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Agricultural policy. Labor's green paper, December 1978



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AGRICULTURAL POLICY

-7' LABOR's GREEN PAPER, DECEMBER 1978

by Senator Peter Walsh, Federal Spokesman on Primary Industry

This is a paper on Australian Agriculture and Policy.

The Primary Industry Ministry includes Forestry and Fishing.

These matters, in which, until now, Commonwealth Government

involvement has been minimal, may be the subject of a later

paper. The declaration of a 200 mile exclusive economic zone,

implies increased Commonwealth responsibility for fishing

policy.

The fundamental interdependence of agricultural

industry,-farm families, and the non-farm rural community is 1 : F

recognised, but this paper is primarily concerned with

agricultural policy. It does not presume to deal with the

special needs of rural people in transport, communications,

education or health policy areas.

Background

The bulk of Australian agriculture is land intensive,

^- capital intensive, technologically sophisticated and highly

mechanised. These attributes are due pore to historic,

geographic and economic accidents than any special technical

or managerial efficiency by Australian farmers.

The economic efficiency of the major sectors of

Australian agriculture is demonstrated by the import barriers

raised against them, but this does not prove it is as

- 2 -

efficient as it could be. In 1967, Dillon suggested the

average Australian farmer was only half as efficient as the

top 10%. It may be better now, but comparative farm

analyses continue to show a large differential in the

efficiency (in terms of return on capital or net income per

acre) of farmers operating in comparable farming environments.

In a high wage country, capital intensity and

high technology are prerequisites for international

competitiveness. It is no coincidence that in the export

oriented sectors (grazing, cereal grains, sugar) those

attributes are most highly developed. Conversely the problem

sectors are labor intensive. They are either losing, have

lost, or have never had a comparative advantage. Their

problem has been compounded by growth, often Government

sponsored, beyond the limit of domestic market demand.

Agriculture employs about 7% of the labour

force, produces a similar proportion of G.D.P., and earns

about 45% of export income. Its importance in all three

areas is declining and has been almost continuously, since

the 1930's.

Like commercial farmers all over the world, M

Australian farmers are afflicted by the phenomenon called

the cost price squeeze - the long standing tendency for

prices paid by farmers to increase at a faster rate than

prices received by farmers.

The cost price squeeze can be aggravated by,

but is not caused by, inflation, tariffs, middlemen's rip-offs or the inefficiency of other sectors. Nor is the

related phenomenon, the farmers' declining share of the

-3-

consumer spending on final agricultural products caused by

those factors..

It is convenient for Labor's opponents to blame

inflation for the cost price squeeze because the country's

second highest period of inflation coincided with a period

of Federal Labor Government. (The highest ever period of

inflation occurred, ironically, under R.G. Menzies, revered

as an immaculate economic manager by the latter day

conservative politicians who fulminate about inflation.

Reality frequently bears little resemblance to the inter-pretation of reality touted by politicians.)

Scapegoatism, of either the inflation or

middlemens' rip-off varieties, does not help the farmers or

the industries concerned, but there is little doubt it pays

short term electoral dividends - especially for non-Labor

politicians.

Unfortunately, the agricultural media does

little to remedy this sad state of affairs. With isolated

exceptions, it faithfully reflects the prevailing economic

illiteracy of which it is both a product and a cause. In

fairness to the agricultural media, it should be noted that

recent pontifications on beef prices and ram exports, by

the Sydney Murdoch Press have demonstrated that country

press and Country Party have no duopoly of ignorance.

The fundamental cause of the cost price

squeeze which has affected commercial agriculture throughout

the world for nearly all of the last century, is rising

real incomes, interaction with productivity changes in all

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U

sectors, and the elasticity of demand for agricultural

products. For Australian farmers, substantial structural

change in the form of mineral export expansion has

compounded the other factors.

If averag e real incomes continue to rise, and/or if and output agricultural productivity/increases at a faster rate than

demand for agricultural products, there is no doubt the

cost price squeeze will continue with or without inflation.

Income can still be maintained at stable output

prices and higher labour costs, if the industry can economise

on the use of labour or other inputs without reducing output,

i.e. increase "productivity".

Most Australian farmers have, in fact, maintained

their incomes over the last thirty years, in that way.

Industries in which total output increases,

but demand is inelastic (i.e. greater quantities can only be

sold at substantially lower prices) are most vulnerable to a

cost price squeeze. Agriculture is such an industry.

Output can be increased either by devoting

more resources to an industry or by producing more from the

same resources, i.e. increasing productivity. Agricultural

output has increased for both those reasons.

I w In Australia, the area cropped for wheat and I_ sugar cane more than doubled between 1949 and 1978 (wheat

4.957 m. hectare to 10.117 m., sugar 0.114 m. hectare to

0.295 m.). Higher yields have increased production more

than proportionately.

M

Average output per dairy cow has increased

from 1746 litres to 2404 litres. More livestock have

been carried on the same land due to improved pastures.

The index of agricultural production 1949 to 1976, has

gone from 55 to 116 while the farm workforce has fallen

from 424,000 to 275,000. These are all examples of increased

productivity, although due to higher usage of some inputs

like fertiliser, machinery and fuel, the productivity

increases are less spectacular than the above figures

suggest.

For the farmer, there is a crucial difference

between higher output caused by more resources being fed

in, and higher output caused by better techniques, i.e

increased productivity. Both are likely to induce lower

commodity prices, but higher productivity also lowers the

cost of production. Thus farmers can accept lower prices

but still maintain their incomes - especially if the number

of farmers falls in response to rising labour productivity.

Both individual and aggregate farm incomes

fluctuate wildly with variations in yield and prices.

Incomes in the last nine years are shown below. In this

period farm numbexshave fallen by 12.3%. Had this not

happened, average incomes by now would be some 12% lower.

Numbers and Farm Incomes, Constant 1977-78 ($ value

)

Year Aggregate $m (net) Farm Numbers '000 Average per farm $

1970-71 1973 191.2 10,319

1971-72 2486 194.9 12,756

1972-73 3636 189.2 19,213

1973-74 4965 185.9 26,712.

1974-75 2742 181.8 15,077

1975-76 2267 180.4 12,565

1976-77 2338 173.6 13,469

1977-78 2092 (prov.) 170.5 12,270

1978-79 3300 (est.) 167.6 19,689 (revised

5.2.78)

Source : Bureau of Agricultural Economics

"In view of the asserted and received wisdom that

farmers fared badly under Labor., it is ironic that average farm

incomes were in fact much higher from 1973-4- to 1975-6, than in

either the previous or succeeding 3 year period."

Average Income per Farm Constant 1977-78 ($)

1970-71 to 1972-73 14,096

1973-74 to 1975-76 18,118

1976-77 to 1978-79 15,143

Those who believe. farmers fared badly under Labor

in terms of Federal Government funds received, might also

be surprised by the facts.

e

-7-

Net Federal Government Payments to Agriculture Constant 1977-78 ($ m.) (Average)

1970-71 to 1972-73 464

1973-74 to 1975-76 405

1976-77 to 1978-79 167

Source : Derived from 1978-79 Budget Paper No. 1, page 209

A realistic assessment shows that Government

payments, which rarely exceed 5% of gross farm income, are a

relatively unimportant determinant of farm prosperity. The most

important determinants, world supply and demand, are largely or

entirely beyond the control of Australian Governments.

