like any other external factor in that its consequences are financial, it may be difficult

in its impact on the capacity of the farm business to recover after the adverse event has passed. To an extent, capacity to recover depends on the severity of an event rather than its nature - a severe price fall may be equally difficult to recover from as a drought. However, a drought can be different when it leads to loss or damage of resources.

For example, the loss of a farm flock in a national drought may mean that it will be several years before the flock number can be re-established. Again, injury to soils under drought conditions may take many years to rectify.

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The arguments for assistance to farmers affected by droughts can be based on the sorts of efficiency considerations discussed above, or on welfare considerations, or from a pragmatic

acceptance of some political/social realities.

Efficiency arguments have been acknowledged by the Industries Assistance Commission ( I A C ) in its 1975/76 Annual Report:

"When a severe fall in profitability results from temporary factors peculiar to an industry there may be a strong case, on efficiency grounds, for the provision of temporary a s s i s t­ ance to a low cost industry to enable it to hold resources necessary for its long term development. In such cases assistance would avoid the cost of resource movements which would later need to be reversed". (IAC Annual Report 1975/76 p. 1 3 ). Such a statement of principle is in accord with

the I A C's recommendation of short term assistance to the beef industry in 197l. The aim of this assistance "was to encourage these producers to remain in the industry who

were in a position to operate profitably with low levels

of assistance" (Approaches to General Reductions in Protection:

Discussion Paper No. 2: Short Term Assistance During General Reduction in P ro t e c t i o n ).

This argument has not received univeral acceptance. Freebairn' argues, on resource efficiency grounds, against providing

an industry with temporary assistance to retain those resources necessary for its long term development. He classifies

resources into industry specific and non industry specific.

Freebairn argues that because industry specific resources have a low inter-industry opportunity value they may under conditions of a temporary decline in returns in one sector of an industry be absorbed by other sectors of the same

industry not experiencing a decline in returns. Consequently, some if not all of the resources remain in the industry.

1. Freebai rn, J. W. "Pros and Cons of Temporary Indus try A s s i s t a nc e ". A.J.A.E. Vol. 2 2 ( 3 ) Dec. 1978.

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In many instances this situation does not apply. For example, under continuing and widespread drought resources such as

livestock have little intra-industry opportunity value.

Therefore such resources are likely to be lost from that industry. The argument may apply to some resources in some localised droughts. However, to argue for temporary assistance only under widespread drought could lead to inequitable

treatment between farmers. It would also be administratively difficult.

The second case considered by Freebairn is the non industry­

specific resources (unskilled labour, light motor v e h i c l e s ). He argues that, not only are these resources more likely to leave the industry under conditions of a temporary slump, but they are also easier to replace when the downturn is r e v e r s e d. Again, this argument is not generally v a l i d. Under prolonged drought displaced unskilled labour, for example, is unlikely to be reabsorbed given the relocation costs of such r e s o u r c e s.

We consider that such efficiency considerations are important.

Our general view is that farmers in a drought situation may be forced to a position where they sacrifice long term considerations for short term survival s t r a t e g i e s. This may mean that they sell or destroy stock despite the likely high cost of replacement; that they sell machinery despite low salvage values; that they overstock fragile lands despite long term consequence.

The purist would argue that the financial sector should cope with these situations. Banks should provide carry

on funds to allow farmers to adopt the b e s t long-term s t r a t egy.

The reality is that banks are not able to take this view.

They view with concern the low salvage value of drought

affected farms, the resultant low equity position of farmers, and the apparent lack of security for the b ank ' s funds.

Banks tend to respond by providing less money when more is needed.

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An additional argument based on efficiency considerations is compensatory assistance. Assistance to other sectors has eroded farmers terms of trade and made them l e s s able

to invest in drought management strategies such as I E D 's and drought insurance.

Welfare considerations provide a further justification for drought assistance to farmers. Assistance i s often necessary to cushion farmer incomes from the effects of drought, or to compensate them for losses in asset values, In this context, drought assistance parallels assistance provided to the unemployed or to earthquake v ict i m s, for example.

Pragmatically it is recognised that Governments are committed, by precedent and social pressure, to a s s i s t those severely disadvantaged by large natural di s a s te r s.

Droughts are no different to f l o o d s , fires or cyclones in this re s p e c t.

We consider that the relevant question becomes what i s the most appropriate form of assistance to farmers affected by drought.

