Australia | May 17 2010
By Chris Shaw
This month's Federal Budget wasn't expected to impact significantly on the agricultural sector in Australia and that has proved to be the case as new policies directly targetting the sector were limited.
Commonwealth Bank agricultural commodities analyst Luke Mathews points out there were some economy-wide initiatives that will have an indirect impact on the agricultural section of the economy, as well as some smaller measures where there should be a more direct effect.
The major new initiative directly targetting the farm sector, according to Mathews, is the trial of a new Drought Policy in Western Australia. This policy will attempt to help primary producers better prepare for drought conditions via initiatives such as business planning and capacity building.
Mathews sees this policy change as a positive as previous policies were retrospective rather than encouraging those involved to make the optimal decision. For example, Mathews notes the existing policy of interest rate subsidies encourages higher risk taking, so contributing to debt burdens in the farm sector.
Overall, Mathews expects a varied range of impacts on farming communities, as while Landcare funding will help address land degradation issues, the Reef Rescue program will impact on farming practice in the Queensland sugar cane and cattle industries.
As well, Mathews sees further water buybacks in the Murray Darling Basin as having the potential to further dislocate irrigation communities, while the Climate Change Research Program is likely to have both positive and negative implications for the agriculture sector generally.
The Budget contained some reforms aimed at Quarantine and Biosecurity, Mathews noting the goal is to reform the export certification process via improving IT systems and reducing the amount of red tape.
Improvements in infrastructure will be of great importance to the rural sector in the view of Mathews, with the National Broadband Network to greatly improve communications and information dissemination. This should help improve productivity, while funding to improve regional road and rail infrastructure is another positive.
Small business reforms such as taxation and superannuation will have a significant impact on farmers suggests Mathews, as a lower tax rate should promote investment and changes to depreciation schedules should reduce tax burdens.
On the other side of the ledger, Mathews notes an increase in the Superannuation Guarantee will slowly add to business costs, though he still sees it as good policy given an ageing population and the need to boost the national savings rate.
With respect to the proposed Resource Super Profits Tax, Mathews sees some second round impacts on farmers, as the structure of the tax should mean an increase in investment in the mining sector and increased output (note the difference with the present opposition to the proposed new tax as expressed by stockbrokers and resources companies over the past two weeks).
He sees this as generating greater competition for labour in rural areas, so exacerbating farm sector labour shortages. As well, Mathews suggests a larger mining sector may increase competition for natural resources such as land and water.