Governments in Australia have a more significant

indirect influence on farm incomes by their control of or

influence on :

(a) Intersectoral competition and its effects on farmers'

terms of trade (e.g. tariffs and favours for the mining

industry)

(b) Marketing legislation affecting farmers' bargaining

power

(c) Inducing or sustaining surplus capacity.

Point (c) above is relevant to several current

agricultural problems.

There is no doubt for example, that the previous

tax deductibility of capital expenditure was a major factor in

the heavy wine grape. plantings in the early 70's, and present red

wine grape surplus. The cacophony of protest from farmers'

leaders which greeted the long overdue termination of that

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policy in 1973, is a measure of their failure to grasp market

realities and/or of their indifference to the welfare of their

lower income members who had always been net losers from the

concessions.

Farmers have been reluctant to acknowledge a

fundamental economic truth - they are in competition with each

other as well as with all other sectors. Measures, like

taxation concessions for clearing, which boost output will

depress prices received for farm products, and perhaps, boost

input costs.

It follows inevitably that farmers who are not

exploiting the concessions, or are exploiting them to only a

limited extent, are actually disadvantaged by them.

Traditionally, the Country Party has successfully

glossed over the fact that farmers are in competition with each

other, and its corollary - that more farmers will make life

harder for those who are farmers. The Country Party Leader's

recent acknowledgement of the truth on this matter, is as

welcome as it was unexpected. Speaking at the Agricultural

"Outlook" Conference (31.1.79), Mr. Anthony said :

"To see people have to give up farming is not something I relish. And yet this change is critical to the continued profitability and viability of agriculture".

A sequel, farcical and tragic, to the policy of

tax concessions for agricultural "development" has come forth

from Western Australia.

In December 1978, the Court Government passed

legislation which effectively bans further clearing in the

catchment areas of four South-West rivers. The reason is that

-9-

clearing causes stream salinity to rise and the rivers

are, or may be, needed for water storages.

The technical realities have been known for more

than 50 years, but in the 1960's huge areas of virgin land

were thrown open for selection by the State Government. Taxation

concessions played a crucial role in clearing and "development".

The most audible Minister in the State Government

of the 60's was Sir Charles Court. Frequently he boasted of

the achievement of developing "a million acres a year". He

stridently denounced the termination of tax subsidies for

this "development" in 1973.

Now, his Government has banned clearing and

condemned many of the farmers on partially cleared blocks to

non-viability. Quite possibly, the State may be burdened with

the cost of re-afforesting some of the land. Predictably, the.

farmers are angry, while Sir Charles Court walks away from the

chaos substantially of his own making. If precedent is any

guide, he will seek Federal financial assistance to cover up

the financial consequences of his follies.

Some State Governments have been, and perhaps

still are, leading promoters. of the irrigation cargo cult.

That irrigation has a valid role in Australian agriculture is

not in dispute, but nearly all irrigation products are, and

have long been, in chronic over supply. The most bizarre

example of State irresponsibility in this area, was the

Victorian Government's allocation of new irrigated dairy farms

in 1976.

` -10-

In the area of Government-caused problems of

excess supply and irrational policy, the Commonwealth has not

been blameless (e.g. the co-existence until 1973 of tax

concessions to stimulate production, and legislation to limit

it; subsidies to pull out fruit trees the planting of which

somewhere else was tax subsidised; also, cynical pre-election

stunts like funding in 1967 the Ord River white elephant to

secure the fifth Senate seat in Western Australia) but States

have been the major offenders. Some State Governments seem to

believe the Commonwealth is obliged to provide outlets at

acceptable prices for all agricultural output a State sees fit

to foster.

The Commonwealth does have a responsibility to

optimise efficiency in marketing abroad. In the following

section on specific issues this will be a recurring theme.

SPECIFIC ISSUES

Wool Marketing

The last Labor Government was responsible for the

most significant wool marketing reforms ever. In 1974 it

expanded the Wool Corporation's trading powers and more

importantly, introduced the firm seasonal reserve price,

backed by a Parliamentary appropriation of $350 m.

For this massive intervention and financial

support, Labor has received little credit from the Liberal/

Country Party woolgrowers who had urged "their" Governments to

take the same action for twenty years. Indeed it received some

abuse for not setting a higher reserve from the same people who

complained about the expanding deficit largely caused by the

reserve price funding.

-11--

Although the scheme was an unproductive political

investment, it was justified because it headed off a socially

catastrophic price-fall and undesirably heavy withdrawal of

resources from the industry.

The A.W.C. argued in its 1973 Marketing Report that

if it had "acquisition" power, it could better achieve marketing

economies and more importantly could lift wool's long term

demand curve and therefore price, by guaranteeing future

delivery to "key users" at stated prices. The "key users", who,

it was argued, set fibre choice patterns for the clothing industry,

would not use wool unless they could be assured of supply at

known prices. The A.W.C. could not guarantee supply unless it

had command of the clip by "acquisition". If stocks were

exhausted in a price boom, the Corporation would "ration" wool

supplies to these "key users" at prices which, by definition,

were below market prices. The form of "acquisition" proposed

was A.W.C. price control over wool exports, about 95% of

production.

Later, it was argued that without acquisition the

reserve price would be undermined by the unrestricted export of

wool purchased privately on farms, and therefore, •not subject

to the discipline of the Corporation's reserve price. Implicit

in that argument is an assumption that woolgrowers do not

know the approximate market value of their wool, and can be

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induced to sell on the farm for a lower price than the

Corporation's reserve. That may be so, but no evidence has

been produced to demonstrate it.

On the contrary, a B.A.E. study "The Private

Buying of Wool" dated 24.12.78 concluded that on farm sales on

average realised full market values. The study was restricted

to N.S.W. A similar study should be done in Western Australia

where private buying is, and has long been, most significant.

In November 1978 Corporation produced a revised

marketing plan which claimed to fully endorse the 1973 version. It

was however, silent on the "key user" theory which was central

to the earlier report.

The 1978 report stresses the need to maintain

stocks of all types of wool of sufficient size to prevent

rapid price escalations, which are said to be harmful to

woolgrowers. That, in conjunction with the estimated financial

requirement of $450-750 m. suggests the Corporation envisages

deliberately holding stocks large enough to guarantee supply at

fixed prices without resort to rationing.

Whether the alleged dangers of rapid price

increases justify the deliverate immobilisation of so much

grower's capital is open to question, as is the alleged danger

of boom prices.