AN APPRAISAL OF 1982/83 DROUGHT ASSISTANCE MEASURES

A. Assistance Categories and Levels

For 1982/83 the following concessions and financial assistance are available to farmers in drought declared areas of the agricultural d i s t r i c t s of Western Australia:

l. Interest subsidy 2. Fodder subsidy 3. Agistment fees

4. Road and rail haulage

1) transport of grain and redelivery of wheat

1 1 ) transport of hay

1 1 1 ) stock forwarded to and returning from agistment

1 v ) transport of stock purchased

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5. Loans to primary producers

6.

Assistance in water deficient areas.

A description of these schemes is given in an appended document.

Amounts of financial assistance provided under the various measures from 1976/77 to 1982/83 are given in Table

2. Assistance 1n 1982/83 is only to mid-February 1983.

B. A Critique of Assistance Measures

An economic evaluation of the 1982/83 drought assistance measures reveals they suffer from several weaknesses w.ich can be outlined as:

poorly targeted

The 1982/83 drought assistance should have been designed to identify and aid those inordinately disadvantaged by drought. However, the assistance measures were

also of benefit to many who were unaffected by drought.

For example, the subsidisation of fodder and agistment resulted in grain growers and farmers with agistment land sharing in the assistance benefits.

discouraging risk-offsetting management

If farmers can expect drought assistance from government then the incentive for farmers to adopt risk offsetting strategies is reduced. Farmers are not encouraged

to:

i ) develop and hold grain and fodder reserves i i ) hold reserves of cash, bonds, off-farm invest­

ments or income equalisation deposits i i i ) reduce stocking rates

iv) purchase land in areas less susceptible to drought'

2. For a whimsical account of the four new rules of good farm management see Chatterton, B. "Preparing for the Next Drought", Australian Farm Management N ewsle t te r , Vol 9 ( 1 0) Nov. 1982.

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Table 2: Assistance Categories and Levels

1976/77 1977/78 1978/79 1979/80 1980/81 1981/82 1982/83

Freight subsidies on:

Hay 49 134 27 668 27 504 11 3 041 170 268 4 905

Grain 34 308 2 402 1 276 I 094 26 382 1 804

Potatoes 9 352

Stock to agistment 22 192 34 474 56 740 252 740 19 809 54 526

Stock from agistment 42 848 145 094 156 804 103 935 510 697 12 802

Stock purchased for restocking 11 721 10 252 9 152 26 765 1 076

Stock to special sales 15 144

Provision of water 131 793 10 974 3 686 102 139 125 517 40 644 547

Clearing sand drift 136 299

Interest subsidy n . a .

Fodder subsidy 45 439

Agistment fees (+

I

Loans to primary producers l, r

I

Drought delegated agency 2 375 420 19 640 940 208 300 11 688 400 14 666 500 )3 212 200 ) 3 746 000 Sharef armers & le s s e e's 565 250 2 893 160 313 200 1 433 115 1 351 500 ) )

Pastoralists n.a . 655 500 292 990 1 006 101 0

Beekeepers n.a . 114 000 22 000 0

Cyclone Hazel 12 000

Unemployment relief to shire 625 300 825 595 191 913

Loans to small businesses 495 500 233 500

TOTAL 3 839 206 24 359 11 8 1 755 496 14 522 019 18 369 770 3 429 539 3 846 512 No. of loan approvals

Drought delegated agency 210 873 78 520 759 )

Sharef armers & l e s s e e ' s 54 162 21 100 79 156 ) 115

4e As at 17 February, 1983

## As at February 1983

he## As at 28 February, 1983

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By depending on the government assistance, resource misallocation within agriculture is likely; leading to greater incentive both to farm in more drought susceptible

strategies. to minimise

As an illustration; a farmer

drought losses by maintaining low stocking little areas and to adopt more risky management

rates and adequate fodder reserves may receive

who seeks

or no government drought assistance. However, the farmer who maintains a higher stocking rate and low reserves of conserved fodder may receive greater

government drought assistance. What many would believe

to be poor management practices are not penalised but rather reimbursed.

inequitable

The forms of drought assistance lead to inequities in the distribution of assistance. As examples, the farmer displaying sound conservation management is disadvantaged vis-a-vis the farmer less concerned with conservation. The subsidisation of all interest payments has meant no necessary relationship between the level of assistance received and the degree

of disadvantage suffered from drought.

inadequate

An inadequacy of the present drought relief loan system is that loans are made on a short term basis;

that is effectively amortised over 7 years at 4 per cent interest. However, as the data of Table 3 show the immediate cash flow problems caused by drought could be eased by a loan over a longer period even at a higher rate of interest.

