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Dry argument: Australia's drought policy dilemma

Analysis ABC Rural Anna Vidot and Lucy Barbour
Drought hits Parkes

A farmer inspects a dried up dam on his farm.

Ian Waldie, file photo: Getty Images

A look back through Australia's difficult drought policy history reveals a nation that's never been satisfied with its response to drought, or the assistance available for farmers, communities and businesses affected by it.

Successive generations of drought policy have been tried, reviewed, found wanting and replaced, in a process that's depressingly circular.

The same questions have been asked for decades: is drought a natural disaster or just part of life in Australia, or both? To what extent should government step in to help drought-stricken farmers? And why do farmers deserve taxpayer assistance anyway?

ABC Rural takes a look at the great Australian drought policy debate.

Step through a timeline of drought and drought policy from 1895 to 2014

Defining drought | Drought policy history | What is available? | Analysis: the policy drought |

Do farmers deserve drought assistance?

Giving farming families money to put food on the table typically receives broad community and political support, but taxpayer assistance for farm businesses is more controversial.

The Treasurer Joe Hockey has declared that "the age of entitlement is over", and Prime Minister Tony Abbott says he wants business to stand on its own two feet.

In that spirit, the Commonwealth Government has refused to offer assistance to businesses including Holden and SPC Ardmona, and tens of thousands of jobs are expected to be lost across Australia as the car makers and other manufacturers pack up and leave.

In the midst of all of that though, both the Prime Minister and Treasurer have indicated that they regard drought assistance as different to company handouts, describing drought as a natural disaster.

Many farmers agree, saying that assistance for people and businesses affected by drought should be viewed the same way as assistance for victims of bushfires and floods. Producers widely acknowledge that being a good operator means preparing to get through the bad years, but many farmers argue that their reliance on an extremely variable and sometimes harsh climate means there's only so many bad years they can prepare for.

Broadly speaking, Australian farmers are disadvantaged compared with their overseas counterparts when it comes to government handouts; they're among the least subsidised in the world.

But that's exactly how it should be, according to many economists. Melbourne University's Professor John Freebairn warns against any return to the controversial Exceptional Circumstances drought assistance model, which offered subsidies to eligible farmers throughout the Millennium Drought (2001-09).

It socialises losses, so whenever farmers have a drought, they get some handouts from the Government; whenever they're in good seasons they keep the profits.
John Freebairn, Professor of economics, University of Melbourne

Professor Freebairn says the Federal Government should be wary about granting aid to farmers.

"If you put subsidies onto agriculture, you are going to pour more money invested into agriculture, and most of it will actually just artificially push up land prices," he says.

"And so you might bail out the current generation of farmers but you leave the next generation with assets that are too highly valued.

"It socialises losses, so whenever (farmers) have a drought, they get some handouts from the Government; whenever they're in good seasons they keep the profits."

The Australian public appears to be more sympathetic towards farmers, though.

In 2009, at the tail end of a decade of drought, an Australian National University survey found that about six out of 10 people believed government assistance for farmers should be increased. Drought and water shortages were regarded as the most serious problems facing rural Australia.

Drought policy expert, University of Canberra's Professor Linda Botterill, says Australians are quick to support farmers.

"There's a deeply held cultural sympathy for farmers across the western world and that dates back to Aristotle.

"There's evidence of it also in the writings of Thomas Jefferson and this is common across the European Union, the United States and in Australia," she says.

"It's based in a belief about the fundamental nature of agriculture as an undertaking, and the fact that the faming life is seen as noble and fundamental; it's classic agrarianism."

Executive director of the Australian Farm Institute, Mick Keogh agrees but says the public becomes more critical when drought assistance is provided for farm businesses rather than farmers' welfare.

Linda Botterill, Professor of public policy, University of Canberra

"I think at a personal level there's a very strong ethos in Australia that people shouldn't be allowed to be desperate and not have money to put food on the table," he says.

"When it comes to business, there's a little bit more querying as to whether or not [government assistance] is appropriate."

