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Thursday, 24 March 1994
Page: 2260

Senator BOSWELL (Leader of the National Party of Australia) (4.58 p.m.) —Today is the beginning of National Wool Week. Appropriately, this morning I moved to refer the rural adjustment scheme and rural debt to the Senate Standing Committee on Rural and Regional Affairs. The three terms of reference for inquiry by the committee are as follows:

the adequacy of the Rural Adjustment Scheme . . . in meeting the present and future needs of primary producers suffering from prolonged adverse circumstances beyond their control;

the extent of rural debt, the nature and serviceability of that debt and its social, economic and ecological consequences; and

what mechanisms should be recommended for the management of rural reconstruction and the contributing roles of government, the financial sector and industry.

  This inquiry will have particular relevance for the wool industry, which has been beset by years of high interest rates, low commodity prices following the collapse of the reserve price scheme and, in Queensland and northern New South Wales, devastating drought. I urge all rural industries, communities, chambers of commerce, shire councils, producer organisations, drought relief committees, churches and charitable organisations to make submissions to this inquiry. This is their opportunity to go direct to parliament to expose the difficulties rural Australians are facing in their struggle for survival. This is a unique opportunity for the national parliament to take stock of our rural industries and to assess the resources and constraints acting on rural Australia as it approaches the 21st century.

  Right now governments are looking at the Hilmer review, at regional development, at unemployment and at federalism itself. I urge rural Australians to jump onto the federation centenary train, to make their presence felt, to remind Australia of their great contribution to her development and the stability a healthy rural sector promises for all our futures. Rural Australia, particularly the wool industry, needs to know that the national parliament is committed to a prosperous future for inland Australia.

  The rural adjustment scheme has failed to keep pace with the prolonged adverse circumstances beyond the control of many farmers. Today RAS is faced with the question of not only how farmers are to survive the next few years but also how they can get back to fulfilling their operating capacity and their export generating destiny. Many parts of rural Australia are very run down. Livestock, machinery and capital improvements have all gone by the wayside as woolgrowers in particular have struggled just to survive. There is no time to go into every aspect of the rural adjustment scheme; neither is it a simple or straightforward scheme—the guidelines have changed several times over the last few years.

  The introduction of RAS 1992 and 1993 saw a major change that very effectively restricted eligibility for assistance. In the first six months of 1993 there were only 519 approvals for RAS interest subsidies, at a cost of $6,304,000 compared with the previous financial year's total of $68,064,000. In September 1992 there were 15,000 farmers on RAS; 6,000 to 7,000 farmers were expected to finish their RAS contracts that year, according to the then Minister for Primary Industries and Energy. This was in the middle of the drought, with the lowest possible wool prices.

  The government does not know what has happened to those farmers; it does not monitor the affairs of farmers after they leave RAS. The government made much of its wool package in April 1993. Out of the nation's 60,000 woolgrowers, 5,790 were targeted for exceptional circumstances funding. As at 31 December 1993, 1,367 applicants have been approved, 560 from New South Wales and 214 from Queensland. Something is wrong. The RAS advisory council has twice considered and refuted submissions from the state government to relax the requirement that, to be eligible, 65 per cent of farmers' income is to come from wool. It wants it to be relaxed to 50 per cent. Because of the negative cash incomes, many producers try to get off-farm work, which quickly erodes the percentage of income from wool.

  The much flouted $50.6 million wool package has only maintained the total level of RAS funding to around the same as the previous year at a time when the wool industry and drought-stricken producers in general were really struggling. In addition, the government is recycling $12,674,000 from expected savings from the wool exceptional circumstances fund and from normal RAS funding into forward estimates. Anyone would think that the wool industry was doing very nicely thank you. I seek leave to table some supporting documents.

  Leave granted.

Senator BOSWELL —One document is a standard budget for an average sheep property used by financial counsellors at Charleville. It shows that even if an average property with an average debt was meeting the interest component of the core debt with the wool market indicator at 650c—it is not there, and it is a long way from there—there would be a cash deficit of nearly $20,000.

  The second document is a summary of the characteristics of a representative property in south-west Queensland showing the deterioration of its financial position over the last five years. At June 1988 the average debt was $144,254. By February 1994 it was $364,500. Average equity has dropped from 85 per cent to 54 per cent. Seventy-one per cent of properties today have less than 70 per cent equity, which means they are at considerable risk.

