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Saturday, November 1, 2008

Economics of Australian Drought Relief

As part of the ongoing Australian Government inquiry into the drought assistance policy, the Productivity Commission has released a draft report on the economics of drought assistance in Australia (see this prior post on the review of the science of drought).

Key points
Many Australian farmers and rural communities are experiencing hardship as a result of a severe and prolonged drought. While this is not new to dryland farming, the ‘irrigation drought’ is uncharted territory.
Australia has always had a variable climate, with drought being a recurring feature. Looking to the future, most agricultural regions need to prepare for higher temperatures and for some, more frequent periods of exceptionally low rainfall.
Most farmers are sufficiently self-reliant to manage climate variability.

– In 2007-08, 20 per cent of Australia’s 150 000 farms received drought assistance, totalling over $1 billion, with some on income support continuously since 2002.
– Even in drought declared areas, most farmers manage without assistance. For instance, from 2002-03 to 2006-07, on average, more than 70 per cent of dairy
and broadacre farms in drought areas received no drought assistance.
All governments agree that the current approaches to drought and Exceptional Circumstance (EC) declarations are no longer the most appropriate in the context of a changing climate. In marked contrast to the policy objectives, current drought assistance programs are not focussed on helping farmers improve self-reliance, preparedness and climate change management.
EC Interest rate subsidies and state-based transport subsidies are ineffective, canperversely encourage poor management practices, and should not extend beyond 2009-2010.
EC household relief payments are limited to those in drought declared areas.
– All farm households in hardship should have access to temporary income support designed for farming circumstances, after which the standard community safety net should apply.
The EC declaration process is inequitable and unnecessary. It should
not be extended to new areas and existing declarations should terminate by the end of 2009-2010.
The National Drought Policy should be replaced with expanded objectives for Australia’s Farming Future. These would recognise that the primary responsibility for managing risks, including from climate variability and change, rests with farmers —underpinned by more appropriate forms of government support.
Research, development, extension, professional advice and training to improve business management skills can help build farmers’ self-reliance and preparedness.
– These areas warrant significant government funding provided they are well targeted, area appropriate and deliver a demonstrable community benefit.
Farm Management Deposits, despite their use for tax deferral, have encouraged farmers to save and to be more self reliant, and should be retained.
Policies relating to water, natural resource management and climate change all impact on farm businesses and local communities and need to be better integrated.

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