Rural Debt and Drought Taskforce April 2016 Chairman’s Report Addressing debt and drought problems in rural Queensland Rural Debt and Drought Taskforce Addressing debt and drought problems in rural Queensland Rural Debt and Drought Taskforce Top row, from left Chair Mr Rob Katter MP, Member for Mount Isa Members Mr Jim Madden MP, Member for Ipswich West Mrs Deb Frecklington MP, Member for Nanango Shadow Minister for Agriculture, Fisheries and Forestry) Mr Russell Lethbridge, State Councillor – North Queensland, AgForce Mrs Ruth Wade, Interim CEO, Queensland Farmers’ Federation Cr Stuart Mackenzie, Mayor of Quilpie Shire Council Mrs Emma Forster, Former Councillor, Winton Shire Council Mrs Donna Stewart, Former Mayor of Balonne Shire Council Mr Ben Rees, Farmer and Economist Dr Mark McGovern, Senior Lecturer, QUT Business School, Economics and Finance, Queensland University of Technology Consultant members Mr John Nolan, Farmer Mr Andrew Jensen, Real Estate and Livestock Agent ii Rural Debt and Drought Taskforce Addressing debt and drought problems in rural Queensland Contents Rural Debt and Drought Taskforce ii Contents iii Abbreviations iv Chair’s foreword v Executive summary vi Introduction vi The problem vii The evidence vii Debt viii Drought viii Live cattle export ban viii Drought policy changes viii Role of charities viii Conclusions viii Recommendations ix Response to the terms of reference 1 Terms of reference for the Taskforce 2 Background 2 Establishment 2 Taskforce processes 3 Rural finance 4 Financial system products 4 Previous reports and surveys 5 Current policies and initiatives 7 Role of government in rural finance 9 Reconstruction 9 Drought 12 The impacts of drought 12 Current policies and initiatives 12 Other Issues affecting rural communities 14 Current policies and initiatives 15 Appendix 1 – Summary of the issues from submissions 16 Appendix 2 – Public meetings of the Taskforce 18 Appendix 3 - Survey results 19 Appendix 4 – Review by Mr Ben Rees 21 Appendix 5 –Economic analysis – Dr Mark McGovern 28 Overview 28 Conclusions, as related to the terms of reference 29 GOOD CHANCES AT SUCCESS and a FAIR GO ALONG THE WAY? 55 Appendix 6 – Addressing the terms of reference, at length Mark McGovern 60 iii Rural Debt and Drought Taskforce Addressing debt and drought problems in rural Queensland Abbreviations ABARES Australian Bureau of Agricultural & NFF National Farmers’ Federation Resource Economics & Sciences NVFP Nett Value Farm Production ABS Australian Bureau of Statistics OAFM Office of Australian financial Management APRA Australian Prudential Regulation Authority ORA Office of Rural Affairs ARDB Australian Reconstruction and Development Board PSA. Public Statutory Authority b billion QDAF. Queensland Department of Fisheries BIS Bank for International Settlements QIDC Queensland Industry Development Corporation CBA Commonwealth Bank of Australia QRAA Queensland Rural Adjustment authority CDB Commonwealth Development Bank RBA Reserve Bank of Australia COAG Council of Australian Governments RCD Rural Credits Department CPI Consumer Price Index RFCS Rural Financial Counselling Service DAF Department of Agriculture and Fisheries (Qld) RMBS Residential Mortgage Backed Securities DRAS Drought Relief Assistance Scheme SA Statutory Authority DRECS Drought Relief from Electricity Charges SPV Special Purpose Vehicle Scheme SME Small-Medium Enterprise EC Exceptional Circumstances SW South West ECIRS Exceptional Circumstance Interest Rate WTO World Trade Organisation Subsidy EWIR Emergency Water Infrastructure Rebate FHA Farm Household Assistance GFC Global Financial Crisis GOC Government Owned Corporation GVFP Gross Value Farm Production IDP Individually Droughted Property LVR Loan value ratio MLA Meat and Livestock Association MOU Memorandum of understanding MP Member of Parliament NDRRA Natural Disaster Relief and Recovery Arrangements iv Rural Debt and Drought Taskforce Addressing debt and drought problems in rural Queensland Chair’s foreword Dear Treasurer, It is with a clear understanding of the burden of responsibility to the people of rural and regional Queensland, that I present this report from the Rural Debt and Drought Taskforce. I am deeply appreciative to the Palaszczuk Government for providing this opportunity and equally grateful to other Taskforce members for their shared passion and commitment. Touring western areas of Queensland over the last four years as a Member of Parliament has provided me with a bird’s eye view of the rural landscape. This unfortunately has at times, been a sad journey. I have watched the hardworking people in the many towns and communities that I grew up around, faced with extreme financial hardship, lacking the ability to see a way forward for their families and