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Table 3: Varying Terms for a $40 000 Loan

Length 7 8 9 lC

Interest Rate (%) 4 7 9 11

Amortised Annual Payment ( $ ) 6 664 6 700 6 672 6 792 First Year Tax Deduction ( $ ) l 600 2 800 3 600 4 loo First Year Tax Savings ( $)

Assume Taxable Income of $25 000 736 l 288 l 656 2 02l Assume Taxable Income of $16 000 491 859 l 105 l 350 Assume Taxable Income of $ 7 000 490 778 778 778

The advantage of a low interest loan is to some extent eroded by the smaller taxation deduction of interest payments. Even though a farmer with a loan at a higher interest rate over a longer term will pay more interest, in the initial years following a drought he may be advantaged through greater tax savings.

The size of benefit is proportional to taxable income. If taxable income is low tax savings from the longer term interest rate loan are less than tax savings when taxable income is higher. As most

ralrers

have low taxable incomes following drought-! they will only benefit slightly in initial years from loans with higher rates and longer terms.

consistent with other policy

Clearly, policies for drought should be as consistent as possible with other rural p o l i c i e s. One possible conflict exists between drought policy and soil

conservation policy. Soil and water conservation have become accepted as matters of national priority in Australia. This priority is at odds with a

policy of subsidising on-farm feeding of stock

in a drought. Even where a subsidy is also ext/:fded to the off-farm feeding of stock it may well be

that the balance of the two measures is not always neutral. For some farmers the several measures will net out as an inducement to retain stock on farm - which may have deleterious effects on s o i l s.

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In periods of drought when the RAS would receive numerous applications for assistance, Federal and State Governments could diret most of their natural disaster relief

funds for drought to the RAS. The RAS could act as agents to identify those farmers most in need of carry- on funds, and with prospects of long term viability.

Where the long term viability of a farm is judged not to be jeopardised by factors beyond the f a r m e r1s control, that farmer would become eligible for an RAS loan. An important feature of the existing RAS scheme is the application of a flexible interest rate policy - and this should be continued.

An advantage of chanelling assistance through the

RAS would be the avoidance of the inequities and admin­

istrative d i f f i c u l t i e s of drought declarations. A case by case examination of farm finances would reveal individual needs for assistance; carry-on, household

support or rehabilitation. Carry-on finace, for example, could be provided at levels and on terms necessary

for a f a r m's long term viability - unlike the present arrangements where carry-on loans are limited to a maximum 7 year term.

The provision of assistance via the RAS has the advantage of being specifically directed to give most assistance to those most in need of assistance. While all money would be provided by way of loans (not grants) through the RAS there would be the ability to provide greater as s i st a n c e in times of harsher droughts by an increased

subsidy element in the interest rate charged.

B. Direct Subsidy

As a general proposition we have argued that drought assistance should be by provision of special loan funds for farmers.

There wi l l be s i t u a t i o n s, however, where specific

policy o b j e c t i v e s can be identified as part of a general

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drought assistance package. These specific objectives might best be addressed by specific policy measures.

One example would be the possible need in a national drought (as in 1982-83) to ensure that the national flock or herd was not too severely reduced in numbers.

It may be adjudged that, without policy action, the national herd could be cut b y , say, 20 per cent and

this would cause a 30 per cent cut in productive capacity and effect processor viability for 8 years and lead

to loss of export markets. Given this judgement, a specific policy action, such as a feed subsidy, may be considered a preferrable strategy to a more neutral form of assistance.

Another example of a specific policy consideration would be the committment to a national soil and water conservation policy.

In many pastoral areas of Western Australia (for example) a pastoralist in a drought situation may well not

see economic ju stification, in the short-term at least , in actively de-stocking his property. Yet in terms

of preserving a fragile ecology this may be the preferred strategy. Or from the point of view of soil conservation it may be the best long term s t r a t e gy. I n such a

situation d i r e c t aid to a s s i s t de-stocking by agistment or other means may be an appropriate p o l i c y.