If the maintenance of stable prices to the wool

buyer is as important as some industry statements suggest the

floor price should be adjusted to changes in the value of the

$A. Even then, it would be impossible to maintain constant

prices in terms of all foreign currencies. Logical extension of

the beliefs that rapidly increasing prices are bad for the

industry, and that wool promotion induces higher prices, would

- 13 -

require suspension of promotion activity^ during or just

before a price boom, but the A.W.C. has never suggested these steps should be taken. It was claimed by the International Wool Secretariat

in the late 1960's that the I.W.S. wool promotion campaign had

broken the price "nexus" between wool and synthetic fibres. If

that claim is correct, and it has not been contradicted or

amended by the industry Establishment, wool users are now less

willing to accept substitutes. In technical jargon wool

demand would be price inelastic,-therefore, high prices would

be unlikely to induce processors and manufacturers to switch

from wool. The I.W.S. and A.W.C. appear to have been silent on

these questions also.

There is reason to question the Corporation's

market forecasting ability, in the macro and micro sense.

Firstly, the Corporation sold off its stock of nearly one

million bales before the boom of 1973. Its failure to

maximise either industry income or price stability in that period,

do not inspire confidence in its ability to astutely manage the

$450-750 m. it proposes to tie up in stocks.

Perhaps it was under political pressure to sell

in 1972. If so, it should say so. Secondly, for more than a

decade the I.W.S., the Corporation and its predecessors have

asserted that the price of "quality" wool (i.e. fine fleece

wool) relative to other wool would rise. This has not happened.

Following that theory, an arbitrary decision was

made in the slump of 1970-71 not to buy in any "poor quality"

wool. Ultimate price gains for the wool arbitrarily excluded

from purchase were the highest of all. The Corporation's

judgement was wrong again. Ever since wool has been bought

- 14 -

in, purchases have been disproportionately concentrated on

fine fleece wool, below 21 microns. Early in 1978, this grade

comprised 25% of stocks held, but only 10% of the clip.

At the end of June 1978, wool below 20 microns,

which comprises only 8% of a normal clip but 16% of the 1977-78

clip, accounted for 34% of the A.W.C. stockpile ("Wool Situation

and Outlook", B.A.E., January 1979). The Corporation's

Monthly Perspective, January 1979 puts the 20 micron and below

component of stocks at 31%.

There can be little doubt that the Corporation's

false expectations have caused intra-industry income transfers

to fine wool producers. The extent of that transfer since 1971

appears to be impossible to estimate because the Corporation

changed the micron parameters of its wool categories during

1977, and because objective measurement was not used in the

early years.

The gravest suspicion about the economic literacy

of people associated with the Corporation and I.W.S. arises

from the still unrepudiated economic quackery concocted during

the 1960's, that increased wool production would cause wool

prices to go up. The fact that this fantasy was later used to

support a spurious argument for the export of merino rams, or

I_ that it is still mouthed as an eternal verity by feeble minded

Liberal and Country Party politicians, does not excuse the

contemporary Corporation or Secretariat for not unequivocally

scuttling it.

A change, perhaps significant, in the Corporation's

1978 Marketing Report, is the assurance to woolbroking firms that

their role it the industry is not under any threat. Given that

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woolbroking firms have heavy investments in obsolete, technically

and economically inefficient systems of marketing and handling,

that assurance provides cause for concern. If it is taken at

face value, the acquisition power which is supposed to expedite

efficiency in handling, will become a means of protecting vested

interest and underwriting inefficiency.

Despite all the above mostly critical comment,

there is a strong case for allowing an industry to market its

product as it chooses, provided it does not penalise other

Australians, and that the policy is supported by most producers.

The first provision scarcely applies, since 95% of the clip is

exported.

Consequently,-a Labor Government should, subject

to approval by referendum of a majority of woolgrowers, undertake

to provide the necessary legislative framework for "acquisition",

on the clear understanding that the Corporation is entirely

responsible for funding the scheme.

The last qualification would require a market

support fund of $300-350 m. which should be reached by 1981.

Whether "acquisition" is introduced or not, Labor should

support a "revolving fund" (i.e. returning to individual

woolgrowers the money they contributed to the fund about eight

years earlier) in the early eighties.

Beef Marketing

With limited regional exceptions, Australian

beef and cattle prices, whether the Sydney popular press

recognises it or not, are very closely tied to average export

parity. The violent fluctuations in beef prices (up in 1973,

down in 1974, and th.e prolonged slump which followed until mid

0

- 16 -

1978) have induced demands to break this price nexus by

arbitrarily setting a domestic beef price. Cattle producers

in 1973 were aghast at the idea (remember those "hands off the

beef industry" car stickers?) but many have since come to

favour it. This support might quickly disappear with higher

cattle prices.

There are respectable general arguments against

Government price intervention in the domestic market. For

example, if beef export prices suddenly doubled, no great

hardship is imposed on Australian consumers who decide to switch

to mutton, lamb, fish, poultry or cheese. The extra beef

released from the domestic market will boost national income.

This "substitution effect" is one free market phenomenon which

adds to aggregate consumer welfare. It should not be resisted

without very good reasons. More importantly, arbitrary

domestic pricing is unlikely to produce the results expected.

Over the last decade, about half Australian beef

production was consumed at home. The rest has been exported,

mostly at high prices to North America, Japan and, at times

the E.E.C. Except for a brief period in 1973-74, entry to those

markets has been limited by quota. Beef in excess of domestic

sales at ruling prices plus quota markets, was disposed of

on "opportunity" markets at prices much lower than North America

etc. The average export price effectively sets the price for

the domestic market as well.

Australian exporters "earn" an entitlement to

sell on the high priced export markets by past sales to them

and to "opportunity" markets. In theory, they pay for cattle

in Australia the •average export price, less killing and

transport costs. It is widely suspected by cattle producers

LI

- 17 -

that they do not receive the average price, and that

exporters misappropriate a large share of the high priced

market returns. Hard evidence appears not to be available.

Domestic demand for beef is "price elastic".

In the depth of the recent slump, per capita consumption was

60% above previous levels, a direct response to lower prices.

If, as supporters of administered prices would have liked,

domestic prices had been arbitrarily set at higher levels,

there is no doubt that domestic sales would have been lower. The

beef displaced from the local market would, of necessity, have

been dumped abroad, not at average export prices, but at

below the lowest export prices.

Losses from the dumping might well have equalled

gains to the industry from higher prices for the remaining

domestic sales. The B.A.E. estimate in May 1978 that a

10% increase in local beef prices would have caused industry revenue

to change by between + or - 3%, confirms that probability. In

other words, arbitrarily increased local prices would have

taxed Australian consumers to provide cheaper beef to, for

example, the U.S.S.R., but cattle produders' total income would

not have changed. Due to "substitution effects", local

poultry, pork, lamb, fish and cheese producers might have

derived some benefit.

Despite its current populist appeal, which by

1980 might have been dissipated anyway, Labor should not

support administered domestic beef pricing. We should leave

such ill considered intervention to the eccentric exponents

of "free enterprise" and "small Government" who govern the

State of Queensland..

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If beef was not a perishable product, and therefore

prohibitively costly to store, physical buffer stocks, as

with wool would be attractive. The boom and slump elasticities

of demand, at least in 1973 and beyond, should make a buffer

fund highly profitable.

