Professor and Head of the Department of Economics, The
University of Melbourne, Parkville, Victoria.
are a natural and regular characteristic for Australian agriculture and
other climate sensitive industries. Australia
should, and most businesses do, invest their scarce labour and capital in
agriculture only if on average they expect to earn as much here as they
would in other parts of the economy. Most
families recognise and plan to balance low incomes of drought periods with
higher returns received in better seasons to maintain living standards.
Drought assistance is another form of selective industry subsidy,
just like tariffs and quotas. Worse,
the history of Australian drought assistance reveals that some farmers are
advantaged at the expense of other framers.
Inevitably droughts result in some farm families, and perhaps more so
other rural families and some in urban areas, being forced into poverty.
Social security system support targeted on family incomes is a more
direct and effective way of meeting society equity concerns than is drought
agriculture is a game of uncertainty with fluctuating fortunes in seasonal
conditions and commodity prices. While
our ability to predict the timing and duration of drought is still limited,
we know for sure that they will occur, and that in time rain will restore
periods of favourable conditions. Drought
causes losses of production, challenges maintenance of the capital stock,
and it may threaten the environment. The
adverse effects of drought are often worse for non-farm rural businesses and
even for urban businesses and their employees providing agriculture with
machinery, transport, materials and services, than drought is for farmers.
nation, and as individual businesses, we should allocate our limited and
scarce labour and capital to wheat growing, sheep grazing, horticulture and
other rural activities only if we expect to earn over time as much here as
we would by investing in tourism, manufacturing, education, and so on.
Good economic management for the economy and good business decision
making recognises the ups and downs of the business environment.
for drought assistance are really a call for selective subsidies to a
particular industry, or particular components of an industry. Government subsidies for fodder, for transport, for
concessional interest rates on credit, and direct grants to farmers in
drought declared areas are no different to tariffs on motor vehicles,
subsidies for first home buyers, restrictions on taxi plates, and quotas on
domestic content on television. Drought
assistance increases the return to agriculture above market returns.
Such subsidisation causes over the longer run too much labour,
capital and other scarce resources to be drawn into agriculture away from
other parts of the economy. Australia's world class economic growth over recent decades
has been achieved in part by removing selective industry assistance.
Drought assistance would be a retrograde move for a productive
the selective nature of drought assistance as practiced in Australia has
adverse effects on other efficient farmers.
For example, a part of the subsidy for fodder for drought affected
extensive sheep and cattle gazing is borne by higher prices for feed used by
dairy, pig and poultry farmers. Concessional
interest rates for farmers in debt quickly become capitalised in higher land
values than otherwise, and these higher land values tend to hold-up and
defer the transfer of land from those who do not prepare for drought to
those who do. Again, why self
prepare for drought if you know the government will provide some assistance.
droughts often are the last straw on the camel's back that drives some
families into poverty, or at least to living standards below community
agreed levels. Australians
clearly wish to support such families.
The social security system is specifically designed for this purpose.
It targets families in need. By
contrast, drought assistance is aimed more at agricultural businesses, and
not necessarily businesses of low income families.