It underlines just how variable the Australian climate can be.
While attention is focused on responding to the current situation, it is important to also think long-term. In our rush to help, we need to make sure well-meaning responses don’t do more harm than good.
The drought policy debate
The recent drought has stimulated much empathy for farmers from the media, governments and the public. Federal and state governments have committed hundreds of millions of dollars in farmer support. Private citizens and companies have also given generously to the cause.
While there appears to be overwhelming public support for helping farmers through drought, concerns have been raised by economists as well as farmer representatives – including both the former and current head of the National Farmers’ Federation.
A central concern is that drought support could undermine farmer preparedness for future droughts and longer-term adaptation to climate change.
Another concern is that simplistic “farmer as a victim” narrative presented by parts of the media overstate the number of farmers suffering hardship and understates the truth that most prepare for and manage drought without assistance.
Sensationalist media coverage can also damage Australia’s reputation as a reliable food producer. Images of barren landscapes, stressed livestock and desperate farmers send the wrong signals to customers and trading partners.
An acute policy dilemma
The tension in drought policy is real.
To remain internationally competitive Australian farmers need to increase their productivity.
Agricultural productivity depends on two main factors. First, innovation – adopting new technologies and management practices. Second, structural adjustment – shifting resources towards the most productive sectors and most efficient farmers.
Supporting drought-affected farms has the potential to slow both these processes, weakening productivity growth.
This gives rise to an acute dilemma: should we support farmers in distress, or support the industry to be the best it can be?
Factoring in climate change
Australian average temperatures have increased by about 1℃ since 1950. Extreme heat events have become more frequent and intense. Recent decades show a trend towards lower average winter rainfall in the southwest and southeast.
Research by the Australian Bureau of Agricultural and Resource Economics and Sciences shows climate change has negatively affected the productivity of cropping farms, particularly in southern Australia.ABARES
There is still much uncertainty over what climate change will mean for agriculture in the future.
Farming isn’t like other industries
Although businesses in other industries are expected to manage risk without assistance, agriculture has some special aspects that help build a case for a government policy response.
Second, most farm businesses are also farm households.
Third, financial markets both in Australia and internationally struggle to provide viable risk management products for farmers – particularly drought insurance.
This means farming is an unusually risky business. Farmers must therefore be more conservative about financing and operating their businesses, which constrains investment, innovation and ultimately productivity.
Helping farms without making things worse
It provides a fortnightly payment, usually set at the rate of the Newstart unemployment allowance. There is also a financial assessment of the farm business and funding to help develop skills or get professional advice.
Those welfare programs provide an important safety net for farm households. Because they provide targeted support to households, rather than businesses, they result in fewer economic distortions than alternative approaches.
While these measures might provide short term relief, if they become routine they risk weakening the incentives to manage farms properly, by for instance destocking sheep and cattle ahead of likely droughts.
Looking to the future, it is possible insurance could have an important role to play.
Such insurance, if done well, could provide farmers with better protection from climate risk, while also supporting adaptation and productivity growth – effectively sidestepping our current drought policy dilemma.
- ^ just about the best year for farmers ever (www.agriculture.gov.au)
- ^ economists (theconversation.com)
- ^ farmer representatives (www.abc.net.au)
- ^ the former (www.theguardian.com)
- ^ current head (www.farmonline.com.au)
- ^ structural adjustment (onlinelibrary.wiley.com)
- ^ To help drought-affected farmers, we need to support them in good times as well as bad (theconversation.com)
- ^ to climate change (theconversation.com)
- ^ increased by about 1℃ since 1950 (www.bom.gov.au)
- ^ lower average winter rainfall (theconversation.com)
- ^ negatively affected the productivity (www.agriculture.gov.au)
- ^ evidence of farmers adapting (theconversation.com)
- ^ more frequent and more severe droughts (theconversation.com)
- ^ higher temperatures and evaporation rates (link.springer.com)
- ^ greater than in other industries (ideas.repec.org)
- ^ dominated by family farms (www.agriculture.gov.au)
- ^ a Productivity Commission review (www.pc.gov.au)
- ^ Farm Household Allowance (www.agriculture.gov.au)
- ^ Past reviews (www.pc.gov.au)
- ^ Drought is inevitable, Mr Joyce (theconversation.com)
- ^ failed to thrive in Australia to date (www.agriculture.gov.au)
- ^ index-based insurance products (www.agriculture.gov.au)
Authors: Neal Hughes, Senior Economist, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)