Those potential gains could have been substantially

realised if a few million more cattle had been slaughtered in

1973. The industry would have gained in two ways, firstly

from the very high returns then available, secondly, from

higher prices beyond 1975 because a few million less cattle

would have been dumped on an over-supplied market.

It is frequently asserted that "the experts"

failed to warn cattle producers in 1973, of the impending

slump. That is by no means entirely true.

The B.A.E. 197 = "Outlook" paper, written in

1973, contained muted warnings. Some academic economists

(e.g. Watson) explicitly forecast a major price collapse in

1973 as did one then practising politician, B. Chatterton,

M.L.C., now Minister for Agriculture in South Australia.

The "experts" who failed most dismally were as

usual those who claim to have a unique understanding of

agriculture - the Country Party politicians, who sang in mindless

harmony of the need to provide "incentives" to increase

production. Appropriately, the most spectacular false

prophecy came from the Country Party Leader, J.D. Anthony, who

in September 1973 asserted :

"Demand for meat will rise so fast, we'll be flat out trying to keep up with it."

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Physical buffer stocks, except to a limited

degree in the form of live cattle, are not feasible. Monetary

buffer funds are feasible and do not suffer from the fatal

defects of administered pricing. They could however induce

some producers not to sell when market prices are high, but

sell when they are low.

The size of the reserves needed to maintain trend

prices through the 1974-77 slump (about $800 m.) should not

necessarily rule out a buffer fund. If the fund had paid for

only two of the four years, it would still have halved the

duration of the slump. The limitations of a buffer fund

should however, be recognised. Recent B.A.E. studies suggest

that about one third of beef cattle properties cannot generate

a living income with buffer schemes or any likely increase in

cattle prices.

Whether a buffer scheme is worthwhile is arguable.

It would be neither politically sensible nor morally correct

for a Labor Government to introduce one without the consent of

cattle producers by referendum. By 1980-81 it may not even be

an issue.

The objective marketing of beef or cattle, whether

by objective carcase classification or liveweight sale, is a

separate issue to administered pricing or buffer fund

operation. Objective marketing.is innately desirable.

Beef Export Entitlements

The export quota system, and cattle producers'

suspicions about its operation, were briefly described in the

preceding section. Whether the producers' suspicions are

entirely justified or not, there is a compelling case to sell

- 20 -

the quotas by auction or tender. (There is an equally

compelling case to sell import quotas for clothing, footwear

etc.)

Quotas could be sold by the A.M.L.C. The details

are negotiable, but proceeds could be used to pay present

industry levies and the surplus distributed to cattle

producers as an addition to the proceeds of sales for

slaughter. To ensure that competition prevailed, the

A.M.L.C., should itself bid or tender and if necessary trade

as a principal. Whether the A.M.L.C., should exercise any

price discipline over exports is an option which should be

kept open.

Sale of quotas would ensure that the benefits of

high priced overseas markets were fully passed on to

cattle producers, and were seen to be passed on. Exporters

would have greater freedom of entry to the preferred markets,

and greater trading flexibility.

A Labor Government should be unequivocally

committed to this change, but in fairness to existing quota

holders, at least twelve months notice of change should be

given.

Wheat Stabilisation

The Australian Wheatgrowers' Federation

has stated a policy to end Wheat Stabilisation in its

I " traditional form and sell stock feed wheat at around export

parity.

Whether these decisions were the result of "McEwan

Ventriloquism" (i.e. the practice of bouncing back from

- 21 -

farmers' organisations the policies already devised by

Country Party Ministers) or inner conviction, they should be

welcomed.

A great deal has changed since the first wheat

stabilisation plan was introduced by the Chifley Government

in 1948. The stabilisation fund policy always had faults as

well as virtues. It discouraged production when prices were

high and encouraged production when they were low. This

adversely affected resource use. The "cost of production"

notion, always suspect, patently stupid after the inclusion

of "imputed" costs in 1953, watered down in 1958 and 1963,

was finally abandoned in 1968. In 1974 a more sensible

"guaranteed price", essentially a moving average, was

adopted.

Since 1948, home consumption has fallen from

nearly 50% of a normal crop to about 20%. Stabilisation

has been clearly shown not to have stabilised farm incomes.

Most importantly world grain prices have been stabilised

by collusion among major exporters and especially

by the United States.

Monopoly export powers by the Australian Wheat

Board are essential to maintain that system, but stabilisation

Ii is an independent matter. To maximise both national and

industry income, wheat for stock feed and industrial usage

should be priced at or near export parity. For human

consumption, the optimum pricing policy is not so clear.

Demand is much less price elastic. If wheat prices were

adjusted annually, a "ratchet effect" would probably operate

on final wheat product prices. These factors favour an

- 22 -

administered price, but a price deliberately set above

export parity would have regressive income distribution

effects. The argument currently raging about a free

domestic wheat market will be dealt with below.

The most important wheat industry issue to be

resolved is the degree (if any) and form of Government

assistance.

The most recent B.A.E. industry survey revealed

that wheatgrowers' average incomes were more than double

average weekly earnings. Given that fact we should not be

afraid to say that income transfers to wheatgrowers cannot be

justified on equity grounds.

Given another fact, that the wheat industry is

among the most economically efficient of all Australian

industries, and that demand - periods of restricted production

aside - is more price elastic than for most other efficient

industries, there could be a case for public assistance on

resource allocation grounds. There is little doubt that

national income would usually have been higher if more

resources had been devoted to wheatgrowing. Our object should

be to optimise - usually maximise - wheat production at

minimum cost to the Government.

The B.A.E., in its submission to the I.A.C., stated

that the most important determinant of wheat production levels

- seasons aside - was the level of the first payment lagged

one year.

The B.A.E. therefore suggested, without being

rigid about the detail, that a "minimum delivery price"

should be announced in January for the crop to be planted in

- 23 -

Autumn. The price would be 95% of the estimated average market

return from the crop just harvested, the crop just sold, and the

forecast of the crop about to be sown. It is a partly

prophetic moving average price. The I.A.C.'s preferred

system was conceptually related, but placed less emphasis on a

very high initial payment and used less current price data.

The B.A.E. has since modified its view, on the

grounds that market prices cannot be forecast with acceptable

accuracy in January, for a crop to be planted in Autumn. It

now suggests announcing a delivery price in September equal to

95% of the estimated market return for the coming crop and the

two previous crops.

The modified proposal incorporates a stabilisation

fund of $100 m., with no limit on payments out in any year,

and a restriction on the year to year movement in the delivery

price. Without these restrictions a 95% delivery price

would have required a Government payment of almost $100 m. in

1976-77. For more than 20 years up to the mid 70's no payments

would have been required, under the B.A.E.'s first proposal, when

wheatgrowers were generally.affluent. With the second B.P.E.

proposal, the highest single year cost would have been just above

$40 m. and again no payments would have been made for two decades.

