ESSA

ESSA

Small Man Syndrome


Elijah Lim

By

May 18th, 2013


Lim covers the struggle faced by smaller farms in the agricultural sector and their role in the ongoing policy debate and the fight for greater financial assistance. Are things really ‘not too bad’ or does more attention need to be paid to the plight of Australian farmers?


The Federal Government recently announced measures to assist Australian farmers in restructuring their debt and to invest in productivity. Among the measures include concessional loans of up to $650,000 for debt-ridden farmers.

The announcement came just days after the premier of WA rejected calls by the state’s farmers for further financial assistance from the state government.  Premier Colin Barnett suggested that some farmers “probably need to leave”. Moreover, according to the Director of the Bankers’ Association, to some “things aren’t too bad” for farmers, and believes that the recent measures are merely to replace the Exceptional Circumstance assistance scheme.

Such comments have not gone down well with farmers.

The federal government, however, argues that the current measures are necessary as it is only farms that are deemed viable that will eligible to claim concessional loans. Recipients will also have to demonstrate financial need and an ability to pay back the loan. Moreover, the measures are justified by the fact that last decade’s drought meant farmers ran up large debt levels, and now are crippling under the burden of debt servicing costs.

A report by the Productivity Commission back in 2005 which analysed trends in Australia’s agricultural sector, made some interesting points about the trends in Australian agriculture which might help us understand the aptness of the recent policy initiatives.

The report pointed out that:

  • The number of farms is decreasing,
  • The total area of land used for agriculture is decreasing, and
  • Large farms account for the majority of gross farm output (roughly 10% of farms account for 50% of total output), yet small farms still make up the majority of the total number of farms.

The report stressed the changing character of Australian agriculture. Our farms are now fewer, yet bigger, and it is the fewer bigger farms that are producing the majority of total output!  Moreover, although total agricultural output is bigger than ever before, the sector continues to decline as a portion of the national pie.

In light of the recent measures introduced, it will be interesting to see whether it will be the small or large farms that will reap the benefits of the concessional loans and other recent measures.

The number of small farms relative to large farms means that it is the small farmers who have political clout. The fact that the recent financial assistance measures seem to be targeted for the smaller farms suggest this is indeed the case.

It is the small farms – ‘the little guy’ – that are aggressively steering the agricultural policy debate.

An interesting paper by Martin et al (2005) was cited in the Productivity Commission’s report. The paper postulated that the generally low average returns in agricultural industries reflects the high proportion of small farms, and the larger farms (who actually account for the overwhelming majority of the total output of the agricultural sector) have investment returns comparable to investment returns in other sectors of the economy. In other words, they’re not doing too badly overall. Yet this seems hard to believe if one listens to what the farmers are telling us.

Just because some smaller farms are experiencing hardship, doesn’t mean the rest of the agricultural industry is experiencing the same. Nor is the industry as a whole under threat, especially considering most of our agricultural output is attributable to only 10% of farms. It is therefore questionable whether the federal government’s financial assistance going to bring about real and long term improvements in agricultural productivity.

The reality is that the less productive of the smaller farms do “probably need to leave”. Yet they are here to stay as long as they can muster the political strength by their numbers to lobby government and scoop up more special privileges.

References

Productivity Commission. Trends in Australian Agriculture. Retrieved April 30th 2013 from: http://www.pc.gov.au/research/commission/agriculture

ABC News. Famers not in crisis, say banks. Retrieved April 30th 2013 from: http://www.abc.net.au/news/2013-04-30/farmers-nocrisis/4659416

ABC News. Federal Government offers farm finance package. Retrieved April 27th 2013 from: http://www.abc.net.au/news/2013-04-27/farm-finance/4655240

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • Hungy Ye

    Would also be interesting to see the actual number of farmers vs average size of the farms, but this feels like an all too common scenario – an industry where we no longer hold the competitive advantage being pushed out due to lack of govt. subsidies. I guess some of the farmers might be in a very difficult position though, especially if they’ve been in the business their entire lives.

    What do you think are the causes for the concentration of agricultural output into the hands of a few large players in this market? Globalisation?

    • Elijah

      I think globalisation is definitely the major factor. I was also thinking economies of scale…

      You’re also right about there being some sentimental element involved. This is where the politics comes into it. People are innately resistant to change, particularly if it involves a changing one’s lifestyle. So yes, it is tempting to try and ward off change. But at what cost?

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