QUEENSLAND’S worst drought in a century is hiding deeper policy failures in the agricultural sector that have devastated rural communities, an economist warns.
Speaking ahead of next weekend’s Sunday Mail Bush Forum in Longreach, Ben Rees says thousands of farmers are now in crisis, reeling from the cumulative effects of almost 50 years of flawed financial and political thinking. A dogmatic “bigger is better’’ theory, starting with consolidation of dairy farms, has driven property aggregations over decades, funded by high debt-to-equity bank loans. The number of farms in Australia has fallen by 30 per cent since 1973 to 128,917. But Mr Rees says the economies of scale did not translate into increased profitability as assumed. What benefits did flow were enjoyed by consumers in lower grocery costs as a result of retail monopolies, rather than by farmers through gate prices.
In 1972, when sector reform began, rural debt was half the gross value of farm production. By 1994, when a debt crisis sparked a Senate inquiry, it had risen to 69 per cent. The lessons were not learned and the ratio continued to rise to three-quarters in 2000, eventually peaking in 2010, when debt was 1½ times the total gross value of farm production. The only reason it levelled off since then, Mr Rees argued, was that rural lending flatlined, cancelled out by foreclosures and bankruptcies.
“It was always a question of when would it fail, and under what circumstances,’’ Mr Rees said. “That failure was exposed unceremoniously by the global financial crisis in 2008.’’ Farm land values have plummeted 40 per cent since the GFC, but the debts remain. “As banks moved to restructure rural portfolios, farmers financed in pre-GFC valuations found themselves technically insolvent,’’ Mr Rees said. Drought-management costs have added to producers’ woes. “Bank foreclosures have been subjected to confidentiality clauses, which have prevented rural financial stress from becoming public knowledge,’’ he said. The number of people working in farming has fallen 30 per cent in the past 40 years, while the national labour force overall has more than doubled. Young people have left in search of work, undermining rural communities and adding to high youth unemployment in urban areas.
Mr Rees, who runs a family farm at Miles, said many of the worst-hit farmers were not eligible for drought concessional loans under rules on long-term viability. But all major political parties continued to “conveniently hide behind drought’’ rather than address the underlying debt problems. The Federal Senate’s economic committee in March dismissed the establishment of an Australian Reconstruction and Development Board to restructure debt in dislocated industries, including agriculture. That means the onus is now on state governments to set up some sort of framework to help save the bush.