C. Insurance

Another drought measure that the Commission may wish to consider is a formal drought insurance scheme.

We are uncertain as to whether this is a practical proposal or how it might be made to work. Farmers can currently take out informal insurance by the use

of I E D's , but they appear not to see this as an attractive investment. Farmers do, however, insure against other events such as h a i l.

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This behaviour of farmers may be explained in terms of the high opportunity cost of scarce funds. However, a more likely explanation is that farmers do not see I E D's as an insurance mechanism. I E D ' s are closely linked with the taxation system and I E D's are used as part of a taxation strategy.

Despite some reservations we suggest that the IAC give consideration to a mechanism of formal drought insurance.

Drought insurance schemes could offer a farmer a selection from a range of premiums, where the higher the premium the greater the insurance payout in a year of drought.

The premium selected by a farmer would reflect his farming region's susceptibility to drought, his own risk preferences and his f a r m's financial s ta t u s.

In pr i n c i p a l , membership of an insurance scheme need not be compulsory. However, on the basis of experience with other natural disaster relief schemes it is likely that insured farmers would receive l e s s assistance

than uninsured farmers. To avoid or minimise this

"moral hazard", all farmers and insurance agencies would need to know well in advance what government assistance, if any, would be available in drought.

Pragmatically, it may be necessary to make the insurance scheme compulsory.

The scheme would also need to be based on an objective measurement of drought - for example, drought being defined to exist in any area where rainfall measurement indicating any two consecutive months in the growing season being in the first 10 per cent rainfall d e c i l e. Neither farmers nor insurance agencies should be able to manipulate the data or definitions required for objective measurement of drought and all definitions or measurement procedures should be unambiguous.

All parties should have access to measurement r e s u l t s.

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An advantage of an insurance scheme is the avoidance of resource misallocation costs that plague present measures of drought assistance. For example, present measures distort land markets by artificially raising or supporting land values in drought prone areas relative to areas free of drought. In contrast, premiums of

the insurance scheme become part of operating costs and cannot artificially support land prices in drought prone areas if the premiums are solely on commercial considerations.

There is conflicting evidence as to the practicability of insurance schemes that include drought cover.

For example, an all risk crop insurance scheme implemented for Western Australian wheatgrowers in 197l was withdrawn after one year of operation. A compulsory banana

crop insurance scheme was introduced in 1962 for Western Australian banana growers and it continues to operate.

Whether commercial insurance firms would consider a drought cover scheme as impractical or of limited profitability requires further examination by insurance specialists, If commercial firms were unwilling to

introduce a scheme then there may be a case for government undertaking the scheme ( i f it is feasible) on a break­

even basis where in any year costs of administering the scheme, which include an allowance for average expected payouts, equate to expected premium receipts and investment returns.

D. Interest Assistance

This submission has argued that the major form of drought assistance to farmers should be loan monies provided through the RAS.

A possible adjunct to this proposal, which the Commission might consider, is a system of subsidisation of interest rates. Drought funds would be used to subsidise interest costs on money borrowed commercially by farmers to

alleviate the financial consequences of drought.

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Under this proposal a to the RAS for money.

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farmer would still make an application His eligibility and finance

needs would be assessed under the RAS in the same way as is done currently.

If a farmer is recommended to receive carry-on funds then the RAS instead of supplying the funds, pledges interest assistance. For example, a farmer may be assessed as requiring $50 00O to be repaid over 10

years at say 9 per cent interest. The interest assist­

ance would be the difference between the RAS rate ( 9 per cent) and the rate (say ll per cent) a bank would be prepared to charge on the principal borrowed over the same length,

The bank would be lending at commercial rates; The farmer would receive carry-on funds at a concessional rate. The advantage of using RAS funds for interest payments rather than principal lendings is that many more farmers could receive assistance. In periods of drought when social and political pressures mount to urge governments to provide assistance, RAS funds could be used to widen assistance by using the interest concession scheme, yet involve governments in l i t t l e additional short term expenditure.

The weaknesses of the interest concession scheme are several. F i r s t, there would be an incentive for banks to charge RAS clients a higher rate of interest on carry-on funds than they otherwise would. However, this incentive could be offset by competition between banks for the RAS clients and by the RAS negotiating with individual banks to lower interest rate charges on carry-pn loans. Secondly, as with many forms of

assistance, the RAS welfare assistance would be capitalized into the value of land in drought-affected areas relative to areas free of drought. Thirdly, as already noted, banks tend to become overly conscious of the security of loans during a time of drought. Hence, they will

refuse to lend, even at full commercial rates.