The precise details should be negotiated with the

industry, but three general principles can be stated :

(1) The general principle of the B.A.E. proposal should

be endorsed

(2) The payment ort delivery should be closer to the ultimate

payment than has been the case in the past

(3) A stabilisation fund should be optional to the industry,

but without a fund the delivery price would be lower.

-24-

The system and variants of it entail a much higher

initial payment to growers and consequent higher short term

liquidity. They will almost certainly be fiercely resisted

by Treasury theologians in love with their own dogma.

One of the I.A.C.'s least important wheat industry

recommendations has attracted the most attention - its advocacy

of free private trading on the domestic market. A high

initial payment and export parity stock feed wheat prices would

deflate the pressure for private trading.

Some of the arguments advanced by the free trade

lobby are specious, e.g. if as is alleged extra people are

employed in transporting wheat under "grey market" conditions,

then both fuel and human effort are being wasted. One "free

market" lobby does not appear to want a free market at all,

but a licensing system which would give the established

traders a secure oligopoly.

The I.A.C. observations about Wheat Board

inflexibility and transport inefficiencies are probably

justified but these difficulties could be removed without

ending the Wheat Board's market control.

Thw Wheat Board is expected to guarantee stocks for

the local market. Likewise the handling authorities are

expected to receive the abnormally big crop. Competition

between them and traders who have no such obligations, would

not be fair competition. Finally the looming dangers of

insect control strengthen the argument for a centralised

handling and selling system.

On balance we should support retention of the Wheat

Board's monopoly powers providing the High Court's 1978 decision

stands. The contorted reasoning and sloppy assumptions

-25-

underpinning most the Justices' opinions will add to their

growing and well deserved reputation for eccentric law and

bad economics. If the Court decision is later overturned,

the position will have to be reconsidered.

Dairying

In 1960 the McCarthy inquiry recommended the termination of

the dairy industry bounty, and industry reconstruction.

The bounty and equalisation arrangements induced higher and

higher butter production sold at ever declining marginal

prices. As with all commodity subsidies most of the gains

accrued to larger, higher income farmers. The bounty had

failed miserably to alleviate dairyfarmer poverty - a fact

starkly quantified by the McKay report in 1967.

That the McCarthy recommendations were correct is not

now seriously contested, but the inept policies it exposed

continued to exacerbate dairy industry problems until 1973.

When the Labor Government applied the McCarthy principles,

it ran the usual gauntlet of Country, and to a lesser extent

Liberal, Party ill informed abuse.

The Labor Government's bounty phase out and dairy

legislation of 1974 expedited reconstruction, and the damaging

emphasis on a declining product (butter), has been reversed.

The industry is in much better shape than it was six years ago.

-26-

Present market indications are that the movement

from butter to (principally) cheese, has not gone far

enough. If this persists it may be necessary to apply more

pricing pressure on factories. The present underwriting

arrangements provide significant insulation against market

forces. There is some danger that the old dairy industry

bounty, with most of its faults, could be reintroduced

through the back door under the name of underwriting.

At the 1979 B.A.E. Outlook Conference, the Dairy

Corporation Chairman advocated new dairy industry investment

to increase output, and stated that up to 20% return on

capital was not feasible.

Given the assumptions underpinning his 20% estimate,

it is alarming that the Corporation Chairman has spoken as

he did.

When questioned about prices, he stated it was assumed

the output would be sold at cheddar cheese underwritten

prices, and that 15% of output would receive (much higher)

market milk prices. Those assumptions may be correct for a

private investor, but it is quite wrong to apply them in a

macro-economic context.

From a national viewpoint, dairy output should be

increased only if the marginal cost is below marginal market

prices. That price for cheddar is about $950 per tonne,

$25 below the underwritten price. No market milk component

should be included. If output increased under the conditions

-27--

outlined by Mr Webster, average prices received by all

dairyfarmers would fall. Incomes received- by all dairyfarmers

not increasing their output would then, inevitably, decline.

Further, the best immediate response to relatively good

marginal cheese prices would be to divert more milk to cheese

from butter, as stated above.

Farm and Rural Poverty

The Henderson Inquiry noted a higher level of

poverty in rural areas than capital cities. Unemployment

has quadrupled since the Henderson data was collected.

Presumably poverty has now increased significantly.

On 9 September 1973, Mr Anthony issued a Press

Release demanding a rural unemployment relief scheme.

"The refusal of the Minister for Labour (Mr Cameron) to act urgently on the rural unemployment situation ... is to be deplored." He continued, "Many thousands of people in

country areas are faced with imminent unemployment. It seems very hard to (make the Government) understand the seriousness and urgency of the matter."

When that statement was made, 38,183 non-metropolitan

unemployed were registered with the C.E.S. In February 1979

it had risen to 195,649, but no rural unemployment relief

scheme is in sight. Mr Anthony evidently perceives problems

and the need for Government action more clearly in Opposition

than in Government.

-28-

The general problems of poverty and unemployment,

rural and urban, are outside the scope of this paper,

but farm poverty is sufficiently diffentiated to warrant

separate comment.

Even if across the board negative tax or minimum

income schemes existed, farm poverty would still entail a

definitional problem. What income should be imputed

for the house, farm grown food and motor transport

usually provided to farmers by the business? What negative

income should be imputed for the normally higher cost of

entertainment and recreation?

A further problem is that farmers frequently have

low incomes but assets much higher than the non-farmer

Australian average. The yield on capital investment in

farm land is low for a variety of reasons : because some

farmers will buy land while they have money, because of

competition for non-agricultural use, because farmers and

urban buyers alike anticipate tax free capital gains, and

sometimes because farmers fail to maximise the income

potential their land has.

I'_

-29-

The chronic low income farms are almost invariably too

small, or associated with problem industries. Frequently

they are both. Structural adjustment out of agriculture

is not the easy option it was when full employment

prevailed. Limited survey evidence leaves little doubt

that a substantial and increasing number of low income

families and unsuccessful applicants for rural reconstruction,

have supplemented inadequate incomes from small farms

with off-farm employment.

"Traditionally the strength of a rural region's economy has been viewed as being dependent upon economic conditions prevailing in the rural sector. However so widespread is the incidence of off farm employment, in the grazing industry at least, that it may be that viability of many properties is dependent upon household members being able to gain work in other industries within

the region." (B.A.E. "Rural Economy" November 1978. See also Tubman, Australian Journal of Agricultural Economics, December 1977.)

_ 30 _

There is no doubt that rising unemployment and

deepening depression are seriously limiting the options of this

most disadvantaged group of farm families. Their interests

clearly receive scant consideration from the farmer

organisations (e.g. A.W.G.C.) which trenchantly support

policies aimed at getting inflation down regardless of the

cost in higher unemployment. Likewise the penchant

displayed by most farmer organisations for tax and interest

concessions and subsidies, faithfully reflects the interests

of the larger and wealthier farmers who effectively control

them. The poor as usual have the softest voices and

weakest political muscles.