"You get the newsagent or hairdresser saying, 'hang on, the household stuff I can live with, but my business doesn't get any breaks if people stop buying newspapers, or if another dozen hairdressers open up in my street and I stop making money'.

"At a business level, people don't want to see a situation where someone with a $20 million farm is suddenly getting taxpayer help."

The need to 'drought-proof' farms is widely accepted in the agricultural sector, but many farmers say it's impossible to prepare for a drought that lasts longer than 18 months.

Graziers like Cam Rowntree, from Walgett in north-west NSW, says he hasn't had decent or drought-breaking rain in two years.

"We've lived through many, many droughts over time, but once it goes past that timeframe it's impossible to prepare," he says.

"I mean, you can be the best farmer in the world; if it doesn't rain, it doesn't matter how good you are."

Mick Keogh says farmers want to be treated as a special case because their industry is so risky.

Cam Rowntree, from Walgett in north-west NSW.  

"The volatility of returns in the agricultural sector is more than double the volatility of average returns for businesses in the entire economy, and that includes car manufacturing and food processing," he said.

"So the question is, does that dictate the need to think about things like taxation measures or incentives to better prepare, in the same way that the superannuation system provides quite strong incentives for individuals to prepare for their retirement, when they won't have income?"

"Some farmers manage risk very well, while others, for a range of reasons, get caught and could probably do more."

Defining 'drought' isn't easy

One reason Australian governments have been slow to formalise an ongoing drought policy, is that there isn't a highly prescriptive definition of the word, 'drought'.

Intuitively, a drought is an 'acute water shortage', but responsibility for officially declaring a drought lies with government, and the expectation for assistance arises once a declaration is made.

The definition that's used to trigger assistance was put in place in 1999: the Exceptional Circumstances declaration, which allowed eligible farmers to access financial help in the form of interest rate subsidies and support payments.

The 1999 trigger for assistance describes 'exceptional circumstances' as rare and severe events that farmers cannot be expected to manage for longer than 12 months, and which only happen every 20-25 years. That definition has become increasingly contentious. Reports, including one produced by the CSIRO and Bureau of Meteorology in 2008, have warned that global climate change has fundamentally changed rainfall and heat patterns, which is likely increase the frequency and severity of droughts in the future.

According to the Bureau of Meteorology, 2013 was Australia's hottest year on record.

Highly-regarded agricultural scientist, Professor Snow Barlow from the University of Melbourne's School of Land and Environment says agriculture is feeling the effects of a variable climate, and he's now convinced that climate models can be trusted to forecast warming.

"If you look at the rainfall patterns, what people forget is that there have been droughts before and there will be droughts in the future, but what we call the evaporative demand - in other words, the amount of water that the atmosphere requires from the plants in order for them to stay alive - increases as the temperature goes up," he says.

"So what it means is these droughts can be more intense when the ambient temperature is higher."

While states can still apply to the Commonwealth to have Exceptional Circumstances declared in a drought-affected region, the policy is now effectively irrelevant, as the assistance programs it once triggered are defunct.

The state governments also have their own drought relief measures, including transport and fodder subsidies, and sometimes reductions in local government fees and charges.

Mick Keogh says state governments administer drought assistance on an "ad-hoc basis".

"They usually move pretty quickly to get an Exceptional Circumstances declaration because the financial responsibility then lies with the Commonwealth," he said.

The Prime Minister Tony Abbott has called the drought currently affecting parts of Queensland and New South Wales a "natural disaster", which was the approach taken in the 1970s and 1980s.

This has once again raised the option of whether drought aid should reflect the assistance that's currently available to victims of floods and bushfires through the Commonwealth's Natural Disaster Relief and Recovery Arrangements (NDRRA) arrangements, and includes help to pay for clothing replacement and house repairs, community infrastructure and clean-up and recovery costs for primary producers.

The rocky history of Australian drought policy

Australia is famously a land 'of droughts and flooding rains', and for a century the nation has struggled to decide on an appropriate policy response to this persistent problem.

First came the mid-20th century irrigation expansions designed to open up and 'drought-proof' the interior.

In the 1970s, the emphasis shifted to treating drought like a natural disaster, with affected farmers eligible for financial help under the Commonwealth and state governments' National Disaster Relief and Recovery Arrangements (NDRRA).