  Also, the ABARE farm survey report of 1993 states that 41 per cent of sheep enterprises are forecast to have a negative farm cash income for 1992-93; 44 per cent had a negative farm cash income in 1991-92. Sheep industry farms are forecast to make an average loss at full equity which, when expressed as a percentage of operating capital, represents a negative rate of return averaging 2.7 per cent. ABARE says that nine per cent of the sheep industry made a positive farm business profit in 1991-92, and 12 per cent in 1992-93.

  A survey report entitled Things are Crook in the Bush, conducted by the Careforce committee in Longreach with the assistance of the DPI and ABC radio, gives some idea of how people are coping. It should be noted that this area has a lot of cattle properties which are not suffering from low wool prices. The highlights of the survey include the following points: 45 per cent were living off overdraft facilities; 27 per cent were living off savings or off-farm investments; 10 per cent were living off both categories; 35 per cent were earning off-farm income and only a quarter of respondents were solely reliant on current property income; 41 per cent of properties were carting water and 44 per cent were hand-feeding stock. The report also states that only eight per cent of respondents were receiving any farm household support or jobsearch allowance.

  The government originally expected 1,400 to take up farm household support in its first year of operation. Eleven months later there were 388 families on household support, and as at 11 February 1994, there were 376 farmers on farm household support.  Minister Crean boasted of the income support available to farmers. But people do not take farm household support unless they are leaving the land. It comes with too many strings attached. After nine months it is a loan, and must be paid back—another loan on top of an ever-increasing debt.

  Are woolgrowers, despite the years of negative incomes, somehow doing too well to qualify for this farm household support? There were 83 families in Queensland and the Northern Territory on farm household support last month. Yet in December last year there were 1,000 families depending on food parcels in south-west Queensland alone. The government loosely estimates that between 4,000 and 4,500 farmers or farmers' wives receive some JSA. Yet we know from the Queensland DPI submission to the RAS advisory council the following:

Social security JSA is not available to most families due to complex eligibility criteria and extended assessment processes, whilst other income support measures are seen widely as additional debt.

The disadvantage with the jobsearch allowance, if they are lucky enough to meet the stringent assets test of $160,000, is that after they have been on it for nine months they can no longer qualify for re-establishment grants. This is causing great anguish because families are going off JSA and living on nothing, just to keep their options open. The Careforce committee concluded:

There is an overwhelming uncertainty about the future, particularly in the next 18 months to two years, which could see many people leave the land without future prospects.

It is clear that the government's estimates about the need for and eligibility for RAS have been way off the mark. It does not know what is happening out there, and that is why a Senate inquiry is necessary to establish the true position. God forbid that the prediction of the Warrego-Paroo catchment committee should materialise; that if producers are not assisted and wool prices remain under 600c, up to 50 per cent of woolgrowers who cannot diversify in the pastoral regions will be forced to sell out.

  The desperate straits of many woolgrowers over a number of years must be set against the backdrop of millions of RAS funds not spent but held in state reserves. This year the states will contribute $103.8 million in RAS reserves to the RAS budget. Note 9 to the RAS 1992-93 accounts shows that the interest received by the states from deposits totals $7,769,041. What must an efficient wool producer think? He has cashed in his super; he cannot get RAS or JSA; he has pulled his kids out of school; he has laid workers off; and he hand-feeds the stock he has not shot. What does he think when he sees $103 million of RAS funds get recycled into the next year's RAS budget, on top of the $12.674 million savings not spent from the exceptional circumstances package?

  What a merry-go-round! The government promises funds and gets lots of media; the farmers cannot prove eligibility, so the government promises the same funds the next year, with more media, but the farmers still cannot prove they are eligible.

  There are many areas of RAS that warrant greater inspection. The other evening in estimates the minister admitted that there are now potentially ten cases where supposedly inalienable re-establishment grants are being claimed by creditors. A week previously there were only two. What is the purpose of having a re-establishment grant, after people have gone through the pain of losing everything, when they have to go through it all over again in the courts?

  I have also been waiting for a month now for some simple answers to a question asked in estimates on why the South Australian loans to the Commonwealth under RAS were arranged to be waived annually from July 1989, coincidentally just months before the state election prior to the exposing of the disastrous financial situation. They arrived in my office a only half an hour ago. They show that the total face value waived was $58.8 million. That has to be further pursued.

  The future holds its own particular challenges to woolgrowers. How do they get their properties back into gear, re-stock, update their old equipment, climb back to peak efficiency and take steps to prevent further land degradation? It all requires capital investment on top of meeting current commitments. Yet forward estimates for RAS show a dramatic drop in assistance from $170 million this year to $92 million next year. This is very dangerous.