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E. Information and Extension Services

The main thrust of present drought relief measures is financial assistance. However, there is a case for broadening assistance to information and extension s e r v i c e s. In times of natural disaster, such as drought, the demand for these services can exceed their supply.

Farmers require the services in order to act swiftly to save stock, retain s o i l , reduce costs - in short, minimise the deleterious effects of drought.

Commonwealth and State Government funds could be used in several ways to increase information and extension s e r v i c e s to farmers in drought affected or drought prone areas:

additional funds for printing and disseminating

information on drought assistance, drought management p r a c t i c e s , soil and water conservation techniques, e t c.

special funds for travel and accommodation to increase the mobility of those advising farmers in drought­

affected or drought-prone areas.

special funds for the contractual employment of additional a d v i s e r s. These advisers may be from

other State Departments of Agriculture with expertise relevant to the local drought, farm consultants

or farmers competent to advise in drought management.

because it is likely that State departments will

incur additional costs in re-organising their advisory services to better service drought-affected farmers, there may be a need for some of these c o s t s to

be recouped from State and Commonwealth Governments.

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RECOMMENDATIONS

Current subsidies such as the interest subsidy, fodder subsidy, agistment fees and haulage concessions, e t c, be largely replaced with loan funds provided through

the Rural Adjustment Scheme.

Specific subsidies should be used, but only where a

specific policy objective can be identified, for example for the conservation of soils, it may be desirable

to subsidise off-farm agistment. Again, in a situation of national drought it may be desirable to subsidise stock feeding to maintain the national flock or herd.

In periods of drought the major form of assistance should be through the RAS. Funds should be allocated on a case by case basis, following an examination of needs and abilities. Drought declaration need not be a pre-requisite for a farmer making application

to the RAS.

Special information and advisory services should be chargeable against drought assistance funds.

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ATTACHMENT 1

REPORT TO DROUGHT CONSULTATIVE COMMITTEE

by J. Ripley, 20 September, 1982

Drought Situation Morawa Area

I visited Morawa on 1 4 , 1 5 and 16 of September at the request of the Drought Consultative Committee to interview drought affected farmers in the area. Farmers in the area had been notified of the visi t and requested to bring in financial and other data relative to their situation. About 50 farmers were interviewed and d e t a i l s of their situation recorded.

The attached survey results show the d e t a i l s of survey averages for 1982 and they are compared with survey averages for the Morawa shire in 1979 and for farmers with drought loans in 1 9 7 9 . The farmers interviewed were mostly from the Morawa Shire with a few from Perenjori and Latham and some had properties in other Shires. The sample farmers were from the following major l o c a l i t i e s and areas:

Cann a 8

Guth a 12

Pintharuka 8

Mor awa South 6

Mor awa West 3

Mor awa East 5

Perenjori 8 Latham 5 47

Those attending were mainly from the North and North East of Morawa.

Two share farmers also attended the meetings but are not included in the results.

At the time of the interviews useful r a i n f al l fell in the Morawa area so the influence of this rain was taken into account when making yield estimates. It must be emphasised that there i s potential for significant inaccuracy in the estimates,

at the end of September. In producing sufficient only between 0 . 2 a n d 0.8 t/ha.

the sample 6 farms estimated a yield

the balance 41 estimate y i e ld s The average estimated income from grains for the

and more accurate estimates w i l l be av a i l a b l e for seed wheat,

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harvest i s about $41 000 which is about 30% of the normal expected income say S123 000. Grain estimated incomes are therefore down by around

$80 000 per farm.

Taking into account present debt situation and anticipated loan repayments in 1983, and crop programme for 1983 cash requirements for 1983 were

estimated. The average per farm peak debt was estimated at $87 000 which i s about $46 000 above normal expected carry on finance a v a i l a b i l i t y . Included in the costs for 1983 are $20 000 H . P . repayments and about

$9 000 other loan repayments. The costs exclude any repayments on drought loans.