(The disinterest of farmer organisations in

unemployment may not even be in their own interests, given

the association between high unemployment and high protection

and the adverse effect of the latter on agricultural export

prices - something the A.W.G.C. has itself strongly

publicised.)

Another identifiable group of farmers in viable

industries and on viable sized farms have intermittent poverty

level incomes due to drought or industry depression, e.g. many

beef producers 1975-78. If these farmers can maintain

personal expenditure by borrowing, they, or any other group,

need no public assistance. Those who cannot borrow should,

subject to a means test on both income and assets, qualify for

household relief grants on more flexible and liberal terms

than the $3,000 Rural Reconstruction "loans". It can be argued

that assistance of this type would not only be more

effective, but would be cheaper than providing up to 15 year

loans at interest rates down to 4% for temporarily marginal

producers, as Rural Reconstruction and Adjustment.

- 31-

The chronic low income farmer with insufficient

equity to sustain expenditure from borrowing, unable to obtain

off-farm work or be reconstructed out of agriculture, poses

the most difficult problem. Even these farmers appear to

have substantial net worth. A Labor Government should offer

annuity payments against the equity they have in their

properties. There would be little or no long term cost to

the Government. Even the short term cost will not be large

if, as is likely, farmers are initially reluctant to accept

the offer.

An apparent anomaly rarely mentioned in discussions

on agricultural structural adjustment, is the treatment of

farm labourers. Farm owners have established and

recognised organisations to lobby on their behalf, though

the public assistance does go disproportionately to

relatively well off farmers. The farm labourer squeezed out

of agriculture by economic pressures (i.e. sacked) has

nobody to lobby on his behalf.

During the recession of 1969-71, there was a

major "shake-out" of the agricultural labour force of both

owner/operators and employees. The precise statistics are

complicated by varying definitions, inter censal gaps, and

in the 1976 Census, an apparent unrealistic inflation of

the "Farmer and Farm Manager" category by fringe

metropolitan hobby farms. (This factor probably pads the

number of "farmers" recorded as having o f f-farm income as

well.) It seems likely however, that more farm employees

than farmers have been forced out of agriculture. Nobody

weeps for them.

-32-

A phenomenon which receives considerable

attention from farm groups, is the alleged problem of an

aging farm population. The Green Paper (1974) estimated

that the average age of farmers was 55. Farmer groups

seized on this figure, alleging it was a sympton of looming

disaster which the Government would have to remedy -presumably by putting public cash into agriculture. How

that would have lowered the average age was not explained.

The initial figure of 55 years was suspect, since

it almost certainly included a number of quite elderly land

owners who were not actually farming the land, but more

importantly the idea that an aging farm population poses

some threat, is fallacious. Australia, like most "advanced"

countries has an economic surplus of farmers. If a high

proportion are elderly and approaching retirement, the required

adjustment will be expedited.

Farm Finance

It is generally recognised that Mr. Fraser's

1977 election promise to provide, through the Primary

Industry Bank, "long term loans to viable borrowers for up to

30 years at concessional rates of interest", was as cynical

and empty as most of his other promises.

The Primary Industry Bank is a political gimmick.

Despite its access, for the present anyway, to captive funds

(I.E.D.'s) at 5% interest, its lending out rates are

identical to overdraft and Commonwealth Development Bank

rates. The services it does provide, unnecessarily, and

probably less efficiently, duplicate services of the C.D.B."

Quantitatively its lendings will have little effect on aggregate

- 3

3 -

rural lending, about $3.5 billion. It will have more

relevance compared to new rural lending - about $630 m. in

1977 - provided Government credit does not drive out private

credit.

Its most noteworthy feature, is that it has added

to the cost of financial services by interposing another tier

of bureaucracy between potential borrowers and the money.

With or without the farcical P.I.B.A., the

price of credit to agriculture remains a contentious issue.

A central tenet of the conventional agricultural

wisdom has long been that farmers should get credit at

concessional rates of interest. That view has been widely

supported within the A.L.P. due to the (declining) influence

of Social Creditors and other monetary cranks, and the

misconceived belief that cheap money helps the small

struggling farmer.

In fact, the reverse is more likely to occur.

The economic role of interest rates (apart from their

doubtful influence on the level of savings) is to ration

credit by price mechanism. If credit is free, or is

provided at con is rates, it will still be rationed, but

by non-price means. If it is decreed by fiat that private

funds must be lent to one sector at sub-commercial interest

rates, credit will either be withdrawn from that sector, or

it will be lent only to the most secure borrowers. Public

funds can be directed into rural credit at any rate of

interest. When the y are so directed, they appear- to drive out private

-34-

credit (see Standen and a B.A.E. 1978 publication on rural

credit). More importantly, the security constraint still

applies albeit in modified form.

The lending authority (e.g. Rural Adjustment)

may decree that farmers who can get trading bank finance will

not get public funds,hut Rural Adjustment always imposes an equity and

"viability" test. Public authorities do not direct limited

concession finance to farms too small to generate a living

income, or to the farmers most likely to go broke. The

P.I.B.A. will be even less likely to do so, since the

trading bank assesses "viability", and carries the risk of

default.

Whether the concession credit comes from private

or public sources, it does not get to the smallest and most

hard up farmers. They either do without credit, give up

farming, go to the wall or resort to the highest interest

credit from hire purchase companies or non institutional

money-lenders, while better off farmers get cheap money

subsidised by the taxpayer.

Even without the non-price rationing arrangements

which ensure the poor and small farmers do not get the cheap

credit, the wealth and income distribution effects of

interest concessions are regressive. Commonsense or a

moment's rational thought should tell us it is not the poor

who have huge debts - who lends $100,000 to a person without

assets? - but the relatively well off, or even the very rich.

Watson's summary at an agricultural finance seminar

at Roseworthy Colleage (20 September 1978) was unequivocal

and correct :

- 3

5 -

"Despite popular belief, subsidised interest rates are nearly always to the advantage of the rich because they owe more than the poor who are driven to high-interest rate markets when loan funds are

scarce ... I would assert there are few methods of Government intervention less likely to improve the lot of small farmers than measures operating through the financial system."

Moreover the popular belief that most farmers.

have heavy debts is quite wrong. Nearly half the farms are

debt free, and another quarter have quite small debts.

There is a positive correlation between small farm size and

no or low debts.

It is also argued that concessional finance should

be provided because

(a) return on capital in agriculture is low

(b) it would expedite entry into farming of younger

people.

Both arguments display ignorance of the role of

interest rates in a market economy, and the conclusion in

(b) is wrong.

A low return on capital in any industry is a

market signal that investment should be directed somewhere

else, not a signal to subsidise investment in the low yield

sector.

The low yield on capital in agriculture is a

function of a monetary and non-monetary preference. Many

farmers accept low capital yields

farmers. Land prices are usually

on capital, because farmers and n

tax free capital gains from land,

have money would rather buy land

some other asset which may return

because they like being

high, relative to yield

Dn-farmers alike anticipate

and because some farmers who

- e.g. for their sons - than

a higher yield. Neither

- 36-

case justifies interest subsidies, which in any case would

be self defeating because the subsidy would soon be capitalised

in land prices and yield would return to about its former

level.