A review of those arrangements in 1989-90 found that drought support was poorly targeted and acted as a disincentive for farmers to prepare for drought, however, and in 1992 Australia got a new National Drought Policy, which aimed to encourage farmers to become more self-reliant through better planning and better management in drought.

The National Drought Policy introduced family support payments and interest rate subsidies for farmers in financial difficulty, and created Farm Management Bonds, the precursor to the current Farm Management Deposit scheme.

That policy morphed into the Exceptional Circumstances (EC) scheme through the 1990s.

In 1997, the existing family support payments and interest rate subsidy scheme became the EC Interest Rate Subsidy and the EC Relief Payment, and in 1999 the current definitions around what constitutes Exceptional Circumstances were set.

But in 2002, when regional Australia plunged into the first of the Millennium Drought's truly dire years, farm lobbyists initially found the then Coalition federal government less than enthusiastic about spending taxpayer money on farm assistance.

Mal Peters was the president of the NSW Farmers' Association at that time and remembers lobbying the then prime minister John Howard, deputy prime minister John Anderson and agriculture minister Warren Truss for more help.

"I can recall them telling us that they were not interested in middle class welfare, and they weren't going to assist," he says.

"[Farm lobbyists] subsequently met and decided to ramp up a major public relations campaign to make people in all the metropolitan cities throughout Australia aware of how dire the drought was that was affecting the rural communities and the farmers.

"Within about three weeks of that, John Howard then put about $900 million into the EC program and made household support much more available."

While EC was welcomed by the farmers who qualified for it, the many ineligible farmers complained that EC was inequitable and more about lines on maps than genuine need.

Mal Peters, former president of NSW Farmers' Federation

Throughout the Millennium Drought, which lasted most of the 21st century's first decade, anecdotal evidence poured in of farmers who needed EC support but couldn't get it, farmers who got it but didn't really need it, and farmers whose poor farming and management practices were propped up by government money.

As the drought deepened, EC also became a budget nightmare for the federal government, which spent $2.6 billion on interest rate subsidies alone from mid-2001 to the end of 2011. Successive reviews have consistently recommended abolishing EC interest rate subsidies.

During the Millennium Drought, the Federal Government also created the FarmBis and FarmHelp training and education programs (which both ended in 2008), as well as the free Rural Financial Counselling Service (ongoing), which gives farmers access to free financial advice.

Concerns over the costs and inequities of the EC system lead to a series of major reviews of drought policy in 2008-09.

The 2008 Expert Social Panel's drought policy review called for an increased focus on people, and on preparedness for drought.

It also included recommendations for greater government support of community, health and mental health programs in drought-affected areas.

The 2009 Productivity Commission review also made a broad range of recommendations, including the abolition of interest rate subsidies and of EC declarations.

And the CSIRO and Bureau of Meteorology found that using the Exceptional Circumstances scale to declare drought was increasingly irrelevant in the face of climate change, which would see more frequent and severe droughts affecting the Australian landscape.

The focus of drought policy shifted once again away from crisis management and towards preparedness and risk management, effectively aiming to help farmers better prepare for and live with drought. That approach was trialled in a West Australian pilot program in 2011-12.

While the then Labor federal government declared the pilot a success, farmers on the ground were less convinced, saying preparedness would only go so far in the event of another Millennium Drought.

The Millennium Drought started breaking across the country from 2009, before major floods arrived in the summer of 2011.

Further drought policy reform largely stalled from that point, even as the old EC system was effectively dismantled in mid-2012 when interest rate subsidies were phased out, and the last two EC-declared regions officially came out of drought.

Life after Exceptional Circumstances: what's on the table now?

After interest rate subsidies were taken off the table in 2012, the National Farmers' Federation argued that farmers needed to know what other assistance would be available to them when drought returned.

The NFF says that the glaring gap in a preparedness-based drought policy is what happens in the event of another Millennium Drought, or if a drought extends beyond what a farmer could reasonably be expected to prepare for.