businesses. This is however, happening at a time when the future demand for our agricultural product has never looked brighter. Our investigations have clearly pointed to a strong and valuable industry but one which is inherently vulnerable to fluctuations in markets and seasonal conditions. The absence of effective government support will see a continuation down the path of crisis and rural decline. However, we believe that with the right mechanisms, as outlined in our report we can allow farming industries to recover and prosper in the good times. As a result, the State will be able to harness the enormous potential of our agricultural sector to service the vast emerging markets of our world while continuing to provide Australian consumers with high quality food and fibre. Through these recommendations the Taskforce hopes to provide generational change to the attitudes embedded in the minds of policy makers. In the event that effective changes are made we envision a new generation of success in regional Australia. I cannot understate the urgency with which I seek your consideration of the solutions that we have put forward. Sincerely April 2016 v Rural Debt and Drought Taskforce Addressing debt and drought problems in rural Queensland Executive summary Introduction however, with good management it can again provide the power required to help grow the Queensland economy. In recent years rural and regional Queensland has shown signs of increasing financial dislocation and Outside of government services, rural activities form the consequential social decline. This is a problem coming most dominant industry group in Western Queensland. from a combination of natural disasters and poor policy It follows that restoring the health of these industries settings at both state and federal level. This has had a will restore viability of towns. The most cost effective significant and widespread impact on the rural sector way for government to reinvigorate the entire outback is along with dependent communities. therefore to enable the agricultural industry to rebuild. Politicians and successive governments have As a starting point, rural debt was seen as an acknowledged this problem but failed to properly identify exceptionally significant burden on the rural sector that the source. The problem became both more visible and spanned across most, if not all industries. The following acute in the western cattle industry following the impact graph (fig1) illustrates this well. of the drought and live export ban. The data below demonstrates both the depth of the rural It became apparent that a taskforce was required to debt problem and just as importantly, shows that the identify some of the key elements of this problem. problem has been growing for some time. This dispels The intention was to also investigate any common the myth that the cause of the rural debt is limited to the denominators in problems amongst our main agricultural impact of the drought or the live export ban. industries. Achievable solutions that are identified could In October 2015 the Queensland Treasurer, Hon. Curtis then be far reaching across many different rural pursuits. Pitt MP, announced the formation of a Rural Debt and The decline in the rural sector has seriously compromised Drought Taskforce to investigate both debt and drought the viability of most western towns and communities; across Queensland and identify and recommend solutions to Government. Fig. 1 Rural Debt & Net Value Farm Production, Australia 1969 -2015 Compiled from ABARES Australian Commodity statistics 2015 and earlier editions, Debt from RBA statics Table D9 online. vi Rural Debt and Drought Taskforce Addressing debt and drought problems in rural Queensland The State Parliament approved a terms of reference Debt to equity lending played a significant role in which set in motion a series of public hearings, meetings financing agricultural business so that, when the GFC and generated hundreds of submissions, all contributing came along with falls in asset values, this form of lending to this report. became the weakness in financial models built on ever increasing capital values. The scene was thus set. The problem The evidence There is little doubt that following deregulation in 1983-84 the banks, in pursuit of market share in the Policy failure is empirically supported by an anonymous face of heightened competition, made loans based on survey conducted amongst participants at all Taskforce security levels offered by existing equity but without hearings across Queensland. The evidence is compelling sufficient regard to the capacity of clients to repay5 in this debate over debt and its causes. Key survey findings include: Three decades ago, a senate Inquiry into Rural Adjustment, Rural