This capitalisation of an interest subsidy would

in fact make entry into agriculture more difficult for

people with limited capital. For security reasons, lenders

require borrowers to have pre-existing capital proportionate

to the size of the loan they seek, and to have sufficient

income generating potential to repay interest and ultimately

principal.

Income for a new entrant would not be affected by

an interest subsidy, because he would pay the same amount of

interest on a higher principal at a lower rate, but the

pre-existing capital requirement imposed by lenders would go

up, as would the ultimate repayment. Obviously, this would

make it more difficult to gain entry into agriculture.

Recent events suggest that many farmers are

recognising the defects of concessional interest rates,

especially on the volume of credit available for the rural

sector. The objection to concession interest rates do not

of course apply to general interest rate reductions achieved

by market forces instead of legislative fiat.

Research and Promotion

In "The Affluent Society" published twenty years

ago, Galbraith noted the critical contribution of research

and development to increasing productivity and real incomes.

He also noted that individual firms sponsored adequate

research only if they operated in a monopolistic or oligopolistic

- 37_

environment. In what he later called "the market sector"

e.g. agriculture, research was inadequate unless it was

financed or organised by Governments.

The I.A.C. in its report on agricultural research

and promotion also recognised the need for Government

involvement, and recommended that financial contributions be

at least maintained. While there is little doubt that the

conclusion is generally sound, there are some grounds for

specific scepticism.

The puerile I.W.S. nonsense of the sixties and

early seventies about higher wool production causing wool

prices to rise; the price differential between wool and

synthetic fibres, and the alleged growing premium price for

fine wool (which was not happening anyway) "proving" the

value of wool promotion are the most spectacular examples.

From the outset of its greatly expanded promotion

programme, the I.W.S. has been highly vulnerable to a

charge of economic illiteracy. One informed observer has

gone further, and charged the I.W.S. with sponsoring a public

relations section disguised as an economics section.

In 1963 the former Wool Board and I.W.S. Chairman

Sir William Gunn stormed the countryside displaying to

woolgrower audiences graphical charts which showed the rapid

fall in wool's share of the world textile fibre market.

Growers were told by Sir William that synthetic

manufacturers had pushed wool's share down from 14% to 7%.

They, he assured us, were not satisfied with taking half our

share, they wanted the lot. All that could foil this plot,

was a vast increase in I.W.S. promotion funds - an increase

the I.W.S. then got.

0

- 38 -

All that Sir William's charts and spiel ever

proved, was that world textile consumption was increasing

at a faster rate than wool production, but in case anyone

still takes him seriously, it should be noted that wool's

share of the textile fibre market has now fallen to about

3½%. That fact provides no cause for alarm.

One would hope that important staff changes in

the I.W.S. might have improved its professionalism and

competence, but one might still wonder. I.W.S. Managing

Director, Dr. Gerald Laxer was reported on 3 February

appealing to a W.A. woolgrower organisation for more money

for the I.W.S. In tones reminiscent of Sir William Gunn

in 1963 he said inter alia :

"I think it is the stickiest situation the wool industry has ever faced." "The industry is at the crossroads and the average grower does not realise it."

The evidence he cited to support the I.W.S. case

was little more convincing than Sir William's had been.

"Dr. Laxer claimed that calculations made from economic studies showed that for every extra dollar the woolgrower invested in I.W.S. promotion he received at least $2 back in extra profits from

sales." (The West Australian, 3.2.79)

Apparently Dr. Laxer did not specify the time

period over which woolgrowers allegedly received the $2

back.

That emission could be vital, but there is a

more basic matter. If such evidence exists, it was not

presented to the I.A.C. inquiry on promotion of agricultural

products. The I.A.C. specifically mentioned that no

quantifiable evidenceof returns to promotion existed, and

suggested the I.W.S. set up some experiments which would at

least give a more reliable indication.

-39-

Given the I.W.S. record, and its continuing use

of loose emotive propaganda, Australian woolgrowers and

Governments should carefully scrutinise its expenditure of

their money.

Whatever virtue it may have overseas, meat

promotion within Australia is, except under most unusual

circumstances, a waste of money. If beef sales are boosted

by promotion - always hard to prove anyway - it will be at the

expense of pig meats or lamb or mutton. If growers want to

waste their money on futile advertising, it is their affair,

but taxpayers' funds should not be committed.

Occasional reluctance on the part of agricultural

extension authorities to advocate policies which inescapably

flow from research findings, makes it harder to justify

research expenditure. The prime example is merino sheep

breeding.

It has been clearly established that by breeding

only from animals objectively selected as the highest producers

of their generation fleece weight gains in closed flocks of

up to 2% per year can be achieved without adversely affecting

any other economic attribute. By contrast, the established

stud breeders and hierarchical national flock structure have

delivered gains of at most 0.3% per year.

The unrealised genetic gains, at current wool

values, amount to $12-15 m. aggregating each year (i.e. $12-15

the first year, $24-30 the next and so on) for an indefinite

period. Income voluntarily or unconsciously foregone by the

wool industry would, after three or four years be equal to the

superphosphate bounty about which farmers were recently

so vociferous.

- 40 -

This has been known for 15 years or more, but the

stud breeding Establishment - with some isolated exceptions,

one of which it expelled - still prefers to select breeders

by witchcraft instead of objective measurement. Despite

those facts, no extension authority in Australia pursues the

obvious response, by recommending that individual farmers

objectively select rams from within their commercial flocks,

or join non-stud group breeding schemes of which at least 7 are

now operating.

The excuse given for this negligence is that gains

could be achieved more easily if the Establishment forewent

witchcraft for objective measurement. This is correct, but

the same excuse was being offered 15 years ago. It is now

threadbare.

The Trangie Research Station, where the earliest

experimental work was done, recently hypothesised that the

registered studs have seen the light, citing as evidence that

nearly all rams sold at Dubbo sales have their production

records and ranking on the pen.

From a national perspective, that fact is

meaningless. Whether commercial buyers know the ranking of

rams they buy, is irrelevant. All that matters is whether

the breeders selected in the ram breeding flocks are the

highest producers of their peer groups.

This is a technical matter which few practising

farmers will bother to fully understand. It is however well

known to the nation's animal geneticists. The fact is

that taxpayers have funded, and still fund, breeding research,

the commercial application of which is stultified by

pandering to the vested interests of a group which however

- 41 -

socially prestigious and politically influential it may

be, has failed miserably to deliver to the nation the

genetic potential for increased production which the

Australian merino has been shown to possess. This is

scandalous.

Fuel Prices

Fuel price increases in the 1978 Budget, later

compounded by the 14½% OPEC rise, have been widely condemned

by farmers but not widely understood. In particular, they do

not realise that the Budget's levy increase was a replacement

for the proposed resources tax, abandoned at the instigation

chiefly of J.D. Anthony. Anthony has advocated windfall

gains for Esso-BHP ever since 1974.