In May 2012, the then Labor government introduced interim income support through the Transitional Farm Family Payment (TFFP), paid at the Newstart rate and currently available. Farmers have argued the TFFP assets test makes it too hard for people in need to qualify for assistance.

In May 2013, Labor's then agriculture minister, Senator Joe Ludwig announced that the TFFP would be replaced from 1 July 2014 with a new Farm Household Assistance (FHA) scheme for farmers experiencing 'hardship', also paid at the Newstart rate.

The ABC understands the assets test for the FHA is proposed to be substantially more generous than the TFFP, although legislation to enact it is yet to pass the Parliament.

In April 2012, Senator Ludwig also announced the Farm Finance scheme, originally conceived as a rural debt relief package but increasingly viewed as a delivery mechanism for concessional loans to drought-affected farmers.

The package included $420 million over two years for concessional loans, funding for additional Rural Financial Counsellors, and changes to make it easier for farmers to access the Farm Management Deposit scheme.

It wasn't until after the 2013 Federal Election that the last state, Tasmania, actually signed on to deliver the scheme, which was altered by the incoming Agriculture Minister Barnaby Joyce to give more money to the drought-hit states of Queensland and NSW, as well as Victoria. Those loans are now being rolled out across the country.

In the drought policy wishlist it handed to government early in 2014, the National Farmers' Federation called for government investment in a range of programs, including household support, an expanded concessional loans scheme, wage support for farm labourers, and a range of community and health programs.

Interest rate subsidies were not included in the NFF's wishlist.

Why is drought policy so hard?

In the costly, contentious and emotional debate over drought policy, there's one thing that almost everyone can agree on: the worst time to try and develop a clear-eyed drought policy is during a drought.

Drought policy specialist and Canberra University Professor Linda Botterill adheres to that view, arguing that there is a case to be made for taxpayer-funded drought assistance, "but it needs to be well thought through in advance, and not developed in the heat of an argument of a drought."

"This is where governments have really dropped the ball over recent years, in that they didn't take the opportunity offered by [a package of drought policy reviews in 2008-09], to develop a comprehensive package of measures," she says.

The responsibility for failing to capitalise on the policy work that's already been done is shared, in Professor Botterill's view, by all political parties and by governments at both the state and federal level.

Professor Botterill cautions against a return to the old Exceptional Circumstances model, partly because it undermines what she believes is a self-evident message: that drought is a normal part of the Australian climate.

"I mean really, for us to be shocked and horrified that we're going into drought - again - is extraordinary, in a country which Dorothea Mackellar identified a century ago as being 'the land of drought and flooding rain'," she says.

Australians know the devastating impact of drought on the national economy, landscape and regional communities, and the CSIRO and Bureau of Meteorology have warned those effects will become more pronounced as the climate changes.

So why, after decades of trying, has it proven so difficult for Australia to come up with a comprehensive, meaningful and clear-headed plan for drought and farmer assistance?

"Drought policy is very complex," Professor Botterill says.

Without understanding what causes welfare problems for farm families, any policy we put together in response is little more than guesswork.
Linda Botterill, Professor of public policy, University of Canberra

"It's complex because there is the welfare dimension as well as the farm business dimension, and getting the balance right between those two is particularly challenging.

"I think that there has been a loss of corporate memory at government levels, so that in a sense there's been some reinventing of the wheel going on. [For example] the fact that the intergovernmental agreement [on drought policy reform, signed by Australian governments in May 2013] looks so much like the original 1992 drought policy in terms of content and underpinning principles.

"I think there's been a lack of policy imagination on the part of policy makers, who are unprepared to look at alternative approaches to delivering support."

Professor Botterill says despite the large amount of work that has been done over decades in reviewing drought policy options, a glaring gap in Australian policymakers' understanding remains.

"We haven't measured farm poverty in Australia since the Henderson inquiry of 1974," she says.

"So we don't know how many farmers are in poverty, what's causing that [and whether that's drought, compared with things like a high Australian dollar or fluctuating commodity prices], or the extent of it.

"Without actually understanding what causes welfare problems for farm families, any policy that we put together in response is little more than guesswork."

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