The question of how hard farmers should be pressed to defer H . P . debts requires attention. H . P. repayments are now a significant component

(24%) of the debt and deferment may only lead to future cash flow

problems. Assuming some deferment of H . P . say 30% and some loan repayment deferment the peak requirement may be reduceable by $10 000 and so be lowered to $77 000. This i s about $36 000 above normal working credit l i m i t s of $41 000.

The interest rate subsidy payable by the Federal Government w i l l also reduce the lending required. At this stage it is not known if the subsidy i s payable on deferred loans or deferred H. P . payments. This point

requires c l a r i f i c a t i o n .

Should the interest subsidy only be payable if H.P . and other loan payments are met then the minimal deferral of H . P . or other loan re­

payments w i ll be of maximum benefit to farmers.

The proposed $40 000 maximum drought loans should be adequate (provided y i e l d estimates for 1982 are r e a l i s tic ) for most farmers drought

affected in the Morawa Shire. Some farmers have requirements far in excess of the $40 000 a v a i l a b l e and w i l l have to obtain substantial loan repayment deferal and increased normal lender funding. It is also estimated that three of those interviewed w i l l have l i t t l e prospect of servicing their borrowing commitments.

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There were some farmers interviewed who indicated that they may have large income tax accounts for payment in 1983. Estimates of these

were included in the costs but in most cases these w i l l need verification by accountants.

The question of the situation of local business men was also raised.

Apparently some of them have high lev e l s of outstanding accounts and there may be a need to ensure that drought loans are applied to reducing these accounts as well as for general carry on.

At t h i s stage it is not possible to estimate with any accuracy the number of farmers l i k ely to require drought funding. The September rainfall has significantly reduced the potential number from the northern

agricultural areas. There are about 270 farmers in the Morawa. Mullewa and Perenjori Shires and the number of applicants from these shires could be around 100.

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SURVEY RESULTS

No in sample

Total farm area ha Cleared area ha

Sharefarm of lease ha Area planted (own farm) ha

Wheat

Barley, Oats, Lupins

Area planted (leased sharefarm) ha Wheat

Other

Total crop area

Estimated Grain Yields Wheat t/ha

Other crops t/ha

Wheat to be delivered/farm

t

Other crops

1979 (Mor awa) 1982

96 47

2 126 2 454

l 595 945

237 282

669 046

183 l 09

94 282

3

849 437

0 . 3 5

Negligible

387

N e g l i oib l e

Planned 1

1 210 93

169

472

Estimated Income/Farm Dec 1982 to Nov 1983 Wheat 40 635

Wool 1 1 351 Sheep 5 218

Pigs 1 532

TOTAL 58 754

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L i a b i l i t i e s

1979

Farm With 1979

1982 % Drought Loans % Morawa %

-

Amount owing to:

Trading Bank W/Ac 16 745 10 14 611 1 1 10 749 13

Stock Firm W/Ac 6 3 1 5 5 677 2 437

Trading Bank T /L 1 3 006 14 444 8 394

P . I. B . A . 2 501

C.D e v . B a n k 7 340 8 598 5 172

Rural Adjustment 8 6 1 7 9 818 4 466

Drought R e l i e f Loans 42 590 24 29 378 21 18 940 22

Vendor 1 5 362 14 546 1 3 020

Family & Other 20 782 1 1 846 7 214

Hire Purchase 42 678 24 25 932 19 13 331 16

Sundry Creditors 2 074 1 047

TOTAL 1 7 5 936 137 834 84 770

Av. debt $/crop ha 122 107 95

1982 Survey Per Farm Average Estimates

Estimated Peak Debt 1982 Working Account L im i t 1982

Estimated Peak Debt 1983

Estimated Working Account Limit 1983

loan Repayments 1983 Banks, Vendors, RAA H.P. and Lease

$33 073

$36 457

$87 327

$41 660

$ 8 7 1 2 (Drought Relief Loans Excludec

$20 341

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ATTACHMENT 2

RURAL ADJUSTMENT SCHEME

LONG TERM and Y.I.Y.O. BUDGETS

Date . Name . No .

LAST 12 months

(Actual)

INCOME

Item Quantity STABLE DROUGHT

. W o o l . . . 7 5 . 4 2 5 . .Sheep..Sales....21.600.

.48.530. ..30.148, .51..9.2.8 .21.800...0...0

TOTAL INCOME 97 025 70 330 30 418 51 928

.13.000. ~13 000, 8 000

-..300. 300 300, ...300

. .1.800. .1,200, 3. 000

16..000. 13 600 8 300 12 000

- 1 . 5 oo . " r s 6 6 ; 7566l.75dd

..2.200.