The Fa mer.'s "Task Force" campaigning for exemption from the

1978 Budget crude oil levy does not appear to know that the

levy is self terminating. It will be progressively handed

over to Esso-BHP. Even if the farmers got exemption - and

the Prime Minister has explicitly rejected their pleas -they would have a pyrrhic victory.

It may be true that ultimately we have no

option to paying world parity, but the move is premature and

avoidable. A move which unnecessarily adds 2-3% to the

C.P.I. in one year, sits uneasily with the Government's

self proclaimed concern with inflation The OPEC December

decision which automatically and fully flows into Australian

prices, emphasises the Fraser Government's needless surrender

of responsibility to a foreign cartel on a critical economic

issue.

42 -

Suspension of Iranian oil supplies for an

extended period, would virtually guarantee further OPEC

price rises.

The oil pricing decision was responsible for the

December '78 upturn in inflation and consequent rise in

interest rates. It will almost certainly keep inflation in

1979 above 1978 levels.

The Country Party seeks to divert farmers'

awareness of its critical role in this decision, and the

inherent conflict of interest between farmers and miners,

by grandstanding about securing special concessions for

agriculture. The more gullible or partisan "farmer leaders"

have assisted it in this subterfuge.

The Government's culpability in this matter has

been obscured by two other largely successful deceptions :

It has claimed :

(a) the policy will conserve fuel

(b) the policy has stimulated oil exploration in

Australia.

The first deception is rebutted by the

Government's own 1978 Budget estimate of revenue from

excise on refined petroleum. The estimate entails a 5%

sales volume increase - above long term trend.

The second deception is being touted by oil

company propagandists as well as the Government. Higher

prices are likely to stimulate exploration for new fields,

but import parity pricing for "new" oil has been policy

ever since September 1975. Current exploration activity

has nothing to do with the windfall gains to Esso BHP in

the 1977 or 1978 Budgets.

'

43

The immediate move to world parity for "old" oil,

especially without'a resources tax and by a Government

ostensibly obsessed with inflation, should be and has been

unequivocally condemned by the A.L.P. This however, does

not necessarily mean that price concessions for agricultural

fuel are justified. Indeed, many of the pro-subsidy

arguments are either wrong or not fully thought through.

In the former case, it is suggested that rising

fuel prices will destroy Australian farmers' international

competitiveness. This is not so. By the standards of its

competitors Australian agriculture is not energy.

intensive. Global fuel price rises will, other things being

equal, make Australian farmers more competitive.

A badly thought out argument wanders along the

lines that dearer fuel means dearer food which will hurt the

poor, therefore agriculture should get subsidised fuel.

Firstly dearer fuel does not necessarily mean

dearer food, and certainly not in 1:1 ratio. Secondly,

there is some scope, and this will increase in the longer

term, for the use of other less energy demanding

agricultural technologies. Thirdly, if we are concerned

about the effects of dearer food on the poor, it would be

more sensible to subsidise the incomes of the poor.

Labor's Problems with Farmers

Although hard evidence is very limited, the

overwhelming majority of farmers do not vote Labor. This

did not start in 1974. It seems to have applied for at

least 25 years.

-

44 -

There are many reasons. They include :

(1) Inertia. Farmers vote against Labor because they

always have and probably their parents did too. Most

non-farmers follow habit and parental influence likewise.

;` "Farmer's Leaders" are at least as likely to have anti-

Labor political views as farmers in general.

(2) perceived Economic Interest. In most sectors capital

requirement for a viable sized farm is large ($2-300,000)

and increasing. Most people who have or control assets

of that magnitude perceive their economic interests to

be with anti-Labor parties.

(3) Farmers' innate hostility to trade unions. This

hostility is fed, and partially justified, by sporadic

union attempts to determine the nation's trading

policies, the most recent examples of which were the

A.M.I.E.U. attempt to stop live sheep exports, the

A.W.U. ill informed meddling in the field of merino

genetics, and the Sydney W.W.F. Executive's attempt to

promote Soviet foreign policy on the Australian

waterfront by banning trade with China. Fortunately,

the last attempt was promptly overruled by the W.W.F.'s

Federal body.

(4) The rural media. The superficiality of the rural media

enhance the Country Party's (and to a marginally lesser

i- extent the Liberal Party's) usually spurious analysis of agricultural issues and emotive laden psuedo solutions.

Superficiality is sometimes overtaken by bias. A few

examples are cited :

6

(5)

- 45 -

Early in March a press release charging the merino establishment stud breeding/with failure to deliver significant genetic

gains was issued, and reported by the Country Hour three

days later. A reply, three times as long was then

broadcast. When approached for something like equal time,

the A.B.C. said it could not continue the exchange

indefinitely. That point has some merit.

The A.B.C. representative was then asked whether

he would approach one of the nation's leading animal

geneticists for an interview. He refused to ask, on the

grounds that the geneticist in question had so often refused

radio interviews/that he would not demean himself by asking

again. When questioned about this allegation, the

geneticist flatly denied having ever refused A.B.C. radio

an interview.

This is a remarkable story. Many people other

than the paranoid, might suspect that vested interests have

succeeded not only in stifling the A.B.C., but in inducing

it to be less than open about its reasons.

The probability of a large number of farmers voting

Labor, is not high. This does not, however, mean that

farmers should be neglected.

Firstly, agriculture is an important industry, our

agricultural policies are, ipso facto, important. Secondly,

Labor will return to Government, possibly in 1980.

Parliamentary democracy is corroded if significant

minorities believe their viewpoint and needs are not

understood by Government. It is therefore important to

demonstrate to farmers that Labor does understand agricultural

issues whether farmers vote for it or not. At a more basic

I

iy

-46-

0

political level, farmers, and farmers' perceptions of the

Labor Party, do influence the voting decisions of the people

in country towns among whom the potential for increasing

the Party's rural vote, is highest.

On 10 November last year, the writer by invitation

addressed the Queensland Rural Press Club. The State's

major agricultural newspaper Queensland Country Life (Q.C.L.)

had four journalists at the luncheon. All received copies

of the speech. Q.C.L. did not publish a line. The same

paper has twice run editorial criticism of the author's

statements on merino rams, without publishing the original

statements in full or in part. On the first occasion it

refused to publish a letter to the Editor in reply to the

editorial. The outcome in the second instance is not yet

known. It is hard to believe that managerial directions have

not been issued.

Such treatment from a newspaper controlled, once

removed, by the Budd family (relatives of J.D. Anthony) and

the Queensland National Party, is perhaps to be expected.

What is alarming, given that it provides the most extensive

coverage of rural Australia, is that the A.B.C.'s Rural

Department, producer of the Country Hour is little better.

To the Queensland Rural Press Club luncheon,

referred to above, the A.B.C. did not bother to send a

representative. When visiting Tamworth in February the

writer had a substantial interview on local commercial

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radio, and local T.V. The resident A.B.C. Rural I 6

Department officer did not respond to either of two

offers of an interview. On the second occasion, he

remarked that Tamworth was a ver y conservative area.