  Exceptional circumstances funding finishes on 30 June this year. Unless it is extended, all the money spent to date will have been wasted. The process of recovery must be allowed for, and must be allowed to go ahead. The management of debt is a prerequisite for the healthy survival of large proportions of our sheep, beef and grain properties. At present, rural debt is thrown around like a hot potato between banks and governments and always ends up in the farmers' hands, where it is increasingly being dropped, which is not helpful to anyone.

  The December 1993 Agriculture and Resources Quarterly shows that in 1988 total farm debt was $10.76 billion. By 1993 this had risen to $15.74 billion—a 50 per cent jump in five years—while loan serviceability has nosedived and asset values have fallen. In his address to the Rural Australia 2000 Conference in Toowoomba last December, Dr Mark McGovern stated:

In real terms, over the last decade, gross farm produce has not kept up with national performance; aggregate farm unincorporated enterprise household receipts have halved while total farm indebtedness has grown by 50 per cent while the real net value of farm returns has fluctuated markedly—at no time being above the level in 1980-81. If forecasts for the current year are included, over the last 44 years, 9 of the 10 lowest levels of real net value occurred in the last decade.

Debt is not of itself necessarily a limiting factor. As Dr Peterson from ABARE presented to the Outlook Conference, the optimal level of farm debt is related to many factors. Where farmers expect net returns from borrowing, a higher leverage should increase returns to equity.

  Thousands of Australian farmers are finding that their borrowings, far from increasing net returns, are dragging them down. They do not have the funds to service the debt, run their operations and meet household expenses. The debt grows larger and becomes less serviceable as interest rates, drought or other seasonal conditions work against them and low commodity prices bleed their cash flows. As and when conditions improve, farmers will need capital to build up stock levels, boost productivity and take preventative steps against future droughts and environmental degradation. If the government believes its own rhetoric about all the benefits to be gained by Australian farmers under GATT, it had better make sure that there are plenty of farmers left to make the most of it.

  One of the documents that I have tabled contains results of a survey of the Queensland Graingrowers Association. Its President, Ian McFarlane, says that it will take a succession of good crops over the next five years for many Queensland graingrowers to return to viability. Senator Lees told the Senate recently that one-third of South Australian farmers live on or below the poverty line. The South Australian premier has announced an inquiry into rural debt. He said that there is no doubt that debt is the single biggest problem facing our rural communities.  Another document I tabled contains some illuminating findings contained in the Queensland government's November 1993 submission to RASAC for extensions of RAS's exceptional circumstances, chief among them being that the drought has caused a great loss of some $3,396 million to the Queensland economy over the last two years.

  The DPI concludes that there has been a marked deterioration in equity levels of all primary producers. Life in rural Australia is a house of cards. Rural equity underpins the survival of towns. The Professor of Agricultural Economics at the University of Queensland, John Longworth, has said that perhaps as much as 25 per cent of the Australian work force is employed in occupations dependent on agriculture. The link between economic and ecological sustainability is very strong in the bush, especially in drought areas. Pastoralists are simply not able to implement Landcare programs while their enterprises are financially insecure.

  The dimension of the financial problems in the rural sector is hopelessly mismatched with RAS resources and other schemes. ABARE, industry groups, finance counsellors and the Queensland DPI all agree on the widespread existence of negative farm incomes over several years. RAS interest subsidies for exceptional circumstances are aimed at but do not reach one-third of industry specialists. The rest are struggling along on their own with devastating effects on their families, their health and their future viability.

  As the Queensland Farmers Federation said, a market driven reconstruction where a large percentage of producers were forced to leave the industry would be chaotic, damaging and destabilising. It can be avoided only by government, banks and industry uniting to manage industry reconstruction. At the rural Australia conference in Toowoomba last year, rural debt emerged as the overriding problem. In the federation's press release after the conference, it called for a Senate inquiry into rural debt. The National and Liberal parties agreed that the erosion of rural equity is such that it warrants a thorough investigation.

  Rural adjustment is not just an economic issue; it contains social and moral imperatives. The pressure is on out there—really on. Reviews of RAS are going on now and families are being advised that they are being processed out of RAS. They will join the large rural army marching on hope alone. It is no longer heroic. It is getting damned dangerous. Charitable organisations have done all they can, but it is only government, in association with lending institutions, which can restore some order, which can investigate some mechanisms for managing rural debt and, in the process, revive hope and commitment to inland Australia.