.. 5.000. ..6.000.,...6..000, .6..000

1...600.. 600 600 600

. 1.800.,

i8~, i s l is~6

.1.200. ....1.200.,. 1..200. 1..200

. . 1 . 2 0 0. . . . 1 . 200., ...1.2001...1.200 ...1....400...1...400.,...400%...40¥

(a) Farm Production Costs Fertilisers

Crop Costs

Stock Costs purchases.

other (b) ...

Fuel, oil..

Labour....

Repairs..

Contract, hire, cartage • Rates, Land Tax, Water.

Insurances ..•

Licenses, Phone, Subs...

Sundries()....

Household, educ. ....

Taxation.

Plant replacement .•

Loan Repayments..

Interest--work a/cs Capital Development (d).

Inflation.

TOTAL COSTS

10. 500 .. .4.600 .. 8.000.

..9.500.

...3..000.

..87..600.

10.500.. .10.500%.10.500

... 4.0Q .

. .8.000...8.000%...

.6..050....6..050%..6..050

•• .3..000... ...5.000..9..500

....77..750 ...58..050..68..050 Surplus/Deficit ...coo...

.+9.425 .-7. 420, .-27.632.-16.122.

RRA Borrowings...oo..

RRA Payments ..oooo...1.

Remaader •...

(a) Crop Costs: Sprays S...; Seed S...; Insurance S...; Cartage S...; Grazing S.... ...Hay S...o....

(b) Stock Costs: Shearing S...: Crutching S...; Mules S...: Vaccines S....: Vet. $..., Fodder S...

te) sundries Bani Changes s.12, Accoungs.'?_, A d v i se r $.. .. .L e g a l s. . . (d Capital Development. Clearing S... Fencing S...; Water S...+o...$

s ...

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LIVESTOCK SCHEDULE

Name Flock Herd

No.

Year STABLE FLOCK DROUGHT DROUGHT + 1 DROUGHT + 2

No. $/hd $ No. $/hd $ No. S/hd $ No. $/hd $

Opening EWES 3000 3000 2000 2800

WE THERS 1000 1000

HOGGETS 2100 2100 1000 1200

RAMS 75 75 60 60

Purchases RAMS 15 120 1800 10 120 1200 25 120 3000

Births 2100 1500 1200 1960

TOTAL SOURCES

Deaths EWES 150 300 100 140

WE THERS 50 e

HOGGETS 150

...

fee

..

Sales RAMS 15 t 10 . .

LAMBS 500 6.00 3000

EWES e 0 e . - - - 140o 2.00 2800 WE THERS

...

e «

. .. .

950 8.00 7600

HOGGETS 0e E e

....

1200 7.00 8400

losing

EWES

.

,.. 1 2ee

. ...

2660

WE THERS

RAMS 1650 700 e 112 0

LAMBS 75 60 60 75

2100 1000 1200 1960

TOTAL USES

PRODUCTION No. /hd Total No. /hd Total No. /hd Total No. /hd Total EWES 2900 4.7 13630 2800 3.5 10080 1950 4.0 7800 2730 4.7 12831 WETHERS 950 5.2 4940 950 3.6 3420

HOGGETS 2000 4

....

2000 3.0 6000 04 2 5 a 1160 d o 4640

RAMS 75 d e .

-

- 60 6.0 600

..

f t

...

+ ( Ce

LAMBS 2100 1 < e 1000 1.0 1000

, �--

t et

. .

- - 1960 1 5 2940

TOTAL PROD. 8025 £ . 6810 21100 41s o 20771

ROCEEDS 30170 ks @ 250¢ 21000 ks @ 230¢ 1 3 2 2 5 kg @ 230¢ 20771 ko @ 250¢

WOOL NET. $ 7 5 425 $48 530 $30 418 $51 928

SHEEP SALES $21 600 $21 800 $ 0 $ 0

9927$ 8 89

Figure

Table  l :   Bases  of  Drought  Declaration
Figure  1  Drought-Declared  Areas  in  1982/3
Table  2:  Ass istance  Categories  and  Levels
Table  3 :   Varying  Terms  for  a  $40  000  Loan

References

Related documents

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